All of which leaves markets on a knife edge, particularly in the UK, and volatility at extreme levels, as my colleague Alex Sebastian pointed out on Tuesday.
It has also increased the value of predictability. For the same reason that a simple cottage pie can win out over even the most expensive of meals after a hard day, so for an investor, there are times when surprise is the last thing you want.
As Ardevora’s Jeremy Lang pointed out at an event on Wednesday morning: “There are just some businesses that are easier to predict than others and because this year it is so difficult to know what is going to happen, I think I might be better off sitting in some of those until the fog clears.”
The manager of the Ardevora UK Equity Fund said this unpredictability is also behind his decision to sell out of a number of the firms that did well last year.
“We have had some years of very good performance and the main challenge now is figuring out where to go from here in an environment that is inherently less predictable. Last year, we got the areas to avoid right, especially commodities. And, in those areas where we did well, it would be sticking our neck out even further to stick with those winners in a lot of cases.”
The problem, he says, is that usually that money would be recycled into those areas that have fared less well. But this time around those areas still look dangerous. And, as a result he has been looking increasingly at fundamentally sound companies that have already been scarred, like British Aerospace and Rentokill.
It is a similar argument to the one made by Investec’s Simon Brazier and Sanditon’s Julie Dean and one where predictability is an important consideration. And, while many of these companies still face challenges, they are known challenges, and in a world where so little is, that can be rather comforting.
