Glacier Investing - Watch out for the crevasses!

I don't get Switzerland - I never have. My professional life has taken me there more times than I care to remember and I never fail but to be bemused. The languages are the main thing - officially four of them (OK - only 35,000 speak Romansch as their first language, but it does exist). Even that does not bear too much examination. There are pockets on the upper Rhine where villages  on opposite sides of the river (and in different countries) speak detectably different dialects! As for the German dialects - Baseldytsch , Bärndütsch (the dialect of Bern) or Züridütsch are enormously different.  Interestingly the French and Italian dialects have, while still retaining much variety, much more homogeneity with the "parent" tongue.

I suppose this is not too surprising in a country where communication (in the physical sense ) is often difficult. I feel deeply for the Swiss teenager feeling a natural urge one lonely night who knows that, having exhausted the genetic pool in his own small community, he is only 30 miles from "fresh meat" were it not for the interposed existence of a billion-ton granite condom in the form of an Alp!!

I am also amused at the way the various linguistic groupings often exhibit, in extreme forms, the characteristics stereotypical of their linguistic progenitors. How this country hangs together is beyond me - but it does and very successfully too.

What made me think of Switzerland this morning? I was pondering on one of my last trips there.  Three memories stick in my mind - firstly of witnessing an almost ceremonial setting up of a Liechtenstein Anstalt in a dusty lawyers office in Zurich. Not even the discrete brass plate to be found at some private banks and an office straight out of Dickens. I swear the telephone (with a dial!!) looked a modern intrusion as a client happily signed away an enormous sum of money into a system where, in theory at least, he did not even own it.  Secondly I am minded to think of the Bank in Lugano that has a vault (far too big and grand to be called a safe) in reception - necessary when the briefcases of clients shuttling backwards and forwards to Chiasso  are often stuffed with banknotes (In passing, it is worth pointing out that some 75% of €500 notes are believed to reside in Luxembourg and Swiss Banks - and apparently many test positive for narcotics!). The third memory - and one that brings me in my normal rambling way to my point in this blog - is of sitting in a suburban bungalow near Zug, taking tea with two major investors in a Hedge Fund I was then running, and looking out of the window to an enormous glacier just one or two miles away. A surreal mix of Surbiton and Gstaad.

It was this that gave me my theory of Glacier Investing.

We are currently in an investment environment where the "safest" investments - cash in the bank and government bonds - are quite rightly being questioned in many quarters. Cash in the bank is only as safe as the bank itself and even if you take some comfort from various deposit insurance schemes, then you run into the conundrum facing investors in government bonds - are the abilities of all governments to repay or guarantee to be relied on? Irish or Greek debt anyone?

Given that returns on these "safe" investments run between 0.5% and 2%, it is no surprise that those able to stomach a little risk are happy to go to the stock market. The braver still might go to emerging markets, gold, commodities, rare stamps (my favourite at the moment) or any of a wide range of ever-riskier ventures. Yesterday we had one of those rare "What the ****???" moments when it all went horribly wrong for many people at the higher end of the risk spectrum. Even Gold was down nearly $100 in a few days. Investors in blue-chip indices would typically have lost 2-3% in 24 hours - very close to what they would have made in a year in a "safe" investment.

The psychology of a market turn like this is fascinating to me. I always think of those underwater shots of shoals of anchovies turning exactly together. Rarely are there new facts involved - the so-called Euro crisis has been playing out for nearly two years - and equally rarely are there new interpretations of them. Last week we saw stock markets close to the levels we were at before Messrs. Lehmans and Bear Stearns went belly-up. The market as a whole looked through its rose-tinted specs even at the PIIGS and we were all pink and fluffy. From about 8 pm on Friday night the shoal of anchovies turned at once it seems. The same lego-bricks of facts on which market direction was predicated were dismantled and reassembled in a different order. This morning the combination of sovereign debt issues, China being realistic (and that is all!) about its domestic inflation, and the telegenic nature of the Irish Government acting like headless chickens - all of which were with us last week - are reasons for fear and caution.

Back to the glacier! Rather like the glacier, the world economy is propelled by a continuing deposition of industrial output, individual striving and an effort for betterment among several billion people. Adam Smith's dead hand takes the place of the snow driving the glacier as it slowly adds its weight. Again, like the glacier, the momentum of the world economy carves out new directions - often so slowly we do not see them - and nothing can either prevent it or predict its exact course.

Glaciers do, of course, have crevassses in them - and often they are potentially lethal. The local skating rink (for which read "safe" investments)  may not have crevasses, but neither is it travelling anywhere.

Perhaps the analogy is getting stretched now - but my thesis is clear. Equity investment is ultimately ownership of a share of the world's economy and is subject to significant ups and downs. These may be cyclical and of several years duration (and Ars Longa Vita Brevis might be sensibly re-rendered to take this into account), there will also be crevasses - but the glacier will move on.

Was this helpful to those investing decisions? No I thought not. For what it is worth, I must have been admiring that glacier in Zug too much and not paying attention - we never did get the extra $50 Million those investors were thinking about!!

Dum Spiro Spero