So the Dow Jones pushed up again, breaching 40,000 and almost double its March 2020 pandemic low. At the depth of the financial crisis in 2009, it was 7,062. Still, you know my sentiments in the short-term here… what possibly could go wrong over there?
How are investments similar to politics?
Well, here’s one. Over the years, we find one of the most costly mistakes made by investors is to lose patience (some of that is because they don’t have a relationship with a trusted and knowledgeable adviser to be able to chat-over things too, so the ‘red button’ for a ‘sale’ is too easily accessible).
For us, active management is constant oversight, not constant change. It’s hard – say if because of superstition you don’t dump a bad asset (eg not wanting to face a loss), when that is what you should do based on the prognosis (either a poor future view or that the money can work harder somewhere else).
However, more often than not, the masses do ‘just sell’ something which in their eyes has fallen or ‘under-performed’ something else (either an individual investment or even a portfolio or a manager/style). That is often where we find there is fantastic value lurking, where the good, bad and ugly are all embroiled together. Some of our best investments over the last few years have been the most unloved which became too-loved! And yes, there is no special recipe – and we may have seen an asset drop significantly in price (and some may die altogether) but we have chased them to the depths of unlovedness (again, not from superstition but where the fundamentals, to us, were compellingly attractive). However, we protect the downside by having nothing presently over 2% of all client assets.
So where does the political link come? Well, this election (all elections?!) is all about ‘change’ and a sense of ‘fedupness with one’s lot’ is being pushed as a giant reason for ‘change’ but is that better? I’m not saying either but voting for change just because it is different is irrational and unwise (just as selling an investment or changing a manager from frustration is), however rosily such ‘change’ is being dressed-up and all the main parties are doing their best to push their ‘change’ agendas going forwards.
Will this be an election when the change pledges win, or where it is again a case of ‘better the devil you do know, than the one you don’t’? I think too that as with many elections, a party doesn’t win – the others just lose them. I hope that whatever the outcome, we don’t have serious regrets that there are many things we shouldn’t have changed at all and that the new lot is far worse than the old. Please think carefully before you place your cross!
Minority investing
I hadn’t realised how much we were in the minority. Daniel Rasmussen’s article in the FT on 24 May noted how remorselessly these last 15 years that investment strategies have shifted from undervalued companies to go-go growth ones, ‘hollowing-out’ the value investment community which has shrunk to the ‘aged’ with records pre-2009 (financial crisis) to endure them. Yes there was a great rebound post-covid and one is afoot now it seems. I suppose for us, it is the age-old concept that ‘value will out’ as the fundamentals are facts and not hype and hope alone, as drives speculative fervour. Ok, yes, I am older and I have been working in financial services and with investments for 46 years…
The article notes how AI is driving growth but also that the undervalued businesses could be the biggest gainers from the introduction of the technology and hence exponential gains in more basic goods and services. Maybe, maybe – but it is in there for free presently, in the price of so many ‘value’ assets.
With all new technology, investors seem to forget that in due time, the price drops, other players enter the market and share values almost invariably sink-back to ‘normality’. Note the roll-out of electricity, white goods, radio and TV, the internet and dot.com bubble and now AI in its infancy. When Nvidia’s market worth has now exceeded Amazon and Tesla combined and marching on to be the most valuable company in the world (after hardly showing on charts in only 2022). This is after registering a one-day gain of $220billion, more than the value of all of Shell Plc, the biggest company on the British market.
A warning
Lots of concentration is spent on ‘what’s it cost’ and ‘investment risks’ but here is a sobering warning from me. Many times over the years we have been in business, we have found that we are a crucial barrier to our clients being scammed. ‘Of course that won’t be me’ exclaims the reader but here is yet another sorry tale:-
Yes, this is the safety from the simple fact that they – or their elderly or vulnerable relatives or friends – have entrusted their main investment capital to a regulated firm of integrity to look-after it for them, with all the protection which comes alongside that for them. Believe you me too, £30,000 is one of the smaller such scams which can happen in so many different ways, including all the guile to convince even rocket scientists to part with their funds to some fraudster. Scammers know how to push your buttons. The more vulnerable you become or even are on a given day, week or month, the easier it is.
No, ultimately we cannot stop anyone being foolish but we can ask questions, monitor the apparent pattern which a person may be seeing which can lead to duress or simple fraud and that can also come from family and close friends, sadly. So, both for ourselves let alone our infirm and ageing relatives and friends, the value of having an entrusted relationship like this can not only be very comforting but the best investment you and they ever make. On top of that, not being morbid but it makes life so much easier on death too – and our service offers ongoing guidance and advice on all aspects which can arise – including care funding issues, let alone tax, etc and most of it is with our compliments, within a simple package which includes us looking-after your money for you professionally.
Please don’t let yourself – or family members – be the latest victims, because you can do something about it. If you don’t (when you can do something about it), maybe you’ll only have yourself to blame.
Commercial property – stop press
Further to the comment last time but apparently commercial property funds/levels in global investment portfolios are now the lowest they have been for 15 years. This too is a very encouraging sign for the contrarian, based on the real underlying fundamental values and despite the headwinds suggested.
Shires Income Trust
You will recall my mentioning this investment last time and the discount widening and thus the opportunity. The latest factsheet to 30 April has just been published and it shows that the net asset value of the Trust rose by 26.5% over five years and the share price by a mere 10%. I like the portfolio and the 6.1% income yield and in a nutshell, buying the stock in the market at the 30 April discount of 14% represents a double reason.
If/when the discount disappears (as it is likely to do) investors will enjoy the maths whereby their investment will rise by 16.2% regardless of what the underlying assets do. How much is that worth in ‘costs’ you may pay us (or how many years’ total costs)? Of course, it may stay at these levels or widen but we are not in a hurry and if the market doesn’t sort things for us, then it is likely corporate action will. No, this is not a recommendation.
Investment Trust buy backs
According to Winterflood’s, last month was a record for Trusts buying-in and cancelling their own shares, improving the returns for all the remaining shareholders on the technicality. 118 Trusts bought-in, involving a total of £620million (just below March’s sum). This technical situation helps to create bonuses for investors in Investment Trusts beyond what the underlying assets themselves will generate.
Good news/Bad news
GCP Asset-Backed Trust shares moved up on repayment of a large loan to it at a premium to the figure in the books. This paves the way for an £85million cash repayment to shareholders at a 20% premium to the present share price as the Trust is in wind-down. We may keep buying! Remember too there is still an income yield of just under 10%.
What does this mean in pounds shillings and pence? I have mentioned this Trust several times and our chasing the price all the way to the bottom. The merit for buying was that it was a large portfolio of secure loans, with high interest rates giving us great income. The market wobbled and investors (mainly institutions) were keen to dump stock regardless of the fact that the assets were like cash and well diversified – so how much safer for investors are such secured loans? Of course there are other facts, opinions, issues and risks but our view is that these were more than in the price. What would an investor have seen so far? No, we didn’t buy when the Trust started, at £1. No, we didn’t buy all our shares at the absolute bottom either but strong gains have made it our biggest asset.
1. Lowest price on 24/10/23 52.6p (the lowest we paid was 54.5p).
2. Capital rise from then till now – 44%.
3. Income received since then 4.74p (equalling 12%pa)
4. Capital gain/income from then on the first tranche of shares being redeemed now at 89.7p (net asset value) – 80% (excluding costs)
It is good the Trust is closing-down as we shall receive the full realisable net asset value in the end. However, it is also bad as this type of vehicle filled a valuable place for investors too so its removal limits opportunities for such safe and high income-paying diversification – and chances for a Firm like us to exploit short-term investor naivety when they dump shares at deep discounts to the underlying asset values. And remember, in theory this return has had ‘nothing’ to do with the ‘stockmarket’ and ordinary shares in trading companies – it is simply a technical over-reaction and then a reaction based upon the underlying fundamentals and tangible value there. We like those very much!
The election
Apart from vote-catching gimmicks (as if, eh!), what stocks and sectors seem to have been impacted most? Some were already wary. Water and electricity generators and distributors have taken something of a bath on the fear of a Labour win. They could be good buys at these levels with more bad news priced-in than can arise! National Grid’s fully under-written £7billion Rights Issue seems unhelpfully timed too but there we are.
Further to that, I have a signed copy of Jeremy Hunt’s Spring Budget 2023. I wonder what ‘value’ this very limited edition ‘red book’ will accrue in time – and how much of the contents will be of any worth to anyone going forwards too! As ever, I should be happy giving my views to the Chancellor on what a future budget could contain – will that also be a Jeremy Hunt Budget I wonder…!
Testimonial
How nice of Mr A to write-in after receiving his latest report to say ‘and wish to thank you all for your efforts in growing these investments. Brilliant!’ We can’t promise the earth but we do promise always that we shall try our hardest in all that we do – our interests are our clients’ interests above anything else.
Trimstone RNLI Charity Cream Tea
Please do join everyone at Trimstone Manor on Saturday, June 22 for a fabulous Charity Cream Tea in aid of Ilfracombe RNLI and in recognition of the amazing work they do to keep us all safe on the coast and at sea. Even the most savvy sea safety aware person can get caught-out at times – and the RNLI is always there if you need them.
It’s a very worthy cause and we do hope you’ll pop down between noon and 3pm and enjoy – perhaps – the best cream tea in North Devon as well as the chance to visit Trimstone’s glorious grounds.
Best in North Devon? Trimstone RNLI Cream Tea will help save lives at sea
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
