This week’s update is written by our managing director of investments, Mark Bousfield.
“Fear. Fear's a powerful thing. I mean it's got a lot of firepower. If you can figure out a way to wrestle that fear to push you from behind rather than to stand in front of you, that's very powerful.”
Andre Young (Dr Dre). Intro: Jimmy Lovine.
Over the weekend I came across a book that I first read in 2008, “Risk: The Science and Politics of Fear,” by Dan Gardner. In his book, Gardner points out that, on the whole, humanity has never had it so good. He is not alone in considering that we are better off, healthier, safer and live longer than we ever have. Nevertheless, we live in a state of fear – constantly fretting about seemingly intractable issues from climate change to terrorism, recession to inflation, and pandemics to obesity.
Unfortunately, as Gardner goes on to explain, this paradox isn’t completely our own fault but rather the way we are wired. In terms of evolution, we are still saddled with the vestiges of a stone-age mind! Yes, we have evolved, but at a rate far slower than that of our global society – particularly one in which we are bombarded 24/7 by a multi-media smorgasbord of news and information. Moreover, the information is largely, you guessed it, negative in context. Why? Because bad news and fear sells and we’re wired – Gardner argues – to be attracted to it.
It's important to take this into account when we are thinking about investments. Not that we should ignore our gut reaction, but that we should try to rationalise it by taking a step back to peer through the noise for clarity and perspective.
This reminds me of the work of Philip Tetlock, which we have highlighted on a number of occasions over the years. Between 1984 and 2003, Tetlock conducted a sequence of forecasting tests where he asked 284 experts from a variety of fields (including government officials, professors and journalists) to predict a range of political and economic outcomes. Overall, he monitored 28,000 prognostications about the future. Shockingly, he found that the forecasters were often only slightly more accurate than chance – and actually worse over longer periods of time.
So, we find ourselves drawn to – and thus consequently bombarded by – news flow that invariably focuses on negative outcomes, much of which, according to Tetlock’s research, is likely to be wrong! Clearly, this isn’t particularly useful when making investment decisions.
None of this is to imply that we shouldn’t look forward. Indeed, we should apply our utmost to understanding the world in which we live. It’s just that we need to remind ourselves that while many of our forecasts are likely to be flawed in terms of absolute accuracy, the general direction may offer merit.
Today, we are faced with plenty of reasons for investors to be fearful and we have highlighted four of them in our recent presentations. Rising geopolitical angst, demographics, inequality and climate change are forces that are likely to impact the investment environment for years to come. As investors we have choices: we can be fearful of them or, as we do instead, face them and build portfolios to manage them via long-term investment themes. All this while safe in the knowledge that these forces are likely to help to drive our themes from behind.
Healthcare, biotechnology, AI, waste, water and smart materials are all examples of investment opportunities that we feel will stand the test of time while helping to overcome the fears that not only dominate today’s headlines, but are likely to do so for some time to come. That’s very powerful.
We hope you have a good week.