Finance and Industry

Trouble among the experts

Regular readers of these columns will know that we do not have a very high opinion of economic experts. We have so often seen them proved wrong, so often seen them at a loss when really called upon to make a decision or commit themselves, so often seen them at sixes and sevens among themselves, so often seen them compelled to eat their pretentious and self-satisfied words, that we are no longer surprised whatever they do or say. Not the most appealing of their habits either is the way they shoot off on completely new tacks, contradicting all they have said before without the slightest hint of an apology or blush of shamefacedness. Yes, we must admit to a very jaundiced view of our economic pundits.

The latest example of what we mean is a report in the Observer recently about the investigations of a certain Mr. Little of Nuffield College, Oxford. Mr. Little is described in the same article as being one of the two or three most brilliant economists of his generation, so presumably his views are destined to carry some weight.

The most important of his observations is that it is “useless to try to predict the future earnings of a company from any single past earnings growth ratio, or from dividends, or from asset size.” Which, if true, means that the whole paraphernalia of investment analysis, hitherto regarded as the last word in predicting the future fortunes of capitalist firms, falls to the ground. According to the Observer there are hundreds of economists, accountants, and actuaries all busily engaged on such analysis in London City offices, and there must be many more in the United Stales where the whole idea started. Apparently, if Mr. Little is to be believed, they have all been wasting their time.

His conclusions were so demoralising that a prominent stockbroking firm made its own investigation. Its report confirmed that made by Mr. Little. We are left wondering why it did not get around to making the discovery for itself without waiting for an outsider to do it.

Another fallacy knocked on the head is that much of the talk we have had to listen to about the virtues of good management is so much guff. According to Mr. Little, if by good management is meant “the ability to produce and maintain a higher return than the average,” then it hardly exists, and really bad management is equally rare. Our managers, it would seem, are in fact much of a muchness. Marks and Spencer for example is often quoted with admiration as a firm with top class management, but in reality it is hardly out of the ordinary. “Statistically speaking,” says Mr. Little, “Marks and Spencer does not exist.”

We hope to report further in due course on the repercussions, if any, of Mr. Little’s revelations. No doubt our investment analysts will think of something to preserve and justify their existence.

Pump-priming
We reported last month on the Government’s efforts to stimulate Britain’s flagging economy and on the capitalists’ un-enthusiastic response.

Mr. Maudling has now cut Bank Rate to 4 per cent. and brought down purchase tax on radios, television sets, and cosmetics to 25 per cent. in a further effort to prime the pump. Our capitalists still remain unimpressed.

What they are really waiting for is a clear indication that when they start investing in further plant there will be a nice big market ready to absorb their products. In the present economic mood, it will take more than Government pump-priming measures to get them round to that.

Top firms
The Observer recently published figures showing the hundred top British firms graded according to the amount of their net assets.

The table is too big to reproduce in full, but we show on this page the names of the top twenty as a useful record. They all have net assets of more than a £100 million. In case anyone wonders why Royal Dutch Shell does not appear it is because it is an international company.

S.H.