Don’t heed the FTSE doom-mongers

The FTSE 100 is near all-time highs, a development that has catalysed no shortage of ill-informed doom-mongering.

The argument goes like this. The FTSE 100 first breached 6,900 in December 1999, before halving over the next three years.

It climbed back above 6,700 in late 2007 only to collapse back down to 3,500 in 2009. Now it’s at 6,900 again and irrational exuberance is everywhere (insert some meaningless but scary-looking data to back up this point) – ergo, another collapse is coming.

It’s a supremely dumb argument.


The FTSE trades on 13.8 times earnings and sports a dividend yield of 3.4 per cent. That’s in line with historical averages, as is its cyclically adjusted price-earnings ratio (Cape).

Nor is the index remotely overbought, having climbed a modest 5 per cent this year.

Now, we’re not pounding the table for UK stocks. The Cape ratio is less impressive when one adjusts for the sectors making up the index. Overall, valuation appears fair, not exceptional.

However, UK valuations are nowhere near as demanding as they were in 1999 and 2007.

Stocks are always vulnerable to short-term declines, but another crash? Hardly. Woodford leads on transparency Renowned fund manager Neil Woodford hit the headlines last week after revealing he had sold his stake in HSBC due to the prospect of large banking fines.

Woodford’s thinking on HSBC, as revealed on his blog, is actually more nuanced than the headlines suggested.

Ultimately, he views the shares as “broadly fair value”, but says there are cheaper stocks out there.

HSBC aside, Woodford’s desire to inform his investors is laudable. He has also committed to revealing his holdings on a monthly basis, as well as detailing the precise percentage each stock occupies in his portfolio.

It’s a far cry from the industry norm – most managers only disclose their top 10 holdings – so why do it?

Investors simply “have a right to know what we’re doing with their money”.

Indeed they do. Investors are increasingly moving towards index funds, having belatedly realised that most active managers underperform.

Worse, many active managers are closet indexers, and are essentially codding their investors.

It’s ironic but unsurprising that Woodford, one of the few active managers with a stellar record, has been the one to take the lead on transparency.

Others must follow. Lies, damned lies, and . . . The old line about lies, damned lies, and statistics comes to mind when one reads about September being a lousy month for stocks.

Yes, it’s been easily the worst month for US markets over the past century.

It’s been the worst month in five of the past nine decades, never ranking higher than ninth.

Some say the September effect goes back more than 200 years, and is evident in almost all developed markets.

The thing is, why? It could be a fluke.

Others suggest it dates back to olden times, when people used up their money to buy wheat and other materials to last the winter.

Either way, it’s irrelevant, sceptics say – only two of the last 10 Septembers have been negative.

Median returns since 1980 have also been positive.

Argument over? No, says technical analyst Jonathan Krinsky, who notes recent decades have seen large-scale selling but only in the latter half of September.

As the late Nobel economist Ronald Coase once lamented, if you torture the data long enough, it will confess to anything. Bitcoin hobbled by volatility Bitcoin faces one obvious hurdle if it is to become mainstream – its volatility.

Only twice over the past 61 years has the S&P 500 lost more than 9 per cent of its value in one day, a new paper notes.

In contrast, bitcoin has declined by at least that amount on 78 different days over the past four years.

There were 13 one-day declines of more than 20 per cent.

Believers say volatility will decrease as the bitcoin market becomes bigger.

If this is true, the authors caution, “we should see a significant decrease in volatility through time – and we don’t.”

The paper is somewhat supportive of bitcoin, saying it is neither a fad nor a bubble.

Unless volatility wanes, however, it is “an unreliable store of value, even for a single day”. See

Apple's gimmicky targets With the iPhone 6 about to be released, where next for Apple's share price? Somewhere gimmicky-sounding, says Cantor analyst Brian White.

A year ago, we noted White's irritating price targets for Apple, gimmicky numbers like $666, $777, $888, $1,001 and $1,111. Apple's 7:1 share split has reduced the amount of catchy numbers available to White, but he's not giving up. His latest price target? $123. Previous one? $111.

The message: never overestimate what it takes to be an analyst.