An independent professional's take on the latest news and trends in global financial markets

Patience the number one requirement

It is more than 15 years since I first trawled up to Edinburgh to meet Ian Rushbrook, the iconclastic onetime Ivory & Sime partner who took over the running of the near-dormant Personal Assets Trust in 1990 and soon turned it into one of the most successful capital preservation vehicles for private investors there is. Ian featured in my book Money Makers (first published in 1998, soon to be re-issued in a new edition).  A smart young fund manager called Sebastian Lyon was one of those who read my book and liking what he read, later made a pilgrimage to Ian’s den behind Charlotte Square to learn more about the business of managing money.

Now, several years on, as CEO of Troy Asset Management, a fund management business that originated as the guardian of  Weinstock family money, he also acts as Investment Adviser to Personal Assets, following Ian’s untimely death three years ago. The trust has since gone from strength to strength, delivering NAV growth of 51.7% in the three years to the end of November 2011, outperforming the FTSE All-Share by a useful margin as a result. With shareholders funds of more than £400 million, and a succesful no-discount policy in place, shares in the investment trust have now reached the giddy heights of being included in the FTSE 250 index.

The trust has become a byword for careful, conservative stewardship of investors’ money, and (remarkably when you consider how well the precious metal has performed) one of the very few funds to have made a positive virtue out of owning gold. In his latest interim management report, Sebastian warns again of the inflationary dangers inherent in the global game of currency debasement now being practised by central banks around the world, even in Switzerland.

“Are we now sleepwalking towards further debasement and far greater levels of inflation – the cruellest tax of all?” he asks. ” With no indexation or taper relief to mitgate the impact of capital gains tax, private investors are more vulnerable than ever to rising nominal prices”. After referring to the Bank of England’s resort to quantitative easing and the endless saga of the Eurozone crisis, he says: “While investors are under the impression that polticians can wave a magic wand and solve the fiscal difficulties of the euro area, the opposite is true”.

“The powers that be are frustrating the abilities of rational, long term investors to allocate capital correctly. Central bankers’ determination to stop asset prices (whether property, bonds or stocks) from falling to their natural level only delays the longed-for end of the bear market. Markets are no longer free but constantly subject to government intervention”.

It is, the directors of Personal Assets like to point out,  not in the interest of most financial service firms to eschew bullishness. Optimism is hard-wired into their brains and business models. However there are times when it is necessary to take a different stance. While continuing to think that there is room for short term cyclical rally in equities towards the 6000 level, I share Troy’s view that the bottom of the secular equity bear market which begain in 2000 has not yet been reached. A new bull market will occur in due course, but for the time being patience will remain the investor’s primary requirement.

Written by Jonathan Davis

December 20, 2011 at 4:18 PM