Newspaper article The Journal (Newcastle, England)

Perspective Can Make All the Difference

Newspaper article The Journal (Newcastle, England)

Perspective Can Make All the Difference

Article excerpt

Byline: ANDREW MILLER

DEATH by PowerPoint is an ever-present danger at strategy roadshows. Audience participation helps keep it at bay.

The first question that can be asked is who thinks the global economy is in great shape? The rolling 12-month response is approximately zero.

The second question is can you name a time when the material conditions of life for the average person on the planet were significantly better than today? Here too the response is negligible.

The point this illustrates is the importance of context and perspective in the investment debate.

Everyone is aware that in some sense the global economy is troubled. At the same time they are also aware that in some other, underlying sense (say the ability to shelter, feed and clothe the average human) it's really doing rather well.

Investors currently focus almost exclusively on growth and the news here has, of course, been poor.

In the fourth quarter of 2011 for example, UK GDP fell by 0.2% and Eurozone GDP (we estimate) by a similar amount. The US economy grew in 2011 by only 1.7%.

But the level of economic activity is overlooked and the average standard of living is likely still very close to an all-time high.

Sometimes the differing perspectives become very visible. For example first-time visitors to Japan arrive having read about 'lost decades' of growth and the country's large budget deficit.

What they find are startlingly high levels of efficiency, infrastructure and all-round material well-being (to say nothing of general civility).

But if the focus on growth rates becomes too intense, some asset prices can diverge a long way from those warranted by the underlying level of corporate profits or solvency.

To some extent this is what we think has happened of late. …

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