Your Quarterly E-Zine
Edition 11 • December 2019

This website contains the latest edition of Forsyth Barr Focus, a quarterly on-line magazine written by senior members of Forsyth Barr's investment team.

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FROM BATHTUBS TO BATTLESHIPS

In 1927, Howard Phillips Lovecraft, author of the short-story “The Colour Out of Space”, wrote “the oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear, is fear of the unknown”. Lovecraft’s writing was part of a new wave of science-fiction literature which accompanied society’s early-century embrace of new technologies.

In the realm of psychology, fear of the unknown is referred to as “the fundamental fear”, one which is created by an absence of meaningful or relevant information, which in turn creates an “intolerance of uncertainty”.

Today, financial markets are often awash with so much information that a prudent but non-expert investor can become increasingly less certain, as the volume of market analysis continues to swell. Thirsting for knowledge, while drowning in information, can be a common investment experience.

Conquering fundamental fear is a hallmark of many of the world’s greatest achievements, financial or otherwise. In the early 1960s, designers at the International Latex Corporation (ILC) in Delaware in the United States considered whether or not to invest their business capital in creating spacesuits to be worn by the Apollo astronauts.

It was said that “nothing much was certain in those heady days of cross-your-fingers determination - rockets blew up, capsules caught fire, the whole space business seemed steeped in ‘imminent mayhem’”, (an evocative phrase that some investors may have considered resonant of financial markets at certain times this year).


Homer "Sonny" Reihm

While ILC’s experience in manufacturing rubber items was world-class, it was (as one commentator wryly noted) “akin to a manufacturer of bathtubs suddenly declaring it wanted to make battleships.” Challenges the ILC design team faced included creating a garment that could survive temperatures as hot as 120 degrees celsius, and as cold as minus 150 degrees. With the backing of the company’s Board, ILC’s Chief Project Engineer (and later President), Homer “Sonny” Reihm led a team of designers who manufactured a 20 layered garment that was pressurised against the vacuum of space and resistant to radiation. Each spacesuit cost around US$100,000. While the new equipment was tested on Earth, the Apollo 11 mission was in fact the first “live” systems test of the suit.

For many investors, periods of unexpected or pronounced market volatility are where their investment objectives, underpinned by their experience and knowledge of financial markets, are first severely tested. One behavioural investment theory says that when investors make judgements under a cloud of uncertainty, they employ mental shortcuts that can result in sub-optimal outcomes.

2018 marks the commencement of the 50th anniversary celebrations of the Apollo programme which culminated with the moon-landings in July 1969. From the time of the first manned spaceflight to the completion of the programme in 1975, fear of the unknown was progressively replaced by the triumph of knowledge, where risks previously considered unconquerable were successfully analysed and overcome.

For the Apollo programme to leave Earth’s gravity, it was essential for those involved, including Homer Reihm, to acknowledge and embrace the fear of potentially not achieving their goals. However clear objectives, attention to detail and careful risk assessment were all key components of the programme’s overall success. All factors which equally apply to achieving successful investment outcomes in times of financial market uncertainty.

H P Lovecraft notes that the unknown is an “omnipotent source of boons and calamities”. A key benefit of professional advice in times of volatility is translating information to insight, so that longer-term goals remain a key focus, relative to shorter-term risks.

Gordon Noble-Campbell 
Director, Private Client Services

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