In this speech Bill Jamieson, executive editor of The Scotsman, elucidates on how we might pull ourselves out of the current slump and why he remains an optimist.
Jamieson argues that Austrian economist Joseph Schumpeter, not English economist John Maynard Keynes, should be our lodestar. He also gives away some of the ‘tricks of the trade’ of financial journalism. Previously economics editor of The Sunday Telegraph and author of An Illustrated Guide to the British Economy, Jamieson gave the speech at the annual dinner of the Association of Investment Companies (AIC) dinner, held in the Signet Library, on Thursday, 6 October 2011
SPEECH TO AIC SCOTTISH DINNER
It is quite a risk for the Association of Investment Companies to invite a newspaperman to this platform. As if we’re not a disreputable breed already, recent scandals have lowered our standing even below that of bankers and estate agents. So let me assure you: I have never hacked any phones. However…
There are many ways in which information is obtained. I worked for many years on the City pages of The Sunday Telegraph. You learnt to keep your stories secret and not to put in too many calls until the end of the working week. So we became assiduous in collecting home telephone numbers.
On Friday evenings, careful timing was necessary. Suppose the company chairman lived in Godalming. You had to calculate carefully the estimated time of departure from the office, the estimated time of arrival at home, the estimated time of consumption of the first gin and tonic and the estimated time of the pouring of the second. The best time of all to strike was when two gins had been downed and the chairman was moving exuberantly on to the wine.
Even the most hardened financier can be relaxed and congenial and expansive at this time. The defences are down. The PR minder is away. A little alcohol has worked its magic. You begin the call with an innocent, feline purr: “So sorry to trouble you in the bosom of your home”.
I remember in just these circumstances years ago capturing the blazing fury of the chairman of Electra Investment Trust on his real views on the bid from Coal Board Pension Fund. It wasn’t just about net asset value, was it? For him it was like watching a piece of fine Edwardian furniture being chopped up for some decommissioned power station. And the people! A bunch of ne-er do well, unreconstructed socialists! Views that would have been utterly unspeakable at any formal press conference made 600 blazing words in The Sunday Telegraph. Always try and strike at the cocktail hour. You’d be amazed at what comes out.
Hmm. That’s the last time anyone here will be taking Friday night calls from me.
Financial journalists are often asked how we come by our stories. Please don’t go there. One story I did help to break – that a rogue trader had brought Barings, that most blue blooded of banks, to its knees – had a bizarre ending.
I must make a confession. Inside every journalist has a pyromaniac streak: we enjoy the sight of the fires we have started. The next day – Sunday morning – I was in central London on business and on my way home via Liverpool Street I asked the taxi driver if he could drive past Bishopsgate and the offices of Barings. There, on the steps, was an enormous ménage of journalists, TV cameras and people with microphones – news room journalists hauled out of bed on a Sunday and hurriedly dressed in jeans, T-shirts and plimsolls.
I was in a suit and dark tie, and a cunning thought occurred. I strode boldly up the steps as if I was Sir Angus Grossart, caught the doorman’s eye and gave him the slightest of nods: magically, the heavy glass doors swung open – I was in.
When I stepped out the lift onto the boardroom floor I was met by the horrified gaze of Oliver Baring. He took one look at me and exclaimed, in words I must doctor for this occasion, “How the Hell did YOU get in?”
I was bundled into a side room and the door firmly shut. I didn’t know at the time the directors were frantically scrambling to put together a rescue with the Sultan of Brunei. About 10 minutes later there was a timid knock on the splendid oak panelling. The door opened. Into the room came an extraordinary sight: a butler, in full dress livery, carrying a magnificent silver tea service, with silver tea pot, milk jug, sugar bowl, tea leaf strainer, and a fine bone china cup and saucer. The tea was exquisite. Clearly, when you go down at Barings, you go down in style. A silver tea service? More than we ever got from Fred Goodwin.
The lesson I learnt from Barings – was only a repeat of the one I was fortunate to learn in my first years in City journalism, covering the stock market slide of 1972 to 1975 – a fiery induction. Nothing is inviolate. In markets anything can happen. Nothing is sacred. Not the most sophisticated capital market or the biggest, most assured and confident bank. At least in markets the outcome is swift and clean. When politics is involved, most things go down, just like the eurozone construct is now doing, in a blaze of disinformation and a hurricane of lies.
Fortunately, there have been more positive areas to cover. And one of these has been the investment trust sector. I have followed the sector for more than 30 years. My initial interest was inspired by two remarkable individuals who went out of their way to inform and educate City journalists about how investment trusts worked and the case for investing in them. Over many years they were consistently voted the top analysts in the sector.
So if there is just one point I want to relay this evening it is to express my warmest thanks to Hamish Buchan and to Robin Angus for the teaching they provided to journalists, the guidance they have given and the interest they inspired. My profound and unqualified thank you for the way you have come to represent all that is best in this industry.
I would add that their educational work is as valuable as ever and continues in the outstanding commentary that is read on our business desk till the print falls off – I refer of course to the quarterly reports of Personal Assets Trust. If there is anyone here who has not read it, there is surely a vacancy for you in the burgeoning Edinburgh Sedan Chair haulage rota.
I would also like to thank the AIC for the excellent work it is doing in supplying such an invaluable flow of information and commentary on the sector. I have attended many of the road shows here in Scotland and when on the question and answer panel have learnt to be circumspect in the answers I give.
Some years ago I was asked at a roadshow what in my view was the main attraction of investment trusts. I explained at some length the advantages of long term investment, the feeding in of regular small amounts each month, spreading the risk of timing, and rolling up and re-investing the dividend income. I quoted copious figures Annabel had sent me from the AIC on long-term15 and 20 year returns on savings plans with re-invested income and thought I had covered all the bases. There was a long questioner put his hand back silent pause and the questioner put his hand back in the air.
“Mr Jamieson. That’s all very well. But can you recommend something a little more suitable? I’m 82 next month.”
Now here is an investment puzzle. A month or so ago I was at Murrayfield for a Scotland game. I was in the East Stand and there were two young men in the row in front checking their tickets. After a silence one said to the other, “Do you know, for the price of these two tickets I could have bought 200 shares in RBS?”
Well, that was six weeks ago, and as you know some assets have since declined in value. I don’t think 200 shares in RBS today would get them much further than a pie and a pint outside the stadium. So the great dilemma for investment trust managers here in Scotland is indeed profound. Which asset class is likely to recover further and faster – a Murrayfield ticket, or RBS? RBS or a Murrayfield ticket? Who knows? Best perhaps to take the safe option – a big short position on Martin Johnston.
You would not expect me to finish without some reference to the crisis we are in and the state of the markets. Do be assured I have no intention of depressing you with gloomy prognostications. We know how bad it is. Each and every one of us here knows how bad it is. I do mean to try and end on a more hopeful note.
There is no disguising that we are going through an epochal crisis – in politics, economics and in markets, well documented by that stockbroker-but repented financial journalist Merryn Somerset Webb. It is very difficult to see through the immediate crisis we face in Europe and to give some hope to apprehensive investors. We are told that even if the Euro zone crisis is resolved in an orderly manner that the prospect before us is a prolonged period of low growth stretching for years ahead: a “lost decade”.
I am not so sure about this. My lodestar in economics is not Keynes. It is Joseph Schumpeter – Schumpeter who, unlike Keynes, studied and understood the business cycle; Schumpeter, who unlike Keynes, grasped the importance of innovation; Schumpeter who, unlike Keynes, recognized and championed the role of the entrepreneur. Schumpeter who wrote of the critical role that innovation and enterprise play in the business cycle.
Now the defining characteristic of cycles is that they turn. And what causes them to turn is the unquenchable human thirst for invention and improvement, innovation and betterment. This constant, continuous, tumultuous drive to innovate and improve is never greater than in times of adversity and recession when firms need constantly to refresh and improve on what they do.
Let me give you one example from a dark time in the past.
In the depression era of the 1930s what kept the American car industry going was not surrender into slump, but a continuing series of adaptations and innovations. People drove into the Great Depression in cars that were basically a stagecoach with an engine bolted on. They drove out in alloy and high tensile steel bodied cars, with overhead camshafts, automatic gear boxes, independent suspensions, advanced hydraulics, electric windows, air conditioning and car radios.
Today, there are equally powerful waves of innovation driving the same industry forward – night vision, adaptive cruise control, satellite navigation, auto parking, electric cars, low emission vehicles, stop- start technology and, most important for your 9 year-old who has long overtaken you in the use of technology gadgetry, an iPod adaptor.
This is what in this industry – and in many others simultaneously – has driven the business cycle forward. It is an area where smaller company and venture capital trusts have a classic role to play. When I look to my own industry – in the throes of the very disruptive tumult that Schumpeter so brilliantly described, each time I walk through the newsroom I see a continuous upgrading of gadgetry – smart phones, iPhones, Kindle readers, PC notebooks, iPads, Android devices, hybrids – tablets that are also notebooks, and now the Kindle Fire and iPhone Five. There may be a crisis of delivery, on how we get the news to you. But there is no decline in the appetite for news, early, accurate and often. That’s for sure.
Successive waves of innovation sweep through our world. And it is these waves that drive economies forward and will continue to do so. This is what Schumpeter understood. It is the micro that can trump the macro. So, may I make a plea, if we are to be slaves to some defunct economist, let’s be sure that we’re slaves to the right one.
Why do I believe that Schumpeter is still right? This is not the first decade in our lifetimes that has got off to a bleak and miserable start:-
- Our parents will recall the start of the 1950s and real austerity – “lassitude” – was by the mid-1950s followed by a household consumer boom and by 1957 “You’ve never had it so good”.
- In 1980-81 the decade began with a recession, then came recovery, then rising personal and household wealth.
- The 1990s began with recession and policy debacle but also the launch of the information and communications technology revolution.
At every stage in these convulsions I would speak to despairing brokers. In 1974 – it was: “Bill, it’s never been as bad as this’. In 1980-81, I was earnestly told, “Bill, it’s never been as bad as this”; in 1991-92, it was: “Bill, it’s really really never been as bad as this”; in 2008, it was: “Bill, it’s never been as bad as this”.
I hear the same today and I believe it. But I also believe in recovery because I have seen that constant, replenishing resurgence. We know that, in the wake of a massive financial crisis, the recovery will be longer and more prolonged. That’s for sure. But equally I have no doubt that when we look back on this decade, what we achieved will surprise and inspire us all.
Ladies and gentlemen, I wish you all well in whatever the future holds.
This is a speech which Bill Jamieson gave at the annual Scottish dinner of the Association of Investment Companies (AIC) in the Signet Library, Edinburgh, on Thursday, 6 October 2011. It is reproduced here with Bill’s permission. This blog post was published on 2 December 2011