Ask most investors – preferably from a safe distance – their thoughts on the first two months of 2016 and their replies, printable or otherwise, are likely to be negative. Here on The Value Perspective, it is not as if we are unaware of the seemingly unremitting barrage of bleak news stories ourselves – however, it has not blinded us to the extraordinary showing of some businesses over the same period.
Take Anglo-American. Granted, we hardly painted a glowing picture when we recently considered the mining giant’s prospects in Crash diet but that is because, as professional investors, it is our job to be looking to the future. Take a moment to look back, though, and you will see Anglo’s share price up from a low of 221p on 20 January to 480p on 29 February – a 117% rise in five weeks.
Should you require a quick refresher on just how bad things felt bang in the middle of Anglo’s great run, you could do worse than look at successive posts from the ‘Buttonwood’s notebook’ blog in The Economist. The first, Accentuate the negative; another down day for the markets, appeared on 11 February and really caught our eye because of its opening paragraph.
“Markets have a habit of turning on a dime and surprising the unwary commentator,” it began. “But one tip your blogger can share after 30 years is to see how long the counter-trends last; if they peter out quickly, that is a sign the mood is set. That certainly seems to be the case in 2016. We have had brief rallies but, within a couple of days, bearish sentiment seizes the upper hand again.”
The piece went on to catalogue a dispiriting array of negative economic data – including the eye-catching stat that the Baltic Dry index, a key indicator, was down 98% from its peak and 39% year-to-date – and equally negative comment, such as the view of Danish shipping giant Maersk that global trade was now worse than in the teeth of the 2008/09 financial crisis.
Fast-forward a week and the next blog is entitled Rally, rally, rally. But for how long? This somewhat mixed message is then continued in the acknowledgement: “Ever since my last post, the mood seems to have changed; the S&P 500 has rebounded 5.3% and London's FTSE 100 climbed briefly back above 6,000 (it is back below that level at the time of writing).”
The piece goes on to suggest that fundamental factors, such as a rebound in the oil price and diminishing fears of a US recession, as well as “short-covering and bargain-hunting” probably played their part in a better week for markets, which seems more than likely. Ultimately though, when it comes to what could happen over the course of the rest of the year, the overall tone is quite negative.
Now, our juxtaposition of short-term negative news on the economic front and short-term positive performance from Anglo-American is in no way meant to pick on the journalism industry. Nor, we promise, is it a cheap way to gloat about our own exposure to Anglo. Rather, it is to highlight that, while short-term economic data can be a boon to journalists with deadlines to meet and space to fill – not least because there is usually something to support either side of any argument – it is of limited benefit to investors. This is partly because of the lack of correlation between economic releases and equity returns but, even more so, because short-term economic ‘noise’ can distract investors from the longer-term view so crucial to generating meaningful equity returns.