Partner Article

Received wisdom and the perception gap

Richard Clark and Simon Patterson, private bankers at Barclays Wealth and Investment Management, Newcastle, share their thoughts on received wisdom.

Autumn may be upon us, but the market mist at least may be clearing a little. The global economy is not in freefall, the euro is getting by, and investors’ collective risk appetite seems to be stabilising.

With this in mind, a theme in some of the investor seminars we’ve hosted recently has been the importance of questioning received wisdom. Viewing an issue from a different perspective is sometimes all it takes to realise that a seemingly unsolvable problem is nothing of the kind.

An example: first, we ask, “Who thinks the global economy is in great shape?” Nobody raises their hands. Then we ask, “Who can identify a period in recorded history when the average human being has been significantly better off, in material terms, than today?” Again, almost all hands stay firmly in laps. These responses seem contradictory. In reality, they aren’t.

The perspective in which the global economy is disappointing, with growth frustratingly slow,is a relatively short term, cyclical one; on a longer-term view, the economy has never done a better job of feeding and clothing the average human being.

This perception gap can result in investment opportunities. By focusing too narrowly, investors can overlook potentially profitable wider and longer-term themes – and in our view, that has been the case of late.

For instance, for a third summer in succession, investors worried about the fragility of the US consumers’ finances and confidence. For a third summer in succession, US consumers ignored these concerns and resumed their spending trend; in the latest Michigan survey they report that they’re more optimistic than at any time since 2007.If the US consumer—Customer No 1 for Global Inc—continues to shop, and starts tentatively buying houses again as they seem to be doing, an important part of the global economy will ‘muddle through’.

As always, we do emphasise that investing in shares is not for everyone. Their value can fall and you can get back less than you invest – if you are unsure, you should seek independent advice.

This was posted in Bdaily's Members' News section by Simon Patterson .