Well, this time I am reminded by the FCA that the number of financial advisers has been creeping-up since the 2017 nadir and is now 36,616. In 2010 there were 49,599 registered advisers, however. It is a good career with plenty of variety, but I fear sometimes new entrants can imagine that they will be fully skilled within weeks of starting a traineeship and well, it just can’t happen that way. There are vacancies and practicalities allowing, we are always keen to consider possible applicants to join our team. Indeed, unrelated to that but if you are diligent and conscientious of any age, with common sense and are organised, capable with word processing etc, can communicate well and a fair mathematical ability, please drop us a note as our Team is always keen to add to its numbers!
So, what is new this week? Sterling is pushing its highest levels since early 2020, primarily recovering the excessively pessimistic ground lost in the run-up to Brexit and the oil price keeps nudging higher. That latter point will be curious – as so much ‘virtue signalling’ is going-on at the moment under the ‘Ethical Investment’ (ESG) banner that strange outcomes are inevitable – like ‘big oil’ overpaying for ‘green energy’ to offset their exploration needs (as oddly enough, most of us will still be using oil in one form or another for many years to come even if the trend is rapidly downhill). There aren’t many electric lorries delivering goods to all the shops and supermarkets from which we buy things – let alone in powering the plant manufacturing things in the first place, here or in China. From a pure investment perspective, oil companies offer some compelling value now as so many big managers follow a ‘total exclude’ approach and the flip side is that most things fitting the ‘ESG’ label are sorely over-bought (as there aren’t too many of them to be frank) so big money chasing a small commodity and guess what happens – before the bubble bursts of course. All types of spurious cons and ‘exciting’ technology which will never be fit for purpose will no doubt grab lots of that loose money too and naïve but well-intended investors will be left nursing the losses, duped by the slick marketing by investment funds and managers who will have become very unethically rich off their backs in the meantime!
There is no ‘one best’ route for investing. There is wisdom, strategy, discipline, balance, spread and all those things which we must remember at all times and to help us stop becoming ‘carried away’ or indeed over-exposing ourselves to something which then constitutes big risk (a single stock, fund, sector, geographical market, investment type, etc). Sometimes it is wise to have something ‘just because it is there’ too though I prefer it when it is also ‘under-valued’ in our view rather than exceptionally over-priced (even if it can always become even more expensive).
The last year has reminded us of one other thing – that is that sometimes you need serious doses of patience. You need to hold something which may have had a dismal past and indeed not look especially bright, as if there is going to be some trigger for something different to happen; you just need to have it, rather than ‘not’. No, I am not talking about Premium Bonds here where sadly you, my reader, will not win a big prize and you will be lucky if you receive prizes averaging the interest which the prize kitty receives (a paltry 1%pa) because the big few prizes are deducted before everyone else’s £25s are awarded, so stop sitting on superstition and wasting your money!).
We have had far more than our share of ‘little things’ coming really good since the Pandemic saw markets bottom in March last year. No, sadly not everyone will have them all and some won’t have any, especially if their lower ‘risk demands’ are such that their investment progress will be constrained as a result too. There is one fund (so a collective of investments) which we hold which has bounced from its lows. I have to admit to not having bought any for a long time and even when we did it was only larger investors as it was very speculative and difficult to trade even then, as it was heading for the door ever since we first purchased stock rather than giving us a bright recovery but we kept the faith and its big year proved to be 2020. So in October 2019, the price of shares in this fund, a mining specialist with a penchant for gold, were trading at 1.7p. Last month, they were trading at 32.5p yet at both extremes, if the Company shut-up-shop, sold its assets and returned cash to shareholders, they would have had a big bonus as they have always traded at a significant discount to the underlying asset value as well. It is a real tiddler, the Company only worth a couple of tens of millions even now (so think what its total worth was in October 2019!) so you won’t find anyone else who has any of this (bigger institutions can’t buy enough or sell either but even private investors won’t have spotted it). Its price has slipped back a bit and we only own 700,000 shares and maybe we should have continued to have added more but till last year, all it ever did was lose us money and well, clients can become tetchy and impatient too as they jab at the big loser on their portfolio report (whereas the big winners have already gone – sold at a profit, so relegated to history and out of mind)… What it reminds us however is that even if your £10,000 portfolio had a mere £250 in that investment at its bottom, that one investment alone would have generated a profit for you of £4,390 from trough to peak (so 44% on the whole pot!). That was a price increase of 17.6 times! And the maximum risk to the investor? £250. So next time you criticise an investment which your manager has acquired and yet which may not have shone as hoped… remember what potential there can be in an over-sold, wholly unloved situation in which he might still has some ounce of faith to justify continuing with it and yes, of course it is not always right but sometimes, the investment tail on your portfolio can be what makes the running on the whole account! 2020/21 was one of those years it seems and well done if you were patient – and that includes most of our clients!
Of course, then there are the ‘cost-conscious’ investors. Of course, the reality is that we are all cost conscious and we no more so than on behalf of our investors. If we can make more for clients then happier clients stall longer, silly! However, the last few years have created a new breed of investors ‘who know the price of everything but the value of nothing’. They invest in very cheap index-trackers yet don’t realise that two-thirds of their money is in the US, their strategies have little, well, strategy and purpose to fit their needs and risk considerations, they can’t manage the pot and can’t make adjustments as things need adapting and they begrudge a ‘manager’ or ‘adviser’ the odd annualised percentage for doing that for them. We also seek the technical trading opportunities they won’t be understanding too – discount plays on Investment Trusts for example that have nothing much to do with market movements that if I could quantify over the last year would have far exceeding all the fees from everywhere and more, for all our clients, especially Trusts which had gearing which we acquired last spring too. However, with these investors’ search for headline ‘cheapness’ they wouldn’t know what we’re talking about – let alone the financial planning benefits upon which we can guide and advise year-in, year-out and about which they are ignorant too, as that is also our specialism.
So is it a ‘bubble’? There are plenty of signs – almost incessantly. So an online dating app floated in the US last week. I have to say I had not heard of it – ‘Bumble’ – a company which reported a loss of $117million in the first nine months of last year on income of $417million. The shares, already pretty dear when floated, fed the online ‘FOMO’ investor frenzy (fear of missing out) and the shares rocketed 77% higher still. So what total value would you place on a company which reported losses of $117million? $140million? $1.4billion? No, after raising $2.2bllion from new investors the day before (at $43), the figure at the close of business was $14billion. It reminds me of the Dot.com/TMT bubble when the 5G mobile licences went for such a colossal sum that instead you could have bought all the supermarkets or, oh well, what does it matter… the same sort of people won’t want to be listening today but guess what, we’ll bumble along with our supermarkets now, all the same. I think the canary in the mine died long ago and the poor bird was stuffed and fitted with a robotic mechanism… hey, that reminds me, have you invested in the latest AI and robotic technology stocks (especially those refitting deceased canaries) as they are the place to be (fulfilling the ESG ‘ethical’ criteria neutrally – no dead canaries used in their production)… only kidding… Apparently only 13% of investors think that US shares are in a bubble (Bank of America Merrill Lynch ‘sentiment test’) and most have been piling out of cash into shares . Do I become more contrarian (independently-minded and not ‘opposite’ for its sake alone) the older I become or the more experienced I wonder… trouble is, whilst I am not perfect I have form… but I know instead what we are doing to try to protect our clients anyway. The ‘Sweet Shop’ has plenty of unloved jars on the shelves with great value regardless of ‘that’ should I be proven right. If Tesla shares drop by 75% will it affect us? No (well possibly positively as the same sorts of investors all look to exit to buy our sort of ‘value’ instead). And not necessarily talking High Street interest rates but did you know that long-dated UK Government Bond yields have crept-up from 0.75% at the turn of the year to 1.24% now. (That will start to have a negative impact on those thinking of unlocking final salary pension transfers too don’t forget! That is a move of two-thirds in one key factor used by actuaries! If you have big deferred pensions it may be time to look at that transfer value quickly). Check US inflation rates too – the portents may be there.
Bitcoin, as it nudges the $1trillion value mark (passing $50,000 a coin) for a non-existent ‘thing’ valued on sheer confidence and nowt else, reminds me of the South Sea Bubble, a 1720 speculation.
It started with honest and rational beliefs in the prospects which an investment could unlock, effectively the opportunity of phenomenal returns for trading with South America, a monopoly given to the South Sea Company. This was granted in exchange for a loan of £7million to finance the war against France.
When the shares were offered, they went for ten times their value almost immediately. All forms of companies joined the bandwagon, offering investors similar opportunities to profit from the vast riches which this far distant, unexploited opportunity represented. Yes, other weird and wonderful entities also capitalised on this feeding frenzy of instant profits by the speculation (satisfying today’s impatient people who want excitement today, paid-for by tomorrow). To remind me tangibly, I actually have an original share certificate from 1720 in ‘New South Sea Annuities Ltd’. On the way up, this bubble built on faith and confidence and nothing much else (as the underlying valuation principles and fundamentals were forgotten long before) decided to burst. Vast fortunes were made by many on the way up but even vaster fortunes were lost by far more (and also the masses who had joined-in) on the way down as the dreams evaporated into the mist from which they materialised in the first place. The euphoria which had driven the frenzy, built on grand-sounding and often rather rational visions for the underlying companies being sold, turned into the reality that there was no asset, no prospects of the magnitude suggested and certainly not without considerable additional capital expenditure even to be able to send the odd ship to these relatively unconquered lands to bring back some booty.
‘Porters and ladies maids who had funded their own carriages became destitute almost overnight. The clergy, bishops and the gentry lost their life savings and the whole Country suffered a catastrophic loss of money and poverty.’ Suicides became an almost daily occurrence. The Postmaster General who contrived the idea took poison and his son, the Secretary of State, was saved the ignominy, by contracting smallpox and dying. The original company’s directors were arrested and their estates seized but that was little compensation. The Chancellor of the Exchequer and several MPs were expelled in 1721. King George I and several other royalty (as well as his mistresses) also fell into the trap. A John Smith and also Robert Walpole sorted the mess as best as they could – Walpole had been against it from the start. He created a ‘Sinking Fund’ to repay a goodly chunk of the Country’s colossal National Debt. Now there’s a thought for the Country’s present mess I guess! Today’s investors won’t even have a Bitcoin to frame – as they don’t exist…
St James’s Place
This company is under attack over a rouge ‘partner’ again. This time one of its salesmen was pushing a number of dodgy high-risk funds which all went sour, one resulting in Serious Fraud Office charges about a Caymans’ land-banking scheme – I mean – really? The salesman used his status as a St James’s Place Partner to entice people to invest. Quite appropriately the clients would assume that as a regulated adviser under the SJP banner that any and every thing he is advising is covered under that banner as it is up to SJP to manage its ‘employees’ which are, after all, ‘restricted’ in the advice they can give. In fact the reality is that SJP salesmen shouldn’t be reviewing nor giving formal guidance on other companies’ products at all – they have no regulated authorisation to do so. Yes, they can give generic comment and curiously it is often the case that the advice is ‘transfer that to us’ as that is the only way the salesman and the company will earn their considerable ‘fees’ (used to be called commission…) from the business – odd that. This is not the first time investors, assuming they had the umbrella protection, have lost either and I suspect it won’t be the last because after all, how is the individual client meant to know what is or isn’t within the remit of the rep in front of them to be selling? I shall remind readers too that if the rep is regulated by SJP but then engages in unregulated things not covered by their relationship it means they are actually breaking the criminal law – there’s a thought. Of course other work like Will writing or tax advice won’t be covered either. I wonder whether these particular miscreants will go to jail. Really, SJP – pay up and tidy-up your management of your reps instead! If you can’t do that then investors will wonder how good your regulation of the advisers really is for all sorts of other things too!
Finishing on this Company but do its clients really know what they are paying in fees? It’s a great marketing outfit with lovely words (like ‘partners’ for salesmen of a restricted product range and deceits on their lack of independence like ‘carefully chosen fund managers’). The worst of all is the up to 6% charge (hidden within the product purchased of course) on your lump sum investment. They also charge large annual fees which go to the Company and also your representative (whether or not they are giving you a good and necessary service). You also pay the underlying investment companies contracted by SJP of course and there are the usual buying and selling costs involved with the underlying investment components within the restricted ranges of funds offered (as they are not independent). So how are we different? We charge no subscription fee at all so that saves 6% (a ‘mere’ £12,000 on a £200,000 investment in your ISA or Pension for example). That £12,000 remains yours and to work for you. You pay a management fee to us for the diligent daily oversight and necessary management of the investments but we also don’t charge any ongoing advice review fee whatsoever (saving you anything from 0.5-1.5%pa plus VAT on top). Granted with SJP’s size they can secure economies of scale on some things, etc (but that works against them as there are so many opportunities they are too big to buy) but we are totally independent and can buy things they can’t and won’t as there are no back-hander deals either, for SJP itself as it enjoys now. Just how valuable is the ‘charming’ representative who services your account…? Do you really know how much you are paying them and do you agree with that as it comes regardless of results too.
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