“Civilised people don’t buy gold” (May 13th 2012)

From May 13th 2012


I have been one of the thousands of people who have had enormous respect for the investment  achievements of Warren Buffett and Charlie Munger’s Berkshire Hathaway Group. Charlie Munger is now 88 and has earned the right to be listened to, because of both his age and experience, and lifetime of proven success. So it came as a bit of a shock to hear him express the view that “civilised people don’t buy gold”. In pronouncing that blunt view of what may well be the only investment class that survives our current transit from the old world to the new, he has not only categorised most of the developing world as ‘uncivilised’, but has managed to alienate entire groups of Western investors who now think that Charlie is just ‘talking his book’.

Now every investor has a right to promote their interests but opinions need to be qualified and transparent. It is clearly in Berkshire’s interests to encourage equity investing given the sprawling nature of its portfolio, but perhaps the opinion ought to be presented in the context of some evidence. Gold’s performance over the last ten or eleven years has exceeded the returns of Berkshire, as identified by Jim Slater in a recent ‘Investors Chronicle’ article:


Charlie and Warren missed it, as did Bill Gates and other luminaries of the investing and business world.

But that’s the past, what of the future?

Well here we have the problem of dealing with the question of what will preserve wealth in these uncertain times. One thing is fairly clear is that it probably will not be sovereign bonds. As the retail investor has exited the equity markets since 2008, the sovereign bond market has ballooned into bubble territory. Just as the first signs of exhaustion are appearing in the bond market, after 30 years of growth, the retail investor has switched over a trillion U.S. dollars from equities into U.S. treasuries. Europe, the U.S. and Japan are showing signs of debt stress and the U.S. is almost certain to face some form of deficit driven crisis at least once a year for the foreseeable future. At some point in the fairly soon Western central banks will lose their grip on debt management, and interest rates will start to rise. The personal investment effect on anyone holding bonds in a bubble zone could be catastrophic.

So should you weight your portfolio into equities?

There is always an argument to ‘stock-pick’. The problem of course is which stocks to pick. Which sector should you follow? Which stocks within the sector should to select? Therein lies the rub. Can we rely on continuing Keynesian money printing to kick-start our broken economies? Will the U.S. Europe and U.K. experience something similar to Japan’s 23 year long ‘lost decade’. Answering those questions will provide something of a steer on whether investments in equities are a good idea in principle.

At its most basic level, whatever the economic condition, people have to eat, use transport, and consume utility supplies. There must always be a market for the ‘basics’ and companies providing goods and services in these sectors must be worth considering.

But can you actually make some money out of the financial crisis?

There are no guarantees of a financial return but precious metals must be a contrary bet, as they have been for the last few thousand years. In times of crisis when debt has driven countries and cultures to the brink, ordinary people have resorted to gold. After all as JP Morgan suggests: “gold is money, everything else is credit”. Charlie and Warren may contend that its a dead asset, earning no interest or dividends, but that’s not what it is really about. In times of uncertainty it’s that insurance policy from the ravages of the crony capitalists and insanity of politicians trying to cling on to the vestiges of a system that can be no longer. Gold and silver are hard assets. They don’t ‘do’ anything but then again they can’t be depreciated to zero as is the eternal fate of all fiat currencies. They are a port in a stormy sea of excessive digital paper ‘money’, and for the most part they will still be here long after the mistakes of our current political class have been consigned to entertaining case studies of how not to run a financial system.

Perhaps it is better to be considered ‘uncivilised’ than to continue worshipping at the alter of a failing paper based illusion.

Welcome (May 13th 2012)

Thanks for looking in.

Having written thousands of posts over the years on other sites, usually on the subject of specific investments, I thought the time was right to start my own blog.

There is so much happening in the financial and economic world that it is hard to know where to start. Despite the insistence of mainstream economists, usually of the neo-Keynesian variety, that we are simply at the nadir of periodic cycle, we in the real world know better. The feeling may be intuitive, or it may be derived from the experience of living with inflation, unemployment or simply dealing with the assault of poor economic data escaping from the mouthes of news presenters reading from teleprompters. Whatever the case, there is a growing sense that the post-2008 we have entered a period of transition. We have already left the old paradigm and are slowly but inexorably entering a new one.

This is what I want to write about. The issues, the anomalies, the opportunities, the threats, and the ironies that this intensely unsettling period has presented.

I’m not a economist or a financial adviser. I don’t know who you are so I can’t possibly understand your attitude to risk or what you would like to achieve from an investment portfolio. I try to support any opinions expressed with data or evidence but ultimately these opinions are my own and do not represent the views of any organisation I work with, or have an affiliation with. If something I have written catalyses an interest or an intention to invest, I strongly encourage that you seek independent professional advice before making that ‘buy’ commitment. The world of investment is more dysfunctional than it has ever been and logic or rational thinking will not necessarily get you to where you want to be. Take that advice and read around the subject; only then should you make a decision.

Welcome aboard.

Barriers to growth: recruitment and training (May 30th 2012)

An old post from May 30th 2012

Perhaps the greatest challenge that an interim contractor or permanent jobseeker faces is that of ‘specific experience’. To help match costs with revenues budget holders in many organisations have be forced to ‘downsize’ headcount, and ‘Human Resources’ are as affected as any other functional unit. Demand of course has not actually fallen so there has been both a need to reduce services, and to provide the remainder in more effective and efficient ways. Many organisations have introduced a hybrid HR consulting and transaction service type approach, involving advisory services at the ‘coal face’ and an outsourced shared service for more transactional aspects such as recruitment.

Recruitment is none too easy in this current environment. The 2008 credit collapse has produced an increase in unemployment and a concomitant increase in jobseekers. There are simply a lot more applicants for reduced human resource departments to handle. ‘Method improvements’ have been required to manage all this additional volume; in other words automated and outsourced solutions. We have now entered the world of CV software screening, already having taken root in North America and now starting to catch on in Europe.

CV scanning involves searching and matching words or phrases against a job role definition or specification. Thus the program might be instructed to look for specific job titles, sector or management experience. Alas therein lies the problem for our freshly minted graduate population. As new entrants to the job market it is unlikely that they have any experience; it is also likely that due to the nature of the jobs they are looking for, they will form a significant proportion of the ‘volume’ problem, and will be software screened. We are therefore left with a situation where we have more qualified, and arguably capable, candidates than ever before but also have one of the highest graduate unemployment rates in history. The universal law of unintended consequences has delivered the resourcing world into a situation where employers complain about the quality of candidates, and yet we have an enormous pool of willing, well qualified and capable individuals desperately looking for their first jobs.

Further up the experience ladder the same problem manifests itself, albeit in a slightly different way. Software scanning is far less prevalent for middle or senior management roles but other more subtle barriers are created. Middle and senior managers have not been exempt from the travails of the employment market. Reduced human resource departments have often elected to ‘outsource’ initial filtering to external recruitment agencies; in essence the volume problem has been outsourced. Agencies and head hunters are now two-steps removed from the employer need (Internal client and HR department). They want to provide the best service they can, to delight and please the client. Recruitment risks are to be avoided, especially in the highly competitive and lucrative employment world; volumes must also be dealt with. So the recruiter will often take the client job specification in a very literal sense. Very detailed and arcane experience and qualification filters are used to manage volume.

The result of course is a mechanism which only delivers individuals with specific qualifications, sector and functional experience. Inter-sector cross-pollination of experience has all but ceased. An emphasis on what an individual has previously achieved has almost completely supplanted competency and capability based filtering criteria, with the effect of closing the job market to thousands of individuals and vastly reducing choice for the end client. The omnipresent law of unintended consequences strikes again. Client timelines are stretched in the search for the perfect candidate. Furthermore, while a short term objective of ‘hitting the ground running’ may save that first three or four months of a learning curve, that rare opportunity to inject fresh thinking into the organisation has been permanently lost.

It could be time to look again at the recruitment process. Instead of eliminating all those perfectly capable but experience-lacking graduates perhaps that training strategy and those training budgets ought to be reviewed. Ultimately, the future of any organisation rests on the quality of the people being brought in. Experienced based recruiting may solve an immediate problem but the right people are not always available, and in the long run it may be better to invest in your future growth rather than think only for today.

The same could also apply to those middle and senior management roles. A remit prioritising ‘hitting the ground running’ will certainly resolve current challenges. But will it facilitate the innovative and lateral thinking required to survive in a future of uncertainty and economic turmoil? Where will those new ideas and fresh thinking come from?

For a look at a possible future the Wall Street Journal published an article on the subject in May 2012:


In a world of structural change an impact analysis of any proposed method or process ought to be undertaken before pressing the ‘implement’ button.

Mistakes are not always easily rectified, and may not even be recognised until many years in the future.