Callum Abbot JPM

Written by Callum Abbot

November, 2020

In association with

The long and short of it: Review of the markets in October

I went out for dinner with my wife this weekend. It was the first time we’ve been out for a few months and probably the last meal out before our second child arrives …and, therefore, the last meal out for some time! I must admit that while I was looking forward to the meal, and the experience of going out for dinner, I was also curious about how current restrictions and rules had changed the dining experience. 

Our behavioural finance investment process considers some of the behavioural biases that investors and, therefore, markets exhibit. These biases can be seen in many parts of our lives and can be observed in how people behave in light of the current situation. 

Humans behave differently when they know they are being watched. We condition our behaviour to be socially acceptable and within the parameters of the law. When we are alone, we tend to be more relaxed and expressive.  I often do a little jig whilst listening to the radio in my kitchen but you won’t see me moonwalking down the street with my headphones on.  

How many times have we seen a public figure’s indiscretions exposed? Prior to exposure, their behaviour is brazen and indulgent yet under the glare of media and public scrutiny they typically become repentant and vow to change. It is not always clear if they are sorry for their behaviour or sorry they’ve been caught.  

Jeremy Bentham developed the concept of the ‘panopticon’ in the late 18th Century. The original concept was an architectural design for prisons. The idea being that from a central position a single guard could observe all prisoners. The prisoners would not be able to see the guard and, therefore could not know if they were being observed. Prisoners would have to assume they were under constant surveillance and behave accordingly.  

This concept is well understood in the modern state. All cities in the world have some CCTV in operation. They are not there just to provide evidence of crimes committed but also to deter anti-social behaviour. I do not intend to get into a moral argument of whether this is a good or bad thing for society. I merely use it to illustrate that most governments are well aware that surveillance is a mechanism for encouraging compliance.  

I spoke in my blog last month about the need for nuanced policy to curb the spread of the virus whilst achieving as much economic activity as is possible. At the extreme end of policy is complete lockdown, which does temporarily curb transmission but is undesirable from an economic, social and health ex Covid perspective.  

The government has decided that a full lockdown (albeit with schools, colleges and universities remaining open) is their only option.  Their plans to use a range of less onerous restrictions, to avoid a lockdown, have not managed to tackle the situation as they had hoped. There are now concerns that the ’Eat out to help out’ scheme may have indeed been a significant contributor to the increasing number of infections.  

Whilst claims that up to 20% of the recent cases may have been as a result of this scheme, there are still 80% of cases which need to be accounted for. In a pub or restaurant customers are observed by other customers and by restaurant staff. Everyone knows that contravention of rules will likely be observed, judged and may result in them being removed from the premises and, in extreme cases, the authorities being called. 

It may be logical to have people socialising in an environment where they are observed and there is a third party (the staff), with significant self-interest in enforcing the rules, controlling the environment.  

Public Health England data had suggested that only 3-5% of CV19 clusters can be traced back to pubs and restaurants (Source FT). Greene King, who operate 2,700 pubs has received just 27 test and trace contacts since July (Source: The Financial Times) and JD Wetherspoon estimate they have had “46 million customer visits to Wetherspoon’s UK pubs since 4 July with no instances reported to Wetherspoon through the NHS test and trace system, or from local health officials, of a transfer of the virus from staff to customers or vice versa – or among customers” (Source, JD Wetherspoon Annual Report). 

This is not to say everyone plays by the rules and, of course, alcohol reduces our inhibitions. I have seen several pictures and videos of people outside city centre bars drunk and not socially distancing.  

However, we must be wary of our cognitive biases when looking at images like this. Availability bias is when we will overestimate the likelihood of events with greater availability, i.e. we see a group of people outside a city centre bar drunk and not adhering to social distancing and we assume that is happening in pubs, bars and restaurants across the land.  ONS data suggests there are 39,130 pubs and bars in the UK. The vast majority of these pubs will not have had anything like this happen in or outside of their premises. For restaurants, which have a natural turnover of customers, it seems unlikely that drunk people are regularly getting out of hand after 10pm.  

A curfew at a specific time forces people out of all venues at the same time. This may have had unintended consequences of grouping people together outside of a managed environment where enforcement of social distancing is more challenging – the streets or public transport. It may also lead to people continuing to socialise in private settings.  

I do not have data on these potential unintended consequences and I am wary of making assumptions given what I have already said. However, I do believe that people’s behaviour in their own homes could be less observant than when under surveillance in a public venue. With everyone being forced back to their homes, and with the festive period approaching, are people going to try to have gatherings hoping that their neighbours are either not very observant or bothered? 

To give you an idea of the publics’ tendency to not adhere to rules. Sage minutes state they believe just 20% of those reporting symptoms of Covid-19 in England report fully self-isolating by staying at home (Source: The Guardian).  

Stricter policy is not necessarily more effective if it does not achieve its purpose or creates unintended consequences. Minutes of Sage meetings suggest they thought the curfew would have marginal effect (Source; The Independent). When pushed on what evidence the government had for imposing the 10pm curfew on the hospitality industry, government officials have been vague or used phrases such as “commonsensical” (Cabinet Minister Robert Jenrick on Sky News).  

Around 3.2 million people work in the hospitality industry in the UK (Source; The Independent). The livelihoods of these people must be treated with respect. The government is facing an incredibly difficult challenge and they will be judged unfairly with the benefit of hindsight. We will only find out how effective current policy is in the weeks and months to come, but I hope the government’s recent decision will have the desired impact of reducing the number of cases, and the strain on the NHS, without other, some may argue, equally damaging impact on society.   

The Long and Short 

A rather lengthy blog so I’ll be brief.  

The Long 

Ashtead: Rents construction and industrial equipment primarily in the US. The company has a structural driver as equipment users increasingly rent rather than own equipment and its trading has held up well due to the relatively sharp recovery in the construction industry.  

The Short 

Biffa: A waste management company. Over the next few years Biffa will be investing a lot of their cash into energy from waste and plastic recycling projects. On its own this is an attractive area. However, this will only just offset the loss of earnings from their landfill business rolling off, meaning they are running hard to stay still with a bit of execution risk thrown in to the mix.  


The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. 

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