April 2025
Dear Client
Almost five years to the day of the last such letter, I must contact you with our latest thoughts as a consequence of the traumas on global investment and economic markets. We have all been left shell-shocked on President Trump’s tariffs, creating a whirlwind of volatility with it. The US markets have led the plunge and clearly, the whole world reacts as it tries to consider the reverberations and what that means for investment values. Problems for the UK economy and ramifications from the clumsy Budget last autumn are being felt hard and don’t help. It is ugly. All investors are affected – even those with cash as it is likely interest rates will be cut savagely in reaction.
I hope you and yours are keeping comfortable – and sane in these testing times.
Volatility is acute. I wonder how it will be when you receive this. We have seen some of the greatest volatility, mainly downwards, since Covid and we don’t know if the point of maximum pessimism has passed. Perhaps it has. No-one knows but if not, it is nearer than it was and indeed, the underlying markets may just be reflecting the fact that those forced to sell-out to meet margin calls on speculative investments or hedges may have taken place already.
The news that Warren Buffett had sold a meaty chunk of Berkshire Hathaway’s holdings and now retains record cash balances of over $335 billion helped push sentiment negative. You will know we have been shouting loudly about the daft valuations of US Tech shares for a long time and corrections there being long overdue. We don’t have direct US Tech positions at all.
There are problems in the world, as there always are. The Russian or Middle East issues could escalate and affect oil prices which have fallen so far. Global economic growth, blighted by rising costs, is likely to turn recessionary. Not being naïve but these events can just as easily ‘go away’. Such volatility over many concerns, from the tariffs, the economy, the Middle East and the continuing Ukraine war, let alone colossal levels of government debt, never create best conditions for selling investments. Whilst for us (and thus your account) the impact from these has not been as awful so far as the pandemic upsets, pessimism and hesitancy of market makers to hold stocks abound and greater volatility increases spreads between buying and selling prices temporarily too. That means sellers receive poorer prices from others’ hesitancy. They also cut prices for smaller companies and some other assets and Trusts especially.
We did some portfolio trimming before thankfully (but not enough) and had other sales in mind but frustratingly with some, they have gone from ‘over-bought’ to ‘over-sold’ so we shall sit and wait. We have some things left to sell and indeed have a little silver for some clients too (which is steady) and perhaps we should take that money off the table to buy cheap holdings from depressed sellers keen to exit at any price. We had tin too which had risen on the Myanmar disaster and that’s gone as it spiked upwards.
Patience and time are crucial qualities in the face of such conditions. Remember we have endured and ridden through these sorts of situations many times before and have emerged stronger through the other side. Many are simply short-term issues which evaporate as quickly as they start though the consequences are likely to endure. I am not here to alarm anyone nor to be flippant, nor to suggest any significant action on your part, unless you wish to take advantage of this fall to invest further capital in the markets for instance. However, if you take a high level of income from your investments then a reduction in that for a short time could also benefit your strategy as the surplus can be used to reinvest. For our clients, previously if we felt income withdrawn might be at an unsustainable level we would remind them of this fact in their ongoing reviews or by a separate letter but if they need that income, they can be assured we always know how to find their needs and we aim to keep a reserve for a month or two – this is part of our individual ongoing consideration that we do all the time. However, if any clients can trim their fixed monthly incomes a little for now to help capital values, they can email info@miltonpj.net or call Reception.
We enjoyed an excellent recovery after the Pandemic. However, these things are very disturbing in the short-term. That said, after Russia’s invasion which also hit markets, we did profit-take then on many stocks like mining and soft commodities such as wheat and energy (which also all rose) to allocate cash to very depressed stocks, as you would expect us to do. We have also had many ‘good news’ stories since autumn 2022, reflected in clients’ valuations and particularly shown by many closed-ended funds ‘winding-up’, so we receive the real underlying value of assets held (often significantly over prices we paid originally). Indeed, recently the funds we manage hit their highest ever levels though when we shall see that again, we cannot predict now. However, this was a tremendous improvement from the Pandemic depths and clients’ patience was rewarded. However, these things affect shares, bonds, commodities, currencies, property and even precious metals.
Investors always over-react in front of such uncertainty, despite the ‘best’ emotional stance being to stay calm and buy cheap holdings, not sell them. We own many ‘special opportunities’ too and ones less related to general conditions. Reasons for their ownership are unchanged. We also had some which rose in reaction, as they benefit.
We encourage you to remain calm. Market volatility is not uncommon and is the reason we always demand investing for the longer term and holding a good level of cash reserves to meet short-term needs. In time, such events (which seem catastrophically significant now) will be seen as small corrections when viewed as part of the bigger picture and timeframe. However, this is not suggesting complacency either. We are giving our closest of attention to events as they develop (as we hope is your own adviser if it is not us) – as we always have given in such times.
I understand the concerns in these situations. We are experienced and I have weathered many storms in my forty-seven years in the financial world even despite the colossal stresses it brings us too. Whilst we have no crystal ball, things will settle. We shall do the best we can and you have our absolute, continued assurance on that.
The Ukraine war and the Middle East situation will settle, tariff angst dissipate and economic growth return. The gains possible from even the slightest ‘good news’ could bring a significant benefit to your account, like in late 2020. The UK bounced by 25% from trough to the end of 2020 for example (income and costs ignored). Don’t forget that the good and growing income flows into your account continue.
At some point, a reality will prevail and the markets will regain poise and ‘normal’ stability. I cannot say when. I can reassure you that the income flows into investments are remaining as solid as they have been and even if as a consequence of these tariffs, etc some stocks might reduce their payments over a period, others will improve them. Last year was the biggest ever income payment flow and this year is predicted to be larger again. Our overall strategies are still generating over 5%pa of income flows presently – a very strong level.
We are waiting to see how governments react. There are negotiations afoot but if the volatility persists, then interest rates will be cut and capital injected into the markets to underpin values and stabilise matters – and confidence.
It is easy to understand the fear that these conditions engender but actually recognising this in yourself (and that a knee-jerk reaction is of no help) can be the best way of tackling it. There is no point in trusting the baying hordes either – the crowd, or the media (which wasn’t pointing to this beforehand), nor the masses out there who have no professional guidance and no advice but they more easily convert fear into ‘sales’ and create losses they can’t replace and never re-enter again (or certainly not till things have bounced much higher and when it is too late). We have seen it all before. It has been said that the one thing we never learn from history is that people do not learn from history. The most expensive words too are ‘this time it is different’ – it is not.
It is excruciatingly uncomfortable and stressful for us too. Not only do we have that onerous responsibility of doing our best for our clients and which we truly understand and feel (clients of whom many are our friends and families) but our money is in exactly the same places and we have cares for clients, staff and the public generally. We shall not be panicking and neither shall we sit still without due cause but at the same time not forgetting that we invest in real assets and businesses with which you and I trade every day and which pay incomes to us as investors. Indeed, we shall nibble-away at seriously depressed situations too, with cash reserves held and surplus income available for reinvestment. We encourage you to buy patience – not that we can guarantee sunnier climes overnight nor the values into the future but it is not time to do the wrong thing.
Remember, you still buy groceries, put fuel in your car and home, use electric, water, telephones and mobiles, use pills, maintain properties, engage accountants, pay your insurance premia and all the other bills and yes, you continue to ‘enjoy’ yourself. You’ll still buy technology and cars and things for your home and business. Business will survive, make profits and pay us dividends, rents and their loan interest. Indeed, the income our component investments are generating for our clients is at exceptionally good levels – income which comes regardless of what happens to capital values one day over the next. The average is around or above 5% pa presently but clearly that does not include every account.
We have done a number of things for our clients since this volatility started. We have issued urgent eshots to those on email. We have written to all clients who had instructed withdrawals from their accounts and have suggested deferring that if at all possible, to ensure they do not take funds at a dangerous moment. We have written to every investing client now because it is the right thing to do. We are there to communicate with clients with concerns (but clearly it is impossible to speak with everyone).
So, if you were thinking of withdrawing from market holdings, can you defer that? If the money is really required for bills, is it available from another (non-market) source so you could use that to postpone the withdrawal? Could you manage your immediate needs instead by taking an income from investments so that the capital is not hurt by sales? Or, can you manage with a smaller sum now? All these options are possible given current turmoil. If you do force sales in the face of a market which is not enthusiastic to buy from you, you will sell holdings at lower prices than they should be valued and which you deserve. Sometimes even the sale of a stock can be enough to push prices down more, as the good and the bad face the same reluctance from buyers to do much, other than sit on hands. Market makers are happier pushing prices lower even if in some holdings there is little activity.
I do not share my comments glibly. However, we must rely upon our many decades’ experience and the fact that ultimately, economically things are not as bad as the emotions suggest. Without wishing to be patronising but the best thing any of our clients can do is to trust our experience and longevity to do the best for them to weather this temporary storm and perhaps for them to put any correspondence in the bottom drawer and look at it again in a few months. Decisions must be yours because we cannot guarantee the future and how long you may need to wait for a bounce. It can be a very short time as volatility has a habit of being two-sided.
I reiterate that in our view it is not the time to panic and sell and indeed, there will be real value appearing and from dull and in our view very safe sources. It doesn’t mean we should jump in with both feet but an alternative approach to one based on short-term panic is necessary. This could well prove to be an excellent time to buy and certainly not to sell, however uncomfortable it might seem presently.
And yes, we are sure that some clients will agree that the times of greatest pessimism are indeed the times to buy sensible-term opportunities and so if funds are sent to us for an ISA, Pension or portfolio, we assure you they will be subscribed very carefully indeed. If something was fair value at £1 and it is now 50p, you can buy twice as many for the same price and receive double the income you could have had – and you qualify for that into perpetuity. I only use that as an analogy – very few things on the market have fallen like that and for most the range is from a few positive points to minus 20-35% (e.g. banks and US tech firms) at most.
Where we know clients’ circumstances and communicate regularly with them about their flexible retirement strategies or other planned withdrawals of capital and income, or where we have agreed plans to move less tax efficient funds into their ISA or pension wrappers, nothing should have changed in terms of our ability to meet these arrangements we have made personally and for which further consideration will be given through ongoing reviews. When we know clients’ needs well enough in advance, we ‘cash build’ on accounts and clients know we have accrued cash and that will have been before the upset in most cases, as our ongoing review letters tell them.
I hope that you find these comments helpful and genuinely based on fact and rational consideration and so to be reassuring to you for the need for patience now and what you should or should not be doing at the present time.
For the disciplined who can look-past current traumas, it is time to think about new tax year ISA and Pension contributions and needless to say, money goes far further. We have had several deposits from those with spare cash availing themselves of such low values and the tax boost from the earliest possible start but it is not easy.
There is a sense that we may have seen the worst though I cannot afford to be blindly optimistic, as human emotional panic can continue to drive irrational behaviour – such as those (including big fund managers who are simply humans) who crystallise real and big losses to stockpile cash. Remember you do not experience a loss unless you sell. You may well imagine that you will buy-back again cheaper but despite your perceived rational beliefs at the time, you won’t and you see each subsequent fall as justification and prediction of further weakness. Instead, it is likely to be far higher when you feel conditions are so much better. In 2020 I noted that the Chinese use different characters to write the word ‘crisis.’ One stands for danger, the other for opportunity. In a crisis, be aware of the danger but as hard as it is, recognise the opportunity and no, I do not say that glibly either as I know acutely how painful things are and in so many ways.
Remember too, we are there for our clients. We can’t change anything but we are trying our hardest to communicate as much as we can and with facts to reassure if that is the right thing to do. Sadly, as seems often the case in such times many product providers and advisers ‘disappear’ – no contact whatsoever with the very clients and investors who have paid them well over the last many years. That is not good enough. If they are still engaged through the other side, I hope their clients will remember that.
DIVIDEND AND INTEREST PAYMENTS – IMPORTANT
Remember that nothing has happened to the tangibility of your underlying assets. The dividends from profits, the interest from loans and bonds, the rents from commercial property Trusts etc, all continuing and unaffected for now.
We have a vast range of components and whilst the hit from even one is unwelcome, we do not have a big proportion of any investor’s capital in any one situation. Secondly, as we use Investment Trusts rather than open-ended funds as most investors have, they have different tax rules and also often hold income reserves so even if some of their components cut payments, it should mean they can continue dividends for longer and hopefully till things ‘normalise’ through the other side. Open-ended funds can’t do that – they can only pay what they receive.
Investors must take care and if they draw an income, they should try to ensure that it is confined to what is being produced and that they do not inadvertently start to spend capital by taking more than they could or should without realising it. Of course, there are degrees – a small excess for a limited time is not a problem but if an investor takes far too much then the capital hit can be detrimental. This is the time to review; do you have cash reserves you could spend-down for a period so you stop taking as much income from market investments? It should only be temporary – but it is wisdom, that’s all. Whoever holds/manages your investments, have a look at that and act if you can. We have always endeavoured to retain a reserve of several months’ payments regardless for our clients who know our systems are very flexible and there is always something we can sell to top-up the pot but clearly, we don’t encourage that at the wrong times. Please don’t ‘just’ carry-on regardless but review (as well as seeing if you have surplus cash reserves, National Savings, Premium Bonds or whatever of which you could use parts to pay the bills instead for a while). If even for a matter of months you can cut your income taken till we can all look again later, then that may be prudent, as well as us then using surplus cash on your accounts to buy depressed assets instead.
NORMAL WORK
With clients who may want a capital sum (eg from a pension) sometime later – we try to manage the account over a lengthy period so that we are not left facing volatility a few days in front of when the funds are needed and having to sell things at depressed prices. This also means we are accessing funds gradually, selling when the good opportunity for them arises and doing so over an extended period and we hope that for those transient situations for a few clients now, we have protected them at least in good part, against this unexpected event. No one will ever hit the top to sell nor the bottom to buy but having so many components helps us in that objective. Yes, that might mean we are holding more cash and in buoyant times the investments we have sold may have carried-on rising but the flip side is that we have lots of accounts for deceased clients (sadly) in different states of completion and ‘long-future cash demand’ clients where they had significantly higher cash balances totally protected from the recent market conditions. Whilst an unpleasant subject in many regards, experience shows that most executors (especially legal representatives sadly, it has to be said) take no market action whatsoever when a client dies – despite being trustees who must act in the best interests of the Estate immediately from the date of death and as if the assets were theirs personally to manage. Instead, they wait for Probate and instructions (which can sometimes be years!) before they can or do act and then frequently it is all or nothing with such investments as opposed to endeavouring to ensure the beneficiaries extract the best value from the deceased’s market assets (eg transferring them/some as opposed to a blanket sale can save/enhance up to 10% (or more) in costs and market makers’ spreads for example). How many estate beneficiaries over the last year or so may have been expecting a big legacy and could now be looking at say a quarter less because their executor took no action at all with their US tech investments? Anyway, you know what we try to do for all clients. It is times like these which really show the care and value – and no, we are not paid any more to do what we believe is the right thing.
Indeed, for any investors thinking of switching from one market investment strategy to another during such heightened volatility, be very, very careful. You could find you fall between the stools. Your sales could be enacted on the worst possible day and then the money arrives at your destination two weeks later and when the market has rebounded by a quarter. Yes, such extreme moves really can happen. Just wait and review things during a time of better normality – which will return.
SELLING PROTECTED INVESTMENTS
So, when do you, (when do we) sell things which have withstood the ravages, to use that money to buy more of those which are most depressed or do we conserve those ‘safe’ things till uncertainty goes? These may now be silver, currencies or bonds for example. Equity sales have not been based on fundamentals but simply forced selling from those either panicking or being called-upon for cash and without enthusiastic buyers on the other sides of the deal. I have to say that we have not sold our ‘protected’ holdings though we shall watch carefully to subscribe new cash and spare income to top-up certain holdings, buying cheaply from depressed and distressed sellers but so often, the stock isn’t there or certainly not at the prices the market is pretending to quote so we are left empty-handed.
We also have several funds which are winding-up so they are simply awaiting the repayment of loans to them for example to do that and nothing has changed with the credit value of those capital repayments but their share prices have been marked-down for impatient investors selling. Lonfin for example has turned everything into cash already is paying us 71p a share next month but if a sale of shares is forced today, we may only see 54p.
The problem is also that if an investor looks at his valuation what is it saying? It says nothing very helpful to anyone whatsoever; it is simply a single historical point (perhaps an hysterical one), that is all.
WHEN TO BUY AND WHY?
Even in normal conditions it is not easy. It is even harder now. There is so much value and some ‘blue chip’ companies are so cheap and they won’t disappear during this crisis. There are many companies like fund manager Aberdeen which is still using its surplus cash to buy-in and cancel its own shares which were unloved before all this but have still slumped. Might they be a target for another cash rich company, whilst the price is so good? Why aren’t more companies with cash using it or some, even buying-in and cancelling their own shares? We have several which are doing just that, underpinning value at such times, to some extent but sadly, companies too are driven by emotional humans who in the main choose to worry about further future uncertainty rather than being contrarian.
THE FUTURE
Anyway, here is the prospective outlook. When you and I look at the present financial situation, we do so with eyes distracted by the storm causing the prices. We are very fearful and hate such acute uncertainty. We wonder what the reverberations may be – will they even affect house prices if many borrowers cannot afford their excessively large mortgages taken-out when interest rates were very low and now up for review?
The current situation has not ever been faced by the modern world. The last time tariffs were used like this was at the Great Depression. So much is inexorably linked whereas for previous issues, countries’ trades were more limited and events in one would hardly be noticed in another. It is also true to say that as the world has become more affluent that it has so much more and thus so much more to lose too and economic speed doesn’t slow-down but just stops when something like this happens. However, we must keep perspective. There have been far worse situations.
What I want you to do is to also remember the chart of stockmarket performance. Yes, this is an historical record, a simple line on paper showing the ‘market’ over the decades, back to when the opportunity of investing and trading in companies started. Imagine the Great Depression in the early 1930s, centred upon the States but not excluding us. I want you to think about what the destruction of WW1 and WW2 did to our nations and indeed others worldwide (and I am excluding other regional wars of course but their localised impact has been similar). There was also the Spanish ‘flu which killed more than died in all of WW1. Remember the 1970s and the three-day week, the ‘great’ strikes, the oil price shock which saw our inflation hit almost 30%, or when mortgage interest rates exceeded 15%. Technologically now, we are so much further advanced than ever we were. We have so much more and indeed cash reserves are immense compared with whatever anyone would have had thirty years ago let alone 100. We are and shall remain wealthy as will all the developed and developing world, the investing world.
This chart ignores all the ‘noise’ from those times. We look at it dispassionately, it is simply a line and we can see when it was cheap and when it was dear. The reasons are almost irrelevant. But do not forget, there were other catastrophic consequences which created those other times too and to which the line of history, the chart, is oblivious.
So, if not now, at some stage we need to look at the chart and disconnect from the storm. The chart will continue and it will reflect things through the other side and in time, we shall look back at this blip and see it as a small interruption. It is hard; we stand in the cross-hairs of an economic shock and it is very unsettling and distressing but at some point certainty will replace uncertainty and this too will begin to be reflected in the economics. I am reminded of a customer of the Bank where I cut my teeth as a sixteen-year-old. He had accumulated a comfortable pot of funds and when chatting to him, he told me that during the Blitz, as families had been desperate to move out of London, they could not sell their homes so he bought three for £10 each. One was bombed but he still had the site and two left after the War. Are the present market conditions just that?
PRACTICAL THOUGHTS
Just a couple of comments. First, don’t keep watching the ‘news’ – you can’t change it and if it is depressing, it won’t help your own health and capacity of coping with the negative events we are facing. Limit the times you watch perhaps. Put investment valuations and reports in a drawer and forget about them for several months. Remember that all media sensationalises news to sell stories – media is doing very well at the moment – if it has the advertising flows to fund them of course but even newsprint is surging. Watching the news is like watching the storm. If you see instead how you can plan to come through, it will pass and indeed you will be uplifted by concentrating on constructive and positive things as you cannot change the storm’s outcome. If you have a faith in which you can trust as you have done before – or all your life – hold onto that too.
Take each day one at a time. Stop trying to predict the unpredictable (or believing others who think they can) but cope with what you have to do that day. Yes, be prudent about the present and the future but there is no point trying to bridge build for things that are unlikely to happen. However it may seem, it is not all doom and gloom – there are bright spots and especially in the simple things. Take small steps with issues you perceive are big problems to resolve. Small steps can lead to big change too – a bit like ‘eating elephants’ – eat them in small pieces and don’t tackle them all in one go.
I hope that you find my comments helpful. We are here to assist as best as we can. Our Company is strong enough to withstand this through prudence from reserves put aside in previous years.
And if you have spare cash funds, think about committing that to some of the cheapest buying opportunities you may see, whether doing that in an ISA or a Pension or what – we are happy to help and receive your funds to use as wisely as we can – we don’t just throw the money in of course so selectively spend it over a period of time too.
Please try not to worry unduly but concentrate on the hope which the future brings to us all. Till then, the very best wishes from all of the team here and on their behalf.
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[/vc_column_text][/vc_column][/vc_row]
