QUALIPORT
Eleven Things You Should Know About The Future

By Maynard Paton (TMFMayn)
January 11, 2005

Despite the Qualiport aiming to hold shares for the long term, the portfolio never makes detailed prophecies about the future. The reason? They're too difficult to get right. Share prices, economies, currencies, commodities, politics, business trends, lifestyle changes -- all are inherently unpredictable years down the line. The only safe prediction this portfolio will ever make is that, long term, the stock market will rise in value -- although the journey will be bumpy at times!

Evidence of the difficulties of forecasting comes from a well-known stock market newsletter and its Eleven Things You Should Know About The Future, Now. In 1994, the newsletter in question made 'eleven major predictions' for 1995 to 2010. All the predictions were supported by very persuasive arguments, with the publication in question regaling readers with its extended record of accurate forecasting (including warning of Hitler in the 1930s, a bear market in the 1970s and the ERM debacle in the 1990s).

Here are the key extracts from those eleven predictions (the bold text is as per the original source). Though only ten years of the fifteen-year timescale have elapsed, how the individual predictions are faring is becoming quite clear.

Eleven Major Predictions 1995-2010

1) The value of the pound will continue to decline until by 2010, it reaches parity with the Swiss franc. As a result of this, there will be increasing British investor diversification into 'hard' currencies such as the Swiss franc or the Deutschmark.

Wrong so far. At the start of 1995, the pound was worth 2.05 Swiss francs, and had increased to 2.19 Swiss francs by  the end of 2004. Barring a sizeable decline in 1995 and a commensurate rebound in 1996, the relationship between the pound and Swiss franc has been relatively stable.

2) If the Conservatives lose the next election -- and our tip is that they will lose, by a narrow margin, to a Labour-Social Democrat alliance -- then we will see this conversion from the pound to the Swiss franc and Deutschmark intensify… Restrictions and taxes for British investors will be imposed… The new government will increase the marginal rate of tax to 60%...

Correct-ish, as the Tories lost the 1997 election, but to a Labour landslide. However, investing overseas has in fact become easier and there's no sign of a 60% tax rate just yet.

3) By 2010, the EC will have fallen apart under internal pressures from its quarrelling member states and external differences. The European monetary system will be formally abandoned, and fixed exchange rates will be no more than a distant (bad) memory.

Wrong. The EU is still going strong, with more countries wanting to join. The European monetary system actually stepped up a gear in 1999 following the creation of the Euro single currency, while 2002 witnessed twelve European countries adopt Euro banknotes and coins.

4) By 2010, China, Indonesia, India and Thailand will lead the world in manufacturing, with cheaper labour and special tax-free economic zones. But a word of caution, China will not turn out to be the bonanza that most investors and the financial media expect. We are deeply pessimistic about the developing political pressures building up in China.

Broadly correct. Western firms continue to move their manufacturing activities (and increasingly, other services) to Asia and the Far East. According to Bloomberg, China's two leading stock markets are up 38% and 124% since the start of 1995 -- probably below most people's expectations.

5) Back in Britain, we predict that ordinary shares will more than double by the year 2000. The companies to watch out for will be in the growth areas of information and communication…

Correct. The FTSE All-Share index jumped 113% between the start of 1995 and the end of 1999. Technology and telecom companies were indeed the ones to watch out for (though there was no mention of the subsequent bear market that would devastate their shares…)

6) It will be increasingly fashionable to work from home or a high-tech, rural office.

Wrong, as anybody who still commutes into a UK town or city every day will testify. Figures from the Department for Transport show passenger journeys on the national rail network having increased from 761m in 1994/95 to 1,104m in 2003/04. The DfT statistics also state traffic on major roads has increased from 264b vehicle kilometres registered in 1994 to 314b vehicle kilometres in 2003.

7) Gilts will continue to be a bad investment.

Wrong. Statistics from Credit Suisse First Boston and Bloomberg indicate the total return from gilts between 1995 and 2004 (with gross income reinvested) was around 94%. The equivalent for shares was about 70%.

8) The improvement in the market in residential properties, far from expanding as predicted by some surveys, will peak within the next three years, and then resume its steady decline for the rest of the century – and beyond.

Wrong. According to the Halifax, the average house in Britain cost £62,470 in December 1994. Following a decade of rising prices, the average home cost £162,086 during December 2004.

9) Gold will go to 1,000 dollars an ounce as post-election unrest develops in South Africa, and Russia, the world's other major gold producer, disintegrates still further.

Wrong so far. Gold cost $383 an ounce at the start of 1995 and traded at $438 at the end of 2004. The intermediate high has been $456 an ounce.

10) Despite wide-spread fears, popular support for hard-line Fascism in the rest of Europe will dwindle back to the minority of thugs and cranks who are its usual power-base.

Aside from Jean-Marie Le Pen doing well in the early rounds of the 2002 French general election, correct.

11) The resurgence of fundamentalist religions will sweep the world. 'Born-again' Christianity will increase dramatically in the West, and militant Islam will dominate the Middle East and North Africa.

Correct to a degree. Fundamentalist religions have hardly 'swept the world', but they have found greater prominence after the events of 11 September 2001.

Conclusion

The advice was very mixed, with at least six of the eleven forecasts looking rather sorry entering 2005. Of the financial market predictions, only the advice on shares (especially those involved in some sort of technology and telecom activity) should have paid off -- but only if you sold before the bear market! The guidance on currencies, property, gold and gilts was nothing short of terrible. Glaring omissions include, in hindsight, a warning on failing pension schemes and a three-fold increase to the price of oil.

So investors beware -- no matter how convincing the arguments, few pundits have a perfect crystal ball and even fewer can make accurate long-term judgements on a number of very different subjects. Rather than guess the unknowable, long-term shareholders should do what the Qualiport does -- limit the predicting to certain companies and whether they are still likely to enjoy their competitive advantage in the next decade or two.

Portfolio value

Holding	Number of shares	Closing price 10/01/05 (p)	Value (£)
Associated British Ports	681	462	3,146.22
Emap	372	804	2,990.88
Halma	1,920	160	3,072.00
Johnston Press	1,608	523.5	8,417.88
London Stock Exchange	2,018	584.75	11,800.26
Cash			157.53
Total			29,584.77