Long-term goals: lessons from Tuchel

James Klempster: Hello, it's Friday, the 28th of March. I thought we'd pause for a while and just reflect on what's been going on in markets this week. Well actually, before we get to markets, I thought that we'd reflect on something else. So if you cast your mind back to the 18th of October last year, we did a video at the end of that week where Thomas Tuchel had just been appointed to the position of the England football team manager and we drew some parallels between the selection process that the FA would have gone through to appoint Thomas Tuchel and the sorts of things we do and indeed other firms do when they're looking to appoint managers to run parts of their portfolio for them, you know, looking for certain attributes and using history as a method to give yourself some confidence about what they may or may not deliver. So this last week or so, we've had his first two games in charge with the England team and two wins. The point being now, we've got data that we can start considering in the same way that if you'd invested in an investment manager, you'd now have some data to start pouring over. So is that enough to prove that you've got a good manager, you've backed a winner? Well it's too early to say. If you have a manager who you've appointed in your portfolios, who started off very well, it'll make you feel good about things and it'll make you believe that you've made a good choice. But those short-term bits of information don't necessarily inform what you'll get in the long run. And, you know, for example, you could have invested in a value manager, and then value stocks have a good run. It would look like a good decision, but you need to take into context the variables in the same way that we didn't necessarily, and I mean no slight by this, we weren't necessarily facing the strongest opposition in those first two games, and as a result of that you get a degree of a boost in your results, which perhaps had you been in a more challenging environment, perhaps if you had been playing some very highly ranked teams, you may have found that the application of exactly the same process, the application of exactly same levels of skills and knowledge and everything else that Thomas Tuchel has at his disposal may have resulted in poorer results.

That's another interesting thing to bear in mind when you think about backing winners or jumping onto an investment theme. It's very sort of common and popular for investors to crowd around something that's already sort of in the ascendancy. And in many ways, two wins on the bounce and the best result since 2008 for a starting men's team England manager, you could sort of see a similar argument. You know he's on a tear, he's doing really well but those two wins don't fundamentally make him a better manager than he was three weeks ago. It doesn't change that nature inherently of his character, in the same way that had you had two losses, it doesn't make him a worse manager than he was two weeks ago. And so again, the value of that appointment doesn't change either in terms of its substance or indeed in terms of its direction over the last couple of weeks. So you've got to bear in mind all the different variables and all the different characteristics that make it a good result, but it doesn’t necessarily mean it's a good decision. And that will really only play out over the months and years to come. We mentioned previously that Thomas Tuchel is on an 18-month contract, and that's a relatively short time period over which you'd want to be assessing active managers. So if you put a value manager in place, they've done well because value stocks have done well over the last couple of months, that's all very well and good. You'd be very happy with that, but really you're only going to sort of demonstrate genuine value add over years from here. Three, four, five years is generally the sorts of time periods you really need to let active management come to fruition. Over the shorter time period, you get noise, the markets can dent your results, even if over the long run, you still achieve the sorts results you want to get over that longer term period.

Looking at markets this week, we've had more tariff news. The latest one being the imposition of 25% tariffs, which is coming theoretically at the start of April on all cars imported into the US, and indeed, even sort of subcomponentary, they want to sort of ensure it doesn't just cover fully assembled cars as there'd be lots of ways of getting around it. The market response to these sorts of news over the last couple of weeks have been relatively modest. The response has generally been a bit more muted, which either tells you that they're already priced in, or the expectations have come down, or markets have moved on to worry about something else. But ultimately, it's pleasing in some ways, of course, as an investor to be less buffeted around by the short-term news stories, but the uncertainty that sits behind them is ultimately still there.

Overall markets have rallied from their mid-March lows, so we're off the bottom in recent months and over the course of this last week, the US is actually up over the last five or so trading days. Europe and UK are off a little bit, but overall year-to-date, it's still very much positioned that the US is underwater and Europe leading the way, Germany in particular and the UK sitting somewhere in the middle. That's it from me, have a good weekend when you get there and we'll see you next time.