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Time and again - The only way to be sure of the future is to own a DeLorean and a flux capacitor

21/10/2015

Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

21 October 2015 – the day to which Marty McFly and Doc Brown time-travel forward 30 years in the second instalment of the Back to the Future trilogy – is finally upon us. In the run-up to what has been dubbed ‘Back to the Future Day’, much has been written on what the film correctly foresaw and where it overreached itself but, from an investment perspective at least, all the coverage has missed the point.

When it came to calling the sort of technology that might exist almost three decades ahead of them, the creators of Back to the Future certainly scored their fair share of ‘hits’ – envisaging a 2015 that boasted, for example, flat-screen televisions, hand-held computers, video-conferencing, mobile payments, wearable technology and even hoverboards, which you can view in action here

Obviously they had a good few misses too, striking out on flying cars, self-fastening footwear, ‘smart’ clothing that can refit and dry itself and the not-so-smart fashion faux pas, the ‘double-tie’. They were wrong about holo-cinemas too – not to mention overestimating the appeal of the ‘Jaws’ franchise, which never came near to a Jaws 19, with its stirring tagline: “This time it’s really, really personal.” 

So you might perhaps call it a score-draw – or you might feel Back to the Future’s predictions should not be judged on their hit rate alone. Here on The Value Perspective, as you will see, we have some sympathy with that latter view – although we would first point out that hit rate is precisely the basis on which another branch of the forecasting fraternity is judged.                                                                                                                                

We are, of course, talking about economists, who tend to stand or fall simply on the number of times they are right or wrong. Yet that is essentially irrelevant because, as we never tire of saying, the future is uncertain – which means anybody trying to call it in any way is going to be right some of the time and wrong some of the time. 

This is the reality with which all investors must live and, ideally, learn to be comfortable. We have. Here on The Value Perspective, we know we will make mistakes – on a consistent basis – just as we know that even the very best investors will too. That much is a given and so what really matters is how successful you are with your predictions. It is not so much the frequency of correct hits, but the magnitude of the gains when you are correct compared to the losses when you are wrong. 

For our part, we know that, in value, we have an investment strategy that provides us with a number of mechanisms that should increase our chances of making money, on average and over time, even if – when – we make mistakes. As we have observed, for example, in articles such as Horse Sense, value investing is all about keeping you on the right side of the averages. 

Furthermore, as we have recently argued in All together now, investing is not about individual trades or how many you call right or wrong – it is about how you do on the portfolio as a whole. And 30 years ago, had the creators of Back to the Future backed their predictions with an investment portfolio, our suspicion is they would not have done too badly.

Author

Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

I joined Schroders in 2000 as an equity analyst with a focus on construction and building materials.  In 2006, Nick Kirrage and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Nick and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

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