I get a lot of irritating press releases. This week's worst came from one of the personal finance websites and announced that "women are noticeably more brave than men as house prices drop". Apparently, 81% of women questioned said that they would "consider buying a house in the current environment" whereas a mere 30% of men would do the same. The irritating bit? The use of the word "brave".
This is an environment in which the prices of houses sold at auction the only place where prices are really clear have fallen 23% in the last year; one in which the number of new mortgage approvals constantly hits new lows; in which mortgage offers to those without a 20% deposit and a proper income have all but dried up; in which real incomes are falling and unemployment is rising; and one in which there is a consensus (among all but those running property investment companies) that prices have a good 10-15% still to fall.
If I had written the press release I would have replaced the word "brave" with "stupid". And I'd do the same all over the financial press.
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In the last few weeks, "brave investors" have been advised by all manner of publications to invest in oil, in small resource stocks, in heavily-discounted new- build flats, in wine, in art and, most often of all, in bank stocks. And in almost every case "brave" doesn't seem to be quite the right word.
Look, for example, at oil and resources. I'm not that bothered by the idea of holding the really big miners Xstrata (LON:XTA) and so on in a really long-term portfolio. Given their strong cash flows, they might even be cheap at their current levels. The same probably goes for the likes of the major gold producers and the likes of Shell. But why buy exposure to oil in general right now?
Demand for oil in most developed countries is falling, not rising. The signs of global recession really couldn't be much clearer with even the US Energy Information Administration cutting its forecasts for global consumption for the rest of 2008 by 130,000 barrels a day and Opec's much-mentioned production cuts making no difference whatsoever to the market price.
A few months ago, I said here that $80-$90 a barrel would be a reasonable resting place for the oil price and, right now, I can see more reason to revise that number down than up. So, buying anything that closely tracks the oil price right now would seem to be less brave than mildly irrational.
The same goes for many of the small mining stocks. I was a great fan of Philip Richards' Special Situations Fund, which made its name buying into small exploration and production companies ahead of their flotations in the early part of the commodities boom. He picked up on the dynamics of the market long before most others. But what's happening to it now a collapse in net asset value along with most Aim-listed mining companies should act as a reminder to all of us about the risks of holding non-liquid shares: when the market tanks there is no way out.
You can't sell your holdings at anything near what you might consider fair value, if at all there's always a buyer at some price for a big liquid stock but that's not the case with the minnows. And for many explorers, survival depends on being able to find the money to keep exploring (all mining projects take longer and cost more than anyone ever thinks they will).
That money is currently in pretty short supply. I suspect that there are plenty of small resource stocks around that have fallen more than they should have, but the good ones are tough to identify and the wait for their recovery could be a long one.
So, is buying the sector across the board right now for the brave investor or something for the stupid investor? Quite. There's not much more to say on houses and I think that the case against investing in the banks at this point is pretty clear the only way they are going to see real share price gains from
here is if the credit crunch is slayed and the credit bubble is miraculously resurrected, with all the business, credit card, personal and property loans going into arrears disappearing along the way.
It isn't very likely. Buying all this stuff will make sense at some point when it counts as a calculated risk with the upside potential outweighing the downside. But that point probably isn't now.
As Euan Munro, head of multi-asset investing at Standard Life, pointed out to me the this week, the real key to successful long-term investment is not so much making brilliantly good bets as avoiding making really big mistakes. A good way to do that is to never be "brave".
This article was first published in the Financial Times
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