News, Reflections and Ideas

We look at two issues that intertwine – the issue of ignorance and how we deal with it and its consequences; and the issue of complexity. The more complexity we have, the more difficult is decision making and we often develop complex solutions in organisations to help individuals deal with decisions but all we do is make matters worse. We also discuss the complexity discount and look at some fun facts about the simple slogans of complex organizations.

While we talk about exceptional, rare events because they are interesting, the exceptional is then seen as the norm because this is all that is talked about – the distribution of our talking points is the exceptional and these form our benchmarks for comparison. This form of comparison is dangerous in all walks of life (just consider the problems being caused by youngsters making comparisons on social media) and it is no different in the financial world.

We are facing a summer of discontent with many workers striking for better pay and conditions. Some of the press are arguing that it is irresponsible of the unions to be striking (look at the invective being thrown at the RMT over the rail strikes) but we take a very different view here. The attempt of the workforce to fight against further serious dents in their living conditions is a natural response to 15 years of upside-down financial policies that have benefited the wealthy and have cost the working man and poor quite a lot.

We had intended to write another blog focused on micro issues but something about the large number of staff vacancies, reading stories about Broken Britain (nothing works) and the impending summer of discontent got us thinking about the causes, consequences and possible solutions of/to labour shortages. We reflect on retirement and retention in this blog and finished off by testing the relevance of companies' employee welfare in investment.

In the previous blogs we have looked at big, macro issues and how these might feed through into stock markets and investment decisions. In this blog we take a very different angle and move from the macro to the micro. While the economic and financial press tends to focus on broad brush trends (e.g. the cost of living crisis), the trends we see are the result of billions of individual responses to economic, financial and social ‘events’. How we respond as individuals en masse, eventually drives the ‘macro’ trend. At any one point in time, individuals can respond in many different ways and the macro trend is, therefore, difficult to predict – we really do have fundamental uncertainty as to how situations will pan out.

In the last couple of blogs we have looked at the changing nature of the world economy and inflation. In this blog we look at the important issue of productivity – the lack of productivity is plaguing the UK and is intertwined with the two previous topics. In the idea section, we demonstrate the importance of taking productivity into consideration in formulating investment strategies. Especially, productivity can be a value-enhancing signal.

In our latest blog, we reflect on the difference between the current inflation environment we live through and that in the 1970s in the UK. We show that while stock investment can be a useful hedge against inflation a simple inflation timing strategy conditional on inflation regimes that we defined can work well with Gold.

In our first blog, we reflect on the power of staying put during this uncertain and changing environment. In the idea section, we explore the use of historical profit margin as a measure of resilience to economic uncertainty. We show that high industry adjusted profit margin stocks in general outperformance.