“Yesterday I got a call from my financial advisor, the one who handles all my investments, administration, bookkeeping and other administrative matters for my three companies. As soon as I walked into his office, I sensed that something was very wrong. Panicked, his eyes bulging, beside himself—had he taken some kind of hallucinogenic substance?"Sit down," he said to me. "I've sold off your entire portfolio. I reckon the stock market's in for a proper crash…"
He’s sold me out now, right at this moment, when I’ve already lost more than half my money. I signed the management papers four years ago, because nowadays everyone follows the rules and the fund managers treat any client complaint or request from the National Securities Market Commission with kid gloves. But it’s not the signature that worries me, because, I insist, you have to sign. What worries me is my own folly, my stupidity in trusting those who shouldn’t be trusted: IT’S THEM, the usual suspects…”
“…I had a right row with the manager. ”Why didn’t you consult me before selling my portfolio at a loss of 60%?’ I said. ‘Because,’ I insisted, ‘I believe the stock market is going to fall another 40%.’ ‘What’s more,’ he added, ‘I’ve sold absolutely everything to the rest of my clients…’
“…He told me that unemployment is going to skyrocket, and that street riots and social and political unrest are going to proliferate in the coming months. He’s told me about rising crime rates and public insecurity. He’s said that corporate profits are going to go down the drain and that the Spanish economy might enter a process of ”Argentinisation’ – in other words, a suspension of payments, just like in Argentina. He fears a sort of swarm of immigrants. Come on! I would have fainted if it weren’t for the fact that I’ve seen Crisis, Crisis and Crisis in my 70 years, and also Ways Out, Ways Out and Ways Out of those Crises…”
“…Dear Editor, IT IS THEM, I insist. The same old lot: the pseudo-analysts, the bogus fund managers. In the 50 years I’ve spent in the world of the stock market, I’ve observed that when you entrust management to someone (I devote myself to managing my own companies), that person earns less than the stock market index and loses more than the index. We don’t need these saddlebags for this journey…”
“…I’ve noticed that some people just copy what others do. Nobody wants to put a foot wrong, step out of line, in case they draw the dissident’s attention, in case the others turn on them. Everyone buys at the same time and everyone sells in unison. They sell at the lows and buy at the highs. Blimey! Anyone can do that…”
“…These lines, dear editor, lead me to the following reflections: What should I do with my cash, which is now less than half of what I started with when I began my investment journey with this fund manager, given that interest rates are at zero—indeed, banks are now charging us to hold our money with them; given, as I see it, that property prices must fall, because they are the assets that have not yet caught up in terms of valuation, as the stock market or oil have? This fund manager has told me to buy gold, which is what the experts are now recommending. Gold? And what do I want gold for? To eat it? No, he told me it’s for speculation. And why don’t I speculate on the stock market, which is more liquid and, above all, more transparent? ”Not the stock market,’ he told me again…”
“…Dear Editor, don’t you think that the ”Great Crash’ which a few people were predicting two years ago—yourself included, Editor—has already happened to a very large extent? I agree with the manager that unemployment will rise. I myself have implemented a redundancy plan in one of my companies. I also agree that social unrest will increase and that company profits will fall. But isn’t that already sufficiently priced in?…”
“…In my 70 years of life, I have seen that after major crises, the economy takes time to regain its momentum and emerge from the tunnel. The same thing is going to happen now. But I have also seen that the stock markets tend to lead the way. When? I don’t know. I am convinced, in any case, that my fund manager has played a dirty trick on me, because one shouldn’t sell now, right now, with a loss of 60% on the managed portfolio. What’s more, they were all top-tier stocks…”
“…Finally, if the world is going to hell, as most analysts are now predicting, why on earth would I want gold—which is what this fund manager is recommending? What’s more, why would I want money in my current account if we’re all going to perish in the final conflagration?…”
Yours faithfully,.
Iñaki. Pamplona.
This is not about debating whether Mr Iñaki is right or wrong, or whether he will lose more or less as a result of his fund manager’s decision. What strikes us as telling is the radical shift in tone being adopted by some equity fund managers. These are changes typical of an impending stock market collapse, but we must approach them with the caution of someone treading on unknown and unexplored territory: the Great Depression of this century and a radical overhaul of the global financial and economic system. It is also curious to see how the manager’s rhetoric changes radically whilst the investor remains, at the very least, anchored in scepticism, a victim of the accumulation of so many optimistic statements from this manager and others who live off the commissions generated by trading Iñaki’s assets. For months on end, they have sought to justify the losses with optimistic and positive visions of the future. Then they continued with the wait and see… but wait inside. To many of us, these arguments seemed unbelievable and damaging, because so many investors believed them—and continue to believe them. To the point where they have acted in line with what they have been told over and over again, only to end up angry and confused when their fund manager gives in—not to the market, but to honesty. The anger is the least of it, because at the end of the day, Iñaki could buy back his entire portfolio today at even better prices. But what really outrages him, and rightly so, is feeling disoriented and duped when one suddenly realises that he was the only one who truly believed the arguments of his «trusted manager».
We don’t know what the stock market will do in the future, of course, nor whether that fund manager will get it right or not, having sold the equity portfolio to Mr Iñaki. To err is human. But at this point, it’s clear that their relationship hasn’t been transparent or honest enough. That’s why, all of a sudden, their paths have diverged completely, and the ground is shifting beneath the feet of an angry Iñaki. What do you think?