Friday 14 February 2020 6:00 am

It's time to make space for cosmic investing

Valentine’s Day 2020 will be about more than roses and chocolate. It marks the 30th anniversary of one of the most iconic images of all time: a parting photograph of Earth taken by the Voyager 1 space probe.

This image became notorious as the Pale Blue Dot, a seemingly insignificant pixel against a vast black canvas. For investors, what can we learn from the staggering science of astronomy?

Firstly, taking a step back and looking at the big picture matters. When investing for the long term (on a human scale), daily headlines are little more than meteors, scorching the sky and burning up.

Likewise, geographically, portfolios built across continents are less influenced by issues affecting a single country. We feel the gravity of local issues such as Brexit very strongly, even though our prospects may have more to do with the wider world economy. Similarly, the moon may think it’s partnered with Earth, but its grander waltz is with the sun.

The sun also offers us another useful investment lesson. The sun’s rays take eight minutes to arrive on Earth, and light from the next closest star system is over four years old when it gets to us. As we gaze up at distant galaxies, we see them as they were thousands of years ago. Civilisations may have fallen by the time we see them rise.

A similar, if less awesome, notion applies to investing. These days, markets are so efficient that new information — whether it be a company’s annual report, or an economic data release — is seized upon almost instantaneously. The breadcrumbs have been gobbled up by hungry trading algorithms, poised on a server milliseconds from the stock exchange.

By the time we hear about it, it’s old news. So, when you read about a hot tip, ask yourself how far it has journeyed to reach your eyes. Broader themes for the future — such as demographic effects — are particularly weary travellers. Instead, long-term investors are better off with a set and forget approach: transfer cash into a broad mix of assets that should benefit from slowly rising living standards — and leave it well alone.

Of course, you should always be aware that you might get back less than you originally invested.
Often, the hardest step with investing is taking the initial plunge. Whilst the orbits of the planets are very predictable, the same cannot be said of investing. Risk is the tricky part, and it can be hard to make head or tail of.

Nevertheless, a good way to visualise the range of possible investment returns over time is to think about the Big Bang. In the first nanosecond of existence, the fabric of the universe ballooned out at an astonishing rate, before settling down to a more genteel period of expansion.

The same kind of thing happens to the breadth of probable returns for a portfolio. Early on, big swings in value are possible. Although past performance doesn’t guarantee future equivalent, you are unlikely to see crisis after crisis, or jackpot after jackpot.

Voyager 1 is still going, and is now around 22bn kilometres from Earth. In the time since its launch, the S&P 500 has increased in value by over 10,000 per cent, including reinvested dividends. A superb investment and a remarkable return.

Will Hobbs is chief investment officer at Barclays Investment Solutions

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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