Slow Money

On a cool, cloudless day in late March 1986, Jacques Bahbout opened his new MacDonalds restaurant in Rome. It was the city’s eighth MacDonalds but its location next to the historic Spanish Steps would lead to protests, eventually involving thousands of people, across Italy. One of the protestors, Carlo Petrini, decided that his form of protest would be to feed his fellow protestors with plates of traditional Italian pasta. This action provided one of the sparks that lead to the creation of the Slow Food movement, which is now a global organisation. 

“The person who loves food, who is not an environmentalist, is just stupid. Whereas an environmentalist who does not love food, is just sad. It’s possible to change the world even while preserving the concept of the right of pleasure.

Carlo Petrini

The first few months of 2022 provided multiple reminders of this story. Firstly having endured a 2-year news cycle that was dominated by a global pandemic unlike any in living history, we probably thought that we were due some respite. A ‘Slow News’ cycle would have been a nice way to start the year but instead we got the Federal Reserve raising interest rates (which started a fall in shares and bonds), followed by the first European war in 70 years. We summarised Quarter 1’s investment returns in our regular Blog here.

A much better approach to your finances, is to ignore the Financial Media (and our Quartley Investment Updates) conduct a kind of Slow Money approach. Firstly, the hardest part of this is to ignore the noise. The past decade of volatile but positive returns have bred a generation of individuals who believe that you can achieve huge returns without doing anything to justify this growth. The classic example is Crypto which has made some people very wealthy without ever explaining how it might make money in the future (Ethereum is slightly different as it has a use in contracts). Crypto is the financial media on steroids, social media commentary is by the second and the hype is even more extreme than normal market commentary. It is worth reading Warren Buffett’s recent comments on Bitcoin.

Unrealistic return expectations based on no real economic data are not confined to Crypto though. We very much like the President of Brown University, Chris Paxson, who has done a huge as leader of that particualr US college. Listening to a recent Podcast episode with her recently (the always excellent Freaknomics Radio), we heard one thing that shocked us:

DUBNER: Are you drug-smuggling? What are you doing? How do you earn 51 percent on an endowment? Seriously, I want to know. 

PAXSON: Early on, I really focused on building up a very, very good investment office because that’s what’s going to power the mission of the university. And over time, they have been getting stronger and stronger. One thing I heard was, “Oh, if Brown is getting these kind of returns, you must be taking excessive risk.” That’s not true. You can measure risk. We’re not taking excessive risk. The other thing we know is that within any asset class, last year, we outperformed our peers.

This sort of statement is really worrying. Chris Paxson thinks that you can achieve a 51% return in a year, without taking excessive risk. She also thinks that you can do this by just picking the best fund managers who can beat all of their peer group in every asset class. If it was this easy we would all be doing it, there is nothing special about what the team at Brown are doing and it will unravel at some point.

So what would the alternative look like? ‘Slow Money’ would be an approach that involved investing in an evidenced based way (with as much in equities as you can stomach), minimising tax, minimising costs, leaving the investment alone to compound and focussing on planning the important things in life. A good example of why you should ignore your investment comes from the funds that have been outperforming and have now reverted to mean. As an example take a look at The ARK Innovation ETF or Bailie Gifford American, both coming back in line with the S&P500 and losing the average investor huge amounts of money. In contrast to this nonsense we find inspiration in the story of Cliff Young:

One of the toughest races in the world is the Sydney to Melbourne (543 mile) ultra-marathon. It is a race mainly completed by elite runners in their 20s, targeting 18 hours of running and 6 hours of sleep to complete the race in under 5 days. In 1983 a 61-year-old, Australian farmer strolled up to the start line wearing overalls and work boots. The other runners and the media were bemused. Cliff just said:

“I grew up on a farm where we couldn’t afford horses or tractors, and the whole time I was growing up, whenever the storms would roll in, I’d have to go out and round up the sheep. We had 2,000 sheep on 2,000 acres. Sometimes I would have to run those sheep for two or three days. It took a long time, but I’d always catch them. I believe I can run this race.”

Cliff Young

Cliff started the race slowly, running with an odd shuffle. The rest of the pack soon pulled away and opened up a large gap on Cliff by the first evening’s rest. Spectators and the media were fascinated by Cliff but also a little embarrased for him.

When morning came, the pack realised that Cliff had run through the night without stopping and closed the gap on them. Cliff kept this up and by the time he finished, not only was he the winner but he had also set a new course record. Cliff was shocked to find that the race had a $10,000 first prize and so he shared it amongst his fellow runners.

Elite runners now run this race through the night without stopping and have adopted the ‘Cliff Shuffle’ as the most energy efficient way to run long-distance races.

The Cliff Young’s of this world make headlines because of their unusual feats. Advice to invest in a Slow Money way, never makes the news because it is, by its very nature, boring. It is still the best way to grow your wealth.

Equities are boring; bonds are disgusting.

Jeremy Grantham

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