|I shall make a prediction now. Elon Musk’s bid for Twitter may well be looked-back-upon as the pinnacle of the excesses of the ‘tech’ bubble (and after the Nasdaq indices have suffered their worst ever month). Of course, as usual it will only be time which tells but we are still enjoying seriously cheap assets in the ‘Value’ camp. |
It’s not just that he is pledging 7% of Tesla shares as loan security (I remember Mr Maxwell did something similar but don’t quite think this is in that department!) but the distractions for this irreplaceable CEO at Tesla may well unsettle the company and its share price.
This is history’s biggest ever hostile, private takeover… and Twitter, a social media company which could still not have a viable future generating revenues by selling ‘stuff’ like advertising. Will it be like Bebo I wonder? Sold for $850million by its founder and then bought back by him from bankruptcy for $10million two years later (and now being rebuilt slowly and comfortably I understand).
As you know, we don’t hold Tesla anyway (nor other US tech giants) – far too dear and Tesla still would be at a tenth of the price now – but why would we, when there are so many ‘normal’ and ‘boring’ companies out there, with great dividends and at such give-away prices and when corporate predation is very likely, so bonuses thrown-in for nothing? And please don’t laugh but on the announcement, Tesla’s absurd market value fell by almost three times what Elon Musk is paying for Twitter… (partly as Elon sold $8.5billion’s worth of shares too).
We are beginning to see the performance statistics for some ‘general’ funds which may well have done very well as US tech spurted higher. However, now the Nasdaq is down over 20%, we are seeing who’s been swimming naked – not only having the stocks which have fallen the furthest but also not having the stocks which have held their own or risen.
If you lose 25% and other things which you don’t hold go up even ‘just’ 10% you have underperformed 35% and in a very short time, losing all the ‘out-performance’ you may have lauded for many years – and not knowing what to do ‘now’ either. I do… We also wonder what the FCA’s announcement of a ‘skilled person’ review into Terry Smith’s company will do for that investment house’s popularity – one has to wonder what correspondence had already been occurring before disconcerting publicity like this arose?
Anyway, I hope you had a lovely Bank Holiday weekend? I did and we celebrated a certain birthday milestone. It was really lovely to celebrate with Family over what turned-out to be beautiful weather as well, albeit a tad cool!
I have shared many times how we like these. There aren’t many investment managers who buy these (let alone advisers who understand them perhaps!) and for the bigger fund managers, they can’t buy enough anyway. For us, if we can add a few coppers to clients’ bottom lines for free every year, then great – it’s all the way we can demonstrate extra value by using us (or put another way, ways to fund all our costs for using us ‘and some’!)
Recently we have had two pieces of good news (though as we spread money so widely, not everyone has everything, naturally). So the first is SME Credit Realisations Fund, a secure loan fund which is winding-up. We chased the shares all the way down to 50p in March 2020 and we’ve had lovely interest since. However, its latest asset value is £1.0062 and that’s the latest repayment we are receiving for the next 25% tranche of our investment. We have around £500,000 worth – shame we didn’t have more.
The second is more esoteric, a winding-up reinsurance opportunities’ fund called CATco. It raised lots of cash as an alternative investment opportunity and yes, unfortunate underwriting hit the Fund and the share price declined to levels where the Company decided to give-up. It has been repaying cash as insurance positions have concluded. Early investors may well still be in loss but in June 2019 the share price was 13c. We were buyers then too but as the Fund shrank, it became harder to find stock. We have just had a £373,000 payment worth 35c a share and there is still a little more to come. However, a three-fold increase in less than three years and from a low risk asset is always very pleasant, even if, no, we didn’t buy all our holding at the lowest levels regrettably!
We are always careful with these sorts of things. We believe in each instance we saw very low risk opportunities, simply as impatient investors sold-out as they didn’t want to be in winding-up funds. We have some which have cancelled their listings to save costs so they can’t be sold but just before that happens, often the share price drops even further as people sell at any price, so we nibble-away even if we have to wait what can be a few irritating years. Remember, in both situations, these were low risk opportunities not related to the ups and downs of the stock market like other shares, really investments just waiting for the cash or cash equivalents each fund held/holds to be distributed to we shareholders.
How to lose $400million in three months… Arbitrageur Bill Ackman lost this sum when he staked $1.1billion in January. Probably the biggest mistake was buying it and the second was dumping it after it had bad results, creating the outcome… he’s usually more shrewd, I have to say. Netflix is emulating Facebook’s tumultuous performance – it is now down 75% from its high last November.
As we predicted, the tech titans which drove the US market and so many ‘luvvy’ stocks and funds which had too many of them, are beginning to reap the results of their reliance on the over-blown hopes of tomorrow rather than the realities of today. Another one I have been watching is Wayfair, yes, the furnishings firm which advertises heavily here – in March 2021 it was $343 a share and since has been as much as 75% lower too.
Could this happen to Apple, Google, Alphabet, Amazon, Nvidia, Microsoft, Tesla? No of course not – but hang on, yes, it easily could. We have no direct exposure to any of these nor any funds which are bloated with them.
In the news
The FCA has announced new measures to stop miscreant firms removing funds which could be required for compensation and Mr Felix Milton has commented to the FT:
Advisers criticise FCA for taking too long to use powers on BSPS advice
We’ve added – why does it take the FCA so long to act and even then, to act at all? ‘We will act swiftly’ means after three years… When will the FCA realise that it has had powers considering probity and general integrity both of firms and directors since it was created?
I am not alone in knowing that despite the FCA being informed of unacceptable behaviour by individuals connected to scams, negligence or malpractice, too many of them continue to find space in the regulated world. I have reported so many cases of concern yet it seems nothing or little is done and even when it may be, too late. Yesterday, such an order was also made against an entity called Alexander David Securities too – one we flagged to the FCA some years ago but you’ve guessed it – no action being taken at the time.
Regulated individuals and directors of firms have legal responsibilities and if they’ve taken funds from companies which then go bust then there are already powers to investigate and remove personal assets under general legal powers – why is a special directive needed (and after the horse has bolted)? If as a regulated firm (and its auditor) you fail to make provision for a prospective liability (BSPF being an issue which these firms would have known three years ago) then you are in default already and your accountants are negligent (maybe even Money Laundering breaches are involved).
There is little point in telling the FCA about potential fraudsters it seems as it does little about them. That is sad and especially when fraud is as rife as it ever was.
Did you know that 2,458 pensioners in North Devon receive a Pension Credit? I am joining our MP, Selaine Saxby’s campaign to try to encourage the estimated quarter of all State Pension recipients who qualify to make sure they claim!
Yes, I know that sounds odd but if a valuable benefit is there (especially with escalating living costs) and you are entitled to it, then you must claim it because you deserve it! You can check here:- https://www.gov.uk/pension-credit/eligibility and even if you receive other benefits or have savings you may still qualify for a top-up to the maximum State Pension.
Pension Credit tops up:
• Your weekly income to £182.60 if you’re single
• Your joint weekly income to £278.70 if you have a partner
New and onerous rules start on September 1. You may not think you are affected but have you registered any Trusts for which you have responsibility? We have been finding loads and helping trustees register, all new costs too I am afraid to say. All trusts must register aside from a few types exempted specifically. We feel that the requirements have gone from the sublime to the ridiculous now and the innocent will have to incur all these costs yet few, if any, will be channels for ‘Money laundering’, which is the ‘excuse’. So far 150,000 trusts have registered but it is estimated that another 850,000 are now due.
This could catch amateur parents and grandparents holding investments for children or life policies/bonds written in Trust to ensure the proceeds are outside of the estate on death. Trusts for vulnerable people or arrangements to protect capital from divorce or bankruptcy may also have issues.
No, a JISA is not involved. Estates that are not distributed within two years of the death could also be caught inadvertently. If you’re not sure, contact us or else… watch out for nasty penalties. Trustees are personally responsible for their negligence – not the Trust!
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