|This really is a Happy Christmas and a very prosperous New Year! I promise this is my last epistle till 2023.|
Are we going to enjoy the traditional Christmas and New Year bounce? It’s not encouraging and the portents aren’t favourable but some year-end rebalancing may just give us some good news.
Otherwise, resolution to the Ukraine war will be the next big thing on the agenda and the inevitable positive impact that will have on inflation and global growth expectations too. Whilst generalising, it would not be such a surprise to see shares generally being 25% higher on the advent of such news and with markets like the UK already being significantly undervalued against say the US, so there could be much more to come in certain places.
Confounding the ‘experts’ who were keen to predict even more strength for the Dollar against currencies like the Yen, the Japanese Central Bank decided to tweak its policies and the Yen rose by the biggest amount for 24 years (4%), catching them unawares. It should still correct further and strongly. We are ready. Do you remember in previous eshots my extolling its cheapness and the Dollar’s artificial strength (in the face of the majority which suggested things would continue deteriorating?). We may have been too soon but better than too late.
We have also benefited from the recovery in the silver price which has bounced well and where there may be a bear squeeze in play (where those who have sold ‘short’ have to scramble to buy-in at higher prices than they sold). Anyway, that’s two nice Christmas presents for clients and nothing to do with ‘shares’!
Tesla shares peaked at $407 on 5/11/20 with expectation of being added to the S&P500 Index, an event which happened promptly on 21/12/20. So everyone with their cheap trackers automatically had a chunk of over-priced Tesla, a stock which since has fallen by two-thirds – 66% and no dividends to boot.
We had none and nothing linked to expensive US trackers nor the big US tech stocks. Of course we’ve had things which have fallen in value too but not having ‘this’ has been a very positive move for clients, especially as we had far more of the ‘cheap stuff’ such as energy which was overdue a recovery from the lows after the Pandemic. There were very few of us calling Tesla’s excessive valuation out; so where were all the other experts? We still don’t hold it – there is better value elsewhere, even if Mr Fibonacci and his graphs may suggest the extent of the decline is now a certain signal for a recovery.
So is ‘blind’ passive investment something needing linking to Benjamin Franklin’s quote ‘the bitterness of poor quality remains long after the sweetness of low price was forgotten’? We can buy anything for clients and that can and does include ‘passives’ (and silver and currencies) but not major global indices and it hasn’t for ages. Of course it is not an excuse for a high product cost either but look under the bonnet to see what you are buying.
What UK investor really wants approaching three-quarters of his money in the US and linked to the over-priced US Dollar? It may have been great for some years (peaking in late 2021) but that is no guarantee of continued ascent (probability-wise, the opposite in fact). Engaging an investment manager such as ourselves to make that one ‘tiny’ change, to reduce reliance on the ‘crowd’, could be worth a lifetime’s costs you might otherwise think you are saving by paying a pittance for the wrong, cheap passive tracker.
To some, the price of the product or service is the only thing and advisers, in this context, need to demonstrate their extra worth. We hope we do – in three ways. The first, is complimentary financial advice and guidance simply by asking – that can be worth many thousands to you. This will include tax saved, wealth grown, hours of activity provided, peace of mind imparted for your Family, stress relieved, clarity in financial planning goals for you, ‘education’ shared and meetings and conversations held.
The second is by selecting the best fund management groups (we have no restrictions on company or product anywhere) for the specialist purposes we need them and not simply having something ‘because it is there’. Yes, we skew the strategies towards where we see best value too (we are not ‘momentum’ investors, especially when such tremendous, old-fashioned value abounds and typically with great, sustainable, natural income as well, such as the 4%pa our balanced strategies can generate presently). Remember, it makes no difference to us, aside from what is best for you. You are our goal – nothing else!
Thirdly, we acquire specialist funds as well, with special opportunities, like quoted funds trading at deep discounts to their underlying net asset value and funds winding-up where other investors are impatient for the door. And what do we charge? No subscription fees to invest with us (as most advisers do, up to 6%) and then simply a management fee for managing the pot and low, percentage-based transaction costs when we buy or sell component investments (portfolio turnover is traditionally very low as active management for us means constant oversight not constant change).
2022 also reminded those theoretically seeking the lowest tolerance to risk that it may be a deception, as they were pumped into ‘government bonds’. Not us; we had none as the year opened (and for a few years) as they were so awfully dear and other things with potentially ‘comparable’ security (like secure loan funds etc) were so much cheaper.
The average ‘balanced’ investor ‘out there’ with the average portfolio will see 40% of their money in these ‘safe’ investment and has been severely punished this year and again, with little income to compensate for the losses too. This will include charities and trusts as well – are you responsible for such things?
Yes, you could also have bought a cheap tracker of that stuff but you have really paid the price. However, it’s what to do going forwards and that is what is more important than the past – seek knowledgeable and experienced investment advice if you are not receiving that. If your adviser doesn’t have much clue about what’s happening to the markets, currencies, commodities, interest rates, alternative assets, etc, come to one like us who does have an idea!
It isn’t a game and advice isn’t buying past performers because they have been ‘good’. It’s buying today – for tomorrow and based on at least some understanding of ‘why’.
Employment, the State and paying for it!
It is an interesting fact that we now have the highest numbers of employed people ever. Most of that growth has been in the public sector, which pays what it wants to secure its employees though with job shortages, it isn’t being very successful at that.
We need our public services and the staff deserve to be appropriately rewarded and respected, but 426,000 roles have been added from September 2018 alone, to a record 5.8million – what are all the new roles doing and how do we measure their productivity?
The Public Sector has grown four times as fast as the private sector between last and this September. Whilst the public sector’s output counts in economic growth too but we must never forget that at the end of the day, it is the private sector which creates the ‘extra’ money to support our great public services.
The public sector is funded by taxation as well and so it becomes an ever larger part of the annual budget, especially with the most generous packages including salary-related pensions no longer universally available to the private sector. Perhaps we can hope that as we have entered post-Covid that State job numbers will start to go into reverse to a lower and more affordable ‘normal’? We also hear too that early retirement and financial affluence (contrary to the media’s portrayal of everyone’s destitution) has enabled a record number to leave the overall workforce these last few years and that hasn’t helped to fill the jobs – will some of those want to return to work I wonder!
Have a peaceful Christmas
Anyway, ‘tis time to reflect on the reason for the celebration this weekend and to relax, enjoy and remember those less fortunate than ourselves as well. God bless.
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