Dear Friend
ARE YOU RESPONSIBLE FOR YOUR OWN DECISIONS EVEN WHEN THEY ARE FOOLISH? YES.
FSCS AND RIGHTFUL COMPENSATION
Well, more of the same it seems and with quite wild daily fluctuations continuing but more on the upside of late – which is reassuring. There is a sense that some things are becoming less hazy and as long as that isn’t matched by people’s reckless disregard for the ‘rules’ on social distancing, etc, then we may have killed this bug – certainly for now anyway. ‘Afterwards’ will be the time to analyse the reaction (the cause?) and whether the response to Covid19 and the lockdown were the right courses versus the economic consequences of taking the lockdown actions we have done.
We had been nibbling away at Marstons, the brewery chain, as they fell as a consequence of the lockdown and it seemed a daft thing to do despite the financial strengths of the company and the inevitability of emergence through the other side however far away that may appear. However, some good news last week when a joint deal with Carlsberg was announced and a cash injection, etc, too and the shares rocketed from those daft low levels, doubling on the day. They’re still not expensive and it would be no surprise if a cash rich foreign chain didn’t buy the lot at some point. Now is the time to feel we weren’t buying enough though it was a very unfriendly place to have been just a matter of days ago. The ‘short sellers’ will have been ‘stuffed’ too and that’s no bad thing as they thought they were on to a certain winner. Oddly enough I mentioned pub chains like this one in the last e-shot – did any of you buy…?
Companies are raising new money too. Costain’s cash-raise is good, where new shares are only 60p against the Market’s 74.5p today but there will be shareholders who don’t buy them despite the ‘guaranteed’ profit if they do. Compass and Whitbread raised £3billion of new equity without hassle too. On Friday, Transact’s parent even raised its dividend – a delightful diamond in an otherwise dark backdrop on equity income’s doorstep. Other companies are still buying-in and cancelling or holding stock too, using spare cash – from Tetragon to Marwyn and the others mentioned before. If you are a company or fund with cash and fools are giving-away your shares at silly prices, one sure way to increase the returns of the company is buying-in and reducing the numbers of owners so the rest all have a bigger share of the results.
The IP Group, one of Neil Woodford’s collective investments has also recovered by over 50% from its low, as it is hoped that there could be a vaccine manufacturer amongst its many biotech investments – that also helps the Schroder UK Public Private Investment Trust (which was the Woodford Patient Capital Trust) and the liquidators of his mainstream funds have now sold half their large stake in that. Its shares are also up over a quarter from the low and are arguably still far too cheap. We have enough already I guess at just under 6million shares now.
It’s a strange place out there in the markets at the moment too – with the US market dominated by a handful of companies and primarily ‘tech’ orientated. Did you know that the biggest ten count for 25% of the whole US market? Their Price-to-Earnings’ ratios average 26 against the whole S&P 500 at only 12.5 with 800 companies below 12.5. There are another 3,500 quoted businesses there, generating incomes and worth over £100million each. (In simple terms, it is the number of years it will take for the company to earn its present total shares’ price). UK averages are much lower than these – dare I say companies here are much cheaper.
Still, volatility continues and it is ‘unhelpful’ to see just a few pence’s movement on a share being equivalent to say 7% or whatever and this can be big companies too which have been decimated by the rout. However, it shows how important it is to be careful if you are changing horses – if you sell on a bad day and buy back in the new provider when the paperwork is completed on a good day, you could lose 20% just because of a fortnight’s changes in sentiment – wait till things are more settled. Remember too that the one day movement noted here is equivalent sometimes to a whole year’s fair expected return.
ARE YOU RESPONSIBLE FOR YOUR OWN DECISIONS EVEN WHEN THEY ARE FOOLISH? YES.
At last a Court case has found against the investor https://www.ftadviser.com/pensions/2020/05/18/carey-wins-landmark-sipp-liability-case/?page=2; this will have serious ramifications for investors in the past and indeed going forwards. What it really says, is what should have been the case long ago – that if an investor acts without regulated advice, or against the advice, or is ‘investing’ in some unregulated investment facilitated by a regulated business in an administrative capacity only, that he is responsible for that decision.
Over the last few years, a number of financial institutions have found that the Financial Ombudsman Service or the Courts have noted that the regulated firm was responsible, however foolish the investors’ decisions. The consequences have meant that many otherwise respectable firms have gone to the wall even though they had no part in the process by simply facilitating investors’ desires to invest in some esoteric or plain daft ‘investment’ that they have selected for themselves often after a high pressure sales’ attack by some wholly unregulated entity. The follow-on consequences have been that surviving financial advisory firms have had colossal calls upon them to fund the Financial Services Compensation Scheme, as well as their own Professional Indemnity Insurance charges ratcheting-up significantly to cover prospective claims from these people. This means that at the end of the day, all of us very often are paying the costs for these investors’ foolish decisions.
I don’t say this to add to the pain that these investors feel but if they sought proper advice from a trusted, regulated firm, they would not be in this boat now. If a regulated firm advised an investor (and it is often pensions incidentally), then you have redress through the FOS and the FSCS if that firm goes bust.
But if you deal with a firm which is not regulated by the FCA (and that includes overseas’ firms, many of which are bogus when they ring you out of the blue), selling such things as:-
Storage Pods and Secure Storage boxes
Airport Parking
Carbon Credits
Green forestry in Costa Rica or elsewhere
Other green scams involving solar or biomass plants (all designed to sound friendly and attractive)
Greenfield land banking
Hotel rooms in Cape Verde Islands or elsewhere
Off-plan holiday developments often with the enticement of vacations on site
Holiday chalets, cabins, luxury caravans, etc
Overseas’ properties
Property investment generally, from student accommodation or care home developments
Peer-to-peer lending where you are supporting speculative property or business ventures (which is far too many of them)
Unregulated property ‘get-rich-quick’ developments
Minibonds (the unregulated type)
Crypto currency through unregulated sources
Foreign Currency trading through unregulated sources
Binary options
Gold, diamonds, wine, hotels, bamboo, student accommodation, graphene, stamps…through unregulated entities
Have I missed any out?
You are not protected and without being unkind and however painful as you discover the failings (which also lie with the regulators who have not acted to stop too many of these things in the first place), you never should have been covered at all. The lesson is clear, invest in ‘proper things’ and through a properly regulated firm – and take advice if you possibly can or if the sum of capital involved is a significant sum to justify the cost of the advice. The industry has learnt lessons too however, in that no respectable firm will now allow you to choose to invest in a ‘dodgy’ product which is more likely to facilitate a scam at the end of the day… Please just ask one more question – why have reputable, professional firms never ever suggested to any of their clients that they ‘invest’ in such things and they haven’t facilitated it either, preferring to walk away even if a client tries to insist? And of course, this is nothing to do with normal investments going up and down in value – that is a different thing altogether.
ORGANIC FIASCO
This is coming to a ‘sort-of’ end soon and the majority of the remaining ‘investments’ being written-off as worthless and final claims possible via the Financial Services Compensation Scheme. We are sending a letter to all these afflicted clients soon. However, we are aware that yet more claims’ chasing vulture companies out there are making unsolicited approaches to clients – their confidential information has been hawked-around illegally and so it goes on. One is suggesting you can have a barrister to act for your claim. You don’t need ANYONE in the vast majority of situations and a barrister can’t do any more than we have already guided you in generic terms. The vast majority of investors simply need to contact the FSCS. You do NOT have to give-up up to 45% of the compensation due rightfully to you, for what should never have happened in the first place with your money. Please DON’T DO IT. Ignore them. That firm’s behaviour has been noted before the Bar Standards Board in fact!
FSCS AND RIGHTFUL COMPENSATION
So some LCF Bondholders will receive full compensation from their LCF Minibond scams. This is because there was a lack of clarity over which element of that firm had some form of regulatory consent by the FCA and as a consequence, it is deemed that some of the investors were ‘advised’ by the scammers as opposed to those who simply sent off a cheque. Investing with it in the first place was foolish, as the bonds were based on fraud but that makes it worse really as investors should not be protected because the FCA had not properly authorised that firm to advise, etc, at all. So upstanding financial advisory firms are the ones who will now have to pay £44million into the compensation pot to bail them out.
NEW MONEY RECEIVED
Is it a ‘bear market rally’? Whilst apparently the majority of fund managers think it is, I sense this time they may be wrong. Of course, that does mean too they have built-up their cash reserves so at some point they will be reinvesting that and chasing things higher.
In the meantime, Hargreaves Lansdown and other platforms and advisers are reporting record flows of new money from clients. HL took in £4billion alone in the first four months of 2020 though some of this will be misdirected into Cash Funds and so on it is suspected, from which HL does quite handsomely too. Clients’ total accounts sported 17% in cash in fact. Private investors can be very canny but also they can become carried away and help fuel spikes in prices and also select very speculative stocks for nice sounding reasons but which are not really the thing to buy – for example, using pins to pick which bio-tech firm is going to be the one to find the vaccine or ‘what about buying ‘Zoom’ as everyone is using it – just be wary is all I say as that boat has probably already sailed and as a company it may not be around in a few years as time marches on.
There will be some paradigm shifts in work and consumer patterns to be sure but we shan’t know what they are for a while and to try to predict which sectors will gain is hard. One negative is that many people are finding remote working very difficult in ways they had not imagined – including the loss of contact, ability to remain focused and disciplined and thus their overall productivity. Some are loving the experience but is that because it has a finite timeframe? It isn’t the same having a Church service on the net and missing the actual contact however great it is to be able to have something!
People can also do silly things because they look at how their investments have fallen in value. They can be prone to juicy-sounding scams for example, see the above. And no, TV personalities are not encouraging you to buy cryptocurrency, whatever the scam ads are pretending! So much for the integrity of the hosts supporting such rubbish – Twitter, Google and Facebook, etc.
Then what about house prices – where for them afterwards? I’d not be in a hurry to buy at the moment and if you are a seller, take the cash quick. Yes, there could be a temporary exodus from high population areas but otherwise if the economy settles at a lower level then that will reverberate across the housing market too in terms of affordability and servicing of mortgage debt, however cheap the payments.
And as an investment manager ourselves, what are we doing? Of course we are reassessing what we have and what we are going to buy. We are not going to hold the same stuff ‘just because’ but also we are not going to do a Warren Buffett and dump stuff which has been hit hard as a consequence of Covid19 at a big loss, as then there is no way back – it is too late selling things when the worst has already happened – take the Marstons’ example above. However, that may take courage and much patience and we have to be ready to demonstrate both. We shall also rely heavily on wide diversity to protect us and also to present the most opportunities and as ever, effectively it doesn’t cost our clients any more – just us and more work and hassle too but that’s what we believe is wise. Indeed, just imagine if you had half of your money in Woodford Funds for example – it would not have been impossible and some investors did. Spread your eggs around very widely.
RISK WARNING
Stock market investments can offer income through the payment of dividends and interest and good opportunities for capital appreciation over the longer term. By this, generally we mean periods in excess of five years, preferably much longer. However, we can never promise you particular returns, especially in the short-term. At any point in time but especially in the short term, your capital could be worth less than the original amount invested as some of the selected holdings may fall in value, regardless of expectations at the time of acquisition. We may also invest in funds that hold overseas securities. The value of these investments may increase or decrease as a result of changes in currency exchange rates. Returns achieved in the past cannot be relied upon to be repeated.
To remind you, why do I send out occasional emails? Because everyone can save money. We have no connection with any companies mentioned and you have to make your own contacts and satisfy your own enquiries. What is in it for us? If we can prove that we are knowledgeable and that our service and advice have good value, then you might contact us for professional financial planning and investment help. You don’t have to do that though and there’s no charge for emails. If simply they save you money, then accept them with our compliments! However, you’ll know where we are!
If you have any queries of any form or indeed any subjects you think I could include, please contact me. I also refer you to our website www.miltonpj.net. We celebrate our 35th anniversary in 2020 and have been publishing a well-respected independent column in the local Paper for most of that time and free client newsletters as well.
Do not forget however the usual caveats – this is not ‘advice’ and you are encouraged to seek that before embarking upon any financial route involving investments, etc.
My best wishes
Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB
Chartered Wealth Manager
Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers
