Highs and lows are all relative

LONG AND SHORT OF IT: Height is a relative concept which, on its own, tells us very little
Jonathan Sloan

OVER the last 150 years, as we've become richer and healthier, humans have become increasingly taller. Like many Irish men, my height of 5 ft 8” (just) is deemed perfectly average around where I live.

Even though I'm taller than my father was and, based on old pictures, I'm a fair bit taller than my grandfather and indeed his father before him, they too were shorter than the other men of their generation.

You are no doubt wondering how this has any significance to my line of work and this investments-focused column. The point I'm trying to make is an important one - it's all about making comparisons at a particular point in time and how it's all relative.

Height is a relative concept which, on its own, tells us very little. In my great grandfather's day, my 2021 height may in fact have been considered “tall” – imagine!

Like comparative heights through the generations, when it comes to investment returns in a diversified portfolio, long-term perspective can be key. Up close, and with a short-term lens, it can sometimes be hard to see where the gains are happening, whereas, taken over an historic period, the bigger picture is easier to see.

While it can be reasonably argued that, over time, humanity's capacity to innovate, invent and rationalise has produced a wealthier and healthier economy, it would be unwise to think that this is either a straight line equation, or that it has benefitted all economies or companies equally. Indeed it clearly hasn't, as the history books are littered with failed “next big things”.

In the current environment, it is easy to be tempted to avoid investment as markets “seem high” or “feel toppy”. However, it is worth remembering that the markets of 2021 have little meaningful resemblance to the markets of 1921 or indeed 1981.

As society gradually recovers and re-organises itself in the wake of the pandemic, one question currently occupying business leaders is around productivity and the future of working from home. It would appear that we are now more productive working from home than we were pre-crisis.

Imagine the scenario of the past 18 months armed only with the technology of 1981, or even 1991 – the last year's productivity was backed by technological advances that, it could be argued, were only born in the last 10-20 years.

From a statistical perspective, the 1930s were the productivity heyday of the US, when several technological breakthroughs led to a dramatic improvement in living standards. Here in the UK, one could argue that a person born in 1900 would have seen more technological advances in their first 50 years than a comparable person born in 1970.

The effects of the latest pandemic-related “industrial revolution”, and perhaps even the societal and economic benefits of a reverse “brain drain” away from the big cities to regenerate the regions, may soon be seen.

And so we return to the wisdom of diversification. It stands to reason that an over-concentration on any one type of company, source of earnings, or geographical focus, is more likely to increase the risk of a more significant impact for a less fruitful investment decision.

Looking at past history of innovation and technological revolution, it is the view of Barclays' investment team that now is the time to be invested in a diversified batch of capital markets assets and the view required is a long-term one. Our team believes the financial fruits of these advances will fall to, among others, the owners of the world's companies – and you, their investors, when you decide to invest.

The one thing that we can be sure of is that long term diversified investors are rewarded more times for their patience than short term speculators.

Unfortunately for me, the other certainty I must accept is that there is no chance I'm going to get any taller. I just need to stop making comparisons and stand tall as I am.

:: Jonathan Sloan is head of wealth & investment management at Barclays in Belfast.

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