Investor Frenzy


Dear Friend

I am greeted this morning by US Economist Irving Fisher’s words on excessive levels of share prices in the States. He noted share prices have ‘reached what looks like a permanently high plateau’. He said this nine days before the Wall Street Crash in 1929. Anyone in US tech stocks points to the new paradigm now of course. We’re steering clear at these levels – very clear. We deal with investing and not sheer speculation based on excessive buying demand by greedy individuals who don’t realise that you can lose as well as gain from such strategies, when not founded on real value with what they are chasing. I have noted before that the Financial Times has been floating the most warnings I recall seeing about this particular bubble mania but so far, to no avail.

The latest speculative froth has been the ‘Reddit’ blogs and investor frenzy over ‘Gamestop’ which has seen some of the most volatile prices of any stock – entirely speculation and at one stage the ‘short interest’ represented 261% of the total value of the Company according to Morningstar. In simple terms, this means that people had borrowed someone else’s shares to then sell them, these had then been lent-on again and so on and each person selling something he doesn’t have, expecting to buy-in lower down to replace the shares borrowed originally. So GameStop, a failing video game retailing company, saw its shares go from $17.25 on 4 January to nearly $500 last week before plummeting back to $87 today. On Saturday we were reminded by Albert Edwards at Société Générale ‘One of the surest signs a bubble is close to bursting is when the retail investor piles in with leverage (borrowing)’.

And you may think you are ‘safe’ in your cheap ‘Tracker funds’ but have you stopped to look under the bonnet? The MSCI Global Index is the most followed form of passive investing with 66% of your money in the US. The biggest seven companies counting for most exposure each (not in order) are Tesla, Facebook, Microsoft, Google (through its two ‘Alphabet’ companies), Apple and Amazon. If you have money in ‘ethical funds’ then in most instances you will be replicating this list, even if these companies’ ‘ethical’ standards leave much to be desired, especially for censorship, scam promoting or paying appropriate taxes as part of their social and moral duties. The UK counts for only 4.3% of the index and Japan, which was the biggest by far in 1989, 8%. Globally, ‘information technology’ and ‘communication services’ count for 31% and some tech hides under ‘consumer’ sectors too. I share this as a warning. As value investors we aren’t playing this ‘game’.

Investment Progress

Of course, what counts is how your own personal accounts are performing. Of course it is impossible to write here (or within individual reports) general comments which apply to all clients when we have so many diverse strategies and underlying components but it is fair to say that if the tide’s coming-in generally, (unless they’ve positioned an anchor – such as keeping everything in cash for example!) all clients’ boats will be floating with it. So… we haven’t taken-over any new firms or anything like that and new client enquiries have been relatively normal (sadly these tend to escalate when conditions are more buoyant) but it is our pleasure to announce that the Firm’s funds under management have just hit an all-time high point, storming through £200million in the early weeks of January. No, we don’t have aggregated minute-by-minute values of ‘everything nor can we say exactly when was the worst day for ‘us’ and the ‘best’ but we are talking about a gain of over 40% since the worst times and of course that is simply the position as it stands – reflecting new money flows and the sad losses from deaths and so on – and very few clients who have moved elsewhere it has to be said, as most retained their patience in the face of the traumas thrown at us all. Remember too that the ‘gain’ ignores the fact that we hold millions in cash, currencies and other defensive assets too which didn’t fall (and indeed some rose as conditions worsened as their defensive qualities came to the fore) so those assets which ‘went up’ did even better, pulling the WHOLE value up by that 40%+. In our overall figures too we have also absorbed the awful write-downs on the fraudulent activity with the Organic Investment Management debacle which was nothing to do with us – the main investments there lost their clients around £22million (and for which investors have been claiming their compensation primarily from the FSCS). Without this loss write-off from the artificial ‘values’ inherited in 2018 on defunct stock, the percentage advance would have been even higher.

I repeat too what I have said before, this is from ‘value’ investments regaining poise and not from speculative froth which is just as easily blown-away on a cold windy day when reality strikes. Yes of course market confidence is there as well and we must never be complacent but it is encouraging news and amazing to imagine – compared with the awful times last spring. We are mindful of the exuberance across the Atlantic especially and the ‘what will happen’ when the tech bubble bursts so we need to position ourselves carefully and that may mean increasing our ‘Defensive assets’ to better protect us going forwards, even if those are less likely to generate out-performance. Capital preservation in the face of speculation is just as important (or more so) than chasing the last piece of growth – remember that it is dangerous picking-up pennies from in front of steamrollers.

As an encouraging message to all the Team just before the New Year, I shared that it would be good if we could hope that this figure would be broached sometime during 2021 – little did I know that this would be within just weeks of my note! Of course Staff will be benefiting too – not only because it is constructive when communicating with clients but staff in the Company Pension Scheme and our Managed ISAs and Portfolios are in all the same assets as our clients of course.

Risk – What Is It?

Certainly I can’t answer that in some short (or long!) paragraphs but we all seem to have strange ideas of the concept – maybe marred (or warned!) by past experience. To too many it means ‘exposed to danger’ when that isn’t the word’s root at all.

All too frequently it is matched with the negatives so therefore we avoid taking it. However, we are not very discerning in our lives as we take risks all the time – even getting-out-of-bed is a risk of injury for example. So yes, there is ‘risk’ in everything and in this respect, managing our money is exactly the same and lying there in bed, not moving, staring at the ceiling is an assurance that in due time we’ll fizzle-out without sustenance and exercise, just like doing ‘nothing’ with our cash at the building society.

The word comes from the Italian word ‘risicare’ which is perhaps a better word for us as it means ‘a choice under uncertain conditions’. That doesn’t suggest we don’t take the choice but that the conditions within which we make that decisions suggest we don’t know all the factors about it – that certainly doesn’t mean it is the wrong thing to do.

So what is the lesson? Surely that is to recognise that our lack of knowledge or experience in something isn’t the same as dangling-off a rocky precipice to take a selfie. It is also recognising there is risk in everything so therefore we need both to stretch-out to learn more about things (like investing and financial planning) or rely more upon those who we know we can trust to do things for us and who can illuminate how the risks to our finances can be recognised and then managed as they need to be.

Interestingly too but a study has shown that those who are more outgoing and have more personal connections tend to be better able to manage risk than those who are alone – the confidence of others around help us make those decisions and to be comfortable and secure in them. Also, those who may be too ‘conscientious’ overthink issues and thus this tends to make them less able to cope with managing risks of all forms. I suppose it does follow. Indeed, being able to recognise such traits in ourselves can release these ‘issues’!

Felix Broadcasts – How To Claim If You Have Been Wronged

Advisers are used to being frustrated about the Financial Services Compensation Scheme (FSCS) but few will be familiar with helping clients claim on it. The process is actually mercifully simple but as Felix discovered, there is more to the FSCS than just claims. When it comes to helping clients who have been wronged, there is a whole host of other things to consider: how to invest the compensation (if there is any), how to establish and maintain trust and, crucially, how to spot who needs more help and who needs less.

In this episode, Felix joins Ollie Smith for a special four-part mini-series looking at financial planners’ best work, kicking off with a discussion about how he is helping a number of clients either claim on the FSCS, or face-down over-zealous claims’ management companies. The discussion lasts for around 20 minutes.

‘My Best Work FSCS interview’ is found on Apple Podcasts and Spotify here:

https://podcasts.apple.com/gb/podcast/how-i-help-my-clients-claim-on-the-fscs/id1300548053?i=1000506206229

https://open.spotify.com/episode/42llZTKWJSFU5KGrHI1bCH?si=afbTFfCbSXOV3kY4hBLJTQ

Gold – A Store Of Value

At the time of Jesus’ birth, Emperor Augustus was paid 38.6ounces of gold a year as a salary. That was quite good value. It is equivalent to around £50,000 now. Whilst the graph is anything but straight, gold has kept pace with ‘inflation’ as measured by a salary. However, at the moment, on that premise alone, it is fully up with events and is the highest it has been since RPI comparisons from 1971, exceeding the 1980 level which then saw the price plummet towards the end of the Millennium and into the early years of this century. We’ve sold all ours now incidentally – it will react differently to shares but there is still a time when it is cheap and likewise when it is dear. We do own an Investment Trust which has a third of its capital in gold though and others with gold mining companies instead which have done very well indeed!

Socially Responsible Investing

So Black Rock, the world’s largest fund manager, has pledged to start removing any climate-change negative investments from its active portfolios. Commendable or not, kowtowing to the baying hordes who may otherwise cause criminal damage to your premises if you don’t, or responding to the need to send more of a message against Climate Change negatives, I have to ask a simple question. If you mean what you say, you have to start to exclude these entities from your Passive portfolios as well don’t you, especially as ‘index-tracking’ is now the biggest growth area for modern investing? Surely you can’t simply say ‘it’s ok, it’s really bad, but well we just have to have it because, well, it’s there’. How socially responsible is that – and taking a fee from it too?

If this ‘continues’ regardless of anything achieved for the end cause or not (you can tell there is cynicism there) I can see the growth in a sector of mainly private investment companies where those not so worried about such things mop-up all the ‘dirty assets (whose products hypocritically we continue to buy or need even if we prefer not to think about that, as it might go against our principles, whether naïve or fully researched and well-founded…) and they will even expect the employees of these same entities to have less concern too about what their businesses do and less worry about the environment perhaps as the ‘good guys’ have been drummed-out… just thinking… and if governments stop investing in their bonds (talked about, yes) then does that mean we shouldn’t really be taking their dirty taxes for all the nice things upon which we need to spend our money… Idling apart however, there will be some unintended consequences which could end-up creating more of a monster rather than killing the monster which is our necessary reaction to Climate Change implications.

AFH Takeover

This large quoted consolidator of independent financial advisers is being taken-over. Several North Devon firms had been absorbed by the company over the last few years and clients of local practices finding that they were then morphed into a larger unit with centralised control and default management. I have noted previously that for the umbrella company it can be like ‘herding cats’, squeezing independent operators into a corporate model (which they have to do to extract value they demand from it) as all too often the selling adviser chooses to pack his bags and disappear so clients are left without the personal interaction they once enjoyed.

There are some benefits for clients – collective identity and head office oversight but lots of losses too – formalised investment processes so everyone is treated the same and strategies all pushed down to the lowest common denominator just so they can be ‘managed’ and no capacity to quiz decisions locally and indeed great opportunities available to the smaller investment managers like us disappear for them as their funds being managed become too big to be dynamic and deft-footed like we are.

AFH has announced, after paying quite considerable sums for many advisory firms over the last few years, that it is being bought by a Cayman Islands’ Private Equity firm for a chunky sum of £225million, lifting its shares by 40%. The Cayman Islands is an offshore, secretive tax haven and I am not sure what some of the underlying clients will think about that but what does ‘Private Equity’ do? It likes to hold something for just a few years then repackage it and roll-it-out again for a big profit. There’s nothing wrong with that but what might that suggest its clients have in store for them? To make something more valuable you have to extract more profit and does that mean heftier charges?

In the past, collectives of independent financial advisers have not really worked-out very well and there is scepticism that the same could befall one or two of the present players. There is much money being thrown at the industry by ‘private equity’ at the moment (with too much cash and too few opportunities) so will the experiment all end in tears? Private clients can walk with their feet and so too can the advisers in the group, taking their clients with them. Perhaps someone should remind some of these PE guys that can happen.

Tax Returns

So almost 2million people didn’t file their Tax Returns in time. They may avoid a fine this year as HMRC has given the first extension in its existence but interest on unpaid tax will apply. Our personal returns are complicated and we are usually awaiting some final piece of information even in the closing months of the Tax Year but if your affairs are relatively straightforward, why are you behind the curve? Ours were finalised and filed before 31 January. If you need help with yours going forwards, do contact us – the peace of mind in knowing ‘it is done’ and the small cost not only in doing that but also having someone with a critical eye looking over your affairs to see if there may be one or two things which can be done to mitigate your tax liability, are well worth it. Don’t forget too that HMRC is not stupid – a regularly tardy Return and messy information makes you more likely to be a target for an ‘Enquiry’ or worse still, an ‘Investigation’.

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