Diversify and hold gold

The future is looking very uncertain, says Merryn Somerset Webb. Make sure you diversify your portfolio.

Here at MoneyWeek we are often criticised for worrying too much. This week I wonder if our mistake in 2014 has been not to worry enough. Our cover story looks at the impact of the extraordinarily fast collapse of the oil price on the global economy and markets.

There's a view, discussed by John Stepek, that cheap oil is mostly good because it cuts costs for consumers. We have sympathy with that view. But it isn't that simple. Why? Because the speed of this collapse makes the whole world more unstable.

This is most obvious in Russia, where Muscovites, stunned by the implosion of the rouble, are queuing to buy high-end goods with their fast-devaluing cash (my suggestion last year that political risk is priced into the Russian market is starting to look foolish!).

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But the effects go far beyond this. They go to other big oil exporters, such as Venezuela, even Norway. They might hit banks that have lent to oil-related ventures. They travel across all the emerging markets hit by investor risk aversion.

And they make it harder for the world's central banks to hit their inflation targets. Throw in renewed fears about deflation and social unrest in the eurozone, and you have to start wondering just how extreme the next policy our central bankers come up with might be.

So what do you do? I think you worry. It may be that this latest round of crises leads to more quantitative easing (QE) than we could have imagined, and that stockmarkets soar as a result. Or it may be that the deflationary bust, which investment guru Russell Napier has forecast for a while (watch my interview with him) is upon us.

It's impossible to know. So, as usual, we'd err on the side of caution. Diversify: our investment trust portfolio is a good place to start. Hold some gold: it won't ever have oil's oversupply problem. Stick with Japan more QE is a given, it's super competitive and corporate profits are rising fast.

Expect the euro to fall (either due to QE or simply to its economic failures). And hold some cash: the greatest fortunes are made by those who can afford to buy at the bottom.

Later in the week, we'll have an interview with tech investor Jim Mellon on the website, with suggestions for long-term investors (it seems that Google is the answer to every question).

Our next issue (out on Tuesday, 30 December) will be jammed with stock tips from our latest roundtable for you to read in the quiet days between Christmas and New Year.

Finally, with a nod to next year, I want to talk about lunch. A lot of you very kindly ask me to come and have lunch with you to talk about some of the ideas in the magazine.

If you want to nail me down, here's your chance: get in quick and you can bid for lunch with me all in an excellent charitable cause at gavelandgrand.com. A very happy Christmas to all our readers.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.