It’s more than 30 years since I wrote my first Investment Review, delivered in paper form, courtesy of the Royal Mail, and to interested parties at a postage cost of 22p. Thirty-one years on, both the price of postage and the level of courtesy have changed considerably.
It was a forward-looking review, which is unsurprising, given that Ruffer at the time had no history – we were a business trundling slowly down the runway in a light plane on a long journey. As I approach retirement, this will be my last formal review – the pen may be silent, but the thought processes will continue. I shall continue to meet with my former colleagues and will thereby find myself ensconced in the happiest of circumstances, having the power of articulation but without any responsibilities.
The history and theory of investing is as old as the history of warfare, and one might reasonably think that all that could be said of each of them has been already articulated. The greatest ‘insight’ to become a reality in the 1980s was Jack Bogle’s. It was a simple one: if you are happy with average performance, then why not enjoy an above-average performance by investing in a low-cost index-hugging mutual fund? This simple idea – which transcended any insight as to the nature of an investment – has changed the face of the investing community. It has conquered the world by its monopoly, shielded from greedy competitors by its negligible price.
In modesty, I have to concede that an idea which now controls some 40% of the world’s equity and fixed interest markets is better than my contribution to the efficacy of investing. Ruffer Investment Management’s first glossy brochure stated that our investment strategy consisted of running risk portfolios which were designed not to lose money in any calendar year. Even accountants know that risk amplifies risk as well as reward, thus only riskless assets can claim to be free of the poison of capital reduction. And here was Ruffer, with no track record, saying you can have your cake and eat it.
The universal response: Jonathan Ruffer’s a lovely guy (I can only agree with that assessment), and what he’s offering, if achieved, would be wonderful. But something that is too good to be true is, er, well…not true. That was in 1994. In the event, it took until 2018 for our first failure to meet our objectives, although some years effectively produced nothing. The going has been more volatile since, with 2023 falling far short, but our long-term track record still puts to shame the riskless alternative of cash in the bank.
We don’t know ahead of time which opportunities are going to be the actual winners and which the losers – the gold and the fool’s gold are intertwined in an inextricable embrace.
In 2023, we found ourselves accused of not doing what we claimed to do – almost as if ‘cake and eat it’ was something that could be achieved faultlessly. Despite the head wound I felt from letting clients down that year, it was hard to escape the feeling that this way of investing has come of age. When I began, our investment disciplines were as much intuitive as rigorous. Today, they are incomparably better – so much so that I find myself (against all the evidence) lost for words. It has been a pleasure to report meeting our objectives strongly in 2025, a year which has increased the long-term track record of Ruffer.
How risky is the strategy? At one level, we concede that our aim not to lose money in any given year is a parallel claim to most professional investors’ ambition to ‘beat the indices.’ That ambition is accepted as an aspiration, and even the very best will achieve it only intermittently. The ‘beat the indices’ target has a defect in that, in the ebb and flow of performance, at certain intervals the bad investment professional will look rather good, and (of course) vice versa. So, for an investor adequately to gauge whether their decision to hire a manager was a good one or not requires a commitment of an unnervingly long duration. Ours is, by contrast, an absolute target, judged annually. We can safely be sacked much sooner than our index-related competitors.
What, then, are the characteristics of what we do? The only reason it works is because investments routinely, regularly, become either too cheap or too expensive. While only riskless commitments guarantee no loss, all of us can see that the imperfections of a real-live market allow for an imbalance of risk and reward, some favourable, some unfavourable, in specific investment opportunities. There is, of course, always an elephant in the room. We don’t know ahead of time which opportunities are going to be the actual winners, and which the losers – the gold and the fool’s gold are intertwined in an inextricable embrace. While each individual opportunity might not give up its secrets as to future performance, it is often possible to juxtapose two (or maybe more), which removes the unknowable risks and offers each-way upside. The ideal might, for instance, be a set of investments which do well if the oil price goes up, and a different set which will create outperformance if it goes down. In this simple example, the result is to create a different risk (eg political risk), which must then be considered separately. As a result, an investor in the Ruffer strategy is diversified away from market risk and left with the risk attached to our judgements of juxtaposing assets and portfolio construction. That is the skill we employ. While the strategy is simple, the execution is often complex.
What we took for wisdom 18 months ago has turned out to be so comprehensively wrong that my generation really don’t know what to think and hum the tune from ‘My Fair Lady,’ ‘Just you wait, ‘enry ‘iggins, just you wait!’
Today we see a world where the thoughtless control the show and are making hay. A world where there is a generational battle going on, where the greybeards look at that world with incredulity. What we took for wisdom 18 months ago has turned out to be so comprehensively wrong that my generation really don’t know what to think, and hum the tune from ‘My Fair Lady’, ‘Just you wait, ’enry ’iggins, just you wait!’ Unlike my daughter, who is an academic neuroscientist, I haven’t quite got to understand how the brain works. But I find one quirk of the brain vividly fascinating: when humans think that some futurity is absolutely certain to happen, that thought cannot be disconnected from a second one – that the future event will happen very soon.
It is well understood that the generation now known as Boomers – those born before 1965 – have a larger share of the asset gravy than the generations which have followed. Today, to be in the top 1% of UK earners by income, your take-home pay would be around £90,000 per year; to be in the top 1% by assets, you need to own nearly £4 million, a sum which would take the 1% incomer over 44 years to accumulate if they spent not a penny in the meantime. This means that, for the first time since Magna Carta, people are not as well off as their parents, especially in the realm of housing. A successful professional, mid-forties, can see that the capital sum required to buy the house they grew up in is multiples more than they can afford, whether in cash or by borrowing. Suppose such a person has capital of £400,000, and the house they want is £1.8 million. There is no point going to a conventional fund manager who is pleased with a double-digit gain. What good is £440,000 when the purchase of a family house is required? But, if one is prepared to make an educated and well-informed foray into crypto, or AI, and achieve 25% a year, then it will have tripled in five years – and many of their contemporaries seem to have been doing this successfully for ten years or more. The only golden rule in this approach to investment: ‘Never look down!’ There will be sickening crashes and, if you try to analyse why, you will of course be strongly tempted to lose your nerve, and cash in. A lot of people made that ‘mistake’ in 2018, quite a lot in 2020, rather fewer on Liberation Day (6 April 2025), and today the warriors, as a cadre, will not make that ‘mistake’ again. This market will go on incredulifying the greybeards until it doesn’t. There’s a great line in JK Galbraith’s book on the 1929 crash, when he describes an eminent economist as ‘standing his ground’ before adding ‘but unfortunately the ground gave way under him.’
This moment is inevitable, but it need not be at all soon. If it is long delayed, it will represent salvation to those who put the motorised engine onto their monetary barge and achieved what was necessary. The question in my mind is what is its aftermath? If the uncertainties and dislocations can be managed, then, yes, there will be losers, many of them, and there will be many winners, too. But if it undermines the very fabric of the financial system, as was the case in 1873 and 1929, then the catalyst can be a mere water pistol and not the true weapon of war. In that case, the participants – the economy, the families going about their business, the high hopes of the young, the conservatism of the old – will find that the ground on which they depend gives way. The longer animal spirits control the market, the greater the ultimate confusion.
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
