10 Feb 2016, 11:37am
personal finance shares
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  • Markets are squiffy again. Pound is also slip-sliding away in the background

    After a bit of cheer I was starting to wonder if the buying opportunity last month was a flash in the pan, but no, general squiffiness means an Ermine sticks a paw into the back pocket and buys another lump of VUKE in the ISA. I aim to do that once a month, to average into the unknown future shape of this bear market. I like to do it on days when the headlines are saying things like Shares dive as fears mount for health of global banking although this morning also looks good with Stock market rout intensifies amid fears central banks are ‘out of ammunition’. In moods of general jitteriness I’m not aiming to be smart, but I am aiming to be out there, buying something. There’s just so much out getting better value, and the £1k a month limit acts as a brake to spread myself out in a measured fashion rather than do the kid in a sweet shop grab all in one go scenario.

    Investment Trust discounts seem to be showing up too. I don’t buy ITs at a premium, and the premium/discount mechanism seems to amplify market sentiment, free money on offer when others are fearful. Last month I pitched for some CTY.L that I was sore about missing out on in 2009 after I read this on should you swap your shares for an IT on a discount. At the time I didn’t have any shares but the sound of the discount was nice, so I bought MRCH, then focused on building up a cash ISA firewall against getting canned and shoved money with both hands into AVCs, using a Global:FTSE100 50:50 fund which was one of the three choices available.

    Now that AVC move was good, because the Global part hedged me well against a 25% fall in the pound that also occurred, so it impressed upon me that one of the side functions of shareholdings is to hedge against governments torching the value of the currency, by say printing shitloads of it… That is the trouble with money, it is a relative scale, and it moves around all the time

    Going down - value of the pound in US dollars

    Going down – value of the pound in US dollars

    So although I am not particularly discriminating in terms of buying at the moment, if I had access to that L&G fund I’d probably use that

    1602_lg-ukx

    which performed thusly relative to the FTSE100. Sadly iii doesn’t go back far enough to show the deep joy that buying this from before March 2009 onwards was, I liquidated in March 2012 and stayed in cash, so obviously I kissed goodbye to another 30% lift in this AVC fund. However, I believed at the time that I would have to call on this very soon after leaving work. As it was this wasn’t true, but I will call on that money this year. You shouldn’t have money in the stock market you will need to use in the next five years, I’m easy with walking away from the 30% uplift. It’s not like I didn’t get any uplift in my ISA between 2012 and now, one should always leave a little behind in the markets for the other guy, otherwise you get greedy 😉

    I don’t think I can buy that fund outside a pension, perhaps even outside the Firm’s AVC scheme which I am out of now. There is a L&G fund BKF0  (ISIN GB00B2Q6HW61) which sort of does the International ex-UK half of that, and this will go up roughly by the fall of the pound, times of course the performance of the underlying assets. 57% North America equities, oy vey, I haven’t wanted to buy into the overpriced US market for the last few years, although I did in a Dev World ex-UK fund I held unwrapped. And very nicely that overheated market did for me. I can’t sell that unwrapped fund because I am up against the CGT limit for this year, but in April, assuming it’s still worth ‘owt I may do that, shove the wedge into my new Charles Stanley ISA and buy some of this L&G international, to get out of the pound and lean against the UK bias of my TD ISA which holds my HYP, which is largely big UK based fish.

    I also have two Cash ISA contributions from years back transferred into Charles Stanley. So maybe it’s time to start getting out of the pound. It has a nice 8% loss YTD, when I’m buying something generic like that I do like to see the previous owners losing money, because it means I don’t pay that on buying it. With individual shares you can go wrong with that principle, but it’s safer with broad index funds. I went with Charles Stanley because I am trying to break up my ISA holdings because of the government guarantee and in the interests of diversifying against platform counterparty risk, although this means I will have several accounts, which is always a pain to manage as an integrated whole. TD are very cheap to hold shares on, no annual fees on the account or for shares, Charles Stanley are cheap to hold funds with for small total amounts, and I will try and stay below £50,000 on there. So I will do funds on Charles Stanley, ETFs and shares on TD.

    Other ways of hedging the pound

    I bought a lot of gold last year in my ISA, because I couldn’t really bring myself to buy the in my view overpriced UK stock market or the US. Of course the cheap EMs that I bought in 2015 got cheaper but that’s life 😉  That gold seems to be reacting to the fall in the pound by going up a fair way. I don’t really feel terribly good about having 10% of the ISA in gold, but it’s working for me at the moment. It is, of course, possible to hedge the pound using spread-betting and FX, but that is a harsh mistress full of tiny changes in points bought/shorted making humdingers of changes in the total amount at risk, and these vary shockingly day to day. What I’d really like to do is buy SDRs from the IMF because what I really want to do is hedge the pound against a bunch of currencies, but I guess the Ermine economy is too small by a few squillion pounds to get a seat at the IMF. An ISA letting me hold the cash part in SDRs would be nice 😉

    Simulating SDRs by averaging forex holdings is tough, there are high carrying costs with spreadbetting FX. Well, paying anything to carry cash is bad news, because it is generally a wasting asset, not a productive asset. I’m already sore about screwing up and buying PHAU in my TD ISA, although the gold has gone up I failed to spot this is denominated in USD so I ate FX costs buying and no doubt will take the same hit on selling. In fairness the rise in the value of the gold will pay me handsomely for my trouble, but nevertheless it is a drag on performance I missed. Doing anything with FX is just like that, too many people with a hand in the till on every transaction.

    Overall, since I want to be a net buyer into a bear market hedging the pound then buying a global ex UK index denominated in pounds isn’t such a bad way to do it. I shall leave arcane forex shenanigans to the truly wealthy, like people bumping up against the lifetime allowance and the brave, like ERG. I haven’t got brains or balls enough for raw forex. Sometimes you gotta know when to hold ’em and when to fold ’em. Buying foreign productive assets to shovel money out of the UK I can relate to.

    It’s also worth noting that the contents of the FTSE aren’t totally GBP assets, a lot of these big fish make their money outside the UK. Mind you, at the moment making money isn’t something some of these FTSE100  firms are doing in a big way!

    Why is it all going titsup again?

    God knows. If it were just the markets that wouldn’t be so bad, that’s just what markets do, they have regular hissy fits. It’s their job, it is how they transfer capital from the timid to the brave 😉 But other things aren’t right. Moneyweek and the Torygraph say it’s all debt, I don’t think that we took the hit from the first credit crunch enough. In the past we used to take the hit of recessions straight between the eyes – Paul Volcker in the mid 1970s, Thatcher in 1979. The price of those interventions was some very serious economic pain – I had the bad luck to graduate into the very deep recession of 1982 that Thatcher’s medicine invoked, and was unemployed for six months at the start of my career. Since the dotcom bust we just aren’t prepared to take that sort of hit, which seems to smear everything out by driving the crap underground, for it to pop up in unexpected places. The oil price just ain’t right, and we aren’t going to stop using oil in the next 10 years; the exploration  investment that isn’t happening now we are going to rue bitterly in 10 years’ time, although we will hopefully use renewables for a larger proportion of our global energy consumption than currently used.

    Where is the bit that says buy UK residential property, BTL etc?

    I have had the experience of selling a house for nearly half the purchase price and endlessly pissing money into the mortgage for that hole. Every other bastard believes that house prices in the UK only go up, I know that this is not true from personal experience. The Ermine Does. Not. Do. Res. Property. I don’t care how great it is, why it will only go up, and up, and up. Quite frankly, I don’t give a damn. It’s worth owning the roof over my head, and after that it’s enough with the madness of crowds that is British res property. So often you hear punters say the stock market is a casino – well at least the chips are productive assets. Even being a total momentum-chasing asshole in the dot-com boom and bust I lost less money absolutely and proportionally to the capital invested than on housing. 1

    Why do I want to shift out of the pound?

    One word. Brexit…

    There may be a teeny bit of noise and hum associated with that, whichever way the referendum goes. And hell, finally the US stock market which seems to dominate ex-UK funds is getting less overpriced. So the stars are kind of aligning to make this the flavour of the first part of this year for me. Of course, this being the stock market it could all go titsup and the sky may fall and it all turns into endless pouring rain. In which case, well ,what the hell, perhaps let’s take a tip from the guys at Powerswitch and spin this doomer anthem from the last financial crash.

     

    Notes:

    1. because I have been in it for 28 years overall I am past the breakeven point on housing even taking the hit into account, because of subsequent rises. The stock market has been considerably kinder to me than British residential housing. Plus the trouble with thinking you are rich when your house rises is value is that you have to move out of it to realise that money, and observation shows old people don’t like to do that until they absolutely have to. The people who may benefit from the rise in value are your children when they come back from the crematorium, but you pushing up house prices means they couldn’t afford to buy earlier in their life. Funnily enough it’s always people with kids who go on about how great it is their house increased in value so they can leave it to the fruit of their loins, if I were the kids I’d slap ’em around the chops with a wet fish because that sort of thing is part of the problem, not part of the solution IMO. But British residential property is not my circus, not my monkeys.

    I think its more that the December interest rate rise and the repeated change of tack by an obscure Canadian called Carney has finally led to the realisation that central bankers are just as fallible as everyone else

    The rally since maybe 2011 (when Chicken Little realised the sky wasn’t falling in) was based on the omniscience of central banks

    We’ll be back to 2011 with the FTSE oh, by the end of the month at the latest!

    The FTSE-100 is a beast uniquely unsuited to the current market being on big oil, big banks and mature pharma

    I’m pretty sure the FTSE-250 and S&P 500 are 30-40% up on mid-2011 still

    If I was a betting man, I’d estimate this market continuing to drift up and down (mostly the latter) until early 2017… Wake me up then, when I’ll be buying hand over fist…

    Hi Ermine, I have been glad of res property diversification in my portfolio over the last couple of months. It has been rising nicely even during the stock market turmoil. I invest in crowdfunded property, I’m sure you will not like it!! It has been very liquid and easy to get money out and I am now starting to put more money into my only equity holding – VWRL

    Couple of months, flippin’ heck. The months are short, but the years are long if you screw it up with housing.Housing is still the worst investment of my entire life. The cycles are very, very long and the leverage makes the suckouts tough. I bought into the housing market 27 years ago. Had that been 25 years ago, or almost any period less, I’d have made out like gangbusters and would be charging around telling everyone you can’t go wrong with housing. In the late eigthies/early 1990s three million people screwed it up with housing and negative equity was a thing.

    Everyone can remember the last stock market crash, because they happen every five or six years ago. Nobody can remember the last housing market crash, because it happened a generation ago.

    Last time I looked Caledonia Investment Trust was on a 20% discount. Could it appeal?

    indeed – so much that I bought it a while ago for about 60% of the current price according to Mr TD. However, I shouldn’t fundamentally avoid buying something decent just because I bought it cheaper a while ago, it’s just hard to get one’s head around

    I love your point on the excruciating irony of people cheering the rise in their home’s ‘value’ while neglecting to take into account they will probably just fork out the difference on the kids’ new University fee’s & first home deposit anyway.

    Ditto that the stockmarket carousel/roller-coaster ride is a separation device transferring money from the easily-spooked to the nerveless, so, so true.
    Of course I can’t see the future either on the value of the Β£ with respect to brexit fears, but I think that once the dust has settled, there wont be too much difference. All the relevant big-currency countries are stealth-devaluing at full speed at more or less the same time in the escalating arms race to prop up their dysfunctional economies, but the result seems to be stasis.

    Man what would I give to have Carney’s job of parroting the words Norfolk ‘n change’ on the bank rate every few weeks, for years …..in exchange for a generous annual 6-figure salary, all the luxury calories you can swallow at expensive social events to relieve the tedium of repetition & being lauded for your ‘genius/achievements at economics’.

    That irony’s always puzzled me, and I’ve heard it time and time again from people that are normally numerate. I don’t get it at all. imagine your parents talked to you about some other essential good, say water, like that. Y’know, son,, once upon a time we used to be able to get a bath for sixpence whereas now you have to take out a loan for a cup of tea, but it’s okay because when I die (typically more than 20-40 years past peak childbearing age of the kids) then you can have the contents of my cold water tank? Wow, thanks, Dad…?

    @survivor if you think you’re going to have to fork out for kids properties in the future then which asset is your most sensible hedge? the cheer is people thinking thank fuck i’ve got a bit of skin in the game and housing hasn’t left me behind, which would effectively remove the option of any future help..

    @TR, Ah, I wasn’t saying don’t do any property, even though the Ermine had a bad experience, his situation shows that as long as you can live in it & don’t buy a bad one, you should come right at some point.

    The property racket in the UK may be crazy, but if it’s unavoidable in that you live here & the effect is so pervasive on the economy, [sometimes it feels like it’s the only game in town] I think you can’t afford to not be in it if you have an option. Basically home-ownership became a tax break in itself …..to those with enough money to play at that table, same as the ISA or buy-to-let in that respect.

    If you want to best help your kids, I’d take a multi-directional approach like TEA, starting with educate as much as possible by example as well as the verbal teaching. [Better to teach how to fish than have to subsidise with fish forever] Then all the common-sense options like diversify assets across investment classes so the balance is as recession-proof as possible.

    Obviously, nobody knows how the investment future will change, only that constant change is the natural state of things. I think that keeping an open mind, being alert for opportunities & willing to learn is the best you can do – a lot of what the people who achieve success do is actually not that sophisticated. Most people who do well have just overcome their cognitive biases that we sabotage ourselves with, so I think mindset [attitudes towards money, curiousity & effort expended] is probably the most important factor.

    By being FI yourself, you can also help your progeny directly, was it Warren Buffet who said ”Give them enough to do something, but not enough to do nothing?”

    11 Feb 2016, 3:00pm
    by Neverland

    reply

    Is there some weird cousin of Goodwin’s Law applying in the UK whereby any discussion about finances must devolve into a discussion on house prices?

    11 Feb 2016, 3:13pm
    by The Rhino

    reply

    yes – its in here somewhere -> https://en.wikipedia.org/wiki/List_of_eponymous_laws

    ermine doesn’t. do. res. property. even. though. hes. owned. the. asset. all. his. adult. life. by. the. sound.of. it. what a nazi..

    @Neverland for those without the means to buy a house there’s a very real, visceral fear of missing that boat and facing retirement without a permanent roof overhead. House prices or rather property in general is going to be a prominent topic in any discussion of future wealth and health as long as the market is this warped :/

    Question: is it possible to time the currency “market”? Every time I’ve moved from one country or another it seems to happen at the worst possible time for the exchange of currencies. Single digit % market movements pale in comparison to 30% currency shifts.

    Wow, I’ve never heard that song before but it’s truly awful. I hope it didn’t have any success in the UK charts (or anywhere else for that matter).

    @ermine — Have you looked at Murray International (MYI) old chap? I think you might like it. (Not an endorsement/rec, DYOR etc! πŸ™‚ )

    @therhino — Haha. Indeed. πŸ˜‰

    Interesting, I shall take a closer look at that. It was on my to investigate list, thanks. And of course standard terms and conditions πŸ˜‰

     

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