Interview with Terry Smith

by Jonathan Davis

This is a longer version of a piece that first appeared in The Spectator on 25th November 2016

Terry Smith is in the news because he has just invested £115 million of his own money – yes, you read that right – into the Fundsmith global equity fund he runs. The nine-figure sum represents the proceeds he gained from selling the shares he owned in Tullett Prebon, the City moneybroking firm where he was CEO for eight years until 2014.  It takes his total holding to £200millionaround 3% of the £8.9 billion managed by Fundsmith. It is more than 75% of the investable assets which he has accumulated over his near four-decade career in the City.

Has any professional investor ever made a bigger single investment into a mainstream investment fund before? The answer is: it is possible, but nobody really knows. Jacob Rothschild has a stake of £155 million in RIT Capital, the investment trust he founded, but that substantial sum has been accumulated over a period of 30 years. A number of hedge fund managers have accumulated much bigger fortunes, mainly the result of compounding outsize fund fees for a decade or more. From the Annual Reports of investment trusts, we know, thanks to research by Alan Brierley of broker Cannaccord, that there are about a dozen managers of investment trusts who havbuilt up stakes of more than £10m in their trusts they manage.

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But in the more mundane world of unit trusts and OEICS, where most retail investors have their savings, there is simply no way of knowing how much the manager of the fund you have invested in has committed alongside you. Unlike investment trusts, which are public listed companies, there are no disclosure requirements for fund managers in the open-ended sector. Terry Smith, for one, thinks that is absurd. In his view every investor is entitled to know how much money, or “skin in the game”, their fund manager has.

The case for greater fund disclosure

His attempts to argue the case for mandatory disclosure on this point don’t seem to be getting much traction, however. Whenever he debates the issue with industry peers, he says, they invariably come up with a list of reasons why it would not be a good idea. The fund might have a very specialised strategy, the managers might want to diversify their wealth through different types of investment, they might be at a stage in their career where they’ve got other commitments that take precedence, and so on. 

To which Smith retorts: “I get absolutely all of that. That’s fine. But it misses the point”. Due diligence should be something more than simply asking a fund manager whether they have any money in the fund. “If you have mandatory disclosure, at least then everyone would have the facts. It seems to me the argument that you shouldn’t have disclosure always comes in some form of ‘oh well, there might be a reason that’s legitimate why the person doesn’t have a lot of money in there’. Well, when you’ve got the disclosure that they haven’t got a lot of money, you can ask them their reason, can’t you?  It’s a bit difficult to get to the reason if you actually don’t know what the figure is in the first place.

What about the argument that individuals might legitimately not want to see the amount of money they have made plastered all over the media, for fear of being targeted at home by lunatics, I ask? (I could have added that many fund managers might be embarrassed if their investors realised quite how extraordinarily well the fund managers were being paid). Smith laughs his head off. “My suggestion would be that if you’re worried about being targeted by lunatics, probably don’t go into this business in the first place. I am afraid it’s an occupational hazard. Don’t get involved in public equity markets!” 

There is a wider problem to all this too“It seems to me that almost anything you suggest to the fund management industry in this country is met with a desire to maintain its opacity. The punch-up with them over disclosure of total costs of investment is a classic. There’s not many things that I would tend to agree with Gina Miller about, as you can imagine, given our different views on Brexit [she has taken the Government to court over its refusal to allow Parliament a vote on triggering Article 50while he has been campaigning against EU membership for years]. But there’s no doubt that her campaign with regard to the fuller disclosure on fees is correct”. 

“The point we’re discussing is whether it’s okay for you to be charged something you don’t know about.  And it seems to me pretty well unarguable that disclosure of the full costs of investment and what you are paying for, so things like research services and so on, who’s paying for them, is right. Who’s paying for marketing? We don’t have to go back very far, and you still see cases from time to time now, where marketing was paid for out of the fund, which is an extraordinary idea when you think about it.

It is, he says, “absolutely amazing” that fund managers are immune from telling the world how much they have invested in their funds, as investment trusts, being public companies, are required to do. “The nice thing about public companies is of course that has to be done in a way that we can all see. And there’s a reason why it’s best done so that we can all see it, isn’t there? I think the same should apply to mutual funds. If I decide next week that I think that the entire universe of things that I invest in is completely overvalued and decide to redeem, or substantially alter, my units in my fund, I rather suspect you as an investor should be told about that”.

At the moment that need not happen. Should disclosure be mandatory, a contractual requirement perhaps? “Yes, I think it probably should. I hesitate to say anything which adds anything to the disclosure regulatory burden of the industry, because it’s not like we haven’t got plenty to do. But I do think this is an important one. Apart from anything else, if you look at the American example, it exists and works there. There are at least some things in terms of the way the capital markets work in America which we could learn something from. I suspect this is one of them”. 

He points to research carried out by Morningstar in the United States, which showed that funds in which managers have a significant holding – more than $5 million – have tended to outperform those in which the fund manager has a much smaller holding. That result is hardly a surprise: there is a natural alignment of interest between the manager and the investor if such a commitment exists, and an obvious incentive for the manager not to be too reckless in the stewardship of the fund. Warren Buffett, who owns 40% of Berkshire Hathaway, his investment vehicle, in one of many who believe that professional investors should “eat their own cooking” by taking a sizeable stake in the funds they manage.

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Behind his latest £115 million investment in the fund

Turning to his decision to commit so much money to his own fund, I ask whether there was anything to read into the timing of his decision to commit all his money to the fund in one go? He insists not“I’m taking no view on markets or timing in my fund. I try not to have a view on those things. When I do have a view on those things, I’m inevitably wrong. So I try to ignore that”. The question, though, he says, speaks to a more general concern that he has with how people make investment decisions. 

In his experience people typically only ask one side of the question. Is now a good time to buy your fund? Or is now a good time for consumer staple stocksTo that I always say: well compared with what? Given that you’re not going to put the money under the mattress, compared with cash? Bonds? Other equities? In my particular case, the question that I asked myself is: do I want to be in Tullett Prebon, or do I want to be in something else – the something else that I would like to be in beings my own fund

So It wasn’t just a question of whether or not now is a good time or a bad time to buy my fund. As I said, I’m not particularly taking a view on it. I just took the view, relatively speaking, that I’d rather have the money in my fund than in Tullett Prebon. Would it have made a difference, I ask, if you could still get a 4% or 5% real return from government bonds, as you could for many years leading up to the global financial crisis – in other words if the opportunity cost were different?

“Not really for me. The question for me is not about where the near term share price is going. I know that’s difficult, because as much as you try to ask people not to focus on that, inevitably some of everybody’s focus (including mine) always falls on to share price movement. But since this is not money that I need to spend to live, what I should really be thinking about is whether or not I think fundamentally these companies [in the fund] will compound in value at a reasonably superior rate over time. That’s how I try to make myself think because that’s the critical point of my methodology of investment.

He makes another point too. “If you say I could get 5% on a risk-free rate, I would imagine that I wouldn’t have to be paying twenty-four times earnings for consumer staple stocks, would I? I rather suspect the earnings you would be looking at on the other side wouldn’t be 4.5%, it would be 7.0% or something. The world rarely remains equal in every respect when you get one of these changes”. 

“If you postulate a world in which you’re thinking what to do with £150 million that you’ve liberated, and your choices are what’s hilariously called the risk-free bond from the government at 5%, or you could own these wonderful equities on about a 7% free cash flow yield and a 3.5% dividend yield, which would you rather? Because I think that’s a more realistic example than saying 5% bond yield and whatever is the alternative. With that, I’d still go for the equities.

It is the compounding of future cash flows that matters most in evaluating investments. “When I worked at Barclays in the seventies and early eighties, I sat through many pension fund meetings there, and obviously I sat through many more with trustees and actuaries at Tullett when running the fund there. The very good people who got the best results, it seemed to me, did not focus upon what the current valuation of the assets was, but what cash flows you expected to be able to deliver through dividends, coupons, events, whatever it is, to correspond with the growth in the liabilities of the fund”. 

“They were the best people. They got the best results. Why? Because they were focusing on the things that mattered, unlike the ones who sat there and worried about the price. You would say to them: ‘you don’t like the price at the moment. Shall we sell everything that we’ve got in that asset class that you don’t like the price of at the moment? What shall we do with the money then?’ ‘Put it into something else – where you don’t like the price either? How would that help exactly?”.

What about consumer staples and bond proxies?

That leads on to the so-called “bond proxy” debate. Are consumer staple stocks and other equities which investors have been flocking to in recent years for their deemed defensive, bond-like qualities now overpriced? If so, and the trend reverses, isn’t that bound to affect the future performance of the Fundsmith Equity Fund, in which consumer staples are one of the three or four core sectors in which Smith, with his strict stock selection criteria, permits himself to invest? 

Many commentators seem worried that we may be seeing a re-run of the so-called Nifty Fifty era of the late 1960s, when a small number of high profile consumer stocks for a while traded on very high multiples of earnings before cratering in the 1970s bear market. Is it not the case, however, I suggest, that, as Prof Jeremy Siegel demonstrated in his book Stocks For The Long Run, many of those big name stocks, although richly priced at the time, still turned out to be excellent long term performers?

Smith agrees. “They did, yes. There’s absolutely no doubt that if you held on to quite a lot of the Nifty Fifty, you did pretty well. The ones that really came unstuck were the single device or single technology stocks. Those are the ones that really got carted out. So the Xeroxes, the Kodaks and the Polaroids of this world were ultimately disastrous, whereas the Cloroxes and the Johnsons & Johnsons of this world were ultimately fine”. It is no accident that the latter are the companies with the high and sustainable returns on capital that Smith rates so highly.

How do the FANG stocks, the new tech darlings of Wall Street, stack up against these forebears? (FANG stands for Facebook, Amazon, Netflix and Google, generic shorthand for the current crop of high flying, highly rated tech stocks on Wall Street). Smith says that the problem with many of them is that “there are no earnings or even in some cases, revenues. And therefore there isn’t anything there to fall back on, for you to be able to say fundamentally this thing is building value in a compound manner during the period when I own it”. 

Isn’t Amazon, which has lots of revenues, but minimal earnings, an exception? “I’m not convinced that Amazon is always going to be able to buck this in the end. I agree with you, it’s got through so far to an extraordinary degree. But if we separate out the retail business from the cloud business, it still does seem to be, in the US, a selling dollar notes for ninety cents kind of a business, which is usually quite a big growth business. But if you compare it with a Walmart or a Costco, I’m not sure why I would own Amazon over Walmart or Costco”. 

In any event, he says, it is not true that consumer staple stocks are more highly rated than they have ever been. “People seem to work more or urban myths than fact. Consumer staples, just so you’re aware, is about a third of our portfolio. So it is far from the only thing that a strategy like ours does, and the amount we have in the sector has come down in recent years. But, for what it’s worth, consumer staples were much more significantly higher rated relative to the market and in absolute terms in the mid-1990s [than they are now]”. 

If you read The Snowball, the Warren Buffett biography, there’s a record of an argument, discussion, whichever you want to characterise it as, in 1997-98, between Buffett and Munger [deputy chairman of Berkshire Hathaway], in which Munger is trying to get Buffett to sell his Coca-Cola stake and Buffett famously describes it as one of his inevitables. The PE at the time was 40! So it’s not true that multiples on consumer staples have never been higher. I think that is actually an urban myth”. 

His fund is not only driven by the consumer stocks. “The things that have tended to grow within our fund over the years have been things like medical devices and equipment and legacy technology companies – businesses that do the payrollairline reservations and so on. There the valuations don’t look particularly ritzy and they really haven’t had a massive tailwind of the same sort. In fact, to a degree they have been neglected, particularly the legacy technology segment, which has been left behind because it’s not part of the mobile, social network, Unicorn kind of razzmatazz.

So he is saying there is a lot of loose thinking around the bond proxy issue? “I think there is, on any number of levelsOne of them is, as you say, correctly I think, definitionally what is it? I think there’s loose thinking about that. There’s also loose thinking about valuation. When you only have to punch in the mnemonic for the MSCI consumer staples sector and you can see it was more highly valued in the mid-nineties, when interest rates were 6% higher than they are now, you begin to realise: hang on a moment. The sector has certainly had a good run but it’s not more highly valued than it’s ever been and it’s not more highly valued than anything relative to the market

People also tend to forget that the consumer staples had a terrible run from that mid-nineties peak in 1996-97 where they got overvalued and came off and then they continued to run very badly through the dot.com boom and through the dot.com bust, they ran pretty badly as well.  Why people thought that the Internet was going to replace smoking is a little beyond me, but there we are.

The future for interest rates and growth

What is true surely, though, I say, is that in a low interest rate world, any investment with predictable cash flows is likely to be bid up – it is not just consumer staples. “Yes, but it has been over three years now since the first commentator started saying that they thought these things were overvalued. And I’ve always said roughly the same thing, which is not far off from what you’ve just said to me.  I don’t do any market timing or attempt to guesstimateinflection points in stocks or markets, but I will say this: for as long as the world continues roughly as it is, which is to say a low growth, low interest rate environment, I think firms which are paying a 3% dividend yieldhave paid the dividend for a 150 years and put it up by 3% to 4% per annum, could become incredibly valuable. See Nestle for details!”

It’s not my preferred way of making money. I’m not putting that forward for a moment. I’m just saying if you force me to look at what might occur with regard to these stocks, for as long as these conditions persist, they may become very valuable.  I don’t know how long the conditions will persist, but it strikes me that one of the things that’s amazing about the commentators in this area is how rarely they take the obvious lessons and apply them. Have a look at Japan, for example!”

Japan, I’m afraid, has so far proven to be a pretty good analogue for what we’re going through, in terms of everything. In terms of the financial system that collapsed and pretending that it hadn’t and propping the whole damn thing up, and then the monetary policy that they followed in terms of trying to stimulate things, et cetera et cetera, and the aging population which characterise large parts of the remaining developed world and so on. We’re now in twenty-seven years and counting with Japan in terms of being like thisHe is implying, in other words, that high valuations in a low interest rate, low growth world could stay high for a long time yet. 

I don’t know the future. I’ve no desire to put myself forward with that. But it wouldn’t surprise me if the conditions that we currently see, we were all dusted and gone before they manage to turn them around. They’ve certainly gone on, I would suggest, significantly longer than any commentator I know put forward in 2008/9. Which does not fill me with great faith in current projections, obviously.

Predicting recessions and bear markets is certainly a hazardous business, as we all know. Should you even try? Smith says he has “always rather liked Ken Fisher’s approach to this which is: don’t try and predict a bear market because you’ll undoubtedly predict ten out of the last three, or whatever it is. What you should do is wait until you’re absolutely certain you’re in one and then don’t take baby steps – just get out of it. That is what you want to do in life. And I think that’s probably as good a methodology as I’ve ever seen anybody apply actually, in this area”. 

The global financial crisis was a case in point. “The actual crisis really reached its peak, I suppose, between September 15th 2008 and March 2009 – between Lehman going bust and the turning point when the TARP programme was approved and we had quantitative easing. Those six months I guess were the absolute depths of the whole thing. So how could you possibly have predicted that? But blooming hell – when did Northern Rock go bust with the queues outside the branches? It was in August 2007. You had a whole year to have a go at this”. 

Units in the Fundsmith equity fund have compounded at roughly 20% per annum since launch in 2010, while the component companies’ earnings have compounded at about 10%, or half that rate. So there has clearly been a significant rerating of the stocks he owns in that time – nice for the fundholders, of course, but a tough challenge for the fund to maintaingrowth at that rate. The free cash flow yield on the portfolio has come down from around 6.5% at launch to 4.4% today. Inevitably, Smith says, there will come a point when the fund underperforms and after three years of strong inflows, there may well be outflows when that happens

But the strong track record, he points out, is not simply down to higher valuations. A 10% earnings growth rate would be pretty good in any environment. The valuation gains themselves come in two parts. “One is an overall rise in the valuation of the market and the portfolio. The other part is that every year we seem to find one or two stocks which are trading on a 10 to 12% free cash flow yield, but which other people think is only 5%. That’s also part of the valuation story. These are the Del Montes and the Domino’s Pizzas and the Microsofts of this world that we’ve been finding. They are a help to that one half of theequation”.

Skill and stock selection

In a broadly efficient market how can these anomalies arise, I ask? Or, to put it another way, how much skill is there in stock selection? “I think there is some skill. It involves some analytical work, although most of the analytical work is much less complex than people think it is. It’s not that difficult. I think the difficulty is combining the calculation portion of analytical work – what’s the free cash flow yield? What’s the return on capital employed? What’s the cash conversion? And so on – with an understanding of how the company makes its money

You need that to gain some insight into two very important questions. One is: will the company be able to defend its margin and its returns – a competitive advantage, in other words? And secondly, will it continue to grow? Has it got something to grow into? A new market, a new demographic, a new price point, a new product and so on, whatever it is. The bit that’s really interesting in many ways is not the numerical bit, which anybody competentcan do, I think. It’s translating that into analysing those two safety factors, I think”

“Then I think there are some other bits of skill as well. One of them is discipline, saying ‘I really, really, really like Coloplast, the Danish catheter and tube company that makes medical equipment – which I do, by the way – but it’s never been cheap enough for me to buy, so I’ve never bought it. If you are right in terms of your outlook, that discipline is an important thing to bring to it. Fund management is a weird balance on the one hand of realising that you’re going to be wrong about some things, and having the humility to be able to accept that from time to time you’re wrong and do something about it, combined with other times realising that you’re right to stick to your guns, and not going off and doing those things”. 

“And then finally there’s a really weird bit of it, which is that the stocks kind of talk to you in the end, if you do all these things. If you spend enough time reading 10Ks and annual reports and 8K quarterly filings, and industry publications, and attending conferences and so on, something sometimes tells you what’s good and what’s bad. You can put your finger on it to a degree, but only to a degree”. So it is a mixture of intuition and experience, I suggest?   

“Yes, it is. If you look back over the last several years of doing this, that’s the sort of thing that told us that Yum! Brands, which owns KFC, Taco Bell and Pizza Hut, was not going to be good. It really spoke to us, and told us that it’s not going to be good. And it’s exactly the same kind of thing that told us that Stryker in medical equipment for replacement joints, trauma and so on, was going to be good. It was something about the way that they presented themselves and addressed themselves. I’m not just talking about presentation slickness here, because in at least one of those two cases, one of the things I like about the CEO is I think that he’s got very little time for the analytical community. It doesn’t make him a bad person!”

These skills or extra factors, whatever you like to call them, are things that come with age and experience, do they not? Smith concurs. I think they do. Finding a large company (because everything we’re involved in is going to be at least a few billion dollars in market cap) and finding it in a world where as you rightly say, interest rates are approximately zero and the free cash flow yield on the portfolio of a good company is about four and a half – and then you find one of the world’s largest technology companies is sitting there on a free cash flow yield of 12%, the first question that should strike you to ask is: are you mad? If that isn’t the first question to strike you, then you’re almost certainly reckless, in my view

I must’ve missed something. What have I got wrong. That’s got to be your first thought. And you’ve got to do to death that ‘what have I missed?’ It’s likewhat do other people know that I don’t know that allows this to occur?’ And then finally, if you’ve done all that and you’ve done it to death, you have to have the courage of your convictions to go Mr Market, you’re wrong. And the market is wrong, not always but occasionally. I’m not a believer of perfect markets theorem, but I am a believer that it’s difficult to beat. It’s a slightly different theory, I think.

Where next for emerging markets?

What then, I ask, is the outlook for emerging markets? Fundsmith’s emerging markets investment trust, known as FEET for short, was launched in 2014 with a mandate to buy similar kinds of stocks to those in the main global equity fund – with a high return on capital, powerful brand names or similar competitive advantages. Quite a few are locally-listed subsidiaries of the big consumer brand companies, such as Unilever and Nestle. 

The trust, though, unlike its open-ended equivalent, has been a relatively slow performer to date. The shares, which typically trade at a small premium to net asset value, are up around 20% since then, creditable but a fair way behind the other trusts in its sector, as well as the average emerging markets open-ended fund. Emerging markets in general have been a standout performer this year, particularly for sterling investors. 

Smith acknowledges the relative performance, but denies he is worried. “You are quite right that we are lagging the benchmark. The peer group and the index are pretty indistinguishable,of course. What happens if you get an upturn in emerging markets, which we certainly have so far this year, is that people either go and buy an ETF, or they go and buy one of the major funds, the Aberdeen fund, or the Templeton fund, or whatever, and of course the Aberdeen and Templeton funds are pretty close to the index. They have to be. They’re big funds

If you look at the sort of things that they’re likely to own, they’re not the sort of things that we’re likely to own. We’re only interested, in round number terms, in 20% of the index. That’s the consumer discretionary, consumer staples and healthcare portion of the emerging markets. By and large, they’re not the kind of things that are either big in the index, big in those funds or likely to get your pulse racing if you’re having a quick speculative dive timing the turn

If what we’re seeing is a genuine turn after a three and a bit years of underperformance in emerging markets  I don’t know if it isI think it probably is, but I don’t know – we’re quite relaxed because eventually what’s going to happen is the money’s going to find our stuff. And the money’s going to find our stuff because it is good stuff. After all you’re not likelybefore the turn in the markets, to rush out and buy an Egyptian croissant baker. You’re more likely to buy Samsung.  But it will find our stuff.

“I think we probably are [seeing a genuine turn] for the simplest of all reasons. The big downturn in commodities, which is what’s driven the last three years, we’ve now completely seen that. People have now been living for two to three years with the downturn. We basically have got to the point, where things are not getting worse as a result. In fact, they’re probably at the margin getting a bit better, as people come to terms with it and learn to structure their economy to cope with it”.

“So the other thing is: do we own good things? I’m absolutely convinced that we own good things. The return on capital employed in our portfolio is 54%. That’s not a spot number. Our average company was founded in 1953, and they’re growing at the moment at something like 11% in terms of revenue and about 20% in terms of earnings or cash flows. If that turns out to be the trough of the business cycle, and I think there’s a reasonable chance that it is, this will look like a good portfolio in years to come”. 

“If you go back to our main global fund. 30% of the revenues are from the emerging world. So the companies now will be listing in the developed world but operate in developing world. And I would bet – if anybody wants to take me on – that over the same ten years forward, if we didn’t change a single share, that 30% would increase. And it tells you something. It tells you that clearly the epicentre of growth is not going to be Europe, or even North America, and definitely not Japan, over this period”. 

The consequences of Brexit

Ah, Europe – that brings us neatly to Brexit. Smith long ago outed himself as a Brexiteer; he stood as a candidate for Jimmy Goldsmith’s Referendum party way back in 1997.  “I obviously wanted the referendum and I was pleased with the outcome. I’m less pleased with the degree of caterwauling and moaning that’s occurred from people since who seem unwilling to accept the result but there we are. I suppose it was ever thus.  

He recalls meeting Boris Johnson at a friend’s house back in January, when the Mayor of London was still working out which way to jump, and asked him what he thought would happen to the UK economy after Brexit? “I said ‘I think it’ll go through quite possibly a difficult and turbulent time, but I think in the long term it must be better not to be inextricably linked to the least competitively trading bloc in the world.’ And he said ‘well, that’s not a very sellable position, is it?’ And I said ‘well Boris, unlike you, given that I’m not a politician, what I’ve actually done is try to answer the question honestly!’

I think there’s every likelihood that this will be a difficult period. The pound depreciation, whilst it helps export effectiveness, you’ve got to bear in mind that manufacturing in the UK is very hollowed out and it’s not an unalloyed benefit to the UK, in the way that it may have been fifty years ago when we were talking about doing it under Harold Wilson when the pound in your pocket would not be devalued et cetera. It’s a different sort of world to that now

I think that there’s every likelihood that the European Union will prove very difficult about this, in order to try and discourage others from following down the same path. So we may well end up going back to the WTO tariffs for the trade that we have with the EU. And we will quite possibly lose passporting for businesses such as my own, in terms of selling in Europe. But I do think ultimately, we are either right or wrong about the EU being the least competitive trading bloc in the world. And I’m utterly convinced that it is. I can’t see what other major trading bloc in the world is less competitive than this

But it need not be the end of the world, he argues – look at Singapore.  It doesn’t impose tariffs on almost anything anywhere in the world. “It’s gone through unilateral tariff disarmament. Whilst that does leave companies that operate out of Singapore vulnerable to having tariffs imposed on them from other countriesit does mean that their import costs are completely tariff-free. And it has enabled them to attract some quite big industrial interests to Singapore, many of them amongst the companies that we follow, because of that. relatively low tax, safe, rule of law, user-friendly, good workforce and no import tariffs is an attractive proposition.

The interesting question, I say, is whether, faced with a tricky interim economic period, nervous politicians derail Brexit before we get to such a positive promised land on the other side. Yes, Smith says, “any number of things which may happen here. What people always do when they’re trying to predict things is assume that the remainder of the pieces on the board remain static. And of course, one of the pieces on the board may not remain static.  We may yet have problems in terms of an economic downturn. That wouldn’t be at all surprising in the current circumstances, for which there are no current policy measures available to combat it.

It wouldn’t be all that surprising if somewhere else in the EU there was a massive problem. The banking system is clearly an unreconstructed mess out there. And they’ve got elections in Italy, France, possibly Spain and other places, any or all of which could produce similar problems for them out there.  We’ve got the upcoming US presidential election, whatever that does, and China. So there are so many other factors out there in the world, that focusing upon what the single outcome of this will be strikes me as a bit pointless really

“In any event, as you know, it’s certainly not the way we manage money. I like to quote the chief executive at L’Oreal. We spoke to all our chief executives what they thought about things in the course of all this [Brexit].  I rather liked his take on it. He said ‘I would rather it didn’t happen, but it won’t make a blind bit of difference to our business.’ And I think that’s generally true. People have managed to cope with far worse things than this over time.

This is a longer version of a piece that first appeared in The Spectator on 25th November 2016

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