Dear Friend
Well, thirty-five years ago this month I was sitting in the small upstairs’ office in my parents’ home with my sister on a Youth Training Scheme engagement thinking ‘what on earth have I done?’ Yes, Philip J Milton & Company (subsequently Plc) started its life from those humble beginnings, a few hundreds of pounds to my name and a Banking Degree that I was prepared to hawk around London if I was unable to make a success of the venture. It’s been an exciting ride with many ups and downs and we’ve met some wonderful people and wonderful clients over that time, some of whom have been with us throughout too. It’s been much hard work and continues to be so but the Business has grown to many, great staff and thousands of participating clients to become one of the leading independent financial consultancies in the Region. Thank you to everybody if you’ve played a part in that journey and continue to do so; we might have been thinking about doing ‘something’ to celebrate but it’s somewhat hard and in very testing conditions (including financially) to be able to do that so we’ll have to thinking about that in the future as we reflect back. Let us hope that the path to a semblance of normality is nearer to us all rather than further.
WE’RE RUNNING-OUT OF MONEY
Yes, this is serious. As a Firm, we are running-out of money. Well, what I should say is that there are so many compelling buying opportunities at the moment that we don’t have enough money to take advantage of as much of them as we should wish! If you like, there are two types of ‘opportunity’. Some are those where an assessment is taken on the prospects for an individual market, stock, currency or commodity. The other is where a technical trading opportunity applies and which also has nothing to do with the underlying conditions at all, as I have shared before.
It is these latter types which appear to be the most ‘obvious’ where distressed (or impatient) investors sell something at a price far below its underlying real value, effectively selling what could be a £100 bag of Pound coins for say £50. Why? Sometimes it defies logic. This sort of extreme market volatility throws-up more of these anomalies. Some appear so obvious but no-one (or few) are taking advantage of them and for some others, perhaps a little more work and patience are necessary. Maybe, yes, you still have to do some calculations around the edges but when the ‘deck is stacked in your favour’ the degree of risk taking firmly favours the buyer at the moment, especially as there are still plenty of sellers out there who were fair-weather buyers when things were rosier and now they are still exiting.
So why might some sell? It is primarily institutions – other managers which own big chunks of stock who drive prices. Unrelated to individual prospects for an investment, amongst other (potentially irrational) reasons, they can sell because
1. Disgruntled investors tell them their portfolio has under-performed (so it doesn’t matter what it is they are holding) and they want their money back to put somewhere else.
2. They want to access money to buy today’s hot favourites upon which their friends have made loads of easy money (of course) like Tesla, Amazon, Apple, Facebook, Bitcoin, Gold and so on.
3. They sell things which show losses so the individual declines no longer show on valuation reports to investors (who can be questioning trustees of charities and boards of managed funds who are more likely to be negative about stocks losing them money if they are still ‘there’, as they are personally vulnerable for the discretion discharged to the manager).
4. Because few/no brokers are promoting them as ‘buys’ at the moment so they perceive it is hard to justify maintaining them.
5. After a fall, the value may (now) be insignificant to their overall pots at present.
6. They have cash demands upon them (withdrawals and liquidations included) and have to sell something.
So, do you have patience to wait for something to change with the underlying holding? It may simply be the passage of time, or it could be more dramatic like a shareholders’ resolution to sell all the underlying assets in the Fund and give shareholders all their real money back (or a takeover by a predator). Sometimes the opportunity can linger for longer than hoped, sometimes shorter. However, the odds are on your side if you are buying a seriously undervalued anomaly based on published statements of fact and appropriate analysis of the likelihood of the relevant outcome – which is part of our job to do.
INVESTMENT SILLINESS
So a quoted Investment Trust we own had its shares priced roughly at £2.40. It’s quite a tiny Trust but it has been selling its underlying holdings at good prices so that now, based on that share price, it held cash equal to 62% of its market value. So the risk of an investment at these levels?
Soon, it is going to distribute some of this cash as it is liquidating and this will be at the equivalent of £3.80 a share, being the net asset value including all its other holdings. So we have held them for clients for quite a long time now and they have done very well for us. We keep buying if we can find some for sale!
However, this is where it can be frustrating. An investor can say ‘my investment has fallen in value. It was £2.90 in March and it has not even recovered like ‘other things’ have and my Tesla shares have rocketed. I am unhappy’. We might say – you just need a little more patience – but will they listen? Thankfully, with most of our clients we have a relationship where we do our utmost to explain these sorts of things – real opportunities – but perhaps sometimes they need more patience than may appear to be necessary. However, someone somewhere will have sold their shares in this Trust at £2.40 to buy something which is acutely over-valued and which is likely to have a rude awakening at some point – whereas we hold something which is majorly cash in the bank. Which makes more sense to you? What I need to do really is to buy more of this thing because we shall receive a 59% uplift for doing nothing, not needing any spivvy investments to rocket or anything – simply profiting at other investors’ lack of patience. It is then one of the lowest risk investments out there I guess you can say but many advisers won’t be touching it at all as they don’t understand it or think its ‘total expense ratios are too high’ – what tosh – or should we say – what great opportunities for the better informed. Clients though – please you just need a little more patience for this one to come really good for you!
Stop press: After typing this, a few small buys we made have pushed the share price up 17% but it is still worth chasing.
CONTINUED
So we started buying into a large and well diversified Commercial Property Real Estate Investment Trust. It has been hit by some non-payment of rents and the general slowdown but actually is standing well in the face of this storm with not too much exposure to retail and leisure. However, latest results are optimistic and dividends are resuming this month to give investors income, so a good achievement.
It has some borrowings which are not causing it stress at the moment with lenders on side and indeed it has a good cash reserve too, having sold some residential development land recently too. Our problem is that we started our acquisitions too soon and the shares kept falling but the latest results of this Trust show that the shares are trading at almost half of the underlying, much down-valued portfolio of assets! At the end of the day, just as above, investors become impatient and simply sell a losing stock. Maybe we have to keep our patience and wait for that semblance of new normality to return and when investors will realise that most commercial property still performs exactly the same tasks as it did before and thus so, far too cheaply valued by investment institutions which have to take a pessimistic line at the moment.
Again, as ever, all I’d say is that if you have a little of this type of thing, even if you are down on what you may have first paid, it’s the right thing to do. You could double your money in two years and only because the Trusts’ shares better reflect the underlying asset portfolio. So, is that high risk or low risk? We think that having 2-4% of your portfolio in something like this (with many similar, albeit totally different sectors/stories) is low risk at the moment and yet not limiting the return opportunity. Please don’t hold back on that buying chance if you have spare funds.
ADVISERS PULLING-OUT
So in the year to June, the numbers of advisory firms being regulated dropped again and the ceasing number being 20% more than the year before. Our own Mr Felix Milton shares some comments with ‘Professional Adviser’ https://www.professionaladviser.com/news/4018653/revealed-advice-firms-giving-authorised-status-jumps utm_medium=email&utm_content=&utm_campaign=IFA.Update_RL.EU.A.U&utm_source=PA.DCM.Editors_Updates&utm_term=BARNSTAPLE&utm_medium=email&utm_term=2%20to%209&utm_term=BARNSTAPLE. There are problems and this could lead to a growing lack of accessibility to advice for people or significantly higher costs for the fewer advisers out there. Business models may need to change somehow to facilitate management of a larger list of clients for the fewer advisers around. We can understand why some ‘give up the ghost’ – the pressures are immense and it seems to be escalating all the time – from cost pressures of liability insurance, funding the lifeboat scheme against all the bad or fraudulent cases for which people can rightly claim or more regulations suppressing advisers’ opportunity of helping clients but yet more paperwork and regulatory demands. The latest is adding more ‘Continuous Professional Development’ for the far fewer numbers of Pension Transfer specialists (as we are still) and a raft of demands under the ‘Senior Managers and Certification Regime’. The good and honest guys adhere to what is required and are not the source of the risks whereas the rogues (thankfully fewer now than there used to be) will continue to flaunt the rules and indeed, if the FCA remains so dilatory about acting against the miscreants when they are alerted to something smelly, it is easy to be cynical and imagine that enforcing even more rules against the law abiding and honest is an easier route for them. We really don’t want to think like that.
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
