An attempt to unearth the impact of advancing artificial intelligence on investment managers. In particular we wonder how managers could retain any distinctive expertise when digital technology has all the answers.

Trust plays a vital role in sustaining liberal democracy in the west. The authority of long established institutions in America and the UK has come under severe attack by disaffected voters. Signs of disillusionment are visible across the public and private sectors (including our own). At least there are recent signs in America and the UK that the critical value of trust is beginning to be recognised

Most big public companies profess a keen concern to justify “green” credentials.  ESG (Environmental, Social, and Governance) criteria have certainly helped raise investors’ engagement with the corporate response to crisis in the Natural environment.  But we urgently require a more coherent means of testing the reality of corporate commitment to the cause.  This piece suggests such a means.

Most investors haven’t experienced UK stagflation for close on 50 years.  Current economic trends are pointing towards another such period.  We could be about to see the UK financial authorities raising interest rates to rein back inflation, while at the same time having to confront weakening equity markets. 

We try here to identify the factors that frame our own professional objectives.  Success in achieving them cannot be measured by raw statistics.

When it comes to refreshment of the mind and emotional release, the creative and performing arts play a vital role. Their value is underestimated.

Deprived of audiences and normal sources of income, the arts need financial support. So far the response has been woefully inadequate. Ethically-focused investors can help highlight the need for life-support.

Pressures from the Virus are reinforcing changes in social priorities.  The political class bows in response.  Beyond the immediate ghastliness we may find the building blocks of a better future.

Populism now seems to infect political discourse across the Western World.  It’s a destructive force.  But there is evidence to suggest that traditional values of civility and neighbourliness outlast the appeal of the populist.

Here we consider how technology and the web have hugely changed and speeded up our lives and the efficiency of our businesses.  But what do we lose in the rush from cradle to grave?  We no longer queue at the bank, but cybercrime can drain our accounts in an instant.  With eyes constantly scanning our smart phones, we forget to look up at the stars.  We need to rediscover equilibrium.

This piece shares our suspicions about the rationale for company takeovers and mergers.  For various reasons, there have been a lot of these recently, including some in our own neck of the woods.  Not all recent ones have been a roaring success for customers or shareholders.  In the fund management world, clients need to have confidence in the sustainability of a manager’s culture and competence.

Conflicts of interests have ever nourished the ground of human frailty.  But the resulting damage has mounted over recent years.  Contrasts can be drawn with standards of probity evident in the early 20^th century.  Improvement waits upon a keener awareness of the connection between fair conduct, material reward and any self fulfilment.

Equity markets have shown a surprising resilience over recent months.  This piece seeks to identify an explanation.  It also discusses the risk(s) to current complacency.  These centre on the political and economic impacts of popular resentment.  Progress towards a less polarised society would help mend the wounds.  But before the healing process is complete equity investors are likely to experience some discomforts.

In our article of July 2000, we talked about the development and implications of the then technology bubble for investors. Here we revisit the theme of technology exploring the impact of social media on our lives, the questionable benefits it has brought to productivity, and the power of those companies who control data and whether that data requires greater regulation.

Our piece last April referred to the risk posed by ‘nations turning in on themselves’.  Despite the danger, that is what seems to be happening.  So far, equity markets are ignoring the threat.   Recent bond price falls may be attributable to more immediate factors.  However, mounting mistrust of the established order and its workings poses more serious threats to the whole financial system.

After yesterday’s vote to leave the EU, you may be interested in our early assessment of the investment implications.  We consider that our balanced portfolios are already well positioned for this outcome, reflecting the increasingly cautious stance that we took on equity markets last year.

In facing current crises, European leaders have had to battle with mounting and widespread mistrust of political posturing.

The UK leader, David Cameron has been faced, in addition, with open rebellion in his own parliamentary party.

This may explain why forward-looking leadership during the referendum debate has been in such short supply. The result of the debate may make little difference to the immediate prospects of UK investors. But we need a more far-sighted and imaginative picture of Europe’s future. Petty squabbling in the family kitchen simply hardens resentments.

'Short-termism' reveals nothing new about human appetite. But the damage it inflicts seems to grow by the week. Voters, business customers, and all its other victims are expressing disgust. An alternative way forward must be found.

Investment managers have come under fire from analysts and the press on grounds that they overcharge and underachieve. Some of this criticism can be readily justified. However, managers' objectives vary hugely and some may be very different from those of retail collective fund managers. In the case of personal investment managers who look after the bulk of a family's wealth, very different objectives and criteria of value apply.

‘Bonus’  incentives had become disproportionate to any value contributed and stakeholders were increasingly intolerant of them. Far the most effective incentive to do one’s best is job satisfaction, not extravagant remuneration.

‘Globalisation’ is the outcome of the growth of global business. The result is a para-State without boundaries.  Its workings should be urgently addressed by a global agency.

For some time before our 25th anniversary, kind readers had suggested reassembling these articles in one place. After some hesitation, we decided that publishing them in a book might be a suitable way to mark the occasion.

Before doing anything, it seemed sensible to reread them all. One aim in doing so was to see if we could trace some thread of consistency through them with which to stitch together a presentable and coherent narrative.

This article reflects the result of that review, warts and all. If nothing else, it gave us a most welcome opportunity to tell clients, particularly our earliest ones, how very much we owed to their trust.

Mark Zuckerberg’s Facebook must have been one of the most fantastic business stories of the millennium. Maybe the advent of social networking owed much to the loss people felt at the depersonalising of day-to-day private and business relationships. Social exchange had come to be dominated by digital programme rather than face-to-face encounter. Many of life’s traditional relationships had been fractured – and that had had disastrous consequences in the financial sector.

Something truly valuable had been lost and people were now looking elsewhere for the personal connections which sweeten daily life.

Systematised communications brought much that was valuable, but were also responsible for the loss of the priceless quality of personal accountability that flows from personal engagement.

Many hoped that the 2010 general election on 6 May would cleanse what they had come to view as the Augean Stables at Westminister.

The election was held beneath a pall of ash spewed over the UK by a volcano in Iceland and the mood of the people seemed to match the colour of this sombre mantle.

We recall, with many thanks, a nice story related by the Herald newspaper just before the election. Man, at old woman’s door in south Glasgow: ‘Will ye gie somethin’ for the Barrheid Burgh Brass Band?’ ‘I cannae hear a word yer sayin’ says the old biddy. ‘I’m stone deaf.’ After several attempts at repeating the question and getting the same answer the man shouts, ‘Ach! Tae hell wi’ ye, ya daft auld b****!’ Old lady retorts: ‘Aye – an’ tae hell wi you an’ yer bloody Barrheid Brass Band.’ The British electorate seemed to have switched off any message from Westminster, but when the crunch question came, it turned out they had been listening all along and disliked every bit of it.

So the agenda for politicians and businessmen alike was to recover the trust of their constituents. ‘Honest dealing’, in the words of the article, was the only way to do that.

One could hardly exaggerate how angry people were in 2009. In Britain, there has never been any shortage of the disaffected. But by summer that year, passions came to the boil and the apparent reasons why were set out in this piece.

The Thatcher and Blair years had provided a working capitalist model for post industrial society. But by 2009 it had signally failed. In a prescient piece in the Guardian, (March 2009) Max Hastings pointed to the need for the next government – and he expected it to be led by Cameron – to produce ‘a new model that embittered electorates will acquiesce in’.

Acknowledging the risk of losing a proper perspective, we thought the degree of resentment evident across the nation really might change politics, change the economic priorities and change the habits of a lot of people. Naturally, if realised, this might have big consequences for investors.

A study in 2008 by a former member of the Bank of England’s monetary policy committee suggested that the UK government ‘outsourced’ more of its requirements than virtually any other. But nobody seemed to have analysed the net benefit/detriment over the years from outsourcing functions formerly undertaken by governments.

As we saw it, the real issue with outsourcing was less about cost or efficiency, more about the dispersal of responsibility. By 2008, nobody in government or anywhere else seemed to be personally accountable for anything.

Sub-contracting investment management – outsourcing by another name – had grown in step with trends in the public sector. Nobody seemed to mind that control over the underlying investments no longer rested with the manager appointed to exercise it. The merits or otherwise of investment ‘outsourcing’ depended on what one considered the primary expertise of the appointed manager to be. Our view about this was very different from that of a growing cadre of investment managers.

Changes of investment fashion never arrive in small doses. When the investment hemline goes up, it doesn’t stop at the knees but at the navel. As with dresses at a Paris show, the trend gets carried to extremes.

Hedge funds and most of the other mutants derived from the simple concept of geared investment and ‘short’ selling had been around for ages before 2007. By then, institutional investors had persuaded themselves that they could replicate the spectacular results of pioneering ‘alternative’ investment managers in America such as David Swenson of Yale University Endowment. Few seemed to grasp the truth that all the new techniques relied ultimately on the same underlying investment dynamics as traditional investment channels.

It was difficult to escape the conclusion that much of the hype-driven fashion for alternatives was attributable to promotional efforts by the managers. They had convinced investors that spectacular results would equal spectacular fees. Our suspicion was that only the right hand part of that equation would turn out to be spectacular.

By 2007, regulation, governance, codes of practice and compliance had created a vast array of consultants feeding on new complexities. Micro-regulation had become an inviting target for brick-bats. Presumably, those most constrained by intrusive bureaucracy were always most likely to throw hardest, and the financial sector did not spare its efforts.

This piece mainly concerns the broader impact of bureaucratic interference on business productivity and effectiveness. How much the weight of bureaucracy had actually grown proved virtually impossible to quantify. However it seemed time to draw a line at the point when the spread of CCTV surveillance threatened individual rights to privacy. No doubt, businesses and individuals would have accepted a fair degree of micro-regulation if it could be shown to have been effective in achieving a sensible end. Such evidence, however, was scant indeed.

In economic terms, the danger was that micro-regulation would stifle the prosperity and, ultimately, the very viability of exposed companies in politically sensitive sectors. It was partly that threat that led the firm to place more emphasis on the developing economies and less on the developed, traditional markets in the northern hemisphere.

At social events, family doctors and investment managers make ready prey for the chatty but often slightly informed enquirer. Any manager addressing the inevitable question about ‘market prospects’ needs to know what market the enquirer is referring to.

Interest in developing economies and ‘emerging’ markets had been mounting at least since the 1970s. When they came to be categorised in this way is not clear, but by 2006 they were viewed as an important, though not yet usually large, component of any well diversified, global portfolio. Portfolio investment in emerging markets was one consequence of ‘globalisation’ when liberalisation of international capital movements in the ’70s and ’80s opened the door to many new investment opportunities.

For UK – particularly Scottish – investors however, global investing was far from new. They had been at it since the 19th century when British portfolio capital financed significant elements of north and south American industrial development. That is to say nothing of substantial and longstanding direct British investment in Czarist Russia, India and South East Asia.

What was not perhaps fully recognised, even in 2006, was the possibility that the developing world, in aggregate, would become as important a component of international portfolios as any of the traditional markets of the developed world.

Despite pundits’ gloomy projections at the start of 2004, the year turned out well for equity market investors. Both the UK and US indices had risen appreciably from the depths they reached in 2003 after the technology bust. By May 2005 the main question in investors’ minds was whether the continuing rise was merely a bounce or part of an enduring market recovery.

There was evidence to support each view and any conclusion depended upon which factors you considered most weighty. We thought the opposing viewpoints could be illustrated in photographic terms.

The polarisation of market opinion was mirrored in the real Western economy by a growing polarisation of incomes and wealth between social groupings. This fact led us to raise early concern about the potential for a ‘people’s revolt’.

Beguiled by the claims of some financial practitioners, investors seemed repeatedly to be mistaking where investment treasure was to be found.

Regular caricature of the City tipster had no doubt coloured perceptions, but the financial sector had done little to correct them. People often seemed to misconceive a manager’s role, and what competent management was capable of achieving.

By the early years of the new millenium there was, in short, a need for financial practitioners to rebuild confidence and trust by doing well what they were truly capable of. This piece set out how they might go about it.

Half way through Tony Blair’s 10 year term, disillusionment had set in. Much had been promised and much expected. Failure to meet targets set for public services fed public frustration and fostered mistrust.

An air of mistrust permeated the fetid corridors of the financial world too in the wake of colossal losses inflicted on policy holders by Equitable Life and on a large number of private investors by the split capital investment trust debacle.

The political failures and the financial losses were real enough. But nobody seemed prepared to accept responsibility for them. Fault and error were commonly disclaimed on the grounds that lots of other people had done the same thing, made the same mistakes. Relativism had arrived with a vengeance.

The firm has always counted itself fortunate to be distanced from London and even, dare one admit, from Edinburgh. Financial centres trade on opinions, myths, rumour and chit-chat, and all the other distractions that come with fevered and sometimes mindless activity. All of these push and tug at that sense of investment perspective so vital to our work.

Haddington is a peaceful town, and we work in a quiet corner of it. Not much disturbs the even tenor of our working life, and we count that an enormous gift. Even so, the sheer reach and power of modern media mean that no office remains untouched by financial headlines and the eternal flux of global financial markets. Every piece of financial news alters the balance of investment judgement. It tilts the see-saw, however imperceptibly.

By 2003, the firm had reached a size when it was possible to spare a director for a while. Hence, when the opportunity for a three-month sabbatical arose, it was grasped. The break prompted a number of autumnal reflections about investment perspective. Utter detachment allows the space and time to step back and take a fresh look. Presumably that is why sabbaticals were invented.

Andrew Carnegie was a sharp-witted lad out to impress his bosses. He knew the value of the personal touch, the power of personality. He saw how people matter to businesses. Yet the very success of able executives in building small businesses into larger ones can mean that their impact eventually gets watered down. So it always made sense for investors like us to look for interesting smaller companies where the influence of an able leader could make itself felt. That thinking was partly what lay behind our decision to create a vehicle for investing in smaller companies in 2001.

We thought the people factor was often overlooked or mistaken by analysts. Lord Weinstock, referred to in the article, illustrated the mercurial quality of analysts’ perceptions particularly well. His reputation went through two full cycles from zero to hero to zero and, finally in the light of  later events, back to hero.

Over its life, up to 2002, the firm had spent much time and expense disentangling client investors from unsuitable financial products that had gone wrong. These disasters stemmed from advice tendered usually by product promoters before people arrived here. In some cases, a product had been so palpably unsuitable that we managed to obtain reimbursement for the wretched investor.

There was another tell-tale sign that all was far from well when it came to marketing and advising on financial products. Over many years, advisers had phoned here at their client’s request, seeking further information about our own unitised portfolio funds. Perhaps our own credentials were insufficiently compelling. Whatever the reason, the fact was that not one of these advisers made an investment for a client, once in possession of the fact that no commission would be forthcoming for any associated purchase.

In the light of this experience, the April 2002 article took a swipe at the way comfy-sounding words, such as ‘independent’, were sometimes being hijacked for use in marketing contexts where they had no place.

In the background to this piece lurks the remarkable fact that, while customers generally exercise reasonable care to inform themselves about the relevant facts when they buy a house or a car, they do not do so when they part with their life savings. Part of the reason for what would otherwise be laziness or stupidity may be that promoters of financial products habitually cloak their wares in thick layers of jargon and designer complexity. Financial buyers think it must all be frightfully difficult.

The Financial Services and Markets Act 2000 brought together under one authority all the self-governing industry bodies previously responsible for regulatory oversight. But it took years of legal wrangling to finalise the statute, so complex were the regulations.

This cascade of paper was intended to protect every unwary customer from predation. The trouble was, and ever has been, that no amount of regulation can protect those who, for whatever reason, are disinclined to protect themselves.

By midsummer 2000, technology fever had infected the collective investment wisdom. The atmosphere put one in mind of the great Tokyo property bubble a decade earlier.

If one were searching for the value that can be contributed by a sensible discretionary manager, one need look no further than the great technology bust. Equity price indices fell by almost half, top to toe, over the 2½ years following the peak. Vodafone AirTouch, (as it then was), darling of the investing institutions, fell by no less than 80% from its peak of 390p.

In anticipating the market carnage, this piece provided, perhaps, evidence of the value of independent thinking and rationally based investment judgement.

Wall Street had been a wonderful place to invest in the 1990s. Our older directors could remember decades past when UK institutions – pension funds, investment trusts, insurance companies – held a significant chunk of their portfolios in American investments. For a variety of reasons including, presumably, misjudgement, those allocations had dwindled considerably by 1999.

Admittedly by then, foreign currency calculations were playing a significant part in investment decisions, and global investors had grown increasingly anxious about prospects for the US dollar – an anxiety that has never been entirely relieved.

The article however, lays more stress on the entrepreneurial resilience of the American people, a quality that had repeatedly rescued them from economic difficulty and confounded the darkest expectations of Jeremiahs overseas.

Sport was one area where the founders of the firm fell out. One, a thoroughly modern man, a realist, harboured no Arcadian dreams about what once was known as the ‘amateur’ ethos: the other, a romantic, cherished a cosy affection for the Chris Martin-Jenkins age of sportsmen who played the game only ‘for fun’.

Minds met, however, over the inestimable value of professionalism in other fields and its worth for clients and customers. Of course, the meaning of the word had been blurred by its application in two very different contexts: one, concerned with teaching a competence or playing for a living like a golf ‘professional’; the other, referring to someone ‘professing’ adherence to certain standards of conduct in a personal relationship of trust.

This piece traces how the comforting connotations of the latter had been cuckolded by the former.

Plantagenet and Tudor monarchs often married noble foreign princesses for strategic purposes. Marriage could extend their sovereignty.

Until the 1990s, most company takeovers had been a domestic matter; mega international deals were rarer and generally less spectacular. But once the barriers to global capital movements were progressively lifted, the flood gates opened and, for many companies, a global market opened up for exploitation.

So when, in 1998, news of one mega international takeover after another was announced – BP/Amoco, Exxon/Mobil, Daimler-Benz/Chrysler to name but a few – it seemed timely to consider the long-term impact, particularly the consequences of corporate imperialism for national sovereignty.

Even in 1997, consumers’ confidence was recognised in America as a vital ingredient in assessing prospects for the economy. Movements in confidence were recorded on a chart.

Wall Street tried to measure investors’ confidence in similarly numeric forms but that never worked well except, possibly, as a counter-indicator. That was because successful investing could never be reduced to numbers alone. What mattered was how one interpreted them; and interpretation is an art, not a science. More like spotting the Beatles early on rather than charting their hits afterwards.

This piece was written at a time when US equity prices stood at levels which history might have suggested were elevated, if not vertiginous.

Here, we set out the reason why such ratings were justified by the circumstances of the day. Particular attention was drawn to the compelling influences of falling inflation and rising investor confidence as being likely to push prices further up.

Continuity matters – to investment clients no less than to the BBC’s Radio Three listeners noted in this piece. That is why, despite service providers’ unceasing efforts to shift tastes towards different and, for them doubtless, more convenient and profitable offerings, heels get dragged, positions become entrenched, and customers revolt. If they are already receiving what they want, getting more of the same will always be the preferred choice.

The innovator’s job was summed up admirably by Nicholas Kenyon, the BBC’s (new) controller of Radio 3, in an interview with Anthony Thorncroft (FT, 7 May 1996). He said it was to maintain “a real balance between the expectations of the existing audience and the need to make ourselves enjoyable to a new audience”. Many movers and shakers had failed in the attempt to do just that.

From our perspective, consistency of approach, culture, and quality was and is a crucial requirement, especially when, as in our own case, the service horizon stretches over generations.

Churchill said, ‘if you make ten thousand regulations, you destroy all respect for the law.’

By November 1995 the cost of wasteful bureaucracy not least for farmers in the UK was virtually incalculable. Without doubt, it was cripplingly large. At the time, William Waldegrave estimated the annual spending of some 300 quangos at about £15 billion. Their operating costs alone, according to the Financial Times, approached £4 billion. Concerns about bureaucracy and red tape had been partly addressed by John Major’s Deregulation Act in the autumn of 1994 and a promise to light a bonfire of unnecessary rules and regulations.

Over the following year, however, the weight of bureaucracy did not appear to have been noticeably reduced, in part, perhaps, because the government could not escape from its ultimate responsibility for the services it had chosen to ‘contract out’.

The baleful result was that the ‘delivery’ of many vital consumer services came to be governed by contractual relationships instead of by a sense of personal accountability between provider and recipient.

Despite glorious weather throughout the summer of 1995, the public mood had been soured by dark resentment. Executive pay at British Gas had become a lightning rod for malcontents, but a wider underlying concern centred on the disproportionate share of the national wealth cake snatched by those wielding political and economic power.

At the time, gold-plated remuneration packages offered to corporate bosses, particularly those in formerly nationalised companies such as British Gas and National Grid, were being contrasted with the plight of nurses in the NHS. 41 health trusts had apparently failed to make any pay offer six months after a review body had published its findings on relevant policy.

The disparity in fortunes between powerful top executives and the rest affronted the British people’s sense of fairness.

Investment managers had only themselves to blame if they were held to be little more than gamblers in a casino.

As the Sage of Omaha has observed, “risk comes from not knowing what you are doing”. But Buffett (W.) might have added that recognising the limit of your knowledge helps reduce the risk. This article recognises what investment managers do not and cannot know, alongside areas where they can make reasoned judgments.

Recognition of our own limitations helped the firm exploit to its clients’ advantage what the article calls an ‘independent cast of mind’.

Early on we had learnt that clients’ contentment rested only partly on investment success. Unless we had reached a shared understanding of what we, and sometimes they themselves, were ultimately looking for, we would be likely to fail in our primary purpose, to remove worry.

Investment fashion can shift quite as abruptly as forms of artistic expression.

Bond investors had certainly done very well since our piece in 1989 – quite a bit better than equity investors – but in early 1994, the tide turned. This piece traces some of the reasons driving investment fashion at a time when the damage inflicted by inflation on the price of bonds was still a very vivid memory.

It would have seemed lunatic then to suppose that, within 20 years, ultra-strong bond markets and record low long-term interest rates could become the major problem facing pension fund trustees; but they did.

World War I put paid to Romanticism as a creative idiom. But post-war Modernism has in no way diminished the affection of music lovers for Elgar and the classical structure which shaped his invention. Structure matters to economic stability no less than to aesthetic satisfaction.

In May 1993, the Maastricht Treaty had finally been ratified. It established the European Union and presaged the single European currency; the final negotiations in the run-up took place when Western Europe was undergoing the deepest recession since the early 1980s. In many countries (including Germany) the unemployment rate approached double figures.

The bite of recession was provoking sharp disagreements among surviving members of the Exchange Rate Mechanism (post Britain’s withdrawal) over local monetary and fiscal policy, particularly between France and Germany.

This piece dealt with the puzzling disconnect between a rising UK stock market and the determinedly gloomy forecasts of local analysts. We were trying to explain why the market so often defied these dark expectations.

Sir Ranulph Fiennes, referred to in this piece as an exemplary British eccentric, provided an amusing post-script in a letter to the Chairman, asserting flatly that he was a practical man of affairs, with a close grip on harsh reality – this from a man who spent a honeymoon with his wife at the Everest base camp!

Perverse market movements seemed to show how difficult it was to get a clear view of the telling factors. Analysts in Britain were tending to lose their sense of global perspective because their attention was always fully occupied with a legion of local problems. No doubt the same applied to Americans looking at America.

By the Spring of 1992, concerns were being aired at meetings of the G7 and other international forums, about the flattening out of economic growth rates and the possibility of renewed recession. Growth in the UK was being strangled by the ligature of the Exchange Rate Mechanism. Britain finally exited from it on the 16^th September.

The question then was whether, after many months of near recession, our economy harboured a large reserve of unused capacity – 3% in the view of Gavyn Davies, 10% in that of Patrick Minford, two of the Prime Minister’s ‘wise men’ of the day – or whether changed fundamentals, including environmental limitations, would permanently stifle growth potential in Britain, America and Europe.

Rather against the odds, John Major had been re-elected at the April 1992 general election. The opposition leader, Neil Kinnock, for all his success in modernising Labour Party policy, had been perceived as shallow and verbose. But shadows had already begun to lengthen over the Thatcher economic legacy. In the run-up to the election Roy Hattersley, Labour’s deputy leader, had identified a widespread culture of ‘ruthless individualism’. Similar misgivings were being expressed about social trends in America and Japan.

In the UK, pay differentials between the highest and lowest paid workers had widened enormously between 1978 and 1992.

As it happened, Friedrich von Hayek, who provided an intellectual backbone for the Thatcher revolution, died two weeks before this article was published. Following Mrs Thatcher’s resignation and Hayek’s death, misgivings about the enterprise culture, referred to in the article, ultimately crystallised in the election of Tony Blair, and New Labour, in May 1997.

Britain joined the EEC in 1973 under the terms of the Treaty of Accession. In a referendum in 1975, the people of Britain voted by a large majority to support the Labour government’s campaign to stay in the EEC, or Common Market. Membership led to the UK joining the ERM in October 1990.

However, severe strains emerged after Britain’s entry. By 1991, economic co-operation across Europe was bedevilled by divergent economic trends, particularly inflation rates and currency movements; the ultimate goal of economic convergence was beginning to recede.

It was clear even then that, despite the strengthening globalisation trend in trade and in capital markets, real economic harmonisation in Europe could never be achieved unless more sovereignty over national interests were ceded to a central authority. In other words, it would be impossible without some form of political union.

By way of explaining apparently bizarre movements in securities markets, this article pointed to monetary policy and its impact on short-term interest rates as the biggest factor in shifting investors’ confidence.

The UK inflation and short-term interest rates had been falling steadily in the wake of the 1990-91 recession. The rise of the UK stock market in 1991 puzzled many investors given the depressed state of the real economy in the UK (and elsewhere).

This piece attempted to rationalise the equity market rise and pointed to investors’ confidence as being the crucial swing factor, strengthened by the anticipation of several positive global trends.

1990 was the base year of calculation under the Kyoto Protocol for monitoring progress towards the agreed target emission reductions, country by country. As early as 1988, Mrs Thatcher had noted in a seminal speech to The Royal Society that, “the health of the economy and the health of our environment are totally dependent upon each other… protecting this balance of nature is therefore one of the great challenges of the late 20th century.”

One of the big obstacles limiting global progress towards a ‘green’ agenda was the fact that the USA was not even a party to the Kyoto Protocol. Another was, (and is), the difficulty of weighing the intangible value of aesthetic benefits – a beautiful view for example – against any monetary loss implied by measures to protect the environment.

In March 1990, there was a huge anti-‘poll-tax’ riot in Trafalgar Square. Over 100 protestors were injured. The nation looked aghast at the pictures. A mere 2 months after that, Neil Kinnock’s strikingly radical policy statement – ‘Looking to the Future’ – appeared. It was seen, even at the time, as the moment when the policy struts supporting dogmatic socialism were finally jettisoned.

The national resentment provoked by the ‘poll-tax’ provided Kinnock and his colleague, John Smith, with a breathing space in which to bludgeon a reluctant party into accepting what became New Labour’s free market economics. Despite that success, the crown of premiership was snatched from Kinnock’s grasp at the 1992 election for reasons foreshadowed in the last 3 paragraphs of this article. Nevertheless, hindsight shows that it was Mrs Thatcher’s mis-judgement over the poll-tax that provided the opportunity to shift the fundamental course of Labour Party history.

Sheer power of personality to carry through a stratagem, however harmful, revealed itself as clearly in the political and economic events of 1989 as it had in wartime.

We felt then, as we do now, that the rough edges of full-blooded mercantilism would always need to be recognised and, on occasion, blunted.

One could contrast the privateering attempts by Sir James Goldsmith to take over BAT with Sir Adrian Cadbury’s benign and paternal leadership. The Cadbury Report set out a code of best practice and corporate governance which is respected to this day.

By 1989 the term ‘value’ had become an investment catchword. But investment managers found it difficult to define its ingredients. That was because its characteristics were always bound to be relative qualities not absolute ones. The article made clear our view that real value was most likely to be found in relatively unpopular sectors.

After the great inflation of the Wilson and Callaghan years, fixed-interest investments (bonds) had become a neglected class because few expected global inflation to fall in the long term. Over the following ten years, from the date of the article, the real return from UK Government Stocks amounted to almost 9% p.a.

Since the firm’s formation in 1987, bond investments had been a significant component of virtually every client portfolio.

During the 1980s, so-called ‘performance’ became a buzz-word for those marketing and analysing financial products and services. By 1988, performance-driven advertising (read exploitation) had persuaded thousands of unit trust investors into purchases at market peaks. The Financial Times’ distinguished commentator, Barry Riley, observed in August that unit trust sales had reached all-time peaks in July and September 1987, just before the crash. As he put it, “the industry has not found any effective way of persuading investors to recognise and respond to sound value for money when markets are dull.”

But also in 1988 a silver lining for the product promoters revealed itself in the form of the first index-tracking fund. Managers had realised that if they couldn’t beat their self-appointed measure of performance, they might as well make money by guaranteeing to match an index, so removing entirely responsibility for their own investment judgement.

The Dutch tulip mania of the 17th century adds vivid colour to the history of global stock markets. This article, written by Alan McInroy, explains, rather than anticipates, the market collapse in the autumn of the preceding year.

The UK privatisation programme and the government’s sale of BP in October 1987 had been symptomatic of the speculative fever which had taken hold of the UK market. The UK government was caught out badly when the price of BP shares crashed just before the sale date.

Privatisation of nationalised industries had increased share ownership in Britain. The proportion of the adult population owning shares went up from about 7% in 1979 to 25% in 1989. But it was questionable how informed British investors really were about what they were doing.

Happily (or not), publication of this article preceded by a few days the equity market crash on Monday, October 19th – ‘Black Monday’.

The index of shares on Wall Street had been rising more or less steadily since 1980 and in the latter years, takeover fever in the USA made daily headlines. By 1987, US interest rates had been raised to protect the falling value of the dollar. In August, the US Department of Commerce reported a record trade deficit.

During the upward phase, trading based on computer programs had pushed the market ever higher. But when the tide turned, many equity investors were left high and dry.

In Spring 1987, equity markets in Tokyo, London, New York, Paris and Hong Kong had more than doubled and, in the case of Tokyo, nearly tripled in the three years since 1984. Speculation in equity markets was running rife, fuelled by the wafer-thin rationalisations of City analysts.

Similar exuberance was evident in other areas. For example, Christie’s sold Van Gogh’s ‘Sunflowers’ for £24.7 million pounds in March that year, and the (late) Duchess of Windsor’s jewellery had been sold for £31 million pounds. But trees don’t grow to the sky…!

This article was written by Alan McInroy, the senior of the firm’s founders, to explain the reasons underlying the establishment of the firm.