First Anniversary


Dear Friend  

We have passed the anniversary of the announcement of Pfizer’s better-than-expected vaccine outcome and the market bounce on 9 November 2020 with many stocks showing the biggest ever gains I can recall all at once.

Excluding income and costs, the FTSE100 has bounced 24% and the more UK-centric FTSE250 has improved by 31% in the year since. I am pleased to report that our balanced strategies have sorely trounced both of these indices, despite the fact we have carried cash and plenty of defensive assets which are not designed to do anything much at all. As ever, the lesson is to be invested before the news breaks – not scrabbling-in afterwards. We were as fully invested as we could possibly be and skewed primarily towards UK-centric assets, including smaller companies. These offered some of the most compelling value going (we are now prioritising bigger companies both for opportunity but also more defensive protection). These two UK indices reflect a number of things.
First of all, if you believe in buying the cheapest funds in the UK (eg index trackers) most of your money would have been linked to the AllShare Index and thus invested in the biggest 100 companies. You will have done poorly indeed. (The FTSE250 covers the companies from numbers 101-350 and their size is minuscule in comparison). I haven’t updated my figures recently but something like 80% of the FTSE100’s results comes from the biggest twenty companies (and most of that from overseas). The FTSE100 is still 4% below its January 2020 peak. If you or your adviser don’t understand the composure of the indices and what blindly is being bought just because ‘its fees are cheap’ it is time you changed your adviser! Paying us a small management fee would have multiplied your net returns colossally!   So what else is new? Rivian, the Amazon and Ford-backed electric vehicle maker to rival Tesla (?) floated and the heady valuation sailed almost 50% higher on the day to make the Company ‘worth’ $107billion. It sold all of $1million of vehicles in its last quarter. This level of gambling has not really seen any previous comparatives, or at least not in terms of the quantum involved. There is too much cash floating around chasing these things on the premise that someone will pay more tomorrow for their shares than you pay today.  
   
I shared a note on cryptocurrency last time and what the local lifeguards had been doing. This week my social interaction remarked upon the trainee plumber who had seen the activity with Tesla so thought he’d put £1000 in the shares and sold within a week to make £200. Hey, it’s really that easy so why does he need to work when he can do that all the time? (At least he sold!). I am reminded of the adage just before the 1929 Wall Street Crash – ‘if the bellhop is telling you what shares to buy it is time to sell’. This type of behaviour is not ‘investment’. It is sheer speculation and faith in others’ greater future enthusiasm for something than yours today. Trouble is, the numbers now are colossal so when the pain hits these silly-priced things, the reverberations will be immense too.  
   
Proper Investment  
You may have heard of the saying that the Stockmarket is a Voting Machine in the short term and a Weighing Machine in the long term. What does this mean? Simply that prices today reflect buyers’ enthusiasm and sellers’ happiness to sell to them at these levels. These figures can become seriously disconnected from the reality of the underlying ‘thing’ represented by the share or whatever – both upwards and downwards and across stocks individually or generally (or sectors, countries, themes, asset-classes, etc).

In the long run the reality of what that share represents will create the true value for the investor. When too lowly priced, if the market itself will not unlock the deeply discounted cases, then corporate predators will buy-out the companies as we have seen and shall continue seeing. On the upside, as represented by too many major US tech stocks especially, reality will prevail at some point and the gravity-defying behaviour propelled by the masses chasing these things ever-higher will see the birds truly come home to roost.
This is one argument against cryptocurrency in that there is nothing beneath the bonnet to inspect, nothing to check, nothing to value and frankly, very limited usage as well. They are not ‘assets’, ‘currencies’ nor ‘investments’. They are too volatile to demonstrate many of the properties suggested. These things do not have State backing nor tax-raising powers. They rely purely on the collective faith of the participants. At least, say, with Tesla shares, there is a real company underneath the stratospheric share valuation so even if the shares dropped by 90%, there is still Mr Musk and still the assets in the Company and hopefully a profitable trading business in the end too. That said, even if that company was then valued at ‘only’ $100billion and not over $1trillion as it is now, many investors may still say it is far too much when considering prospects and the fundaments.

We are ‘Value Investors’. That may be too boring for some – it assesses fundamentals and values of assets and income flows, viewing the price of the ‘share’ and whether this is out of kilter with the ‘real’ prospective value. We have done very well keeping our feet firmly on the safe ground as we have enjoyed many corporate bids for some of our key companies because they were so undervalued. Of course even this job is not simple science and understanding. It’s not black and white and we use myriad tools to protect clients from as much risk as we can but also to pursue as many opportunities. Presently we hold some small amounts of esoteric assets as well – including direct commodities and all designed for uncorrelated risk mitigation yet not limiting return potential.
For example, one of our holdings is a UK quoted, international property company where for around 35p, you can buy a share and receive the return on around 80p’s worth of real estate, bricks and mortar, in commercial properties rented to entities like the US Embassy, corporate accommodation providers, warehouses or international Hotel chains and so on. Its $800million portfolio is secured primarily in US Dollars or Euros. Next year it will resume the payment of dividends from the generous rents received. Why would these ‘day traders’ chasing the speculative assets want to buy this? It has ‘performed’ badly as the share price has just been falling and falling… for us though, it represents a great, value opportunity and almost the better, the cheaper we can access it. Yes it is irritating if we paid more ‘yesterday’ but fundamentally nothing has changed and simply people are still dribbling-out their disposals regardless of price and till that stops and new buyers are attracted, we must be patient. Of course there are risks with everything but we’re stacking the deck in our favour. Even then, our maximum exposure to this quoted company is likely to be only 2% of our total assets. So if there was a giant crash in the US tech sector, would this be affected? Yes, I suspect so but would the assets be impacted? Hardly and indeed after an initial systemic shock, the quality of the portfolio and the rentals received would or could suggest investors may chase after it and push its price up, not down, as it is secure. Also, the same types of momentum speculators in the frothy stuff and who would be forced to sell anything are nowhere near this investment.

This is the sort of ‘around the edges’ asset clients have alongside some of the biggest quoted companies and collective funds when subscribing capital to our strategies. It is a real investment case and not one based on hype and pure gambling. We have literally dozens of these types of stories and if every year we can add a few percentage points to clients’ returns above ‘normal’ returns of simply being in the markets with everyone else too, then that’s great extra value for ‘free’ and easily justifies paying a tiny management fee too, let alone the complimentary financial advisory guidance in our package as well.  
   
New Floats  
Be careful what you choose as your speculation. Just because you know the name does not mean that buying their shares is a good idea. Often the floats are at over-inflated levels and arranged to allow the initial backers to take their money (or some of it) and run. I still wouldn’t invest in Deliveroo, Moonpig or Dr Martens for example. If you don’t know exactly what you are buying and you are investing on the ‘greater fool theory’ (that someone will pay you even more in the future than you have paid for something), then that is frightening as you have little connection with the underlying business, its true ‘value’ or its prospects at all. There are others and for the UK market, it’s not been a good place to support most floats. Now had you invested in Tesco, Marks and Spencer or Sainsbury instead… but of course at the time they didn’t sound very exciting at all like well, Bitcoin, did they… guess which ones have real substance and even pay dividends from profits!  
   
Holiday Lodges – The saga continues  
So despite the regulator being aware and the MP informed, somehow these ‘investments’ are still being flogged to unsuspecting people who believe the blurb, from ‘guaranteed rental’ yields on a couple of notable local ones (despite one local park having significant arrears to existing customers) and the difficulty (or impossibility) of being able to sell after you have bought. Perhaps the guarantees mean ‘guaranteed not to receive the rent or being able to sell for a fair price’… let alone dubious security if the Park itself goes under and the Bank repossesses the very ground upon which they sit.  
   
Industry Consolidators  
Succession Wealth’s largest Private Equity shareholder has announced it is planning to roll-over its investment in 2022. So will that mean yet more changes for their clients who will have been huddled-together in easier to sell blobs which prove more profitable for the owner? (This is no criticism of the quality of the advice clients receive, as I have no idea). I have noted it before yet people don’t seem to have cottoned-on that the accessibility to prospectively truly local and personal financial and wealth management advice and guidance is changing – if it’s not us, who really is looking after you or are you looking-after their business with hefty fees taken out of your investments held through their offices!  
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