"Quality is remembered long after price is forgotten" (Aldo Gucci)So half way through a year that seems to have lasted forever and whilst we are still not completely "out of the woods" in respect of Corona Virus, we can at least see the exit.
Markets continue their recovery post March crash with data being ..
FTSE +1.5% -18.2%
Nikkei +1.9% -5.8%
SSE +4.7% -2.1%
MSCI EM +9.0% -5.0%
MSCI World +2.5% -6.6%
S&P 500 +1.8% -4.1%
And with currencies USD losing a little ground, AUD being the standout performer, data as follows:
GBP -0.3% +6.5%
EUR -1.2% -0.4%
JPY +0.2% -0.9%
AUD -3.4% +1.9%
CNY -1.0% +1.3%
So despite a couple of wobbles, one particular day seeing markets fall over 5% in a single session, the major markets in the US all had one of their best quarters in history. The Dow's 16% rise it's best since 1987, the S&P's 18% the best since 1998 and the Nasdaq's 29% rise it's best since 1999.
If we look back in history at when these stellar quarterly returns happen, in every one of the ten best quarterly performances, the following quarter had also been positive, with average returns of 8%, so any reason why Q3 should be any different?
Sceptics and Bears will always point to the level of Quantitive Easing that has provided support for the market and the "Fed Game" of printing as much money as required does have some longer term unknown outcomes. But we know that this is their policy and therefore the buying opportunities that existed at the end of March were glaringly obvious.
The US elections, although not until Quarter 4 will always also impact on the performance of the market and with it's twists and turns in the campaigns, create sell offs but I'd still favour the history of ten out of ten.
Looking at the price of a share / market can of course work, after all buy low and sell high is considered the name of the game, although when it comes to any investment decision, the price you pay should always be looked at only after understanding that you are buying good companies (or a fund that buys good companies)
I was on a webinar with legendary Fund Manager Terry Smith recently and he opens by speaking about a photograph he took on the back of an ice cream van that he was parked next to. It simply stated "It's all about Quality". How to find quality investments is not something which can be explained in a 3 minute read on a one pager monthly blog here, but reading books by greats such as Ben Graham, Peter Lynch and Phil Fisher do follow a similar path, with of course products and management being key factors.
It can be very difficult to stay true to this philosophy about buying the company based on its all round quality and ignoring the price. Whether it is share investments or everyday supermarket items, clothing , travel tickets, most people see price as a determining factor. Perhaps in all aspects of life where we are buying, but certainly in investing, price should always be seen as secondary to quality. If a share in one of these quality companies has increased in value it doesn't mean its too late or you have "missed the boat", as you are still buying a quality company.
The above scenario could be illustrated by the performance of Apple in the the last quarter. The share price has increased by 42% in just three months and now at an all time high. Many with the wrong perception will wait because there's a fallacy that because the price has gone up, they will wait until it comes down a bit, in most cases like this you are in for the longest wait possible, i.e forever! To paraphrase the great Warren Buffet "Price is what you pay, value is what you get"
To really identify if a company you are buying is quality, the resources required to do so are of course extensive. Back in the 1950s, great investment managers like Phil Fisher would personally research companies with his rigorous selection methods. I am currently re-reading his classic book "Common Stocks and Uncommon Profits" on which before picking a company to buy he would look at around 200 options. These days, with a much wider global market, fund managers have teams of analysts who identify buys and sells for the manager. Like individual shares, some of these managers (like Terry Smith mentioned above) are quality, some are not. Our job is to make sure you get the former not the latter and generate good growth on your portfolio.
"The difference between success and failure is not which stock you buy or which piece of real estate you buy, it's asset allocation" (Tony Robbins)So despite a media trying to convince us all otherwise, May was a good month for developed markets , steady increases across the board and with low volatility also, data being:.
MSCI World +4.7% -8.9%
S&P 500 +4.5% -5.8%
FTSE +3.0% -19.4%
Nikkei +9.4% -7.5%
SSE -0.3% -6.5%
MSCI EM +0.2% -12.8%
And on the currencies, mixed monthly results for the USD...
GBP +1.6% +6.8%
EUR -1.5% +0.8%
JPY +0.6% -1.1%
AUD -2.9% +5.5%
CNY +1.1% +2.4%
When the time comes that you rely on your investments rather than work to sustain your lifestyle, relying an one asset class / revenue stream can be a high risk strategy. Getting this mix right before retirement is key to ensuring you spend these golden years doing as you please without financial constraints or worries.
Diversification can be a tricky balance. Whilst many of us still like the mantra that you shouldn't keep "all your eggs in one basket", over diversification reduces growth and as Warren Buffett says is only "required when investors do not know what they are doing".
The world of investing is inherently a diverse and complex one. There are so many aspects to consider: liquidity, volatility, time frame , risk, tax, passive, active etc etc , the list goes on and on. These aspects are at asset class level, i.e property, stock market and then again once the asset choice is made: stocks, funds, bonds, apartments, houses......there are literally billions of ways to make money and billions of ways to lose it.
Each and every person's needs and wants are different but in the majority of cases when I have meetings with clients about financial planning most of the time we look at between 3 and 10 year time horizons. The table below shows the returns made by different investing methods over the last decade. The returns are based on a £100,000 investment....
No of years 3 5 10
Oil72,91758,33346,053I have used a yield of 5 % per annum on the Coca Cola and UK property as these offer both income and capital growth. Of course this is only a quick and dirty comparison and there are many other aspects to consider such as tax , liquidity etc although it still makes for some interesting reading.
Those of you who read my updates know I am not a "gold bug", as I don't understand the asset class. The arbitrary idea about putting 10% into Gold that some managers advocate is never one I have followed. However it has actually outperformed the S&P over three years and almost matched it over five years. That said go back to the years between 2010 and 2015, your £100k made less than £4k profit whilst your S&P tracker made you a handsome £130,000 more. Use good managers like Lindsell Train after three and five years you have £147k and £206k, significantly outperforming all of the above
So the evidence is there that with a longer term view by not having a well proportioned slice of your wealth invested in the stock market you are missing out on a lot of growth.
Two Reasons I hear most often for not wanting to buy into the stock market are because I "only buy property / invest in my own business" and its "too risky"
There is irony here as any investment strategy where you ONLY invest in one area is an inherently risky one. Investments like property should most definitely form some of your overall portfolio and no doubt those who are successful in this sector will say they have made significantly better returns than those average property price increases I mention above.
Risk is specific to an individual but I do think that risk associated with the stock market is overplayed by the media forever relating the words "stock market" to "crash". Crashes have happened, we saw nearly a 30% fall in the first quarter of this year but two thirds of those losses have already been recovered and I would dare to suggest by the end of this year the other third will be back. What about the 279% in 10 years as illustrated above, even after these "crashes" and other media nonsense about the economic impact the recent pandemic will have.
My job is to manage that risk appropriately by getting the mix right for you. Property investors and business owners often cite lack of understanding as a reason why they put their money where they know. No one follows that mandate more than myself, understanding what you invest in is what I preach, buying good companies who have good products like Microsoft, Nestle, Unilever, Colgate through good managers is how you sustain long term capital growth
So as you read this on your PC (Microsoft), whilst drinking your coffee (Nestle) before taking a shower and washing with Dove Shampoo (Unilever) and brushing your teeth (Colgate), just maybe you do understand more about the stock market than you thought......
"Behind every stock there is a company, find out what it's doing" (Peter Lynch)So as we enter our second month of lockdown in most parts of the world and as the Covid fight continues, the April bounce back was pretty exceptional for most markets, raw data being
MSCI World +10.8% -13.0%
S&P 500 +12.7% -9.9%
FTSE +4.1% -21.8%
Nikkei +5.7% -15.5%
SSE +4.0% -6.2%
MSCI EM +6.9% -13.0%
And the currency? Only major mover being in A$ getting some of its value back..performance of USD against the following being:
GBP -1.0% +5.3%
EUR +0.8% +2.3%
JPY -0.2% -1.7%
AUD -5.1% +8.7%
CNY -0.3% +1.3%
So what to make of all of this? Are we on our way to a V shaped economic recovery, or perhaps a more passive U shaped , as favoured by the majority of economists. Other alphabetical options discussed are a W shape where this current bounce will take us back to where we were only for further falls. Or the more extreme ideas out there, the overly optimistic J recovery and overly pessimistic L shape. Good news is the L shape theory has already been discounted given the gains during April.
And what gains they were. The S&P had its biggest single month gain since 1987 and its best April since 1938. The value in the stock market was always there and those who make money in the market would have seen, recognised this and bought.
That's not to say that by the end of this month I think we'll be back to normal, with those in the V shaped recovery camp celebrating victory. Today being Labour Day and we are staring at highest unemployment numbers since the Financial crisis, the US hitting 30 million. Whilst some parts of the world are getting back to the 'new" normal, this pandemic is not over and there will be consequences for all economies to bear, albeit not to the extent the media would often lead you to believe.
The S&P now sits 474 points off its 2020 high and 675 points off its low this year.
Personally I think that we may see somewhere between a U and a W with some of the smart money that has been invested in the market recently coming out. But whatever shaped recovery it is, we will all the same see a recovery from these dreadful few months.
The recent situation has highlighted the importance of having your funds invested in the right areas. When you break down the S&P falls this year into sector, Technology and Healthcare, two of my favoured areas have actually only lost 0.16% and 2.39%, falls anyone who invests understands.
Drill down further and use the right managers who buy the right shares and you are making money. Amazon up from $1,898 to $2,474, Netflix up from $329 - $419 and Activision Blizzard up from $58 - $64, all whilst we apparently experience the worst financial crisis since the Great Depression. The reasons behind this do not take too much working out. People will be ordering more goods online through Amazon, Netflix will get more subscribers and more time will be spent playing Activision Blizzard's video games - to repeat again the words of the great Peter Lynch when he says "Know what you own and know why you own it".
So where you invest in these difficult times is even more important. As well as choosing the right sectors, choosing the correct geographical areas is also part of building a successful portfolio. Ironically Chinese markets are up in the last 12 months and there are plenty of other developed country stock markets such as Denmark and New Zealand where the 12 month return is favourable.
So whilst there were undoubtedly fewer ways to invest successfully and get a positive return over the last 12 months, there are ways. It doesn't have to be that complicated either. Someone who had been marooned on a desert island for the last 12 months with his portfolio invested in a simple tracker of the Nasdaq, the world's second biggest market would check their account today, see they are 14% up and probably wonder what all the fuss is about....that wouldn't have happened in 1929 thats for sure!
"A pessimist sees difficulty in every opportunity; an optimist sees opportunity in every difficulty" (Winston Churchill) In the four years that I have been writing this monthly update, never has there been a time quite like this. Covid 19 and the repercussions this dreadful pandemic are causing worldwide still remain deeply unsettling and uncertain.
Uncertainty is what markets detest most so deep breath and lets look at the data...
MSCI World -13.5% -21.5%
S&P 500 -12.5% -20.0%
FTSE -13.8% -24.8%
Nikkei -10.5% -20.0%
SSE -4.5% -9.8%
MSCI EM -11.4% -18.6%
And as is the norm when we are in times of crisis, people turn to the USD, giving it some strength., though the Euro and Japanese Yen have held up....data as follows
GBP +3.1% +6.3%
EUR +0.0% +1.4%
JPY -0.7% -1.5%
AUD +6.0% +14.4%
CNY +1.3% +1.6%
So where to start when trying to analyse what has just happened and give some kind of balanced view on what is going to happen moving forward.
Whilst the cause of this Market crash is unprecedented, the way markets are reacting can be compared to similar situations in the past. The last quarter was the second worst in recent history. Prior to that lets look at three of the worst in living memory:
Quarter 4 in 1987 after Black Monday saw 23.5% wiped off of the S&P 500. Buying at the end of that quarter (not the market low point but the end of that bad quarter) would have seen your investment rise by 8% in a year, 15% in three years and 43% in 5 Years
The Financial crisis of 2008 saw a Quarter 4 fall of 19%. Despite seeing further double digit losses in Q1 of 2009, buying a simple tracker at the end of 2008 would have seen your investment grow by 20% in a year, 30% in three years and a whopping 84% in 5 Years.
Even as recent as Quarter 4 in 2018 we saw a "crash" with S&P losing 13%...give it 12 months and the markets are 26% higher so the gains were double the quarter loss.
As Emotion drives markets, this is why they have been oversold and to a certain extent manipulated by traders. Ironically if you look at the performances, its the Shanghai exchange which has only suffered half the losses of the others, perhaps the lack of a true free market is the reason.
So we have had a bloodbath and like any manager / analyst I cannot say for sure if we have seen the bottom of this market or not. However there has definitely been a much calmer few days trading than we were seeing a couple of weeks back.
The VIX measures volatility in the markets. On 16th March, the VIX was 83, which means that on 16th March 2021, the markets could be anywhere between 83% higher or 83% lower. Already the VIX is down to 53, so an apparent fear that existed where all market gains for the last 31 years could be wiped out in 12 months has been firmly put in its irrelevant place. We also trade around 6% higher than the market mid month low.
The effect on the economy around the world is there for us all to see. Unlike 2008 /09 though , Government have the opportunity to be proactive oppose to 2008/09 where they were forced to be reactive.
Media is everywhere and quite frankly in most cases very unhelpful where facts can be so easily distorted and this of course plays into people's decision making.
What is factual though is that company valuations are at their lowest in years. As awful as this pandemic is to those who are affected, the macro situation is that the world's population continues to increase at the same rate is has for the last couple of years, around 170,000 a day.
Of course some sectors of the market are going to be more affected than others, McDonalds will sell less burgers next month than it did in April 2019, which will affect their bottom line /share price. Other industries may actually come out stronger. Regular readers know that Unilever is often my poster child. As a company that sells a lot of soap and we are all washing our hands more, what will that do to their bottom line? What about tech. Two giants here, Microsoft and Amazon have actually increased their share price slightly in a quarter .....makes sense, people online more and logistics around working from home...not to mention Healthcare.....This is where having your investments well managed comes into play.
It is suggested that only about 20% of people make money in the stock market despite over the longer term always seeing an upward trend. This is because despite all the well founded advice that is available about not catching selling on the way down (catching falling knives), buying low, going against the herd mentality, it is still extremely difficult to convince people this works. The 20% are buying now, the 80% want to "wait and see what happens"
Quoting the great Warren Buffet's investment advice, we should all be "Fearful when others are Greedy and Greedy when others are fearful" Certainly in my lifetime I have not seen a situation as fearful as this...so get greedy and get in touch..........
"Fear and Panic are two separate emotions, Fear's healthy, Panic's deadly" (Frosty Hesson)As time goes on, records are always going to be broken and while its nice in recent times to be talking of all time market record highs, 2020 and February in particular have seen some market falls, cumulating in the largest single day drop for the Dow Jones in history last Thursday, over view being....
MSCI World -8.6% -9.2%
S&P 500 -8.4% -8.6%
FTSE -9.7% -12.8%
Nikkei -8.9% -10.6%
SSE -3.2% -5.6%
MSCI EM -3.8% -9.2%
So a sea of red as expected with current Corona Virus sweeping across the world...seemed to help the US Dollar though, data being
GBP +2.9% +3.3%
EUR +0.6% +1.5%
JPY -0.3% -0.8%
AUD +2.7% +7.9%
CNY +0.8% +0.3%
So is this justified, or panic selling? As well as the biggest single day drop in the Dow's history, we also saw the largest weekly fall in the S&P 500 since the market crash of 2008. In more recent times, the last time the panic buttons were being frantically pressed would have been Q4 in 2018, when we saw the S&P fall from 2929 to 2485, a drop of 17.9%. Today this market sits at 2954 so pretty much back where we were, so buying that dip would have served you well as long as you took some profits along the way.
Since the Corona Virus started, S&P is down just over 11%, so still some way before hitting the 17% slump mentioned above.
Whilst I'm not going to say for certain that this market has bottomed out, there are signs that we should get a bounce next week as Friday tried to break even. I don't think we are out of the woods quite yet and one differential between this mini crash and the previous is that especially in my region, I can physically see the impact this is having on the economy, rather than a load of traders just deciding that companies are over valued.
That said, the reports coming out of China suggest that the number of increases in cases already plateaued between 23rd January and 1 February, suggesting their containment measures are working. The number of cases outside of China are still quite small in number and on the ground the response from where I am has looked impressive.
Emotion is still the overriding factor in any market movements and there is a lot of fear out there at the moment. But at these times bear in mind the words of the great Warren Buffet to "be greedy when others are fearful"
As mentioned in last month's blog last time we had anything similar was 2003 with SARS. Back then the virus was contained within 7 months, the markets losing 14% in that period but those losses were quickly reversed and seven months later you would be 20% up
In terms of man's innovation, 2003 literally was generations ago, Facebook hadn't been founded, the Iphone was still four years away. For Ipads and Instagram we would have to wait another seven years. In 2003 it took 20 months to develop a vaccine, whose to say this couldn't be done in a fraction of the time now given how much further forward we are than 17 years ago.
So do I see value in this market, Yes absolutely. Occasionally it takes events like this to bring valuations out of the clouds and in my onion this has happened
The impact on stock markets has pretty much been global. Only a handful of niche markets have remained in positive territory, Estonia , Bahrain and Venezuela being notable exceptions, the latter up a whopping 20%, not that I'm advocating buying Venezuelan stocks..
But Panic is never a strategy. Taking profits out along the way, ensuring some level of diversification is important but so is buying low and right now share prices are generally low.
Interestingly, the Chinese and Emerging markets have not been as affected as the US - though as the Global players trade in the US they are likely to be hardest hit.
The US sets the precedent for other markets around the world. A famous saying being that "When the US sneezes the rest of the world catches a cold" but a more pressing question ..What does the rest of the world catch when China sneezes??? :-)
"An Investment in Knowledge pays the best Interest" (Benjamin Graham)
The first month of the new year / decade comes to an end. The background noise of Brexit and Impeachment is still there but as has been the case, has had very little impact on markets.
But now we have Coronavirus...a world pandemic??...market performances for January..
Jan & YTD
MSCI World -0.7%
S&P 500 -0.2%
MSCI EM -4.5%
And on the currencies, the greenback did the following...
So with the exception of the Aussie Dollar which took a beating, no huge movements.
On the markets though, all had a negative month. To take the football adage it was definitely a "game of two halves" in January. The momentum of 2019 and upward trends carried on for the first half of the month, until a peak on the 17th but these gains were pegged back
The Coronavisrus has definitely had its part to play in the sell offs causing the second half losses. With today's media we are all subjected to so many different "expert" opinions and with China's control over what information reaches the outside world, each person draws their own conclusions on the extent of this pandemic
As I have said 1,000 times markets are emotional places and of course yesterday when the World Health Organisation declared it a "Global Emergency"...words like that cause panic, and panic selling. As the Chinese markets have been closed while they welcome the Year of the Rat, Monday's trading session over there will be interesting.
Of course as with any form of predicting, it is impossible to know exactly what impact this "Global Emergency" will have on the World's Financial Health. Looking at similar situations, the closest in comparison was the SARS outbreak of 2002/ 03. This lasted from November 02 to July 03. From its outbreak until April 2003, Global markets fell 14%, but by the end of the year those 14% losses were turned into 20% gains
Other outbreaks such as Avian Flu (05/06) and Swine Flu 09/10 had little impact on the performance of shares
Managing your finances in these uncertain times is more difficult as its uncertainty which the markets detest.
Diversifying your investment portfolio is often cited as a way to ensure times of uncertainty do not cause too much pain. Ironically even the Greats of the investment world are divided on this subject. A quick google shows that Ben Graham and John Templeton bestowed the virtues of a well diversified portfolio whilst Charlie Munger and Warren Buffet are less keen on the idea. If the greatest investors of all time do not know the answers, what hope is there for the rest of us...?
The above though does refer to share portfolios and Buffets' famous mantra about quality over quantity. More holistically there's no doubt that having some diversification is important. Real Estate Investments, Fixed Income, Private Equity, Start ups, Crypto..., we could list hundreds of different asset classes which encompass literally billions of investment opportunities. Many of which will make money, many of which will lose
Probably the most common reason I hear for prospect clients not buying is that they "only invest in property" Often this is a sound decision as the investor understands the market, though why "only" invest there
Currencies are exceptionally volatile in nature and especially for us expats, having the correct spread here is important. Some of the recent falls in the stock market have been due to selling on valuations, nothing to do with Corona. Valuations are seen by some as being high. Selling at these high prices is the easy bit. The difficult bit is where to reinvest. Volume from the institutions in some of these recent stock market sell offs suggest currencies was where they went.
So the above in essence illustrates the need to diversify as if valuations are high and you have sold - back into shares may not be the way to go. Buy low and sell High
Holding cash is just going to lose against inflation and we all work far too hard for our money to do that
Getting the balance in your overall portfolio is such a personal endeavour. Your age, risk appetite, personal circumstance, income requirements so many factors need considering to give yourself a better chance of getting it right. Finding the right people with the right knowledge in these areas is key
Like everyone else is the world, I have no idea to what extent this Health Crisis will affect the world. As one of the greatest minds that ever lived Albert Einstein once said "In the midst of Every crisis lies Great opportunity"
Not many would think that Albert Einstein and Homer Simpson have a lot in common...but perhaps they have more than we thought...:-)https://www.youtube.com/watch?v=DzNSRYP00uQ
"Out of Complexity, Find Simplicity" (Albert Einstein)Happy New Year.
As we welcome 2020 we also welcome a new decade. The last 20s was somewhat defined by the stock market which led to both the most exciting and fun decade ever to years of post decade depression.
Of course we live in a very different word today but being financially secure and not having to worry about money would remain a goal of us today, a person living in 2020 , in the same way the same way they were goals for our descendants 100 years ago
So how did this decade end...well December was another top month for stock markets around the world, a real "cherry on the top" for what has been a very positive year across the board....data being:
MSCI World +2.9% +25.2%
S&P 500 +2.9% +28.9%
FTSE +2.7% +12.1%
Nikkei +1.6% +18.2%
SSE +6.2% +22.3%
MSCI EM +9.2% +24.8%
And on the currencies. The USD fell against its counterparts but still had a generally strong year. With the UK finally seeing some direction with Brexit, Sterling was the overall winner...data for USD versus being...
GBP -2.5% -4.0%
EUR -1.6% +2.5%
JPY -0.5% -0.6%
AUD -3.9% +0.1%
CNY -0.8% +1.4%
Hopefully many of you were toasting your portfolio performance along with the coming of the New Year. With great numbers like above, if 2019 wasn't a good year for you, its definitely time to change things
Using the S&P 500, a 28.9% gain made it the 5th best year since the Index began in 1957. Interestingly I had a look back on my blog on 1/1/19 and while you all know my thoughts on predicting and what a waste of time it is, below is what I wrote reference to patterns...not a million miles off what happened...
For those who look at patterns, the nearest example in recent history I could find was 1989, 1990 & 1991.
1989 was a terrific year (as was 2017), 1990 we saw a stumble, with the S&P experiencing losses almost identical to last year...and in 1991 we saw a 26% increase. I am sure we would all take that return on our hard earned cash over the next 12 months...or even half of that.
So what to make of this? The last quarter of 2018 and especially the worst December since 1929 was always likely to lead to a bounce and a good start to 2019, which indeed happened. Stocks were cheap in January. Upward trends then continued for the year.
Economic Growth remains strong across the world. The economy is generally in a good place despite often people's perception is different. We are overloaded daily with news, views, political dialogue, much of which is purported by those with an agenda, whether that be left wing / right wing whatever...
This leads people to think that the economy is "in a mess" or we are in "difficult times", but the numbers quoted above, markets at their highest ever suggests this is not the case
Best performing market in 2019 - Russia. Second best - Greece. Yup Greece who not so long ago were seen as a state of complete economic incompetency. Who would have had the foresight / guts to have invested there...those that did are 37% better off on those investments than they were a year ago
Losers were Chile and Poland who both suffered drops of more than 15% in their respective markets.
Leaders like Donald Trump and Boris Johnson are divisive characters and this creates political and emotional turbulence which can rub off on the markets. But all of this is still secondary to fundamentals. Well ran companies with good products will grow and so will your investment there.
A US$100,000 investment at the start of the decade into an S&P 500 tracker would today be worth US$287,622 - not a bad return - almost three times your money without having to do anything.
It doesn't always work out like that of course, go back the decade before and that same $100,000 invested on 1 January 2000 would be have been worth US$78,807 on 1 January 2010
Whilst I'm certainly not in a position to question the greatest investor ever, Warren Buffet on his famous "Time in not timing" quote ,when it comes to the market, every person's situation needs to be looked at in isolation.
The chap who was due to retire on 31 December 2009 and had all his money in equities would definitely think timing had an important role in him achieving his financial goals, which could have been ruined. So this process needs to be managed based on your time horizon until retirement, the level of wealth you feel you want / need, your risk, your attitude to liquidity etc.
Same chap who retires today would have out performed his expectations but did so with greater risk with equity exposure
Generally as you get nearer retirement and once you do retire, moving from Capital Growth to Fixed Income is a common sense approach. However in an era when bank interest in more established currencies in no longer available (and in my opinion gone forever), you have to either sacrifice liquidity or take on Capital risk.
This is complicated and requires expert advice to get it right. The lines between simplicity ("buy good companies") and complexity ("when to buy, when to sell, what to hold") are easily blurred and getting it right or getting it wrong can have a profound effect
Kick off 2020 by getting on top of your finances. Make an appointment, pop in for a chat with me and and lets see if we can create some clarity....
"Customers shouldn't think of your business as a place to buy a product or a service. It should be a fun place to be" (Richard Branson)So November comes to an end and only one more month until we wave goodbye to the year and enter a new one. Not only that a new decade...so been a good year for you so far?...data below suggests it should..
MSCI World +2.6% +21.7%
S&P 500 +3.4% +25.2%
FTSE +1.4% +9.2%
Nikkei +2.5% +16.4%
SSE -1.8% +15.2%
MSCI EM +1.6% +14.3%
So almost a clean sweep of positives, and on the currencies, we saw the Greenback do as follows:
GBP +0.2% -1.2%
EUR +1.3% +4.0%
JPY +1.4% -0.1%
AUD +2.2% +4.2%
CNY -0.1% +2.3%
So this year, the best money would have been on the S&P 500 with a 25.2% gain. That gain is the 14th largest since 1928 (when the index began). These gains were helped by a very strong start to the year following the mini crash in Q4 of 2018. In fact whenever both January and February have been positive, the S&P has gained an average of 24% that year, so we are just about on course.
Not only is the S&P the biggest mover but also the best indicator of where the economy is.
The Index represents the largest 500 companies in the US stock exchanges and undoubtedly during the course of today you would have used products and services by many of these companies and contributed to their continual growth
The total value of the S&P is US$26 Trillion led by tech giants Microsoft, Apple, Amazon (although this is technically consumer discretionary) and Facebook. These four company's combined market cap makes up around 13% of the Index.
The US is still way out in front when it comes to size and the old adage "When the US sneezes the rest of the world catches a cold" is still very true. This is illustrated when you consider that the largest companies on the FTSE and Nikkei (Royal Dutch Shell & Toyota) are approximately equal to just one fifth of Microsoft, the US leader and would rank about number 35. The largest on the German market is worth just 10% of the US big boys.
With Black Friday having just passed and Christmas around the corner, the focus is again on the consumer and its this growth in consumers which will continue to drive the value of these S&P 500 components. Colgate will see more tubes of toothpaste tomorrow than they did today
The world is growing (arguably too) fast and by the end of this year the number of people on this planet will have increased by the population of Germany, Europe's most populous country. These people will consume technology (the largest sector of S&P) and require Healthcare (second largest sector) so long term smart money should be there
So what will the next decade bring in terms of growth. Had you put US$100,000 on the S& P on 1/1/10 , that would be worth US$284,000 today. However go back and look at the decade before having just suffered the second worst ever Financial crisis your $100k would have been worth just $78k, the decade preceding that US$407k....
"The four most dangerous words in investing are "This time its different" "(Sir John Templeton)As we enter the last quarter of 2019, September, historically the worst month for stocks bucked the trend as we saw all major markets produce a positive return - data being:
MSCI World +2.0% +15.7%
S&P 500 +1.7% +18.7%
FTSE +2.8% +10.1%
Nikkei +5.4% +9.1%
SSE +1.4% +17.4%
MSCI EM +2.0% +7.6%
And whilst the USD remains steadily strong in 2019, movements against the Greenback were as follows
GBP -1.0% +4.7%
EUR +1.0% +5.1%
JPY +1.9% -1.3%
AUD -0.1% +4.5%
CNY -0.1% +3.9%
It seems every day we wake up, the news stories we hear are like the proverbial one legged duck - swimming round in circles. US / China Trade War and Brexit occupying much of our news feeds but with no clarity on progress, let alone solutions or an end.
This creates Geopolitical risk and allows markets to be volatile as buying and selling is driven by emotion and is reactive.
Ironically though it is those "Same Same" situations which are key to Long term successful investing. Most of us today will go about a routine very similar to what we did yesterday and are likely to do the same again tomorrow and the next day.
What do we do every day? - Brush our teeth (Colgate +24% YTD) , Wash with Dove Shampoo (Unilver +19.0%), Logon on to our computer (Microsoft +37% YTD), Eat something (Nestle +33% YTD), Drink something (Pepsico +26% YTD)...I think you get the idea and those companies who are the leaders in these areas benefit from the inherent growth story that more people will be using their products today than they did yesterday. We are all living longer. People from Developing countries are consuming more. The world's population increases daily by around 200,000 people. most of whom will eat, drink, wash and work..therin lies the growth and where the long term money should be
Long term though, is not what everyone looks for and that is why it is key to bespoke your portfolio. As we enter the last quarter of 2019, historically this has been the most fruitful for investors by some way. However that cycle was turned on its head last year when the S&P fell a whopping 14%. If you have one year to go to retirement and your share portfolio falls by 14% in a quarter, no matter how many of the great stocks mentioned before you own, it takes time to recover those losses and time may not be something you have.
This is why having Alternatives is also important. Owning assets without correlation to the stock market and / or produce fixed income protect you from similar scenarios such as what we saw this time last year.
So make sure that your portfolio is set up to suit your requirements. As I have said many times, no one has a crystal ball and can predict the future. The amount of times I hear comments such as "They say another crash is coming " - These statements have no substance. For every analyst who is bullish on the markets, you will also find someone who is bearish...so someone is right and someone is wrong. So you have to manage your position so you are hedged enough but not so much so that your growth is impeded...not an easy balancing act and an area we can help with
Sometimes it seems like we are in a forever changing world, yet sometimes it seems that we are living in GroundHog Day. Either way when it comes to investing never forget the words of the great Peter Lynch..."Know what you own and know why you own it"....
"Complexity is your enemy. Any fool can make something complicated, it is hard to keep things simple" (Richard Branson)A volatile August has come to an end with markets ending the month down. With the decent gains so far in 2019, this was not unexpected. So as much of Europe returns from their holidays, kids go back to school after the long break, what can we expect for September and Quarter Four as we head to the "Business End" of the year
August numbers being:
MSCI World -2.2% +13.5%
S&P 500 -1.8% +16.7%
FTSE -5.0% +7.1%
Nikkei -3.8% +3.4%
SSE -0.5% +15.8%
MSCI EM -5.4% +5.5%
On the currencies we saw a mixed month for the USD, losing ground against a strengthening Japanese Yen but an unusually large movement in the Chinese Yuan rate....raw data being:
GBP -0.3% +4.6%
EUR +0.3% +4.1%
JPY -2.7% -3.1%
AUD +1.7% +4.6%
CNY +3.9% +4.1%
September is historically the worst month when it comes to investing in the S&P 500 with an average loss of 0.5% since the Index started in 1962. Of course this does not mean that this month will be negative, in the same that that whilst Quarter four is historically the the most profitable - yet Q4 in 2018 was a shocker.
No form of predicting or forecasting can ever be certain. The truth is we do not know whether the markets will go up or go down next month, or indeed for the remainder of this year. This is even more apparent given the market volatility - the VIX which is the indicator of the S&P's volatility is currently 17 versus an average of 11.
Our job as Investment professionals is to look at what we do know and make a judgement call on that.
So what do we know?
We know that tomorrow we will eat, drink, wash, drive, use our phone, use a laptop...I think you get the picture.
Within the S&P 500 there are 57 companies which have been given the title "Dividend Aristocrats" This refers to companies who have increased their dividends every year for a period of 25 years or more. Its obvious that in order to do this, the company has to be successful and buying shares in successful companies gets you long term capital growth (and income to boot!).
Taking these aristocrats to the next level (Dividend Royalty perhaps) are 11 companies who have increased their dividends every year for more than 55 years. The largest of these and household names include :
Colgate 56 years
Coca Cola 57 Years
Proctor and Gamble 62 Years
An indication of enormous success is when a product is know by its brand name rather than its generic name. The term for this is a "proprietary eponym".
Certainly when I grew up I can remember using Tip - ex and my mum using a Hoover. It probably wasn't until I was in my teens that I was aware these were actually called correction fluid and a vacuum cleaner. Coke (Dividend Royalty) is another example, I can't ever recall asking for a can of "Cola" I've noticed here in Thailand, locals referring to crisps / chips as "Lays" (Pespico Brand - Dividend Aristocrat") and rarely do you hear the words nappies or diapers, its always "Pampers" (Proctor & Gamble - the King of Dividends with its 62 year ongoing increase!)
With the aforementioned companies looking after our everyday needs, the daily increase technology has on our lives and the requirement for pharmaceutical companies to provide healthcare for a growing and ageing population, it's large companies in these sectors that make up the lion's share of the S&P 500. We know the products and services provided by these multi nationals will be used tomorrow. This is illustrated in the index's performance having averaged 9.8% per annum. A 30 year old who saves US$1,000 a month at those rates of return has US$2.09 m by the age of 60...
Using Investment legends like Peter Lynch, Warren Buffet & Terry Smith could have got you 50% more (though there isn't time for the active v passive argument here)
So focus on what you know. Like Pepsico, Coca Cola, Unilever, Proctor and Gamble will sell their wares to billions of people in 180 different currencies tomorrow. Leave forecasting to others as it really is a thankless task. Just ask Michael Fish the former BBC weatherman who despite getting the weather forecast correct 90%+ of the time will forever be remembered for the one time he didn't.
In 1987, on the eve of the Greatest storm the UK had seen in living memory Michael jovially stated "Earlier on today, apparently, a woman rang the BBC and said she heard there was a hurricane on the way. Well, if you're watching, don't worry, there isn't! - DOH!