| Dear Friend So a new variant announced, educating the majority on another Greek letter they hadn’t known beforehand – Omicron (ɒmɪkrɒn), the fifteenth letter in the alphabet and note ‘micron’ for ‘small’. This one spreads easily and we don’t know how dangerous it is yet as so far there haven’t been masses of serious cases. However, regardless, the markets decided to have a bout of ‘headlesschickenism’ and probably overdue a bout of pessimism anyway. |
| We have to accept – and expect – such things and with the heady valuations of too many US stocks, this is more inevitable and the biggest problem is that it is impossible to predict how or where it may impact – hence the need to spread one’s eggs very widely. Don’t forget though that you will still be buying your mince pies at the supermarket which will still make a profit from you. I suppose it is the case too that with rapid data flows and even vaster funds encircling the Globe that volatility will hereafter be more extreme both upwards and downwards so beware. That’s not a warning but simply to say we need to be personally prepared for it – as well as ready to take advantage of the opportunities presented. We’ll do our best for all clients meantime by continuing spreading eggs as widely as possible and seeking-out special opportunities unaffected by short-term negativity and panic. It’s not an easy job but remember too, the flows of income will continue and these are ratcheting-upwards handsomely. If you have to ignore the news for a few days then do that and don’t worry about what your valuations are doing day-to-day – it’s not the way to manage your longer-term finances. |
 We have also been greeted with US Consumer prices now having risen by 6.2% over the year and many experts saying they have been caught-out as they expected rising prices to be transitory. The increases have been driven especially by rising energy prices (coal in the US has just hit a twelve year high), fuelled in part by green engagement which has forgotten to acknowledge suitably that a transition period for our consumption of fossil fuel is imperative rather than piety being all ‘today’. This will feed-through to ever increasing prices of course, as energy is needed for most things listed in the various inflation indices. On top of this, Mr Biden says that his $1trillion spending plans now approved will not be inflationary and seventeen Nobel Prize winning economists agree that it will actually reduce inflation not increase it (I wonder if it’s the same ones caught-out by this inflation increase). Now one thing is guaranteed and that is that economists never agree. However, my schoolboy economics taught me that if you increase the demand for something, unless the supply of the service or product can increase easily (and there are now supply constraints too), then guess what – the price of the item will increase. (The gap between inflation and nominal interest rates is one of the highest on record already too). Over here, the level has reached the highest figure for a decade at 4.2% so start to watch-out for the impact. Remember too, this means that every £1 you have at the bank is suffering a pernicious tax of 4.2% on it every year unless you do something more gainful with it! Check prices of raw commodities too over the last few years – all upwards significantly and feeding into prices in the shops. Maybe Mr Biden and his economists haven’t been researching those. Up till recently, the colossal Quantitative Easing programmes have not seen inflation increase because the net effect on the money supply has been muted, as the consequences of the Pandemic have restrained consumers and capital investment respectively but through the other side, this too is likely to have a significant inflationary impact – as well as any contraction prospectively hitting over-blown asset prices like residential properties (which have increased globally in real terms by the highest quarter for forty-five years), frothy tech shares and ‘ESG’ luvvies…, all chased together in the explosion of passive investing – index-trackers all chasing the same stuff ever higher. So, how much are we talking? Global Central Bank assets have expanded by $10trillion since the Pandemic began and remember, QE started after the financial crisis… net inflows into global equity funds are running higher than in the last twenty-five years combined. |
 Coffee and BT Well, another nasty weather event in Brazil has seen our coffee investment values double since June 2020 – we’ve trimmed it a couple of times now. It’s not as cheap as it was but it is still cheap long-term but there are few commodities which are as cheap as these were, when we first started buying them as uncorrelated assets and we are struggling to find cheap substitutes. With a bid for the ailing Italian telecoms’ business, rumours have been circulating again that a bid for BT is imminent – our shares have rallied but a take-out should be at least double the present level if the shareholders can hold-on. The shares are too cheap now for what the business represents anyway. Still, it is not alone in our long list of seriously undervalued stocks like that – not inflicted by short-term worries either – just businesses far too cheaply valued by the markets. |
 Star Managers Nick Train (Lindsell Train) has done a grand job but has the shine come-off the top? His flagship Investment Trust has dropped by a fifth since the summer and outflows of funds from the unitised range have gathered momentum as performance has drifted significantly. I admire the success of these people (Terry Smith at Fundsmith is another) and we aren’t touching either – why? Because the cult of the single guru is a dangerous one especially with such concentrated ranges of direct stocks as they hold. There are plenty of other great options and without the very high risks involved in exposure to these. Regardless, as I have said many times, our biggest overall single exposure is around 2.5% to any holding, not because we have no confidence in our choice but because there are so many opportunities. Yes, we come across new clients with all, or a significant proportion, of their funds, in very few of these types of holdings. Well done to them for what they have achieved but time to exit! Previously it was Equitable Life or Neil Woodford and yes, I can go back further to name plenty of others if need-be. Then there are sectors (like the Dot.com bubble) but that’s another story! Oh yes and banks… one of the best sectors of the year so far and we are full of ‘em thank you very much but we’re in the minority, as no-one wanted them when they were far too cheap (still too cheap). |
 Daily Telegraph Makeover I was pleased to feature as the lead adviser for The Daily Telegraph’s Money Makeover recently (well I have to show Felix I can enjoy that fame too of course!). https://www.telegraph.co.uk/money/money-makeover/money-makeover-dad-lost-everything-inflation-1970s-cant-allow/ That said, it is always good to be reported nationally and it shows that those advisers selected are on top of their game so to speak. It was all about an investor petrified about inflation and what he could do about it. As ever though, we are limited on words but I think the synopsis covered the main gist! |
 Investment Fund Closure As noted, the two arbitrageurs to our ‘special situation’ voted to not continue the Investment fund we had been flagging as having a limited future. This means the Board has to present proposals which are likely to include the orderly winding-up of the Fund. If that happened tomorrow, we’d make a return of roughly a third on the present share price and we can continue buying more shares at these levels too. Needless to say, the Board is not very happy and frankly, I’d have been content supporting the Company to continue, too. Apparently the arbs have taken a short position on the Fund’s two largest holdings to neutralise their main risks – very clever. This means if those stocks rise, they lose on that ‘short’ but of course they extract more from the Fund winding-up and if it falls, they make the money from their Short (though we and other investors in the fund simply lose, as we receive a smaller value in the end). However, there’s still a big comfort cushion there to protect us anyway! We shall continue buying more shares at these cheap prices and indeed, the Company itself is buying-in and cancelling its shares too, making more value for the other shareholders. Maybe the best thing would be for a new mandate or a new fund buying-out the arbitrageurs and unlocking the value from the special situations the Fund owns… but that is probably not likely! |
 Dividends Fuelled by miners, the third quarter of 2020 enjoyed the biggest ever amount of dividends for shareholders at £301billion. That is 22% higher than the same quarter last year and higher than pre-Pandemic. 90% of global companies increased their dividends after the Pandemic hiatus so investors relying upon the income flows can be very happy. Indeed, contrary to several managers and advisers who think it is wise to convert their strategies to ‘total return funds’ to justify the stratospheric levels of the shares of many giant companies which pay little or no income, traditional balanced investors (and with us) can realise again they can enjoy the assurance of a fair ‘balanced’ income from a sensibly assessed and widely diversified pot of traditional assets without changing to the ‘this time it’s different’ principle (fabled successful investor Sir John Templeton’s ‘most expensive words in history’). The whole year’s pay-outs are likely to exceed £1.1trillion. |
 Ethical Investment Be wary about what you think you are buying. Bulb Energy has collapsed under a barrage of complaints and a business process which was a failure apparently – as well as rising prices of fossil fuels (which its customers thought had little to do with the green energy the company was promoting with such great piety). ‘Ethics’ are not just about the sellers’ greenness but their integrity and probity (and if anything, that is more important). As I have said before, there are lots of charlatans keen to enrich themselves at your expense with dubious ethics to extract as much money from you, for themselves, as they possibly can and the ‘latest bandwagon’ is just the latest way for them to do that and they don’t care how vulnerable you are. I wonder what will happen to the ‘safe’ investments in Bulb’s ethical bonds… which reminds me – Greencoat Wind raised a colossal sum and most will go into one giant offshore wind farm – not much egg-spreading there, especially for a relatively low return… On top of this, a large social housing trust which raised lots of money for its main purposes has been marred by a scandal as many of the original promoters have been found to have business interests in the underlying companies connected with the Trust. I am sorry but if true (a short seller has attacked the fund and profited from this news), it is just not acceptable. Investors have found the value of their ‘ethical’ investment has been blighted accordingly. We never supported it at launch but if the price falls deeply enough and there is a rump worthy of rescuing, we may just start to nibble away but we continue watching from the side-lines for now and the damage may take some time to repair. Dare I say that each is a case of seeing the emotive words supporting fine idylls and then maybe all those involved in the process (and end investors and users) not doing as much due diligence as might have been done ordinarily and as a consequence? Please watch-out and don’t be duped. Remember, other companies are not ‘unethical’ simply because they are not 100% ‘green’ say! (And no, there is no such thing as a 100% green entity). |
 Cryptofroth Apparently of these unique and limited-in-number, ethereal entities, there are now 7,248 different crypto currencies traded at the moment (Coinmarketcap.com). I wonder if anyone might guess the final number which might exist – the longer the list, then the less money which can be attributable to any single one I suppose? Is this really the world’s biggest ever get-rich-quick chain letter which one day will come to a simple and snarling halt…? Maybe this piece from Price Value Partners is appropriate with which to finish. https://www.pricevaluepartners.com/download/3698/ That said, the same argument can be levelled to some degree at the US Tech sector, the Passive dominance globally fuelled by the ‘same stuff’, residential property prices, the ESG Bubble built on self-righteousness, greenwashing and too much naivety and yes, cryptocurrency. And remember, the biggest 100 fund managers are responsible for $23.5trillion of assets (up 16% on the year). We’re not included of course… and yes, when the markets sneeze, they will all catch-cold as they all hold the same over-priced stuff amongst their various holdings. It’s their demand which drives prices in the short-term and value and reality in the long-term. This interview with a fabled ‘bubble watcher’ may be sobering for you:- https://citywireselector.com/news/jeremy-grantham-i-made-a-small-fortune-and-managed-to-lose-it-all/a1589354 |
| Risk Warning 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 |
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