Oundle School, Nottingham University
STARTED JM FINN & CO
Golf, Motorsports, Fine wine
Blue Button, London Stock Exchange
NAIM NDS Network Player
With a 20% drop in the FTSE 100 over the last 12 months, this has been an exceptionally difficult time. As chairman of JM Finn & Co’s asset allocation committee, what has been your reaction? This past year has been particularly challenging for making judgements about where we are in the global economic cycle, as the Federal Reserve showed in its arguably late rate increase in December. At this stage in the cycle we would normally have been looking to lower weightings in fixed coupon bonds and higher-yielding, defensive equity but the QE-driven recovery has been patchy and muted. As a result, and given that most of our client portfolios are generally positioned to perform over the long term, with many having income requirements, we have made only small and gradual adjustments to the weightings, primarily to account for the increasing risk of the deflationary impact of China’s restructuring.
Maintaining your fundamental investment philosophy must be hard in these markets – what are the key disciplines that you try and stay true to? In volatile market conditions, when sentiment is a bigger influence than any change in the facts, it is helpful to have experienced previous market cycles, to take a step back and consider the fundamentals, of which perhaps the most important is that investment of this nature is long-term. However tempting it is to trade short-term market movements it is my philosophy to buy high-quality, well-managed and well-capitalised businesses and hold them over the full cycle. That is not to say that taking some profit, or cutting an underperforming stock, isn’t necessary from time to time.
With multiple factors contributing to the rout, what are your biggest long-term fears? The big question that we are all asking ourselves at the moment is what comes after the increasingly ineffective programme of QE, itself arguably the last phase of a 60 year credit expansion cycle. How is the debt paid off and who suffers in the process? It seems to me that deflation and possible negative interest rates, weakness in the commodity cycle and pressure of dividends in those sectors, and the prospect of Brexit, to name the most aired, are all very real concerns; but the elephant in the room is debt and what happens to growth if or when the credit cycle turns and tightens.
As a seasoned investor, what advice would you give to a young graduate embarking on a career in investing now? It has been said that one isn’t truly taken seriously until one has some grey hair; there is no doubt that experience of market cycles and understanding how and why stocks react in different circumstances is vital, to complement the technical skills and knowledge to manage investments. Today the industry is very professional and new entrants to firms such as JM Finn & Co can learn from hundreds of years’ worth of collective experience. It helps to have an enquiring mind, enthusiasm and conviction for the stock market. The grey hair comes naturally!