A pessimist looks at the UK and European markets and considers America expensive while the optimist calls the UK and Europe cheap. This Monday morning Robert Armstrong tries to steer a middle course suggesting that value for money is in the depressed valuations of some sectors and stocks this side of the pond.

The gap in US-Europe valuations looks less impressive when you look at the gap in historical growth (of course, it is future growth that really matters to valuations, but the record tells you something). But it still looks large. It is interesting, for example, that in consumer staples and industrials, Europe trades at a notable discount, but has demonstrated very similar growth. Those might be the areas to seek bargains.

This is not a blog for stock-pickers, but it is a blog that focuses on value for money.

My principal measure of past performance as a guide to where I place my money is flawed- I know. I just fling my money at the market and it gets invested in equities by market weights. There’s a bit of frigging around for ESG but that’s about all that happens. If there was a great reversal my money would follow like a lap-dog. Some “belief” huh – it’s Pretzel Logic.

There came a time when Japan ceased to be the best equity market, many people will not remember the time when it was!  There may come a time when we will look at the current boom markets and make similar comments. I’m a mug – my only advantage is that I do know my plan and it is fundamentally optimistic,

For the most part, I diversify across markets out of a belief that in aggregate , there will be global growth. So I invest by market weights not fixed weights and this creates the momentum that is bound to ultimately lead to a fall ( I think this is called “mean reversion”). In racing terms – I tend to follow form and stick to the big races. I don’t pay the sport that much attention,

So why do I not pay more attention to these investment matters? Why do I read Armstrong every day then smile and bury my head back into the hole, hoping that my occasional trip to my pension and ISA portals will give me comfort that my money is making money?

I guess it’s because I have certain investment beliefs that I have adopted and suit me. I believe in the long term outperformance of equities, in transparency, in low-cost, in diversification and in making my money matter. It’s a start – but it’s about as far as I go.

Steely Dan

Having got this far, I consulted with (Steely) Dan Mikulskis who has a podcast out on investment beliefs which he introduces like this

I think they (investment beliefs) do really matter, and if done well can be a foundational part of an investment approach. But most investment beliefs aren’t that, they are statements of the obvious (hello diversification, risk/return, long-term and past performance not being a guide to the future).

I mean yes of course diversification is good and you can’t expect return without risk, but these aren’t going to get you far in building an investment strategy.

The test of a good belief in my view is could someone equally reasonably take the other side of it. Ie, is the opposite also a valid belief? Now you’ve made a decision, you’ve set your stall out in a way that points to a real investment choice.

Example. Some folks say you should throw out all indices and start from a blank sheet of paper when allocating. Perfectly reasonable belief. I happen to believe the opposite, that the market offers a really good starting point for allocations and we should deviate from that with care.

Either way, whether you think indices are a great starting point or to be ignored at all costs, having that belief gives you a tangible start point for your investment strategy.

How many of your investment beliefs pass that test?

I think my investment beliefs are sufficiently dumb to have someone on the other side who thinks exactly the opposite. Any guesses who?

How about “the other side” investing in one sector – UK fixed interest, one currency, no risk and no diversification. That’s pretty well what a UK pension fund is looking to do. Although my investment beliefs are really basic and don’t come close to answering questions like “is America expensive or Europe cheap?”, I can at least answer Dan’s question with the confidence that most pension experts think exactly the opposite to me.

Should I be proud of my beliefs or consider myself a fool? Either way, I am not going to spend much time this morning worrying, I have a day job- which is why I pay a bit of money to get my investment beliefs properly implemented.

You can listen to Dan here