Sell Everything!

Pfäffikon SZ, Switzerland – The RBS advised their clients at the start of the new year to “sell” everything. Despite the economy continuing to build up steam, the pessimism of 2015 is slowly morphing into panic at the start of 2016. Why would a bank advise this when the economy continues to gain momentum and in certain areas can even be viewed as being solid? It has to do with groupthink, where the consensus is accepted as truth, often incited by tendentious media reports. This is what we’re seeing today.

Tulip Mania
The first time groupthink presented itself in all its glory was during the tulip mania in 1637 in Amsterdam. At the time a tulip was priced at roughly ten times the yearly salary of a trained carpenter. A more recent example is the internet bubble in the period of 1995 to 2000. At the time, people were convinced a new type of economy would come into existence and that making a profit was no longer necessary. After all, all that mattered was the burn rate.

Oil
In the period between 2005 and 2008 many thought we were out of oil – what a stark contrast with the oversupply we see today. When certain groups think along the same lines, whether incited by banks, brokers & the media – or not – things can unfold quickly. The consensus logic, at some point, is accepted as truth, even though there is ample counter evidence available. Individual investors are, in effect, misled on a massive scale. The largest group of investors on the global markets thinks in terms of trends and believes that the market price tells them everything they need to know. He who lets himself get carried away by the delusion of the day is an emotionally driven investor. When price drops of 50% or more affect your peace of mind, you don’t belong on the trading floor.

Fundamentals
Ultimately, it comes down to the actual fundamentals. The economic activity is decisive. Up until now there is no evidence that the fundamentals are at the brink of collapse. In fact, some are becoming increasingly sound. The price trend in oil, however, is often directly coupled to economic activity. The price of oil, however, is highly speculative. It is also abundantly clear that different speculators stand to gain with a lower oil price. The largest short speculation since 1995 is supposed to be taking place in oil. Many do not put in the effort – or are incapable of doing so – in order to dive into the fundamentals. They sell because someone else is selling. According to renowned investor Warren Buffett, buying a stock because its price is increasing is the dumbest thing you can do. The opposite is also true of course.

2002
I see similarities with the year 2002 in particular, when, after the internet bubble popped, mostly telecom companies ended up in dire straits. Now, after the deflation of the peak oil bubble, the oil companies that carried too much debt are in trouble. It is nothing more than sector driven pruning.

News network CNBC believes that 2015 was the most difficult year since 1937 to make money as an investor – to which I agree. The bank that advises to sell “everything” cannot take itself seriously. After all, what is it doing with its own assets on its balance sheet? Right; it uses psychological manipulation so its trading desk can run overtime and their balance sheet can be spruced up with some unique bargains. Legendary investor John Bogle advises you to stay the course and calls the current response pure speculation. Use that to your own benefit.

It remains for me to wish you a good weekend.


Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above mentioned shares and has no intention of doing so in the next 72 hours.