"In the middle of every difficulty lies opportunity" (Albert Einstein")
So another month has been and gone and as we enter December, historically the month with the best performing markets, we reflect on November and saw some of those unjustified losses being clawed back.
The US still leads the way, with Brexit affecting both UK and European markets. One thing markets do not like is uncertainty and the debacle which has been the UK's exit from the European Union has been that for sure. China and Emerging Markets remain down though great value to be had there now
So raw data being:
Dow Jones +1.7% +3.3%
Nasdaq +0.3% +6.2%
FTSE -2.1% -9.2%
Nikkei +3.0% -1.8%
SSE -1.0% -21.7%
Dax -1.7% -12.9%
And on the currencies, a fairly flat month with the exception of the Australian Dollar which continues to claw its way back against the greenback.....USD results being
GBP +0.8% +4.1%
EUR +0.2% +5.8%
JPY +0.6% +0.8%
AUD -2.7% +6.9%
CNY -0.3% +6.9%
So does this market offer value now? Emerging Markets / China absolutely. China's economy has been affected by the trade war and although still un-resolved, the 21% fall in its market is an over reaction. November 11 in China is Singles Day. This year sales on Singles Day surpassed US$30 billion, taking in more in the first 10 minutes than Amazon PrimeDay in the US took all day...an economy in crisis..I don't think so
On the subject of Amazon, its 3rd quarter revenue was up US$13 billion when compared to Q3 in 2017, to put that into context a year later the retail giant is making an extra US$6 million an hour....another crisis at company level - you decide... The recent drop in the share price was purely profit taking and emotion and despite the recent falls, year to date the stock is still up 42% . Why? Because its a good company.
You don't need to be too clever or cunning to make good returns on investment. Buying good companies is the way to achieve sustainable long term growth. There is a place in every portfolio for alternatives, property, other assets uncorrelated to the stock market.....yes you must diversify for sure but buying good companies with good products or services that people continue to consume is the key. Have your bit of fun with bitcoin and the like (notice how many of these guys have gone quiet recently) but recognise it for what it is. Niche. Occasionally I have these niche opportunities that can make you the 100% ++ returns but of course are correlated to a higher risk and no more than 5% of your hard earned cash should be there.
A more passive play on the Nasdaq still made you over 6% this year but anyone with their money being managed properly should have made at least double that. Yet the consensus is that the market is in a bad place, why? CITI recently published an article titled "Reasons to be Thankful in a Dreadful Market" Whilst I disagree with the market being dreadful, for the half empty brigade out there these were the reasons cited
Long term growth and successful investments, as quoted by Warren Buffett is about "Time in , not Timing"...that said taking advantage of good timing is only going to benefit your portfolio and these markets are offering this now, especially in the Emerging Market space. So some profit taking in October because of some stretched valuations has caused some fear and talk of "dreadful market".....so to paraphrase Mr Buffett again on his philosophy which has made him the greatest investor ever, "Be fearful when others are greedy and greedy when other are fearful"
Get in touch to work out how we take the opportunity....
"The True Investor welcomes volatility.. a wildly fluctuating market means irrationally low prices will be periodically attached to solid businesses" (Warren Buffet)So during the month of October, a not unexpected sell off in the markets and more specifically tech has seen the largest one month slide of 2018, giving the Panic Monkeys and Doomsdayers a platform to make a lot of noise.
We did see a similar pull back to this in February and March, much of which was subsequently forgotten when at the end of September the Dow was still up 7%, S&P 8.4% and Nasdaq a whopping 16.6% year to date. The equity markets are volatile, this cannot be denied, its about whether, as wise Warren's comment above supports, you see this as a good or a bad thing......so raw data being:
Dow Jones -5.1% +1.6%
Nasdaq -9.2% +5.8%
FTSE -5.1% -7.3%
Nikkei -10.0% -4.6%
SSE -7.4% -21.0%
Dax -6.5% -11.4%
One factor which has caused the falls is the US interest rate rises, with The Fed and Don not seeing eye to eye. A consequence being the Greenback continuing to gain strength....gaining against all major currencies bar the Yen as follows:
GBP +1.4% +3.3%
EUR +2.3% +5.5%
JPY -0.8% +0.2%
AUD +1.6% +9.9%
CNY +1.5% +7.2%
So what should we do when we see a year's worth of gains wiped out in one month keep calm or panic? Each individual's situation is different. As you go along your investing life, your risk appetite changes. If you have a longer term horizon 5 years plus then these market falls are just a blip
Hopefully you will have already locked some gains in this year, especially if your time horizon is shorter. As I have said before selling a fund at a profit is easy, its just where to reinvest. It may be that those profits were moved away from the stock market into other areas. The key is the right holistic asset allocation which includes bonds, property, cash, some alternatives and having the right path and guidance to get you where you want to be.
So this recent "blip" (not crash) has basically happened because share valuations seemed a bit toppy especially in technology. With interest rate rises, cash became a little (and I do mean a little) more attractive (those towards the end of your investment journey) and the continuing US dollar strength and upcoming Mid terms added to the mix.
But fundamentals are still good. Earnings are still good. It's just in some cases the expectations had got a little ahead of themselves. Take Amazon as a case in point. It saw record profits (good) and a 29.7% increase in year on year revenue (good). But because the top-line number of US$56.6 billion missed its expectations by $500m (less than 1%) - the stock fell by 8% in a day. Markets are over emotional places at times. That said the stock still remains up over 40% year to date, why - because its a good business and growing
US GDP growth remains at a decade high 3%. Unemployment remains low - for me all of this tells me now is a time to buy not to sell.
As always there are going to be different views on the market, that is understandable and I can respect that. However one of my clients recently sent over a message from a competitor "predicting" a market crash. Being "bearish"...believing the markets will continue to fall is fine as long as this is backed up by proper rationale. The word "predicting" should not be in any Wealth Manager's vocabulary while he carries out his work. Like most people I have the occasional bet, maybe on a golf major or a weekend accumulator on the Premier League fixtures. This is where my predicting ends....and guess what I'm not that great at it...why because no one is. It is mostly a futile exercise aside form having a bit of fun on your Bet 365 app or at a roulette table
You are always going to to have the half full / half empty split in all walks of life and cynics will say I need to be half full as I get paid for assets under management. But at this time I genuinely can't see further than cheap growth stocks in the US and super cheap Asian share prices. I shall be taking advantage of this dip personally, as will my clients....and as long as he practices what he preaches...so will the greatest investor of all time......
I'm only rich because I know when I'm wrong. I basically have survived by recognising my mistakes" (George Soros)
Quarter 3 is over and as we head into the Quarter 4 - historically when markets perform best. With the exceptions of a small pull back in tech (after a great run this year) and the Dax, the gains continued during the month of September, raw data being:
Dow Jones +1.9% +7.0%
Nasdaq -0.8% +16.6%
FTSE +1.0% -2.3%
Nikkei +5.5% +6.0%
SSE +3.5% -14.7%
Dax -1.0% -5.2%
And on the currencies, the USD remains strong with the following movements....
GBP -0.6% +1.9%
EUR 0.0% +3.3%
JPY +2.7% +1.0%
AUD -0.5% +8.1%
CNY +0.6% +5.6%
So as they say in this part of the world, all a bit "Same Same". The US markets continue to do well, UK and Europe lagging behind and whilst understandably China picked up in September, 2018 has not been a good year for their markets...though perhaps presents some good buying opportunities.
Robust economic growth and upbeat corporate earnings in the US means the outlook remains positive.
Picking good companies and holding for the long term is an important part of successful investing. The greatest investor of all time, Warren Buffet is the epitome of this. His famous quotes such as "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price" and "it's time in the markets not timing" reflect his philosophy.
Whilst no one can argue that this works each person's circumstances are different. People may require income over capital growth, Warren's focus is on the latter. An individual's tax status needs to be considered - what works best in some jurisdictions may not work as well in others.
There's also those who look at trends, cycles and swear by this method of investing, so all about timing rather than time in. Choosing to buy a stock / fund / sector is only half of the equation for many, the other half is choosing when to sell (and then have an alternative option for those monies). Selling at profit is easy, its selling at a loss which is much more difficult. If you wouldn't buy a company today, why own it today? Being brave enough admit you are wrong and sell at a loss is difficult but will ultimately lead to having more success.
A passive approach to investing in the S&P 500 has historically yielded 10% per annum over the long term, through a mix of bull and bear markets. Yet the last quarter from 1 October to 31 December has shown average gain of 7.5% since World War 2. So three quarters of the gains are made in just one quarter of the time. Also in 82% of years where Quarter 3 was positive (which is was again this year), the fourth quarter has shown a positive return. History does have a habit of repeating itself and markets are emotional places so who is to say the same will not happen this year...the odds are in your favour.
A passive approach such as buying the S&P is a simple but effective way to obtain growth. However that growth can be increased with the right mix. Sometimes it is all about time in but sometimes its also about timing.
We all know that stocks can go down as well as up and those who favour the cyclical philosophy may argue that we are due an adjustment. Having other assets in non stock market correlated areas is also important, as is having managers who recognise opportunities away from long only equity.
Whilst no one can doubt Mr Buffet's credentials, not everyone has the time and certainly very few people have the means to make his philosophy work every time for them. Having your own target and finding a way to reach that through the right asset allocation is the key.....
"Price is what you pay , Value is what you get" (Benjamin Graham)So August draws to a close and we reach the last third of 2018. The US markets continue to be the place to make the most of your hard earned cash...as the data suggests:
Dow Jones +2.2% +5.0%
Nasdaq +5.7% +17.5%
FTSE -4.1% -3.3%
Nikkei +0.9% +0.4%
SSE -5.3% -17.6%
Dax -3.4% -4.3%
And as with the rampaging bull market in the States, the USD dollar continues to strengthen in most areas, the Aussie dollar being the stand out loser last month... stats being:
GBP +1.2% +2.5%
EUR +0.7% +3.3%
JP -0.8% -1.6%
AUD +3.2% +8.6%
CNY +0.3% +5.0%
So the month of August took us into the longest US bull market in history in terms of time , surpassing the run between October 1990 and March 2000 (The Great Expansion), although the S&P 500 gains remain almost 100% lower during this run when compared to it's predecessor (324% vs 418%)
The run of the 1990s was brought to an end by the dot com bubble. So are in in the same boat now? Valuations are high there's no denying that, but a bubble I don't think so....
Or even a shift , market correction? Bears would of course point out the stretched valuations. One commentator on CNBC recently referred to three factors which can cause a shift from a bull market to a bear market.
1. High valutions
2. Fall in Earnings (or earning expectations)
3. Raising Interest rate environment
Point 1 taken, Amazon which looks set to follow Apple in the next week and become the World's second public company to have a market cap of over US$1 Trillion trades at 159 times earnings for example.
Point 2 is not happening. Company's are increasing their bottom line. Growth is here especially amongst worldwide players. Occasionally, like with Facebook recently a share may fall simply because the market got carried away with its earning expectations, but Facebook is still growing, will have more users tomorrow than today...so this in itself tells a story
Point 3 can be argued on both sides. Yes we are in an apparent era of interest rate rises (of course with them being rock bottom for best part of a decade they could only go one way), but this is being managed by the Fed.
As one chap on CNBC put it recently the boxer doesn't get hurt when he knows where the punch is coming from. Also we have a long long way to go before earning money by putting it in the bank can come close to equities.
So for me we still have a good way to go. The Nasdaq is the stand out market again this year, up 17.5% already. Had you put US$50k into a tracker here shorty after the Financial crisis, that would be worth a cool $265k today. It's also worth noting that even if you had invested before the Financial crisis, you would still have trippled your money in just over 10 years.
There is no bubble in tech like there was in 2001. We live in a very different world, far more globally connected world than we did 17 years ago. Ironically this is due to tech.
I mentioned before that Amazon trades at 159 times earnings, back in 2001 the bubble was due to this type of valuation but the predicted growth was clearly over stated with no foundation. You may say that Amazon already has 50% of the US E- commerce retail market or you may (as I am sure Bezos would say) Amazon still has another 50% of the E commerce market to capture).
Where there is more opportunity is that E Commerce still only represents 13% of retail - so room. Perhaps with Amazon the potential danger is the government and regulators stepping in as it becomes too powerful and literally a "victim of its own success"
Although Facebook's valuation was bought down a peg or three recently, the growth potential still remains enormous and therefore valuations not silly. I had conversations with 2 or 3 people this week who (a bit like myself) are not huge fans of the platform but if you want to compete in business utilising it is essential. Especially in South East Asia, where in many businesses all of their advertising is through Facebook and the lion's share of their method of communication is on Messenger.
As I have spoke about on numerous occasions, its the developing economies driving this growth and thats why its realistic in 2018 unlike it was in 2001.
I'm not suggesting that you put all your spare cash in the Nasdaq right now and in 10 years time you will have the same (6x ) return on your money as you would have 10 years ago. You need to be a bit smarter, have it managed properly as there are opportunities on the short side as well.
Also geographically, the US which is home to most global players continues to appear to be rosy picture, but what about Europe, UK and most noticeably China, all of which are down this year. This is why having the right asset allocation is crucial.
The farce which is Brexit is affecting both Europe and the UK both in terms of their markets and currencies. And China is down 17.5% and in bear market territory.
There are always opportunities and there are always pitfalls when it comes to investing, having the right advice to navigate you through is key....
"Some people have called me lucky, but its strange because the more I practice, the luckier I get" (Gary Player).Another month has passed and after a rather uncertain first half of 2018, it would appear that confidence in the markets has returned with all the major indices in positive territory for the month of July. As has been the case for a while now, the US leading the way...the raw data being
Dow Jones +4.7% +2.8%
Nasdaq +2.1% +11.1%
FTSE +1.5% +0.8%
Nikkei +1.6% -0.4%
SSE +1.0% -13.0%
Dax +4.1% -0.9%
And on the currencies, with the exception of the Chinese Yuan ,which is being purposely devalued by the government to help its exporters in the market and counter the effects of the "trade war", other currencies remained stable with the USD strengthening only slightly versus most ....performing as follows...
GBP +0.7% +1.3%
EUR 0.0% +2.6%
JPY +1.3% -0.7%
AUD -0.3% +5.3%
CNY +2.9% +4.7%
As many of you will have seen, the US GDP results for the second quarter of 2018, by far exceeded expectations with an annualised 4.4% increase, when 2.2% was expected. This now means GDP is expected to rise by 3% for the year, a figure not reached since 2005.Unemployment is also very close to a 15 year low and at its lowest ever amongst certain demographics
Mr Trump is of course very quick to claim credit for all of this (despite before taking office once calling the published unemployment rate a "hoax"), his policies have reflected positively on the markets, the US economy is in good shape and its growth outlook rosy.
The world's second largest economy China however has been having a more difficult time. As reflected above, markets are down 13% year to date.
The perception that growth in the US is limited but abundant in China is one that many people hold, yet the above say otherwise.
That's not to say that China is not growing. People I speak to who have visited Shanghai recently talk about a "different world" in terms of its modernisation and the plans and infrastructure which is in place to support this growth seems to be well managed. I read recently that every five weeks, China is putting 9,000 electric buses on the road, thats the equivalent of the whole of London's fleet. One area China had to work on was the effect on the environment that its growth was having and they are dealing with it with huge investment in the likes of electric vehicles.
There are literally millions of ways to make money by investing, and there are also millions of ways to lose money. Luck can play a part but over the long term a small part. As I have said many times no one can predict the future and trying to do so is a futile exercise. Some people make money in property, some in the stock market, some entrepreneurial ventures, some in Crypto currency - and some people lose money in all of these.
When it comes to the stock market, it can be a very tricky place, we saw shares in Facebook fall over 20% in one day earlier this month, thats the risk involved.
These risks however are lessened significantly by using professionals - the landscape is complex and whilst I often speak about a somewhat simple inherent growth story (people in developing countries spending on the same as we do) , to make money and reduce your chance of losing money on a consistent basis, you use experts. . It's the processes, time, experience of good Wealth Managers which give them the edge when putting together portfolios. You can see Tenzing's offering here:
Anyone who held Facebook shares (which is a good investment in my opinion) and lost over 20% of their money last month was not unlucky, they were careless, even arrogant. Non professional investors should not be owning direct equity - looking at stock prices is a full time job so leave it to the experts.
As with all walks of life some people are better at things than others. Dedication and skill are certainly two traits that get you to the top and golf legend Gary Player has these in abundance. Stories go that in practice out of a bunker, he wouldn't stop until he had held that bunker shot three times in a row (not three times, three times in a row) ..so he then does it competition...lucky....I think not
"Those who have knowledge don't predict, those who predict don't have knowledge" (Lao Tzu)Its half time in 2018, and after a two month break, the monthly market update is back. The reason for the hiatus was that I have now moved from Offshore Investment Brokers to Tenzing Pacific www.tpim.co.
So the raw data for June / YTD is:
Dow Jones -0.6% -1.8%
Nasdaq +0.9% +8.8%
FTSE -0.5% -0.7%
Nikkei +0.5% -2.0%
SSE -8.0% -13.9%
Dax -2.4% -4.7%
And on the currencies, the following versus the USD
GBP -0.6% -0.6%
EUR +0.1% -2.6%
JPY +1.7% +2.0%
AUD -2.2% -5.6%
CNY -3.4% -1.8%
So as the red shows, the markets have ben a pretty tough place to be so far in 2018. Unlike the preceding couple of years where everyone should have been making double digit returns without too much effort, its when market conditions are more difficult that the professionals come to the fore.
One of the most glaring figures is the fall in China'a markets , down nearly 14%. The tariffs being imposed by the US in the so called "trade war" have been a factor here. This has caused the Chinese to devalue their currency in a bid to lessen the impact on these higher costs for overseas buyers.
But of course there are still many opportunities in China, a vast market in a country which is still experiencing tremendous growth. To pick one of my favourite funds in this space, FMG, their Year to Date performance has been +1.8%. Whilst this may not sound overly exciting versus a market decline as mentioned you'd take this.
This is not necessarily about the active versus passive approach, which I have spoke about before. Both methods of investing have their pros and cons, although even if you prefer using lower cost passive vehicles, these still need to be correctly managed. Fund managers can go short, go into cash (FMG is 36% cash at the moment which no doubt protected itself from the Chinese market decline) and use their skills, access to research and information and experience to provide good returns for their investors.
Another example is Lindsell Train who you will have heard me speak about before. Their UK equity Fund (which buys FTSE100 shares) is up just under 11% this year, the FTSE is down 0.7%.
The research element is vital as professional fund and wealth managers do not try to predict the future, they make decisions based on information. I am sure we have all been watching the world cup and having the occasional flutter, if you are like me, losing more bets than winning.
This is because the world cup is unpredictable. Who'd have thought we would have lost the champions at the Group stage, first time Germany have gone this early since 1938...
My new employers Tenzing Pacific are very heavily invested in research and offer a Managed Account Service and I will be assisting their committee with asset selection.
Of course, regardless of the research and information you have , this does not guarantee you success and profits, but as long as it is used and interpreted properly, it does give you a better chance..
As always please feel free to get in touch, phone numbers the same, new email address firstname.lastname@example.org
"Development is about transforming the lives of people, not just transforming economies" (Joseph Stiglitz)So Quarter 1 has come to an end and whilst some parts of the world celebrate the Easter holidays, we can reflect on a difficult month of March and a difficult volatile start to 2018.
Although we are always going to get the occasional bump, poor month with equities, the last two months have seen more severe drops placing most markets into negative territory for the quarter, a position we have not seen for some time. So the raw data being:
Dow Jones -3.7% -2.5%
Nasdaq -2.3% +2.3%
FTSE -2.4% -8.2%
Nikkei -1.6% -5.8%
SSE -2.8% -4.2%
Dax -2.7% -6.3%
And on the currencies we continue to see a gradual slide on the US$ against most major currencies, the Australian dollar being the exception......
GBP -2.2% -3.8%
EUR -1.1% -2.8%
JPY -0.5% -5.8%
AUD +0.6% +1.6%
CNY -0.9% -3.5%
So what to do amongst this sea of red - not to mention the volatility which has been quite frightening also? As I always say, we invest our clients money for the long term, don't focus on the short term, the emotions which cause markets to move or events which simply cannot be predicted. If I say it one I'll say it 1,000 times, predicting the future is a futile exercise.
The last month saw a couple of events have massive effect on the share price of two of the most innovative companies of our time.If you had invested US$10k in Facebook and US$10k in Tesla at the beginning of March that investment would have been worth just over US$16k today, the kind of hit no one wants to make.
The Facebook data breach and the tragic accident with one of Tesla's cars were the catalysts for these sharp falls in their share prices (Followed by market emotion). Neither of these events could be predicted (again futile). But the fact remains that Tesla's technology will play a part in our future and there will be more Facebook users tomorrow than there are today and more the day after. Focusing on a short term drop in share value for investors (not traders) is not relevant to obtaining long term growth. Over the last five years, Facebook would have made you 488% , Tesla 548%...not bad
Only professional investors or traders (gamblers) should be owning direct equity anyway. Well managed funds are the key to spreading your risk so you are not vulnerable to the falls such as mentioned above. A couple of funds you always hear me mention illustrate the point. the Janus Henderson Fund (which would own Facebook) is still up 7.5% this year, over 5% better than the Nasdaq and representing a 30% annualised return in a time when markets are down (appreciate the tech sector still being positive)
Another fund you always hear me talking about Lindsell Train, is down 1.4% for the year. LT invests approximately half UK half US so its benchmark for the year would be around -5%. Not only do good managers outperform the market when things are going well but when there are downward trends, they do not see their funds fall as far. Another reason to choose active over passive. This is what these people are paid to do. Thousands of hours of analysis take place not only to increase the probability of good growth but also to protect you on the downside. I still meet too many people who believe they can beat the market with individual shares and dare I say it Crypto currencies. But as you an see you are playing a risky game with this.
The Bitcoin brigade seem to have disappeared from my various Facebook / twitter feeds etc. This has now fallen below US$7,000. Lots of noise was being made at the end of 2017 , start 2018 when the price reached just shy of US$20k.
Some die hards (who may or may not have been invested) will still point to the return in 12 months of around 700%. But do you really want to be in an investment which has been as low as $1k and as high as 20k in 12 months. We talk about the volatility in the equity markets this is 100 fold ....Yes sure enjoy trading it but for long term capital growth , not for me. Its also still worth putting its relative size into perspective, the value of all the bitcoin in existence is less than the market cap of McDonalds and about a quarter of that of Facebook. a niche market.
It's people and the consumer, especially like our friends in the above picture from the developing world who will drive the growth, spending money on the same things people in the developed world do, perhaps Facebook advertising and eventually driverless cars..... .
"Buy low and sell high. It's pretty simple. The problem is knowing whats low and whats high" (Jim Rogers)So after months of upward momentum, finally the bears have come out from whatever they were doing in the woods shouting "I told you so" as results across the board for February were negative as follows:
Dow Jones -4.3% +1.3%
Nasdaq -2.4% +4.8%
FTSE -4.0% -5.9%
Nikkei -6.7% -4.2%
SSE -5.8% -1.5%
Dax -5.7% -3.7%
On the currencies, with the hawkish views of the new Chair Fed Jerome Powell we saw the dollar begin to strengthen again, most notably yesterday when Jerry hinted we might get four rate rises this year instead of three....
GBP +3.1% -1.6%
EUR +1.6 -1.7%
JPY -2.6% -5.3%
AUD +3.6% +1.0%
CNY +0.7% -2.6%
So what is the root cause of the the drop and the volatility we have seen in February? One word interest rates.
When the Dow Jones suffered its "biggest fall in history" on 5th February, all the media outlets were quick to jump on this , sensationalise / scare. There was a market sell off, its that simple. There was talk of the 10 year treasury surpassing 3%, more interest rate rises in the US and I guess some fears about valuation in certain sectors (most tech funds had made 40 - 50% returns in the preceding 12 months so why not sell and take some profit). I have been doing this all the time as I hope you have.
But again to put this "biggest fall in history" into perspective, it was due to the shear strength of the market as to why it was the "biggest". That day the Dow fell 1597 points which was a fall of 6.2%. In August 2015, in one day the Dow fell 6.6% but yet that only equated to a 1089 points drop....shows how far we have come.
By the way all of those losses had been recovered by close of play on the 7th February so a full 48 hours for sense to go back into the markets and traders buying the dip.....far from the financial crisis many annoying media outlets would have you believe.
Interest rate rises happen because the economy continues to strengthen. US unemployment has fallen continuously since 2009 when it peaked at 10% to now where it is at 4.1%. This means we are finally seeing some inflation, so the Fed have to react to this. But in reality, good luck finding anything better than 1% unless you want your funds tied up for considerable periods of time on cash.
And this is only the US Dollar , the Euro and British pound have no reason to rise their rates. Well invested funds have averaged over 20% per annum in the last five years. Whilst we cannot expect this level to continue forever, the companies themselves certainly believe the bull market is here to stay.
This year Goldman Sachs noted that there has been record share buybacks from companies, US$177 Billion so far. Don's tax cuts will also inject a further US$1.4 trillion into these companies.
Nobody ever likes to see the value of their portfolio fall, even if it is in the very short term but if you want a return on your money, well managed funds owning good companies is the way to go. Whist I'm not sure we can continue at 20% (and I hope we have all loved every minute of these returns) , 10% per annum I think is achievable.
So for me , having money in cash / treasuries , which may pay me approximately 2% per annum over the next 10 years is simply not even an option to consider...though I guess for some it is.....
"Success is not final, failure is not fatal, it's the courage to continue that counts" (Winston Churchill)
The first month of 2018 has continued in the positive manner of 2017, with a stellar month especially in the US. Regardless of other effects Donald's stewardship has, having a businessman in the White House so far has been good for the economy.
One thing is for sure though Donald will be the first to tell you that it was down to his decisions why the US markets are experiencing such tremendous growth, growth I believe is here to stay
The FTSE was the only laggard, mostly due to the ever strengthening pound given the revenues of many of the top index earners are in other currencies, anyhow the data for the month..
On the currencies, the USD continued to weaken, again something Donald has wanted to stimulate exports and no doubt he won’t be shy in taking the credit. The Pound is finally back in the $1.40 range, a rate that looks recognisable post Brexit and the Euro also continues to gain strength…so the greenback fell as follows:
Successful investing in the markets can be summed up in two words "asset allocation". Knowing when to take a profit is important but as someone who is focused on long term capital growth, to coin the Warren Buffet phrase its "Time in not Timing", and whenever profit is taken it has to be reinvested somewhere.
Regular readers will know that two of my favourite managers are Terry Smith of Fundmith and Nick Train of Lindsell Train. In 2015 it made the news when Nick Train bought his first stock for the fund in four years. Some may argue that is lazy management, after all he is taking a fee to buy & sell the right companies.
The fund though was one of the best performing (and it continues to be) so the investors are getting a good return on their investment, which after all is the name of the game.
Nick, Terry, Warren's philosophies about doing the proper research and analysis so you end up buying quality companies and trusting them to give you the return is a tried and tested way to make money.
Of course no one is going to get it right all of the time and whenever you realise that you have made an error, you do need to be brave enough to fix it. Selling at a loss is one of the most difficult things to do, especially if the markets are going up.
Our job like the fund managers is to position clients in the right areas. Its all about making the right choices, the correct decisions.
One of the stories of January was the reverse takeover by Keurig Green Mountain of drinks firm Dr Pepper Snapple. During the day at one point the shares were up over 40%. Both Fundsmith and Lindsell Train had relatively high exposure to this company at 3.8% and 1.8% weightings respectively.
Investors in these funds benefitted from the manager's good choices. We all make good choices but as Ken Basin pictured above, who got all the way to the million dollar question only to get it wrong, will attest to ...some times we also make bad ones.....
"I wouldn't say I was the best manager in the business. But I was in the top one" (Brian Clough)
Happy New Year.....
Lets all hope that 2018 is as prosperous for you as 2017 was. If you didn't have a stellar year with your portfolios / pensions , and by that I mean at least a 15% return, then hopefully I'll be getting a call from you early Jan... :-)
So the raw data
Dow Jones +1.8% +25.1%
Nasdaq +0.4% +28.2%
FTSE +4.9% +7.6%
Nikkei +0.2% +19.1%
SSE -0.3% +6.5%
Dax -0.8% +12.8%
And on the currency markets, the US Dollar had a mixed month against major currencies. A lot of commentators are suggesting we have a weak USD and in fact this is a contributor to the US market returns.
As a Brit who continues to think in GBP, I cant quite grasp that concept, as one pound still only buys you $1.35. I would say the dollar isn't cheap nor expensive though against the EUR and AUD I would expect to see it claw back some of those 2017 losses. .....the monthly / annual movements versus USD:
GBP +0.2% -9.4%
EUR -0.6% -14.1%
JPY +1.0% -3.7%
AUD -3.2% -7.8%
CNY -1.7% -6.3%
So what can we expect for the coming year ahead? Are we going to see equities crash? Should we all buy Bitcoin. Will commodities make a comeback?
The answers of course is no one knows. If I have said it once I have said it a thousand times predicting the future is a waste of time, so why do it? After all no one knows for sure what will happen tomorrow let alone in the next 12 months.
Of course in my line of work its important for me to have educated ideas about which areas of the markets will gain my clients the best growth and where perhaps should be avoided. Regular readers know that Technology, Healthcare and Consumer Staples have been sectors I have favoured as I believe there is inherent growth here. Although for the long term approach I still own personally and for clients funds in these areas I do appreciate that with the recent gains in Technology, its time to lock in some of those profits so I am advising clients to sell half.
As well as market sectors, having the correct diversification geographically is also important. Emerging Markets are an area which all clients should own though the term is rather ambiguous. Emerging Markets could be say Malaysia and Poland, yet there is little correlation and you may well be bullish on Malaysia and Bearish on Poland or vice versa.
If I was to go out on a limb here then India and Latin America would be where I would suggest the best potential for growth exists. How you invest in these areas is with good fund managers who buy good companies. Buying the brains or following the Smart money are two philosophies I follow which allow me to obtain long term capital growth for my clients.
Probably the greatest manager of all time was a guy called Peter Lynch who worked for Fidelity in the 1980s. With exactly the same information that everyone else had, during his tenure as manager of the Magellen Fund, had you handed Peter GBP100k to "play with" in 1977, by the time he retired as manager of that fund in 1990 you would have a cool GBP2.7m...Cheers Pete
And this was during a period when the US experienced three recessions and in October 1987 the markets fell by over 22% in one day, almost double the second worst day in history. Despite these setbacks, Peter still managed to average 29.2% per annum return for his clients.
As with all walks of life, there are superstars out there. You have heard me talk on numerous occasions about Terry Smith and Nick Train. Whilst not quite emulating Mr Lynch's incredible returns, over the last ten years they have averaged around 16% - again this period including the 2008 crash. With this level of profit you would have earned you GBP1m on a 100k investment in 15 years.
Go back 12 months and another name to add to Messrs Smith and Train would be Neil Woodford. I still buy Neil's fund although he has struggled to the point where his performance in the last 12 months has left him in the bottom quartile. As the title to this email suggests though, I believe its a blip and if anything his fund offers more value now.
Whether its football management, running the 100 metres or looking after clients monies, some people are just better at doing this than others......so let them....