There is a popular cynical saying out there which goes along the following lines; economic forecasters are very efficient and have successfully forecasted eight of the last three recessions. 
This can equally be applied to the army employed in the City, in global markets elsewhere, the Central Banks and Governments worldwide.
The truth of the matter is that a globalised international economy is incredibly complex and no single individual heading up an entity, regardless of how well qualified the committee members may be, is able to reliably forecast what is going on at any point when a decision needs to be made.
Part of the problem lies with the data as much of it is backward looking, subject to revision and as we are so often told, past performance should not be relied upon as a guide to the future.
Knowing precisely what is going on right now is almost impossible and at best, an educated guess, and this is why so-called Central Bank Forward Guidance has been so woefully inaccurate and virtually useless. On the basis of that, what use is the consensus view?
It does serve a purpose as it tells us about the most popular current views on future outcomes, and more often than not, a prediction on what isn’t going to happen, which is actually quite useful.
The key for money-managers is identifying the most probable outcomes and allocating a fair degree of investment strategy thinking based on those assumptions.
Next comes the possible outcomes and that will have varying degrees of likelihood, some which appear quite likely and others which are rather more speculative.
Finally, there is the unlikely which will appear far-fetched and somewhat foolhardy.
It is vital that money-managers spot when the constituents of these three buckets of the probable, the possible and the unlikely shift from one to the other as this can have profound effects on markets. It can happen overnight, sometimes violently and it is a skill and talent to distinguish such an inflection point from normal market noise.
This is where the art of investing comes into play as the science of accurate data points to support a decision are unavailable.
Most professional investors, including us, expected interest rates in the US and the UK to have been on an upward trajectory by now, and that this would probably have started around two years ago.
Given the forward guidance provided by Mark Carney back then, if anyone had suggested that the next move in UK interest rates would be down and this would occur in two years’ time, you would have been given short shrift and treated as if you had lost your marbles.
Of course, we know today that there are some very good reasons why we are where we are and that two years’ ago we should have been overweight to Gilts and not underweight, as was also the case with much of the investment industry.
Performance of indices over 2yrs
Source: FE Analytics
We all know that Gilts have been strong but I wonder how many readers realise that over the twelve months to last Friday, the FTSE Gilts All Stocks Index is up 15 per cent compared to the FTSE All Share of 10 per cent.
Conventional wisdom teaches us that Sovereign debt is a counterweight to equities and should underperform significantly when equities are strong and outperform significantly, if not go up a little, when equities are weak.
When Sovereign debt underperforms in a strong equity market, the investor’s compensation is usually the income yield, but in today’s investment environment, the income is negligible, if not slightly negative.
In the UK, gilts are performing like a growth investment – they are not supposed to do this. They should be dull, dependable and the lowest contributor to overall returns in a portfolio, not one of the highest.
If we go back three years to the end of August 2013, this was the time when we were all worried about the tapering of US Quantitative Easing and the beginning of the end of global liquidity stimulus.
Holding an excess of fixed interest at this time appeared very ill-advised. Since then gilts have returned 32 per cent and UK equities 14 per cent using the same indices.
Performance of indices since August 2013
Source: FE Analytics
However, the point when this really changed was in July 2014, when there was a realisation that global economies weren’t rebounding into growth, China was seriously slowing and the Eurozone was in a bit of a mess.
If only we had all recognised that as a key game-changer for the debt markets?
But that is the nature of investing, it is not about how clever you are in spotting the next big growth opportunity, it is how nimble you are in avoiding the accidents and when you inevitably get it wrong, how quickly you recognise you have got it wrong and make changes to stop the rot setting in.
Many an investment manager, including this one, has been humbled by the markets when a key inflection point was incorrectly dismissed as short-term noise.
Most important of all is to focus on how much the mistakes cost in terms of performance rather than crow about the spectacular successes.
A prioritisation of the former is a key attribute for any successful investor and will focus the mind into deducing when certain speculative positions are simply not worth it. If they turn out badly, then the downside is significant when compared to the perceived upside.
This is where buying gilts in July 2014 would have sat – most investment committees would have looked at the promoter of that view with incredulity and seriously questioned the investment logic, parking it in the unlikely bucket.
There is no getting away from the fact that some very well regarded investors have been caught out post the Brexit vote.
Performance of UK active managers versus index since Brexit vote
Source: FE Analytics
In our shorter-term focused industry, it is vital not to forget how longer-term reputations have been built and the processes that have served to deliver outperformance over time.
When we are meeting fund managers having a difficult period, it is this strength of character and inner self-belief that is crucial for the resumption of more familiar performance.
Similarly, the mediocre which have just had a quarter of stardom should be treated with a high degree of suspicion.
Guy Stephens is managing director at Rowan Dartington Signature. All the views expressed above are his own and should not be taken as investment advice.