Keynotes December 2015 – What Came First, The Risk or the Reward? Chickens and what they know about investing!

Finger Licking Good – A Risk Worth Taking?


I have the great pleasure of a rural working environment that includes chickens wandering about right outside my office window. These birds constantly push the boundaries of what is safe, extending their territory from their woodland, scrambling under the gate into the domestic garden which is domain of our Airedale terrier who is no lover of chickens, unless they end up in her dish!

Counterattacks by the dog are frequent but so far have caused the chickens no permanent damage. This benign experience has led many of the flock to assume that the garden is a safe place to roam. Some of the skirmishes have been very frightening for a small number of the chickens but these negative experiences have been short-lived and quickly forgotten by the flock as a whole.

An understanding of risk (consequences) on the part of the dog may have a bearing on this. She seems well aware of the likely consequences of harming a chicken, as a result of the shrieks that come from certain members of the family when she acts to defend the family home from chicken incursions.

The parallel between the behaviour of the chickens, the dog and investors dawned on me only recently when a number of the more timid birds ventured into the area outside the office in full view of the house and potentially the dog, who was asleep at the time. A dog is a dog and being asleep doesn’t change that, it is only a matter of time before a chicken becomes a feathery meal for the dog.


But will they ever learn?


Probably not! Only a year ago we had a serious fox attack in broad daylight. The chickens that managed to fly into the trees watched their friends chased and killed by the foxes. They were nervous for a while but it didn’t take long for them to regain their confidence and return to their illicit wanderings outside the safety of the enclosed area designed to keep the foxes out. The rewards, in terms of soft grass and insects in the leaf mould under the trees were too attractive to let a few bad memories get in the way. And perhaps the chickens are right? The risks are worth the rewards. But in the background we were there, mending the fences, making them stronger and filling in the holes where we thought the foxes and badgers were getting in.

So what is it that makes the chickens take these risks even having experienced the foxes, badgers and the dog?

Is it poor memory? Is it daring and courage? Probably not.

Are they just unable to understand the consequences of their actions and quantify the risks? Probably not.

Perhaps they simply don’t care because the rewards really do outweigh the risks? More likely they don’t comprehend the risks and have no way to calculate the relative returns or judge whether the reward is really worth the risk.


American Chickens


Equity investors in the USA may well be in chicken territory, not necessarily understanding the risks being presented by equity markets today.

In the USA the S&P 500 is reckoned by some commentators to be on the brink of a major recovery but the facts in terms of corporate earnings or profits, suggest that a decline in share values would be a fairer outcome. Like the chickens, rewards, not risks, are very much at the front of US investors’ minds with the S&P 500 being one index to have risen significantly over the last 12 months, gaining nearly 7{a1d5745a86653f095ed3386d3dbf7deff8ff78eb8b3be67133b744f07a6e4072} against a very low inflation backdrop.


British Chickens


Here in the UK the FTSE All Share and the narrower FTSE100 have both fallen over the last 12 months, reflecting trouble in Europe with whom we have major trading relations and in the Far East and Emerging Markets, which have a significant bearing on the FTSE100. It has been the residential housing market and investment grade bonds that have offered UK investors the best returns but at what risk?

Threatened interest rate rises will hit both of these assets for different but equally valid reasons. Shares too could be impacted as economic recovery fails to materialise anywhere other than in the USA and even there the recovery may be short-lived. Data from the EEF (The UK’s Engineering Employers Federation) shows that manufacturing in the UK is experienced its worst period of contraction since 2009 with a slowing down in production being widespread and not only affecting manufacturers related to oil and gas industries.


Chickens Everywhere

Global Negative Indicators are also in Evidence. The Baltic Dry Index, which presents data from the London based Baltic Exchange, measuring the volume of raw materials being carried by dry bulk shipping carriers, has hit a long term low point. This is regarded by analysts as an indication of a potential slow down in global prospects for growth as it reflects a slowing in demand for raw materials.

The prospect of continued monetary intervention in Japan and Europe helped send markets downwards last week on the back of further worry that these major economies are far from recovery. Oil price volatility, something covered in a previous report, could also be a further negative factor not being taken seriously by investors.


Happy Chickens and Happy Humans


For chicken investors, being happy is all about the rewards. So long as the good times keep happening the more the risks are forgotten and the more content the chickens are. For human investors, understanding the risks they are prepared to take, what those risks really mean and how they relate to the potential rewards should be key to remaining happy, no matter what happens.


Chris Welsford



Important Risk Warning – Please Read (even if your are not a chicken!)

It is important to understand that this report is not intended as specific investment advice, only my opinion in broad generic terms, designed to provide a flavour of the markets and possible future outcomes based on the possible evidence at our disposal.

The value of investments can fall as well as rise and they are not guaranteed. Past performance is not a guide to future returns and you may get back less than you have invested.

If you are at all concerned about your specific situation and the investments you hold and you are not due a review soon, then you should contact us as a matter of urgency and we will review your attitude to risk and your portfolio to ensure it meets your requirement.