Investors must avoid repeating past failures, warns Old Mutual’s Cowley
Stewart Cowley, manager of the Old Mutual Global Strategic Bond fund has warned that success in the bond market through 2012 will depend on breaking old investor habits.
We owe to business commentator Sydney Finkelstein the identification of the Seven Habits of Spectacularly Unsuccessful People*. The seventh of these is: ‘Stubbornly relying on what worked in the past’. Finkelstein explains that the warning sign is dogmatically repeating losing behaviours despite evidence for the need for change.
We’ve all been guilty to a certain degree of living in the past instead of learning from it, but we can adapt Finkelstein’s observation to what we learnt – or failed to learn – in 2011. First of all the politicisation of financial markets has made them inherently unpredictable. This is a big change from the past. We simply don’t know what is coming out of left field in Europe from one day to the next. To pretend anything else is foolish. There was a day when you could look at a bunch of economic statistics and charts and work out, with reasonable accuracy, what a country’s interest rates, bonds and currency were going to do over time. Those days have gone. It’s the reason we don’t own the euro in our Global Strategic bond funds – we just don’t know what will happen to it. Greek officials are openly discussing the possibility that Greece will leave the euro in 2012.
From a bond perspective the funding pattern in Europe (and globally) is extraordinarily heavy this year and a slip at one of the auctions could send the dominoes falling. March in particular in Europe is a potential trigger point. Will this be good or bad for the euro? We don’t know. But we do know the gains from guessing a positive result correctly will be much less than the cost of getting it wrong. Metaphorically, duration management has become like running into the middle of the motorway to pick up pennies.