Dear Friend
Included in this edition of our e-newsletter …
MARKETS – IMPORTANT
I appreciate that this is only days after my long missive but the acute volatility demands comment. We appear to be being subjected to a serious element of market panic as indiscriminate declines are occurring albeit with especial hits in certain sectors, markets and commodities.
The coronavirus is not only awful in itself for those involved but it is stopping some economic activity and as a consequence, some businesses are struggling in different ways, from a lack of supplies to a lack of employees and customers and as people choose not to leave their homes, then the consequences for the retail and entertainment market are acute, let alone airlines and holiday businesses too. This is now creating a whirlwind of negative reaction on the markets and panic in some areas. Clearly none of us can ascertain how far and long this awful situation will ensue and the tragic consequences for so many who have already died and those who have been infected.
I have been saying for some time that the US market (and its tech leaders) especially has been rising at far too rapid a rate and so falls there have not been so unexpected though we ‘always’ suffer from a contagion to some extent. We have no direct exposure to that at all and very little through our collective funds. This period could continue for some time or indeed may be short as bargain hunters recognise the opportunity in value stocks – or conversely it could become exaggerated as pessimism festers on the back of worry and uncertainty.
Few global areas are unscathed and some are worse affected than others. Consideration of the impact versus the ‘usual’ winter flu problems falls on deaf ears primarily because people do not know how this one spreads, for how long someone could be infectious and also how it will be tackled – which it will but when. The vast majority recovers without any further effects.
Our market should be more insulated simply because it has not risen with the ‘rest’ and indeed at time of writing the FTSE100 is below the levels first seen in 1999, so less distance to ‘fall’ perhaps, especially as the underlying ‘value’ base is far more significant here though at the moment, there is little differentiation it seems. That said, a sudden Brexit deal as opposed to continuing prevarication could well prove to have a very positive effect on the UK market regardless of things elsewhere and our clients are more UK-centric as you can imagine – as that is where the best value is to be seen.
Many of our longer-term positions are steadier but of course we are not unscathed. However, investors can over-react significantly despite the ‘best’ emotional stance being to stay calm and buy those cheap investments of yesterday which are likely to be even cheaper today as those who chased things higher head for the exit. We also hold a number of ‘special opportunities’ and indeed, one of our bigger trusts announced a prospective takeover on the Dow’s biggest falling day so it is not all as gloomy as it may appear.
The reaction appears overdone. Yes, there were many over-priced stocks but marketmakers are even more jittery than normal at present and are writing-down prices of most shares and related funds, not wishing to hold anything overnight. It does not matter what great story persisted last week (perhaps the opportunities from the anticipated colossal infrastructure spend in the UK to come, including HS2) but that is all gone. Indeed, if the Teslas, Apples, Amazons, Facebooks, Microsofts and Googles had halved that would probably be a good thing but of course that scenario never seems to play-out and ‘value stocks’ which never rose with them have been impacted too.
We did some portfolio trimming and had other adjustments in mind but frustratingly with some they have gone from ‘over-bought’ to ‘over-sold’ so we shall have to sit and wait. We have some things left to sell and indeed have a little gold for some clients too (which has risen) and perhaps we should take that money off the table to recycle more appropriately, buying from depressed sellers keen to sell at any price.
Patience and time are both very important qualities during times like this. Remember that we have endured them and ridden through them many times before and have emerged stronger through the other side. Many blips are simply short-term issues too which evaporate as quickly as they start. I am not trying to alarm you by this letter nor to suggest any action on your part, unless you wish to take advantage of this fall to consider introducing further capital for instance. If you take a high level of income from your investments then a reduction for a short time could also benefit your strategies.
We encourage you to remain calm. Market volatility is not uncommon and is the reason we implore investing for the longer term and holding a good level of cash reserves to meet your short term needs. In time, such events (which seem significant as that moment) will appear as small corrections when viewed as part of the bigger picture and timeframe. However, this is in no way trying to suggest any reason for complacency at the moment either. We are giving our closest of attentions to things as they unravel and develop (as we hope is your own adviser if it is not us) – as we always have given to such events.
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 some stocks might reduce their payments over a period, others will improve them (there have been far more improvements of late than cancellations too!). Last year was the biggest ever income payment flow and this year is predicted to be larger again. As I have repeated many times before, you and I shall continue to buy our groceries, put fuel in our cars and homes, use the electricity, water, telephones and mobile devices, use our pills, maintain our properties, clothe and house ourselves, engage our accountants, pay our insurance premia and mortgage instalments and all the other bills we have and yes, we’ll continue to ‘enjoy’ ourselves too. We’ll still buy capital goods from IT to cars and things for our homes and businesses. Commerce in all forms will continue to survive, make profits and distribute some of those as dividends to their investors and pay interest on their loans.
We shall not be panicking and neither sitting still without due cause but at the same time not forgetting that we invest in real businesses with which you and I trade every day and which pay incomes to us as investors. Indeed, we are likely to nibble-away at seriously depressed situations too, with cash reserves we have been holding and surplus income available for reinvestment. We encourage you to invest in patience – not that we can guarantee sunnier climes overnight nor the values into the future but it is not time to take the wrong action. I firmly believe too that once Brexit negotiations are behind us (as they will be) that we shall experience a rally in confidence in the UK especially as people will feel they can plan again with clear sets of rules driving them forwards.
In practical terms, if you were thinking of accessing market investments, perhaps you should do what you can to defer that temporarily. For example, if the money is really required for bills, is the equivalent sum available from another (non-market) source so you could cancel the instruction or simply either postpone things? Can you defer the withdrawal (and thus the need for funds) for a period altogether? Could you manage your immediate needs instead by taking an income from your investments so that the capital is not impacted by sales? Or, perhaps you can manage with a smaller sum now? All of these options are possible given current turmoil. If you do force sales in the face of a market not enthusiastic to buy from you, you are likely to be selling some of your 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 the price down a little further, as the good and the bad are being hit with the same reluctance for investors to do much other than sit on their hands. Market makers are happier pushing prices lower as a consequence even if in some holdings there is little or no activity.
I do not share my comments glibly and it is causing us consternation too. However, we have to rely upon our experience and the fact that at the end of the day, economically things are not anything like as bad as the emotions are suggesting at all. The best thing for any investor to do could be to trust our experience to try to do the best to weather this temporary storm and put their reports in the bottom drawer and look at them again in a few months. Decisions must be yours because we cannot offer guarantees regarding markets going forwards 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 indeed, there is value appearing and from dull and in our view very safe sources. It doesn’t mean we shall be jumping-in with both feet but an alternative approach to one based on short-term panic is recommended. This could well prove to be an excellent time to buy and certainly not to sell, however uncomfortable it might seem presently.
CHARTERED CORPORATE STATUS
Just a quick note to say that our status and membership have just been renewed. Well done to the whole team for continuing to uphold all the principles demonstrated and for our Firm being still the only chartered corporate financial planners in our Area! The next nearest members who have fulfilled the principles are in Exeter. Renewal reminds us:-
Chartered titles are jealously guarded by professional bodies and are not awarded lightly. Chartered status therefore brings with it a number of serious obligations.
The title Chartered Financial Planners is a public declaration that the advice given by your firm:
- is of the highest quality;
- is based solely on the researched needs of the customer; and
- is provided by someone not exceeding their level of competency.
It also signifies that your firm’s staff, where members of the CII, are governed by a Code of Ethics, where CII qualified undertake annual Continuous Professional Development and that disciplinary sanctions are applied to those who transgress.
CHASE DE VERE
This is the latest large ‘direct selling’ entity which has come under scrutiny for the rather large payments made to advisers and which, of course, the firm’s clients are paying. It is hot on the heels of the St James’s Place media scrutiny of that firm’s very large charges and thus payments.
It reminds me of the days of the ‘Yuppy’ (does that make me old…) where financial advisers or salesmen (for want of a better word sometimes and sadly not all the salesmen are ‘advisers’ if you understand what I mean…) pushed just for more and more reward for themselves, concentrating upon the products they sell and the ones skewed towards better outcomes for them rather than encouraging clients to leave things alone or even going into things which may not generate the salesman and their employers much or the same revenue. That all came a tumbling-down and jokes began of ‘The only one who can make a deposit on a Porsche now is a pigeon’. Will the same happen here with regulatory intervention or will the clients of these firms begin to realise what is happening and how much they are paying for a not particularly bespoke and holistic service perhaps?
ORGANIC UPDATE
For ex-Organic clients whom we are helping, we have undertaken some calculations on the prospective losses the majority of them may have suffered. Whilst the end figures may prove too pessimistic, at the present time the total losses could amount to £19,500,000, being an average of £13,500 per investor. The majority’s losses are smaller than that as the average case size was small so the few larger cases have lost considerably more.
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
