SCAM

It is a time of auguries, strange signs and wonders. The chairman talks of curious tendencies in the financial industry and his discovery of a missing stage in the investor psychology cycle…

“You know how some people believe the birth of, say, a two-headed calf or a six-legged piglet is a sign of imminent apocalypse?” began the chairman of the imperilledly-sized investment company Second Coming Asset Management as we enjoyed a pint or two of Everybody Must Have Had Him In The Sweepstake at The Predictable Departure.

“Ye-es,” I said slowly. “Well,” said the chairman. “I’m beginning to wonder if we’re not seeing a number of strange-looking farmyard animals wandering around Her Majesty’s financial services industry too.”

“I take it you’re talking metaphorically?” I checked. “In the main,” replied the chairman. “Look, put it another way – you are aware of the investor psychology cycle?”

“Yup,” I nodded. “It progresses through the various stages of contempt, doubt, suspicion, caution, confidence, enthusiasm, conviction, greed, indifference, dismissal, denial, fear, panic, capitulation and back to contempt.”

“Just so,” said the chairman. “Except I’ve identified a missing stage. Somewhere – probably between panic and capitulation – there is plot-loss.

“I don’t mean the sort of corporate plot-loss one usually sees at greed time – or, in the case of RBS and ABN Amro, around about denial o’clock. This seems to operate at a more personal level, with usually competent individuals losing confidence in their knowledge, logic, the laws of investment and so forth.”

“I think I know what you mean,” I replied. “I’ve received a couple of releases lately that chime with that line of ­thinking.

“Take Moneyspider.com’s recent – and technically unchallengeable – assertion that investors can ‘double their money by prudent fund selection’, backed up, if that’s the phrase, by a ‘top-10 hit parade of best-performing funds to hold in a tax-free Isa wrapper’. Two even recorded a 100%-plus return over five years, with Neptune Japan Opportunities leading the way.”

“Ah yes,” said the chairman. “That fund has given us plenty of food for thought and not a little inspiration after its hedge against the Topix. I don’t know what to launch first – an American fund that invests in Europe or a tech fund that invests in cheese or…”

“I get the point,” I said. “My own point, however, is that I’m not sure the last time I saw such a blatant – if hopefully unwitting – endorsement of rear-view mirror investing and the analytical importance of past performance.

“However, it’s the implications of this other release that have most given me pause for thought. I’ll quote the first three sentences in full: ‘Dyslexic, with poor numeracy skills and from a council estate in North London, Sophie Gold left school at 16 and started working at her local McDonald’s.

“‘Five years on, she earns between £5,000 and £7,000 per month – tax free – speculating on movements in the share markets. Sophie has such confidence in her market knowledge she even teaches others how to play the markets and make money.’ It goes on: ‘Sophie Gold doesn’t invest in the markets. She makes her money by betting on movements on the US indices – it’s a form of spread betting. It’s legal and tax-free.’”

“It’s a wonder no one’s thought of doing this before,” said the chairman.

“Exactly,” I replied. “But, as Sophie says, ‘Once I realised you can predict market movements by reading the business pages and interpreting charts, I could see how to make money.

“‘You have to control your emotions and not get too
carried away – it can take a while to get around that. I am aiming to become a multi-millionaire by the time I’m 30. When I first started out it was tough, but I love the markets. This just goes to show anyone can do this, with the right know­ledge and enough determination.’

“What I’m wondering is whether the true bottom of the market comes when we have abandoned all hope in the professionals and are instead prepared to worship at the altar of people who say they’ve developed ‘a unique style, which consistently wins seven out of every 10 trades’ – even if they’re 22 years old with poor numeracy skills.”

“Never did me any harm,” said the chairman.