Dear Friend


Thank you again for Plimsoll Publishing’s latest ratings of the Firm. We are considered again as being ‘Strong’ with a ‘healthy balance sheet’ which puts us in a ‘position to survive and thrive’. Of the numbers of limited company independent financial advisers analysed by Plimsoll, apparently even before the pandemic struck, one in five was ‘in a weakened financial position’ so I wonder how they are faring at the moment! Make sure your adviser (if it is not us!) has more than a couple of brass farthings to rub together as otherwise sadly sometimes ulterior motives can start to be involved with inappropriate encouragements to clients and also service or administration of clients’ affairs slipping and if that happens, it is then too late…

The Markets – Tech Again…

There are some significantly worrying aspects to the markets’ dependence on technology and especially US tech.
The phenomenon has not only been fuelled by great business results but froth which is irrational and excessive and investors may need to be reminded that bubbles do burst and indeed, FAANGTMs (‘fangs’) are especially sharp and make popping the balloon easier… So what are these extra points this time round which have pumped such additional colossal sums into the same stocks to make them rocket? This isn’t exhaustive but:

• The trend towards ‘index tracking’ and ‘passive’ investment as it is ‘cheap’… the bigger you are (good, bad or ugly) the more money which will flow to you as your stock speaks for a bigger chunk of the index in value terms so investors need more of it. Dropping 50% when the rest of the market doesn’t drop is hardly ‘cheap’.

• The gentle move towards ‘ethical investments’ – as if these US Tech giants really fit that mould (tax cheating, censorship failings, scam promoting, dubious business practices, etc) but sure enough, most EGI funds are pretending to be fluffily friendly to their innocent investors but they have filled their boots with this sort of stuff, again propelling values higher.

• The ability of naïve first-time investors (especially in the US) to trade in these stocks – you only want to buy shares which go-up and by lots don’t you? So you do a little, it works and you do some more as you have become an ‘expert’.

• The ability to buy on margin – so you open a broking account, deposit £1000 and the ‘market’ will allow you to buy say £10000 of shares. They go up 10%, hey, you’ve doubled your money – why wouldn’t everyone want to do that?

• The rotation out of traditional stocks – value – I mean, who wants to buy those guys – their performance has been awful and downhill and not only have you lost money on those but you have lost what you could have gained by being in tech.

• More advisers and investment managers feel drawn to ensuring they are fully connected to the ‘party going at full swing’ so they too drive colossal sums of money in the same direction.

• The cult of the star fund manager – in the same breath they slate Mr Woodford and vow to never again fall into the trap and yet the same principle is chased by a growing band of popular funds and managers all after the same technology dream… but this time the sums are immense with extra zeros on the end…

• Pandemic reaction by central governments releasing untold cash liquidity into the system, of which inevitably a weighty chunk finds its way into these same stocks.

• Following the last point but ludicrously low interest rates (‘minus’ interest rates too) mean that people don’t want to hold cash and so they buy stocks, etc instead, so what better than the popular stuff?

Oddly enough (meaning ‘not at all oddly’), vestiges of the Dot Com bubble are very prominent – and the Wall Street crash of 1929. Then, the escalation was based on the modern technology of its time – electricity and its accessibility being rolled-out (imagine a refrigerator for the first time!), radio and so on and yes, automobiles (sound familiar…) and several of these things being ‘unseen’ and intangible just as ‘technology’ connected to the internet is now? A correction in ‘tech’ remains so overdue and for many investors it will be savage – ‘value’ is so cheap that actually it should be insulated and indeed benefit from the rotation – as it did in 1999/2000.

Some little known facts. First, recognise that the British Stockmarket’s capital values (the FSE100/All Share Index) as most people hold are not at the level seen in 1999 when the dot.com bubble pushed it higher (the FTSE100 hit 6970 on 31 Dec 1999). Yes, there has been chunky income of course as well which has rewarded investors regardless but! The biggest component then was Vodafone (as it was a media, telephony and tech bubble) which represented 16% of the FTSE100 at its peak in 2000 and its shares over £4 (and now around £1.10 some twenty years after). We never bought Vodafone then but we are happy to do so now… (oddly enough, it was ‘ethical investors’ top holding then as well – and despite owning a German military components’ manufacturer…!). The Dow Jones took till 1954 before it regained the peak seen in 1929 – twenty-five years but little-known is that some of the dowdy stocks which did not enjoy the craze on the way up, like Dow Chemical, regained its peak in 1933 and Honeywell and 3M did so in 1936 and despite the Great Depression – funnily enough, people continued to buy basic goods and services from their ‘value’ providers.

Investors’ Perceptions Of ‘Risk’

We have been reviewing a number of new clients’ views of ‘risks’ and these sometimes make very interesting reading. We all have to start from the premise that there is risk EVERYWHERE. Nothing in life is risk-free but what matters is how you define it, recognise it and then manage it. However, the concept that one asset class is riskless is very disturbing and that is yet again, residential property.

What confounds us sometimes is when a risk questionnaire is completed and the investors says that they are not prepared to tolerate anything other than at least returning 100% of their starting capital level but they can have hundreds of thousands of residential property or holiday property aside from their main home. Indeed, often too they have chunky mortgages against some or all of this – gearing-up their returns and that isn’t ‘risk’?

Just because something appears to have ‘gone up’ for a very long time neither means it still will nor that it is not risky, especially having all or most of your money in the one asset class. When that asset class (houses) is also so ludicrously over-priced on almost any criteria you may care to consider, let alone longer-term equilibrium charts, the risks can be very, very significant. This article is not even trying to make a view but simply is trying to ensure that if you have residential property as an investment, you understand that you could lose 50% of your investment value and if you don’t believe that could happen, you are either deluding yourselves of the risks or certainly should not be anywhere near that asset class. The other risk is that you may think you can walk away but have you ever tried to sell an illiquid asset that others are not keen to buy? What value is that property then – and with perhaps no rental coming along either as you are trying to sell it, still having to pay holding costs like Council tax and insurance, maintenance charges and utilities… by all means use residential property as an investment but do not kid yourself that there are no risks and especially at the moment with prices continuing to be so buoyant. Remember too, interest rates are at rock bottom but there are still economic risks ahead – what if the UK has to ratchet-up rates to protect the Pound (eg Turkey at 10.25% at the moment)? What would happen to property then? Please don’t say ‘it can’t happen’ because it can, even if it is very unlikely but just recognise the RISKS and then rationalise your view of other assets and recognise that to secure the optimum returns you must take sensible risks as there is risk with everything, including rising from bed in the morning.

Investment Risk

You may remember that I talked about a hypothetical portfolio of ten UK shares acquired on the lowest point so you ‘risked’ say £100 x ten = £1000 in total? I tried to demonstrate that the upside opportunity vastly outdid the potential for losing a considerable sum. In early October that rag bag of names would have generated a gain of 125%, turning the £1000 into £2250. So you missed the best chance but if you had bought £100’s worth of each on the list even then, less than a month ago, you would today have made 16.5% and your risk still very low.

Commission For Fees?

Yes, it still goes-on. We have seen so much that we never even envisaged was still happening till we tried to help the poor Organic Investment Management investors with the scams they have all suffered. The latest client was recommended a claims’ chasing firm by their pension trustee… and who happens to be the man in charge of the claims’ firm (the trustees’ sole director…) so that was £7000 up the spout simply to contact the FSCS and ask for the compensation cheque awaiting him there. Of course, it doesn’t finish, the same ‘nice’ pension adviser then recommends an alternative financial advisory firm, all seems fine (though what the client now has is excellent so no need to change anyway but that’s another story) no doubt with some back-hander in tow.

So how does the patter go from this restricted, non-independent adviser (who only sells the products of that one company)? “You don’t have to pay anything, all the payment comes from the pension company so you can have a free review.” Guess what, the free review will insist on transferring to another company, the salesman’s sole employer’s product and then in this case he’ll pocket anything between £1500-2500 and no doubt be signed-up for an annual ‘review’ fee to come direct from the plan to him too at another 1%pa. It is immoral and really must be stopped. Anyway, I have managed to save this man from yet more but I was unable to save him from being scammed in the first place, then appointing a parasitic claims’ firm which took a proportion of his compensation simply waiting for him (the worst we have seen is 48%!) and hopefully he will realise that we can help him and we’ll do our best to look-after him properly for as long as he wants. The cost of our engagement in this instance to help sort him out – and offering to write a complaint letter to the Claims’ firm too? Nothing. Sadly he is not alone – there are far worse stories.


Please do be wary. Fraudsters also clone legitimate websites and pretend to be official when they offer enticing products to remove your cash from you. Fidelity, one of the world’s leading investment institutions, has had to issue a warning that an ISA Bond Investment with a minimum of £15000 offering a plausible 2.75-5.75% is ‘them’ when it isn’t…

You will have heard it before – use a trusted and regulated independent intermediary anyway. Yes, that may (or may not!) end-up costing you something depending on whether you seek advice or issue an instruction ‘execution only’. But by using a regulated intermediary, not only are you then protected through that Firm’s offering but potentially you are protected against negligent advice too as a consequence of the recommendation given to you, with redress through the Financial Ombudsman Service and the Financial Services Compensation Scheme if something really untoward occurs. Otherwise, if you tell your bank to transfer money to a fraudster, then really should the bank be responsible for your loss, especially after it tries to forewarn you that something might not be ‘right’? After all, it’s not the Bank’s money but other customers who have to pay for any losses the bank has to incur on these things.

Equity Release – The Next Big Scandal Waiting To Errupt?

We are hearing of far too many cases and all too often of ‘Equity Release’ where we have to say we wonder what on earth is going-on. Very often, more vulnerable people are involved too and they are being ‘sold’ something they don’t need, the figures involved are vast and that includes the commissions or fees to the enthusiastic salesmen. Oh, it sounds lovely to unlock some of the value of your home but is that really the best thing to do? Why do we deal with so few cases across our thousands of clients? Last week, we heard of a case where the adviser (a very nice man apparently) encouraged his victim to take £100,000 and invest £80,000 in an insurance bond (so two sets of ‘fees’) to produce an ‘income’ by cashing units (which he didn’t actually need). The Bond is apparently now worth about £60,000 without taking any income and the debt has rocketed to £200,000. We’re going to look at it but it sounds like a complaint. I still remember the last time the industry ended in scandal and this time the figures have extra noughts on the end…

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