10 Oct 2014, 12:42pm
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  • The incredible lure of day-trading

    Ah, day trading, the ultimate signal of feel-good in the markets 1. It’s the harbinger of doom, because it is a signal of irrational exuberance. A bunch of day-traders were on the telly a few days ago, hat-tip to Under The Money Tree who flagged up Traders – Millions by the Minute as an object-lesson in what not to do.

    There are two fundamental approaches to trying to make money out of the stock market. One is to regard it a way of purchasing a selection of productive assets, and then becoming a rentier, sitting back and taking a slice of those productive assets without having to do any work. Don’t knock it -that’s the way the super-rich are getting richer. They’re not saving from income, that’s soooo 20th century, dahlink. You need to have inherited wealth or stupendous good luck. The latter is how Russian oligarchs get rich, the former is how Paris Hilton and the Ecclestone daughters got rich. You don’t get to have a pad at the Odeon Tower Monaco if you’re on the side of income no matter how clever you are or how good a footballer.

    Capital, not income will get you here

    Capital, not income will get you here

    Half a billion is doable as income, but you need a turbo-charge from the stock market to keep you there. CEOs and the like have managed to get into this area by getting on the side of the stock market, but they don’t day-trade.

    The second is to regard the stock market as a casino, and to attempt to pick a smidgen of signal from the noise the market throws off. In Traders-Millions by the Minute the punters were taking this line, using spread-betting. The Ermine has indeed had dealings with spread-betting. I’m a fan of it in dealing with sharesave, because you can lock-in profits.  Though I lost money on that side of the trade I achieved my goals. Every year I get on the wrong side of the trade with my house insurance too, and lose money. I am cool with that.

    WTF? The Ermine is a fan of trading and spread-betting?

    Sometimes you have to hold shares for a particular period. Sharesave and Employee Share Incentive Plans are a classic case, particularly the latter. You have to be a special kind of mug to lose money on Sharesave, but on ESIP you can, because you purchase the shares from pre-tax income but have to hold the shares for five years from purchase, else you get to pay the tax and NI you didn’t pay to buy the shares.

    So say you buy 100 shares of Megacorp at £1 a share using £60 of your hard-earned cash post-tax. The £100 only costs you £60 because the taxman doesn’t thieve £40 from your income in this instance. But you have to hold those shares for 5 years. If they go down to 60p at the end of those 5 years you break even, less five years of inflation.

    If you short the number of shares you buy, then you will cancel out any gain or loss on the shares, though it will cost you something to do that. But you do get the benefit of the 66% tax bung. Why 66%? Because you forgo £60, but you get £100. Thus a profit of 40/60 or 2/3 = 66%/ Less three years of inflation, say about £10, so you come down to 50% up.

    I used this towards the end of my time at work with ESIP and Sharesave – to protect myself against significant falls in The Firm’s share price. As it was The Firm’s SP went up, and I got to pay IG about £1000. I was easy with that – it was worth paying to insure myself against losing a lot of what I had gained already.

    Social Trading and Trading Superstars, a new development in the trading universe

    Apparently you can now track some other trader’s trades if you can’t be bothered to do the legwork yourself. It really puzzles me whyit’s not obvious what’s wrong with this. The long-term rise in the stock market is roughly 5% p.a. real 2 , though you have to be invested for long periods of time (about 20 years) for things to settle out like this. It’s one of the reasons why I believe index-investing’s studious ignorance of high CAPE/valuations is am issue. But that’s something for another day. So traders, every day, are exposed to  1/7300th of their stake on average in real stock appreciation if they go long, less the cost of the spread on every turn which applies going long or short.

    Now trading tends to be a short-term activity – that daily gain from the stock market going long isn’t going to speak for much there at 0.01% per day. So you profits as a trader have got to come from somewhere, and it comes from either the punters or the casino your spreadbetting firm. Seen any spreadbetting firms go bust recently? Nope. So it’s coming from the punters. In theory it could come from the markets, because the SB firm presumably hedges any major shifts building up over time, but the programme seemed to indicate most of the profits were from the spreads on the trading, which stays within the system.

    And therein lies the rub. If all the punters start getting ahead, the odds will lengthen. Particularly in spreadbetting, where you are running on a model of the real thing, not the underlying market.

    The trick with day-trading is to quit when you’re ahead

    Over a dreary telephone conference at work way back in 2010/11 an Ermine extracted £400 from IG index on gold, trading per tick, and gave up £350 of it by the end of the meeting. It was sheer luck. Some while later I dabbled in forex trading, using a VAR spreadsheet to control risk. After a few months 3 I looked at the results, observed how much risk it was necessary to pay the fees. I experimented with IG’s automated trading system, where you try and craft a black-box strategy based on the previous charts price history, and back-test it on historical data without using real money.

    I could find no strategy that permitted risk to stay bounded as time passed – everything seemed to trend towards a martingale situation where you can always win – if you have infinite wealth and infinite time. If you have infinite reserves of wealth you don’t need to piss about with spreadbetting, cos you don’t have infinite time. I was never tempted by the breathless folks offering courses and training to learn how to trade xyz because of the natural suspicion – if you can make me rich then why the hell aren’t you in some darkened room making yourself rich, dude? Cut out the middleman. I guess it’s the gonzo version of the active fund charges.

    I was Frankie, although I derived the result in a different way from The Escape Artist, by observation and hypothetical experimentation. So I took my £800 gains plus the £1000 stake, and stopped doing that, because it was the logical thing to do. MMM has a nice post on get rich with science. It’s harsh, but when you see the statistics tell you that this is more luck than judgement you can either ignore the results or take the insight offered. If I want to make money out of a spread-betting firm, I will buy their shares. I did learn from this, however, and applied the knowledge to my investing. Trading costs you money. So I stopped selling, and made it a priority to sit on my backside and take the dividends.

    That, fundamentally, is the trouble with day-trading. In the end you are part of generating the wall of noise – for you to gain, somebody else must lose. This does not necessarily hold with the stock market over the years – because in aggregate returns accrue to capital. But those returns accrue very slowly. To actually get rich from a 5% p.a. real return you need to live frugally and ideally you need to take a multi-generational view. If you have talent and/or cunning, you are much better off leveraging your capital with a business and then selling it.

    How do the rich get rich?

    Take a look at the top 10 of the  Forbes Rich List There are more Mark Zuckerbergs,  Bill Gates et al than there are Warren Buffets. If you look through the top 10, the sources of wealth are typically from running or selling a business, followed by ancestral wealth of some sort. Four are self-made, and six are inherited wealth. Forbes trumpets this as saying the American Dream is hale and hearty. I’m not quite sure I want to imagine what it looks like when it’s poorly – holders of old money outweighing new in the top 10 shows maybe the rags to riches isn’t quite as easy as it’s made out. But it can be done. Something else of note is: no actors/actresses. No musicians. No sportspeople. None of the ways teenagers hope to get rich. Something else of note is that most of these are no spring chickens – it’s the greybeards who have all the money. And they’re not a pretty bunch, eh, indeed some of them probably can’t have intact mirrors in their homes.

    Of those ten, only one  ‘made it on the stock market’. And curiously few in the top 25  ‘made it day-trading’ ;) Mind you, Sheldon Adelson comes in at #12 from running casinos. There’s nothing wrong with casinos as a way of making money. It’s just that most people go the wrong way about it! Don’t walk through the casino  doors. Own them.

     

    Notes:

    1. I wrote the first draft at the end of September. The feel-good doesn’t quite ring true now – exciting times ahead?
    2. this comes from the BarCap Equity study
    3. I had a similar temperament to the timid trader in the programme, if in doubt I did n’owt. This is apparently not the route to success in this field
    27 May 2014, 5:35pm
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  • Hello Mr Putin, fancy meeting you here?

    It’s not an experience you get that much in the UK with its short distances, but when air travel was dearer, in the 1970s, it was worth travelling by train in Europe. You’d get off the boat at Ostende, and after some interminable shuffling, end up at the railway station, where you had trains that went to different countries, which looked really exciting to a young ermine. Sometimes the train would have a destination of two countries, depending on which end of the train you boarded.

    Unlike air travel, the train stops at many places, and different people would embark and disembark at the waystations. As you approached your destination you’d get a sense of the place you were going to by your fellow-travellers.

    1505_putin

    So in my ISA I found myself waking up next to this fellow with hard gimlet eyes. You get the feeling he’s not a chap who is unused to seeing a dead body that was alive not so long ago. It’s not a friendly face, eh? And you get the feeling the old boy’s known some troubled times. Here’s a fantastic album of Vlad doing all sorts of derring-do –  not bad pecs for a geezer who’s getting on a bit.

    Vlad, a word in your shell-like. If you don't like what's on TV you can switch the darn thing off. Chill, bro'.

    Vlad, a word in your shell-like. If you don’t like what’s on TV you can switch the darn thing off, particularly if you’re Prez, they ain’t gonna stop you. Chill, bro’.

    Exactly why he’s so bothered by the existence of Conchita Wurst is presumably something that’s between Vlad and his shrink, if they indulge is such effete decadence in between all the huntin’ and fishin’.

    However, it’s not so much Vlad himself but Russia in general I’m interested in.

    A lot of people have lost a shitload of money in Russia. It’s a different country – they do things differently there. The term ‘ownership’ and the general rule of law has a more fluid meaning, as the odd oligarch has found out to their cost. Smarter people than me indeed have had Russia cost them dear – the rocket scientists of Long Term Capital Management who believe that risk could be abstractly quanitified discovered to their cost that

    In times of stress, the correlations rise. People in a panic sell stocks — all stocks. Lenders who are under pressure tighten credit to all

    Crikey. No shit, Sherlock? That’s the trouble with being a rocket scientist, you haven’t spent enough time with people to realise that scared humans (or dogs, or wildebeeste, or pretty much any living thing) do not scatter preserving their individual independent calm assessment of the situation. They run like hell. Mostly in the same direction as everyone else. Dunno what the maths of that are, but it buggers up your kurtosis and fattens your tails. And drains your wallet.

    So why do I want some of this? Well, I’m not going to go stockpicking in Russia. But I’ve been toying with the idea of getting some exposure to Vlad’s country despite his sabre-rattling and raising the uncomfortable topic formerly known as ‘living space’ in a previous context. After all, that nice man Tony Blair wasn’t averse to making other people live as he wanted them to live, though it’s still not an attractive characteristic in a world leader. Like it or not, Europe is going to have to cut deals with Russian companies, unless a large part of Europe would like to freeze its rocks off this coming winter. Even if they do, the Chinese might like some too.

    Unlike the traditional view of investing for retirement, where you liquidate on retirement to buy an annuity, I will use the income from my ISA over the coming years, and that terminal horizon is still several decades off possibly. I expect the financial and political power of the West to decline relative to other regions of the world for a range of macro reasons, as well as the Spenglerian thesis that cultures grow old and tired as they become more distant from the shared values that invigorated them. That isn’t to say that I believe Russia will stand towering above the early/mid 21st century like a Colossus. This long-range section of my ISA is small, and it includes a bit of  Asia, a little bit of Africa and now a little bit of Vlad’s domain in the form of HRUB 1 . I can take a long time over buying these areas, because the aim is to hold these for many years. So I try and pay as little as possible. The pound is relatively high at the moment, so it’s probably a year for looking for foreign assets, and Vlad’s been pissing a lot of people off which also seems to scare the horses a bit. The index is a funny old thing, too, being the MCSI Capped Russia index – basically Russia is about Gazprom, energy, oil, Sberbank, energy, more oil, mobile, commodities. And the chart looks fantastic – full of absolutely everything you don’t want in a stock chart – nose-dive-tastic, if this was an aircraft and you’d lost 30% heading for the ground hail Marys wouldn’t really be enough to give you hope.

    Crashing nosedive - all-time low. Time to buy?

    Crashing nosedive – all-time low. Time to buy?

    So I couldn’t resist – a P/E of about 5 and a yield of of a gnat’s under 3% I figured I’d have some of what my old mate Vlad is having. It was the devil’s own job to get data on HRUB – I had to sneak in to HSBC and pretend I was a professional and then look for HRUD and switch currency to GBP. I favoured it over the db-x trackers flavour of the same thing (XMRC) which seems much more popular (or heavily advertised) because that is a derivative with Deutsche Bank as counterparty, whereas HSBC was physical replication.  Physical replication isn’t all it says on the tin, though, because they still lend stuff out, turning physical into synthetic-lite.

    But to be honest, if you’re going to invest in Russia then you’re not of the most nervous disposition, and you gotta be prepared to let it all go. This isn’t a huge part of my ISA ;)

    Actually buying it on TD was no fun either. They swore blind they didn’t have any of it, I have to look up HSBC, page through pages of cruft, click on the HRUB link, upon which they still said they still didn’t do it, but a crafty Ermine observed that they could run a realtime quote 2 and were actually prepared to sell me some. Which they did.

    TD. We don't do this, but since you're a crafty bastard we do.

    TD. We don’t do this, but since you’re a crafty bastard we do.

    Now if a company was on a P/E of 5 and a yield of 3% I’d pass. but most of Russia’s stock market is companies doing real stuff with Real Men digging crap out of the ground. OTOH my mate Vlad could say he owns the lot and the Ermine is unlikely to launch ICBMs to get my stuff back. It’s gonna be a case of back away quietly from the hard man, eyes to the ground and then beat it ASAP. Indexes don’t usually go bust but the Russian stock market does have form on that, I hear 1917  was a pretty rough year on the St Petersburg stock exchange…

    But in the meantime, the Ermine will ride with Vlad, though still looking nervously at those gimlet eyes…

    Notes:

    1. HRUB is the GBP denominated version of HRUD, but it’s easier to find charts for HRUD (dollar flavour) so I’ve used HRUD, so there’s a forex shift
    2. when the market was open, it wasn’t when I went back to get a screenshot of the crappiness of their interface
    24 Feb 2014, 12:53pm
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  • Vanguard Lifestrategy has a lot going for it. Shame you have to buy it all at once

    One of the places the lazy index investor gets pointed to is Vanguard’s Lifestrategy – a sort of all-in index fund that tracks the whole world and rebalances automatically, without all the stress of doing it yourself. Buy regularly every month, sit back and forget for 20 years. I was looking at this for Mrs Ermine’s ISA.

    Trouble is, at the moment 30% of LS is made of highly priced stuff  like the US , that is on exceptionally high valuations at the moment and unpleasantly high by CAPE, and along with another 30% composed of the UK which looks like this

    As Clint would say, do you feel lucky, punk? Well, do you?

    As Clint would say, do you feel lucky, punk? Well, do you? Remember that money was worth more in 2000 so its’ not quite as good as it looks, but one would clearly be buying high

    The UK and the US together  makes up over a two thirds of Lifestrategy so it would be a nasty headwind to buy into now. On the other hand, a portfolio roughly diversified like Lifestrategy is where I’d like to be in about 8 years time. An evil thought comes to mind – what about buying the cheaper parts first ;) Let’s lift the lid and look at what’s in there.

    Vanguard Lifestrategy isn’t the MSCI World

    I’d always assumed this is a worldwide index from the way people talked about it, but it turns out this is not the case. The US flavour of this is quite different from the UK version – if you take a butcher’s hook at the geographical spread of the latter

    Vanguard UK Lifestrategy 100% Eq geographical allocation

    Vanguard UK Lifestrategy 100% Eq geographical allocation

    There’s a long tail but I’ve caught about 90% of the allocation. And it’s not what I expected, which would be more something like the MSCI world index.

    MSCI World composition

    MSCI World composition

    To be fair, MCSI World is still about 80% developed world at least. The very heavy UK weighting of VGLS100% – presumably comes from the view UK investors will typically show a home bias. As shown in my portfolio – I’m easy with that. I am surprised that the UK is as much as 9% of the MCSI investable universe, whereas the US being more than half doesn’t really surprise me that much. Lifestrategy has the advantage of being a recipe for a diversified portfolio which comes along with a handy benchmark. There are lots of other ways of thinking about diversifying, but taking Lifestrategy to bits is a lazy win.

    Let’s take a look at what it’s made of (straight filched from Trustnet)

    Note: I had the bad luck to post this just as Vanguard made notable changes to Lifestrategy, so the exact values are incorrect. Take a look at the comments for the latest lowdown – thanks for the heads up!

    21.9% VANGUARD US EQUITY INDEX ACC
    21.6% VANGUARD FTSE DEVELOPED WORLD EX UK EQUITY INDEX ACC
    16.7% VANGUARD FTSE UK EQUITY INDEX ACC
    11.6% VANGUARD FTSE DEVELOPED EUROPE EX UK EQUITY INDEX ACC
    11.1% VANGUARD FTSE U.K. ALL SHARE INDEX
    8% VANGUARD EMERGING MARKETS STOCK INDEX ACC GBP
    5.8% VANGUARD JAPAN STOCK INDEX ACC GBP
    3.3% VANGUARD PACIFIC EX JAPAN STOCK INDEX ACC GBP

    Total 100.00%

    Lifestrategy 100 – diversification roughly where I want to be in ~ 8-10 years’ time

    So this is the sort of balanced asset allocation where I want to be in 8-10 year’s time. That’s when I will have stopped contributing to my ISA. Obviously it’s a moving target. The world of 10 years from now may have a larger EM allocation, because, well, some of those markets may have emerged and therefore be that much bigger. I’ve ranked these components into high-level categories and roughly summarised the balance of VGLS from it’s components. There are inconsistencies – Developed world ex UK is polluted with a lot of US. However, since some of my aim is to steer the long term balance towards something like VGLS using some of those Vanguard funds that make up VGLS that data error doesn’t matter so much.

    So where am I now (uk l is UK large, FTSE100 big fish, UK m s is medium small UK shares). FWIW I didn’t design it to be this unbalanced. Some of those big UK fish just grew. They’ll probably shrink in years to come, looking at the current valuations…

    where I am now. I'm skewed somewhat by The Firm that I can only sell off in sub CGT lumps

    where I am now. I’m skewed somewhat by The Firm that I can only sell off in sub CGT lumps, but I’m also skewed by the HYP that also holds UK big fish

    It’s easy enough to add up ten years worth of ISA savings and estimate what the target value is (added to what I have already, which will be the foundation).

    Where do I want to be (this is my estimate of Lifestrategy’s composition)

    an esitmate of the current Vanguard Lifestrategy allocations

    an estimate of the current Vanguard Lifestrategy allocations

    And the standard index investing mantra is go like a good little indexer and buy VGLS100A every month, and hold. But I haven’t got where I’m now by indexing, I’ve got there by buying what people hated. Two thirds of the composition of VGLS100 it is on or near all-time highs! Not only that, I’d have to sell off my HYP. I don’t want to buy high, I want to buy low. At the moment, f’rinstance, that EM index is a lot cheaper than the US index fund

    EM versus US index fund prices

    EM versus US index fund prices

    Kinda makes sense to go buy that wodge of EM first, since it appears to be on sale at the moment, whereas buying the US index at the moment seems to be like going to Harrods? I’m going to aim for what’s cheap – well, to about 3/4 of the ISA allocation. And I’ll dial back on buying the VUSEIDA for the moment – sometime in the coming years there’ll be a market swoon in the US, and that will be the time to go for that. That will probably be at the same time as a general developed world market rout. So loading up on EM isn’t a bad, and the Pacific ex Japan VAPEJPA:ID has also shown lacklustre performance of late. I don’t currently have anything in that space, either

    Strategic Diversification over several years – buy what people hate :)

    It’s often said that the FTSE100 gets most of its earnings from abroad, so it is more geographically diversified than non-UK indices 1 which I’ve relied upon to feel easier about such a shockingly heavy home bias. I also don’t suffer the sectoral swings I’d take from the FTSE100’s varying composition because I choose the HYP shares, and I have tried to sector diversify these

    The aim is to end up with roughly the same asset allocation as Lifestrategy once I’ve reached steady state – I will have enough income to live on but not enough to invest fully into the ISA after I’ve shifted my pension AVC fund into it over quite a few years. To actually achieve Lifestrategy’s asset allocation I’d have to sell off some of my HYP. I’m not going to do that, so I will always be more UK-heavy than Lifestrategy. But I will try and build a more balanced  Lifestrategy-like portfolio, buying the assets I don’t currently have when they are cheap. I am lucky in that I bought the current UK stuff when it was cheap, I wouldn’t want to try and do that right now. Taking a look at the performance of the individual  components that make up VGLS

    The Lifestrategy constituents.

    The Lifestrategy constituents.

    In this comparison it’s clear that you can buy VIEMKT 2 for the same price as a couple of years ago. Now obviously it may still tank, but reversion to the mean indicates it’s less likely to do that than something that has been riding high. If I want to own a certain amount of this in a few years time I may as well buy it when it is on sale :) The Japan fund also looks a bit sick, I guess Abenomics isn’t quite as good as the FT makes out here. If there’s ever an asset that deeply scares me, it’s anything to do with Japan, it’s been in a permanent tailspin throughout my working life. It’s the investing equivalent of Montgomery’s

    Rule 1, on page 1 of the book of war, is: “Do not march on Moscow”. Various people have tried it, […] and it is no good. That is the first rule.

    Field Marshal Bernard Law Montgomery

    And correspondingly, throughout my working life, you could say

    Rule 1, on page 1 of the book of investing, is: “Never invest in Japan”. Fortunes have been lost in the quicksands there

    Fortunately the calculated Lifestrategy weighted equivalent of what I want on this index isn’t too bad. If I can find a way to drip-feed that I can live with the expected loss. I don’t expect this to do other than go down the pan, but that’s one of the conundrums of diversification and trying to buy low. You have to buy stuff that looks bad at times, just like those income trusts did in 2009/10. Even stuff that looks bad and has always looked bad for my economically active lifetime – I suspect Japan is diworsification.

    Nothing shows you quite like this the opportunities you might get to buy things when they’re on sale if you take a few years about it.

    Callan's Periodic Table of Investment returns - see how EM has gone from hero to zero to hero to zero

    Callan’s Periodic Table of Investment returns – see how EM has gone from hero (2009,2010) to zero (2011) to hero (2012) to zero (2013). This is US biased, but 2013 was the year of the developed world

    Now the thesis of Lifestrategy indexing is you buy a vertical slice, weighted appropriately. Repeatedly, over many years. I want to buy a horizontal slice over about 8 years. From the lower half of the Table :) If you look at Lifestrategy, a good two-thirds of the weighting in US and UK, throw in dev xuk and you’re running at three-quarters developed world. All that is riding high at the moment. So if you buy Lifestrategy now you’re buying a lot of stuff that’s at high CAPE valuations. I don’t need to do that.

    That high valuation doesn’t matter terribly much if it’s one year out of 40 – you’re only buying 1/40th of your total capital savings at a high valuation. One of the other years could have been 2008, when everything was down the toilet, and you’d have got a great deal ;) The next time within the next 10 years when the developed world is in the pits again you’ll get good value too. Indexing is great if you invest the money as you earn it, over decades. Which most people do.

    But I’ve only got another eight years of contributory investment life ahead of me, because I have absolutely no human capital left, so I am not generating income myself and investing that. I don’t want to  buy Lifestrategy now, because it means buying 60-75% of dear assets and highly correlated with what I have already. It isn’t right for me, and general index investing isn’t right for me either because of my short contributory time horizon and existing asset spread. However, selective indexing I haven’t got an objection to, I’m not going to go stock-picking in non UK markets. VGLS100 is a pretty good model of a diversified portfolio with free benchmark. I just don’t want to buy all the bits at the same time.

    I don’t buy the US at the moment because I focused on winning income from a UK HYP. As a comparison of the Vanguard US and UK components shows there is notable correlation between the two, at least over the last five years.

    Vanguard US and UK, rebased to GBP

    Vanguard US and UK, rebased to GBP

    I’m not going to buy the UK index either (because my HYP is plenty enough) and it looks like my UK bias has been standing acceptable proxy for the US market because of this dev world correlation. It’s a pleasant surprise – remember the dark days of 2009 when the developed world economy had been destroyed and emerging markets were going to charge over the parapet and eat all our lunch 3? The trouble is that people tend to overestimate what will happen in the short term and underestimate what will happen in the long term. Popularised by Bill Gates

    We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.

    It made him rich, though I do recall the Internet caught Bill napping. Anyway, I suspect the developed world’s lunch is still being coveted. And I wouldn’t like to be lulled into inaction, and kick myself five, ten years off for having failed to buy some EM exposure when it was going for a song. Obviously if I’d started in July 2009 then I’d have got it 40% cheaper

    40% cheaper in 2009...

    VFEM still 40% cheaper in 2009, though we had over 10% inflation since then

    I’m not going to buy it all in one go, but I will  spread myself out across the year. VFEM is an ETF in this space, and TEMIT seems to be on a 6% discount at the moment. Emerging markets seem to have a history of currency crises and market train wrecks, though that’s kinda rich given the near-death experience the First World went through recently.

    I favour actively passive. Not passively active ;)

    Notes:

    1. according to that study revenues for the French CAC and German DAX are similarly overseas-derived
    2. or some equivalent, like the ETF VFEM. I can’t see VIEMKT on TD Direct, though their Vanguard fund choice is weak. Interactive Investor seems to offer it for sale
    3. I’m not asserting second sight here; I felt that way too!
    20 Feb 2014, 5:36pm
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  • Beating the market is really hard…but is it actually what you want to do?

    Beat the market – it’s what everyone wants to do. And there’s an increasing counsel of despair, that the market is efficient and you can’t do that. It will consume you and spit you out penniless. Settle for indexing, and it’ll all be all right.

    We’re all running around after the Holy Grail – we want to beat the market. Why, FFS? It’s okay if you really are a hedgie, I guess that’s your job. For the rest of us, shouldn’t we just take a step back and ask ourselves what we want to do?

    Most private investors are in the market for a range of reasons. Some of us find finance fascinating in itself. Some of us look at the daily grind and think to ourselves is this all there is – it hits people particularly in their forties, part of the thesis that human happiness follows a U shaped curve through the lifestream 1. And we want out.

    Some of us, like your scrivener here, carry on insouciantly through life/career and then take some hits. Discovering along the way that they have fallen asleep at the switch, and want out ASAP but at least past the two-thirds mark. Some of us try and get ahead of the curve and plan their early retirement strategically. Some of us are a little bit more situationally aware than I was and see the marks left by the hand writing on the wall, and perhaps look around and see there are few 65-year-olds in our workplace ;)

    I don’t see ‘I want to beat the market‘ as a goal in any of those. These are human beings trying to navigate the tides of life in a rich First World country, and if there’s any one thread running through these it is a desire for financial independence – aiming to become an aristocrat,  gentleman of leisure or more simply not having to sell your time for money. At the base of this is a simple goal – that of freedom of action, from work that usually consumes over half of the typical adult’s waking day because they sell their time for money.

    For an ermine, it’s seeing the back of the workplace, forever 2. Some people try that and find they aren’t so happy with a life of leisure, so they take on work – but on their terms. Which is also good – there’s a big difference between going to work but being able to walk away at any time, and going to work because otherwise you will end up destitute. I’ve never tried the first option. It all boils down to the message of A Man With Savings

    The Pleasure of Walking Tall (cringe)

    A Man With Savings…can afford to give his company the benefit of his most candid judgements.

    Freedom is one of the ultimate goals that a sentient being can pursue. It’s right there in one of the self-evident truths the Founding Fathers of the United States declaimed

    We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

    It’s a curious fact of consumerism that it seeks to persuade you to prioritise the pursuit of a narrow form of Happiness at the expense of Liberty – the freedom to do with your time as you see fit.  That’s one of the great things about freedom, you choose, and if you want go enter Max Weber’s iron cage for the middle class lifestyle that’s your call. Exactly how I got to my late forties before I realised this was a choice is a matter of some concern to me, if only because it showed a shocking lack of reflective thought, but I’ve tried to make up for it since.

    Monevator brings us a counsel of despair along the general lines of laws of Thermodynamics, you can’t beat the market, you’ll be lucky even if you match it etc. I note he doesn’t  eat his own dog-food. And since a lot of what I learned this time round comes from there I take some heart from that ;) I studiously note, but ignore for now, the official line that has developed, because I found the takeaways of three and two – years ago far more useful to my specific temperament.

    In the dark days of early 2009, when all around was falling and much damage had been done to the finances of my then employer, I saw that I was short of money and outta time, because I was unlikely to make it another 12 years to retirement age the way the company was being managed. Working there would piss me off so much that it would do my health in. I couldn’t play the game much longer.

    I’m glad that I read the inspirational article that lit a way in the storm, because, really, honestly, going out and buying index-trackers wasn’t gonna cut it for me. I’ve been there. Money is crystallised power, and to commit some of that to a path, the story has to sing to you else you just won’t start. We humans are just like that sometimes.

    Wealth warning – I’m not saying index-tracking doesn’t work. It wouldn’t work for me at that time because when I was looking for an express way to get a modest income top-up, buy and hold for the next 25 years isn’t an inspiring message. I was lucky to start in the middle of a storm, though it’s arguable I had to start because of the storm’s effect on The Firm

    It would probably have worked – most of the message is basically get your ass out there on deck in the storm and BUY when everyone else is selling 3. It probably didn’t matter what you bought as long as it had some basis in reality and not too much to do with US real-estate. As proof of this I bought a shedload of L&G 50:50 FTSE100/Global fund in my pension AVCs, nearly half of which was money that thieving barsteward George Osborne didn’t get to steal from me in tax. That appreciated too, so index tracking does also work in bear markets. If you have the taste for it, it’s not an easy one to acquire.

    this bad guy is your friend. No, really, he is. You wouldn't think it, eh?

    this bad guy is your friend. No, really, he is. You wouldn’t think it, eh?

    What is beating the market, anyway?

    For me, beating the market is getting ahead of the FTAS, for the simple reason that through my abortive attempt to index-track from 2003-2007 that’s what I chose – it is a broadly-based UK index, and not a bad one to choose for someone living in the UK. There are good cases to be made for choosing something wider, and if you like that sort of thing then Vanguard’s Lifestrategy100 isn’t a bad place to go.

    I have beaten the FTAS (in the form of a Vanguard accumulating fund) 4 since the inception of my ISA in 2009 and Vanguard Lifestrategy100 over the last couple of years. I only have two years of data for that as it’s presumably only recently been crafted. Lifestrategy (VGLS100A) is of interest to me as I may switch future funds to it now my HYP pays me enough dividend for the target income (after this year). But it pays no dividend, being an accumulating fund. At the moment my ISA is an accumulating fund too because I reinvest dividends. Unfortunately I am not sure how to unitise/track an ISA if I draw from it. I haven’t bothered to get my head round that because it will be a good few years before I do.

    So there is a philosophical issue in choosing the market you want to beat. Tracking these two funds, and the performance of my ISA, isn’t enough. I have to turn the knowledge into wisdom. It’s easy now as I am doing better than the FTAS, given my purchase history. But if I don’t – does this mean I should pack it in and buy the FTAS instead?

    Why do you want to beat the market?

    Now if you’re starting  saving over a period of thirty or forty years for a pension then yes, you’d probably like to beat the market. That’s because you have a massive integration time of four decades, where, if you save into pension you won’t be allowed to get a hold of your money until 55. That’s the flipside of the tax breaks, because the youthful you might spend it on fast cars and holidays. A project like that is straightforwardly about building wealth, that wealth being about 20-25 times the amount of annual income you want to have in retirement. Because you aren’t allowed to touch the money, the performance of your portfolio is irrelevant to your day-to-day finances. So you can look at the sort of 50% loss in capital value that the stock market can do to you in one year with sanguine disdain, knowing that your net-worth will very likely recover from the suckout in five years time.

    1402_panic_and_freak_out

    Or you can take inspiration from the poster and bugger up your returns. If you are investing over decades, tragically you have the time to try and be clever, but you’ll only ever know if you were clever by the end. And if you weren’t, then you have no Plan B. So that’ll be you on Tesco Value beans and dry bread, huddled in a coat in front of a one-bar electric fire.

    That doesn’t sound so nice, so you go with the index. The fundamental premise of index tracking is that equities reflect a representative subset of the aggregate value (not just price) of the goods and services in the economy which gradually drifts up over time. The equity proxy tracks this in secular time-scales, albeit with some hair-raising year-on-year switchbacks. Integrate them over decades, and divest over a few years at the end if you need to crystallise the lot to buy an annuity, and you’ll probably do okay. Building your pension capital is a long-term project that’s on a much bigger scale than what I am doing, which is building a top-up for my pension to compensate for retiring early. I am older, wealthier and can eat more risk than the nearly thirty-something younger me that joined The Firm’s pension scheme over a quarter of a century ago.

    If I were saving for a pension for 20,30 years I’d buy VGLS100A every month. The downside of screwing up is too high on a project like that, and there it really is total return that matters, because I would sell the lot in stages over the five years running up to retirement to buy an annuity – or hopefully something else by then. I wouldn’t give a toss if the total return comes from capital gain or income reinvested. That’s irrelevant to that kind of project, whereas the difference between capgain and income is very relevant to me. I need some capital appreciation to fight inflation over the years, but an income matters to me in a way it just doesn’t to someone saving towards a distant pension.

    Not everybody wants to beat the index – some keep an eye on the dividend income…

    I can say that because I am beating the indexes I would otherwise buy at the moment – the FTAS over all the time my ISA has been in existence (from 2009), VGLS100A for all the time it has been in existence, the young whippersnapper. If I weren’t, indexing pundits would say I was a sourpuss loser trying to hide all sorts of cognitive failings. Nevertheless – some investors have other priorities than beating the market, and a need for income without making sell calls is one very valid exception. Young folk saving in a pension do want to beat the market but they probably shouldn’t try, because of the risk of those beans and that electric fire if they aren’t as good as they think they are. And I’m not beating my benchmarks so much that I expect Lloyd Blankfein to rock up asking for a cup of coffee and inviting me to join him in doing God’s Work.

    not that sort of Klingon

    not that sort of Klingon

    After all, when I started investing this time 5 in April 2009, my aim was simple. It appears I – and my boss were one of the FT/Grauniad‘s Cling-ons, presumably that The Firm was trying to evacuate itself of ;) My boss had just had a child in his early forties with his second wife 6 and therefore was desperate for money and prepared to do what it takes to please his boss in a feverish environment where profits were plunging.

    I wanted to be in a position to tell my boss to piss off and stick his precious newly created micromanagement objectives where the sun doesn’t shine. For that, I needed money. Fast. I had capital, but did not have the knowledge of how to turn that into an income without running it down. I wanted an income I could half believe in – I didn’t want to beat the market, just turn some savings into an income. It was a revelation to me that the variation in income from a diversified portfolio would vary so much less than the market value of its components. For instance, as a percentage of purchase cost my yearly dividend yield across the ISA has been

    2.5%, 5%, 4.9%, 4.9%

    for the years 2010-2013, looking back over the previous year. The first low figure is the result of some random trading daftness, and the current slow fall is because I’m finding yield harder to find as the economy improves, though capital appreciation is increasing. Although capital appreciation isn’t particularly what I want, part of the art of investing seems to be going with the flow. Yield was easy to have in 2009 and 2010. Capital appreciation seemed the order of the day in 2013, though I contributed no new money to my ISA, simply shifted an ISA-worth of unwrapped holdings because I felt unable to make a purchase that was worth the money. It made more sense to live off cash and shift investments because the cash gives me a 4% p.a. increase in pension by not drawing it a year earlier.

    This ISA year seems to hold potential opportunities in emerging markets and a generally less gung-ho attitude, which is good for net buyers though it makes all the papers and CNBC  a lot less excited. Some of that capital appreciation will disappear, probably, ‘cos the stock market is just like that – what it gives with one hand it takes away with the other, just a teeny bit less over the decades. Unlike the ephemeral capital gains, however, I have a steadily increasing income from all this lot. It’s not guaranteed, but it’s a helluvalot less volatile than the capital value.

    I now prioritise geographical diversity over yield, and that seems to shift returns more in terms of capital gain. But I’d actually prefer to forego some capital gain for a higher yield 7

    I had a lot of luck. I started just after a big market crash. That’s luck – you can’t make it. But you have to see it when it’s there, and even that’s not good enough. You have to fight part of yourself to get out there and do it. And then you have to keep on doing it when the opportunity next presents itself.

    People after income sometimes prefer the steadiness of income to rip-roaring capital appreciation – after this is the theory behind having a mix of equities and bonds that favours the latter as you age. The young pups of equities give better historical returns integrated over decades but far worse volatility. Bonds give a piss-poor historical return but can vary a lot less. If you retired and were fully invested in equities in 2009 you were stuffed. Whereas if you had switched over time to a mix you’d not have been hit as hard.

    Now I have a total blank spot when it comes to bonds. I don’t own them, I don’t touch the buggers 8. That’s because I have a deferred pension which gives a very bond-like proposition, so I don’t need more assets with that nature, though I am very glad to have what I do have.

    So provided I can get the income I want I’m not hugely fussed about beating the index. Say it’s the FTAS – the FT all-share currently yields 2.8%. If I want 4% income from the FTAS I’d have to sell of 1.2% of the units this year – ie take the divi and sell off 1.2% of my capital. Over time you expect a positive total return over inflation, that isn’t an unreasonable thing do do. As long as you don’t sell too much. Therein lies the rub, how much is too much?

    The whole point of investing for me is to become a gentleman of leisure, to avoid that dreaded w*rk word. Or more to the point, to avoid jumped up pipsqueaks and tosspots telling me what to do when it has no meaning in the grand scheme of what the company is trying to do, it’s just because some bunch of oiks have dreamed up some targets to get their bonuses/save their jobs. No. Bollocks. The world is far too interesting to be unable to stick and inquisitive snout into all the various wrinkles of it, and I’ve only got one life to live, and it’s too short to flush it away one day at a time doing someone else’s bidding.

    If you don’t sell your time for money/work for a living you need to look after your capital…

    Becoming a gentleman of leisure means I start to think like old money. Old money never sells the family silver, it doesn’t sell land, and it bloody well doesn’t run down its capital. In a theoretical and intellectual way I can see buying a FTAS index and selling off (4% – that year’s yield) at the end of the year is one way of doing it. But I’m not old enough to start running down my capital like that. My investment performance improved no end when I took selling out of the equation.

     I don’t need to beat an index. I want an income, at about 4 or 5% of the capital I can muster, with some tracking of inflation 9.

    Don’t get me wrong, I am happy to have beaten the FTAS and Vanguard Lifestrategy 100 so far. But the slow fall in yield does disturb me. Yield was easier to buy in the hell-hole of 2009 than it is now, whereas capital appreciation seems to rise to the fore. I will continue to try storm-chasing and buying the unloved. That’s unashamedly market-timing. I don’t have to shoot for everything – I miss some and I take some and some I cock up altogether (AGK).

    Of purchases – I still aim not to sell 10. Stock plungers like Jesse Livermore did well on the selling side. He had far more talent and operated in a far less sophisticated market. However, fear and greed haven’t changed that much in 80 years. I have a suspicion that it’s hard to be good at timing both long and short trades, you need such a different mentality when doing one compared to the other. I am pessimist enough, so short trades would always have too much of an attraction for me. Short selling is much more geared by definition, so I have only shorted assets I already own or have a claim on. I’m just not hard enough to do otherwise.

    The trouble with that is you can’t predict storms,  and it’s still bloody hard to overcome the fear and buy into them. It doesn’t get that much easier with time, sadly. In many ways if I am going to be active, I need to be opportunistic. I’m not trying to set up a black box trading system. I’m not smart enough nor have enough information to do it. But I have observed human nature in storms. The market is efficient most of the time, but people still panic in market storms.

    Because I can afford to make mistakes in my ISA I’ve run towards storms – in 2009 after reading this, through 2010, a pause in 2011 until the Summer of Rage, a bit of opportunism at the Direct Line IPO which stitched me up in adding cash to my ISA though it was profitable enough 11 and a motley collection of housebuilders and infrastructure ITs that were looking peaky.

    So it is hard to beat the market. But so far not impossible. Of course as the years roll buy there’s opportunity for me to crap out. With a no sell rule the amount of screwing up I can do in any one year becomes lower. Yes, I lose on the opportunities that selling dogs and investing in bulls offer. However, when I was on iii I tried one simple thing. You can run multiple virtual portfolios on there, and every time I sold a stock I added it to a ‘sold’ portfolio at the date, price and number of shares I sold.

    When you look at a portfolio like that and see the portfolio aggregate value rising over time, you learn something unique and insightful about your ability to call good sales points that you can’t get in any other way. I observed my talent for that, and took the appropriate action. I stopped selling. One of the attractions of a high-yield portfolio approach is that in the canonical variant you don’t sell. Sometimes not selling will turn out to be the wrong thing to do. But in general, for me, it will save me from myself ;) It also indirectly makes me more careful on buys.

    I think Warren Buffet or Charlie Munger said something about buying and holding as if the market will be closed for the next few years. It’s one of the fundamental premises behind a HYP and Robert Kirby’s 1983 paper on the Coffee Can Portfolio – that’s the original 1984 article, but if you Google The Coffee Can Portfolio you can get the whole PDF without paying :) There’s something to the idea of being actively passive, whereas the whole indexing scenario is based around being passively active.

    How do you know if you are beating the market?

    You choose your index (FT All-share in my case). Then you forget about it, and go find an accumulation fund that tracks it, because you need to take the dividend income into account. It’s kinda nice if the TER is low, so if you can find something from Vanguard that’ll usually be great. For the FTAS this Vanguard fund will do. Then unitise following these instructions.

    That does my head in, so I run a calculation using the simplistic method. I assume the new money I put into the ISA for the year 2013/14 all goes into the index fund at the price in January 2014, it’s easy enough to calculate the number of units I’d get. To this number I add the number of notional units I had last year, and then calculate the market value of the total notional holding at January’s price

    If you’re beating the index your market value is bigger than the index simulation’s market value, rescaled in this exercise. If you aren’t, then ask yourself if there is a good reason – wanting to take your investment return as income without selling shares or units is one.  If you are saving for a pension then after a couple of years if you are falling behind then switch new money to the index, if after five years you are falling behind switch the old portfolio to the index – you’ll at least have given it your best shot, and you’ll probably avoid those Tesco value beans. In the simplistic calculation I use I simply look at what I’d have if I’d bought that index fund. I will start to unitise as of this April, but the simplistic method is fine if you never draw from the ISA. You are losing some information because in theory you should do the purchase at the time you contribute cash to the ISA. Most of us spread ourselves out across the year, because most people save into an ISA from income.

    I track the FTAS because it’s the obvious choice for a UK retiree, but I also track VGLS100A because an equally good case can be made for the global diversification though with some UK home bias of that fund. Indeed, for Mrs Ermine’s ISA I use VGLS100A because much of the argument about younger people saving for a pension applies. I don’t market-time, I do shift sectors at times, but otherwise it’s canonical index investment…because Mrs Ermine is not using it to boost her current income, so she is interested in total return, yield is irrelevant. And just as nobody gets fired for buying IBM, one has responsibilities not to deviate too far from orthodoxy when investing for other people.

    ISA relative ot the simulation

    ISA relative to the simulation. The chart is zero based, and while it’s easy enough to work out the vertical scale from knowledge of the ISA limits I’ll thank readers not to post that specific information in the comments ;) Note the missing ISA cash issue with the 2011/12 data – I started tracking properly from then on because of the whole index One True Way heavy sell which didn’t square with my experience up to then.

    The chart shows the relative performance of my ISA relative to the benchmarks. Note this is not a stock chart – at this early stage in my ISA most of the year on year change is due to putting more money in. Unfortunately the 2011/12 value for my ISA only shows the value of my holdings, not the cash, because 2012 is the year I discovered that I have to print out the damn statement every January. In 2012 I moved from iii and discovered there is no long-term memory in online sharedealing, so the value is backworked from my holdings. The cash shows in the fossil record of the ISA though, because I used it to buy stuff which shows in 2012. I have initialised the benchmarking assuming I liquidated the existing contents of my ISA for the January 2011 market value, when I was fully invested, because I don’t have the printouts from then. The UK flavour of Lifestrategy didn’t exist on January 2011 or Bloomberg just won’t show it to me so I’ve just replicated the Jan 2012 value. That’s probably a bit unfair to it, I’m not sure how to correct for that, because of the lost information on the cash in my ISA in Jan 2012.

    Initialising in Jan 2011 obviously loses the 2009/2010 activity. However, most of the ISA is from money since then, so it shows I’m not being absolutely slaughtered relative to the benchmark

    I learned something about my investment beliefs here

    Writing this helped me clarify some of what I’ve grown to believe about investment – or at least a snapshot of what I believe now. Some of it will no doubt turn out to be wrong. Life is like that. I am more idiosyncratic than I’d thought I was. I started this post because everywhere seems to tell me indexing is the One True Way. Maybe it is, but it bores me shitless, and I need some passion and some hope to forego the spending in order to invest.

    • I am a market-timer. I didn’t realise this, but running towards fire implies a hidden assumption – that other people are dropping value on the ground in their rush to flee. There are years that just doesn’t happen (2013), but it’s happened a lot in recent times. The market is cyclical, and has euphorias and swoons every few years. Euphorias are hard to find value in, swoons can offer rich pickings.
    • I have no investment knowledge edge – it’s true that engineering underlies a lot of the FTSE100’s composition and a HYP tends to draw from that pool, but I don’t use any detailed knowledge of what these firms do to say one is better than the other. I do use some financial metrics to try and weed out the hazardous. I am numerate, but not an accountant.
    • I do not sell – with the single exception of The Firm, purely until my holding of The Firm is a reasonable proportion of my ISA. This seems to be unusual, but that iii sold portfolio showed me my talent for calling sells, and I’m just not playing that weak hand any more. Why it’s weaker in me than everyone else I have no idea.
    • Stock-picking is not an edge. I could use index funds or investment trusts, aiming for unloved sectors. I have aimed for unloved (at the time of purchase) firms in unloved sectors, and getting financial metrics on a sectoral index is very hard which may be why I’ve favoured stocks. CAPE10 may offer a way and RIT does a great job with that. I like investment trusts because of the whole premium/discount thing. And I don’t buy them at a premium :)
    • I don’t really like OEICs. I don’t let that prejudice stop me – I have great respect for VGLS100A as a worthy opponent and own some of it from a period when I started to believe indexing was the One True Way. The no-sell rule means it’s still there, there’s little point in booting a valued adversary out of my ISA.
    • I don’t do bonds. End of.
    • I don’t do residential property, other than own my own home, which I don’t regard as a financial asset. I was seriously hurt by the UK property market in my late 20s, and I clearly don’t understand it. I don’t do BTL, I don’t buy houses and do them up. I made an exception for the rank stupidity of Help to Buy because if the government’s going to dish out free money to try and win the next election then I’ll have some. But unlike everybody else in Britain, I have no taste for housing as an asset, because I don’t understand it.
    • I have no taste for stock day trading. I haven’t got the youth, I don’t have the temperament, what I do sell tends to go up, I don’t have the Bloomberg terminals and the Level2 and what have you. It isn’t what I want to do with my time. I can therefore close my IGIndex account once my shares in The Firm have fallen to an acceptable portion of my ISA (I used it primarily to short them to manage the risk 12)
    • Online ISA accounts have no long-term memory. In my dotcom days I’d get a paper statement every year, and I stopped when I got the annual statement in the dotcom bust. I know – it was the wrong thing to do :) I have to actively recreate this by the primitive action of taking a screenshot of my ISA and saving it every January. III were just as bad as TD in this respect.
    • I keep my own records of sales and purchase – I have a spreadsheet of my ISA purchases and sales year by year, which conveniently supports the yearly index benchmarking. It would be nice to automate this, but I don’t trade so much that it’s a chore. Presumably online trading accounts have no long term memory in the hope you trade more often and remember your successes more than your failures. In the screenshot I trust…
    • I’d like to say it was all skill, but that’s bollocks. There’s been a fair amount of luck. Indeed, if there is any difference between the dot-com days and now I was far more sure I knew what I was doing in the late 1990s, and the more I learn about investing the more I feel I don’t know enough.
    • I need the benchmark to remember sic transit gloria mundi. I am not invincible. Indexing is useful for that – it’s the road not travelled for an active investor

    If I end up not beating the benchmarks for one year I’m not going to pack it in and index. But if I drop to the level of what the FTAS/VGLS100A would have done for me over all time I will start to move new money in the direction of my favoured benchmark, probably VGLS100.

    The desperate but opportunistic ermine beat the market in two other ways, though I don’t count them in my ISA performance. The largest win was in my AVC fund – I started buying in April 2009, along the compelling logic of that inspiring post. Although that’s all sat in cash now it was invested in a L&G 50:50 FTSE100/Global fund. I suspect most of the performance boost I got there was holding 50% non-sterling denominated equities during the rapacious devaluation of the pound after the 2007-2010 financial crisis. My AVC fund is the 25% tax free lump sum that will take over the heavy lifting of funding my ISA for a good few years once I run out of cash on my zero income and draw my pension. The cash is of course depreciating but I don’t mind leaving behind some  of the value as the boost outweighs that by a long chalk.

    The second way was buying The Firm’s shares in sharesave at a low-water mark in 2009. You just can’t lose with sharesave, well, you’re a twit if you do. It’s an awesome one-way bet, if it’s available at your workplace JFDI. At least the crisis  that indirectly terminated my working career had a silver lining. Both of these are luck, though the first had a fair measure of desperation too. You can  take a stinking amount of risk with tax-sheltered pension savings from income as you come up to retirement – 42% as a higher rate taxpayer. If I’d lost that much but get it out as my 25% tax free lump sum I’ve still broken even, which favours taking the risk if you start in a stock market rout ;)

    Second wealth warning – I am not saying you should do anything I am or am not doing. You are not an ermine, you have a different temperament and a different set of strengths and weaknesses. Becoming a better investor is as much about knowing yourself as about knowing the market – the biggest stock market risk for you is the face you see in the mirror every morning. Index investing is a way of avoiding all that aggravation. But it bores me to tears, the indexes I find reasonable for my situation don’t generally provide a 4-5% income unless I were to sell units, and I can afford to take the risk of underperformance. This is a narrative, not financial advice ;)

    Notes:

    1. it’s a generalisation – not everyone will follow it so if you’re enjoying your 40s good on you :)
    2. Work is vastly overrated as a source of meaningful life as I currently see it, over a year and a half after checking out of the workplace for good. But I’m not dumb enough to say I’ll never consider working, even as an elective choice. The way companies manage people might move back from digital Taylorism. But if I were to do that, I always want the FU option, so I can’t inflate my lifestyle that much, in which case what’s the point?
    3. that’s called market timing. You aren’t meant to do that and it apparently doesn’t work
    4. accumulating because then it factors in dividend payments, something that is otherwise the devil’s own job to add to an index
    5. I’ve had three phases of stock market investment – one in my early twenties with the BT flotation, which was okay and one crap period in the dotcom boom where I researched a lot of ways to lose money, followed by some lacklustre indexing
    6. I didn’t know this backstory at the time, else I might have taken a different line, after all, I was a Man With Savings
    7. you can of course always exchange capital gain for yield – sell some shares – but which ones? I’m not good at making sell calls, and very good at sitting on my backside doing nothing, so selling shares is a decision I don’t want to make.
    8. with the exception of some bank preference shares that have bond-like properties
    9. even dividend paying stocks provide some inflation protection through capital appreciation over the whole business cycle. They are usually at the staid end of the market in terms of capital appreciation, because as Jim Slater said, elephants don’t gallop. If you want racy returns, AIM is where you want to be. You just need to avoid buying the duds, of which there are many. I use ASL to somewhat lean against the big-company bias of a HYP – but that’s only because they were cheap and yieldy at the time
    10. I make an exception for The Firm because I acquired a shedload of shares in The Firm through sharesave. I need to sell some of these for the sake of diversification and CGT utilisation
    11. I had to offer to buy more than I expected to get, which means I had to keep a lot of ISA allowance clear. In future I will do IPOs in a regular trading account
    12. If you do short employee share save schemes then note some firms have anti-shorting terms built into their terms of employment. The Firm didn’t, to the best of my knowledge when I searched for this on the Intranet, at any rate for pleb grades like me
    24 Jan 2014, 3:33pm
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  • More Interesting times in the markets, oy vey…

    No sooner does Under the Money Tree comment to the effect of steady on – not so fast on my interest in Emerging Markets then he’s proved right and the Argies are in trouble (again) and there’s another bust-up in the markets. Is this Global Financial crisis part II or the backwash from GFC I. I’m sure Argentina has been here before in the late 1990s

    Looks like no end of, er, fun :( On the upside, looks like 2014 could be the year of emerging markets, for those with strong stomachs and intestinal fortitude. Not in the results department, but I have very little EM in my ISA, because I started it when emerging markets were going to be the saving of the world. Now that people have forgotten all that and really hate emerging markets it’s probably one for drip-feeding.

    I can take a breather until the next ISA year in April, then start to learn how drip feed investing works over with those people at Charles Stanley, as I have far too much with TD given the limited FSCS compensation limit. I don’t want to go into another financial crisis with shields down ;)

    So let’s take a look at what happened last time it all went titsup in Argentina.

    their economy went down but didn't stay down

    their economy went down but didn’t stay down

    Now there’s a case to be made that they had it easier then, as the world started to pull out of the post-dotcom recession, and the price of some of their key exports went up. Argentina has a bad rep already for defaulting. Nevertheless, it’s been damn tedious in the markets of late, and 2014 was a bad year for actually buying anything new because everything was up in the sky. I’m all for interesting times in the markets, and we seem to be heading for some of that now…

    6 Jan 2014, 1:23pm
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  • What looks interesting in 2014 then?

    It’s still three months to the new ISA year but it’s a good point to take stock. 2013 was one of those years where pretty much whatever you invested in seemed to make money, reversion to the mean indicates 2014 may be a tough year then, and to be honest I still don’t know what the hell we are doing up here. What’s been happening then?

    Developed markets, the US in particular, have done very well. Shame I got no US then 1 – it was too dear when I started looking at it and it’s still too dear. Emerging markets, pretty much anything to do with mining, and gold seemed to be the losers of 2013. Obviously he’s talking his book, but Money Observer’s Thomas Becket socks it to the Henry II in us with

    2013 has undoubtedly been the year to own Developed World equities and avoid everything in the Emerging World.

    which is hard to argue with. Intriguingly he also asserts

    Closer to home, UK mega-caps are cheap and should benefit from a decent year for the global economy; we are currently expecting above trend growth in global GDP next year.

    I own some of these guys as you’d tend to do in a HYP and I’m not so sure I’d describe them as cheap, else I’d go get me some more – in all cases bar one they’re notably dearer than when I bought ‘em. Maybe Psigma has a load of UK mega-caps in the fund too ;)

    Where am I now?

    I pinched the principles of this article on unitising a portfolio and applied it to my own, I’ve stayed 20% ahead of the FTAS over the investing period which would probably have been my index fund of choice. Rather than run a second unit tracking for the FTAS I track this Vanguard FT Allshare accumulation fund which rolls up dividend income into the unit price, and referred it to January 2010 which is the first year I had enough performance data since I started with half a S&S ISA allocation in 2009.

    I don’t think Goldman Sachs will be begging me to come out of retirement to do God’s work for them but it isn’t, so far, the usual slaughtering that seems to be expected of private investors who don’t go by the creed. I was lucky, however, to start in the investing hellhole that was 2009, 2010 and 2011. You probably don’t have to be smart to do okay from there. But you do have to start

    I am about 2/3 of the way to getting the income top-up of 5% of the ISA capital (as measured in terms of cash spent to buy it, not the dreadfully volatile market value) that I want of it by about mid 2015. As it transpires I could probably do okay without the top-up income from the ISA – you only find that out after retiring 2, which is a real bummer for financial planning ;) So I can leave the existing investments right as they are, but maybe look further ahead. After all, if I live as long as my parents I am looking at a 40-year investment horizon from now…

    What does look interesting then?

    Everything that looks crap now, I guess. As everybody looked in the abyss in 2007-9 we projected our hopes and dreams onto emerging markets, and pumped them up as the Western financial model was shown to have feet of clay. We still do have very serious problems, many of which haven’t been fixed, but it survived the heart attack. Although he’s also obviously talking his book, I think Terry Smith’s outlook on the economy is more accurate.

    So we generally think/feel 3 everything is going swimmingly, the only way is up. So now we don’t need those damn emerging markets. The pound is also rising, which makes foreign stuff look overpriced if you bought it before the rise, etc etc.

    The rising pound helps me, as a UK investor and also one with significant cash holdings. The Government has been busy destroying the value of those cash holdings through inflation, but if the pound and interest rates rise then that means I can get more Foreign Stuff for my paltry pounds. Now normally when people talk about Foreign Stuff they thing of imports, like Samsung mobile phones and cheap DVD players, but it also applies to foreign equities, particularly where those currencies are being threatened by Fed tapering.

    For all that, the promise of emerging markets is still good – demographics to die for, many of these new consumers will come of age and start working when an Ermine is old enough to draw a State Pension, should it still exist at that time. 2014 looks like a good time to get to add some of this to my holdings. I only need about 10-20% in total, which will drop the effective return on capital to 4% from the 5% it has been since emerging markets don’t seem to pay dividends to any useful extent. The newsflow continues to be ghastly which is a good sign ;)

    However, Emerging Markets isn’t one monolithic block. Asian emerging markets seem to be different to, say, South American emerging markets, and India, China and Russia are so very different in demography, culture and resources to each other and anything else out there that rudely lumping them in together seems wrong. Demography alone leads me to lean away from Russia and China – people say the demography of the West is rotten but it’s better than both of those.

    Last year I bought a little bit of AAS at a discount, and the SP is slowly going down the toilet, so I should get a chance to buy some more at a discount this year – I will buy this in modest bits. There is a Blackrock tracker mentioned here which looks like a good one to match AAS. Finally I have a small stake in AFMF – basically Africa, which seems to be generally considered uninvestable, but from what I hear from someone I know who works in mobile telecoms out there the beating heart of capitalism seems to be stirring with  African people doing things for themselves. For all my life Africa has been considered an economic basket case, so this is a straight punt on reversion to the mean. I don’t need much EM, but 2014 is probably a good year to build this stake up.

    Then there is the gold and mining conundrum. I’ll leave consideration of the merits or not of of gold to RIT, but one difference to him is that this will be a small part of my holdings, and I will hold it outside my ISA, because I can’t live with a non-income producing dead asset like that in my ISA. If it continues to tank this year I will add to that.

    I don’t know what to do about mining, it might have to be filed into the too hard camp for now. I don’t have to swing for everything. I have a particularly pessimistic trigger alert set on BRWM so I will revisit that if it turns out to be a spectacularly bad year.

    Of course, there are the usual stalwarts – the Eurozone crisis still hasn’t gone away, and there are of course all the unknown unknowns. At the moment emerging markets are good enough to pique an Ermine’s interest.

    Notes:

    1. That’s not strictly true as it appears I have a hefty slug of US in a Vanguard FTSE Dev World ex-UK index fund, although that happens to be outside my ISA
    2. The other half of the retire early fight is reducing the crappy middle-class and work-related spending that doesn’t enhance your quality of life – note that you do increase some areas of spending. The trick is to increase spending on wants that you really want, as opposed to shit wants induced by others that don’t deliver a return in terms of quality of life. Reducing the stress and noise in your head makes discriminating between these a lot easier, but that’s a different post
    3. I’m talking homo economicus – as opposed to the strivers, and the group formerly known as the middle class who are still very pissed off, as Ed Miliband correctly highlights in his cost of living crisis, though I don’t agree that nationalising energy resources necessarily means you can control the total price
    5 Dec 2013, 4:50pm
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  • Interesting times on the stock market again?

    May you live in interesting times

    American proverb and non-Chinese non-curse

    The stock market has been tedious for a lot of this year. I’m a net buyer, and probably will continue to be for about 10 years. So the whole ‘I’ve no ‘king idea what we are doing up here mate… market level hasn’t really got me going that much. Yes, it’s dandy to look at my ISA and see it has risen a lot. However, I have less than half my target amount in the market – more than half is locked up in my AVC fund and only released when I take my pension, which for various reasons doesn’t make sense yet.

    Often this time of year there’s a sudden rush of blood to the head anyway,  the Santa Rally. I had to sell a load of The Firm’s shares in my ISA to release enough for the Royal Mail float, which was then cut down dramatically. So I’ve had some of the cash to redeploy – but there hasn’t been much to tempt me. I’ve been playing the diversification card – RDSB as it was a sector I didn’t have, but what I also need is a modest exposure to emerging markets, to lean against the overwhelmingly UK and EU bias of my HYP.

    I’m not looking for a huge amount, let’s face it EM is all about potential growth rather than the exciting divi. About 10% would be plenty.

    A couple of potential targets have been MYI and AAS, and the latter has just dropped to a discount, with the share price heading south. I’ve tended to spread myself out with things like than, buying about £1k a go spread over a couple of months. That works badly with a trading cost of £13.5 (plus the 0.5% stamp duty, but that would be there anyway). That means I eat a 1.2% entry fee that I could halve by buying twice as much, but I’m prepared to pay the extra to spread my purchases and integrate the share price over time.

    Aberdeen Asian Smaller Cos IT - going down...

    Aberdeen Asian Smaller Cos IT – going down…

    After all, this is going down. It could go down more, or not. Spreading my purchases out over time derisks that. If it sky rockets, I stop. If it goes down further then I was wise not to buy all in one go. This policy has worked well for me for collective investments – I used it on CLDN a couple of years ago in 2011 early and than through the Summer of Rage – my holding is built of about five itty-bitty purchases around th £500 mark. The whole ISA is bigger now so £1k is roughly the minimum purchase these days…

    An alert of Murray International’s share price also came through – I find it easier to set alerts on stocks dropping below levels I consider interesting, then get on with the rest of life.

    Murray International - Sp going down

    Murray International – SP going down

    but they’re still on a premium, I don’t buy investment trusts on a premium, so I’ve reset the alert a bit lower

    still on a premium, but getting there

    still on a premium, but getting there

    I’ve had a European slant of late – well, for some reason European shares have been good value, I do wonder what everybody is so scared of, maybe the doom and death spiral of the Euro ;) MYI is sort of a mix of EM and EU shares and a scattering of others, it has a lowish UK exposure so it’s a good fit. I’ve reset my alert to a bit lower as this premium really does have to go. If it does go then the stock is interesting – the yield is a bit more exciting than AAS and would pull its weight in a HYP these days ;)

    Of course, Dr Doom predicted the mother of all dooms in 2013, so those interesting times might be on the way again, despite Osborne telling us all about the green shoots. I recall the last time I heard about green shoots, that was in the early 1990s when I was paying mortgage rates of 14%. That’s the trouble with green shoots, they’re always on somebody else’s patch, which is what makes their grass greener…

    I’ve only got about £1000 of ISA cash left now, so I’ll let Dr Doom off if his doom is a little on the drag, y’know, like after April. I’ve become a bit more sanguine about buying in my unsheltered account if the opportunity arises and bed and ISA-ing  that when the opportunity arising. That works better with funds than shares, but on a good rout like the Summer of Rage it’s better to pay the purchase fee twice than lose out. So bring it on, Nouriel, make my day…

    Talking of chancellors, seems like employees now get to save up to £500 a month into Sharesave rather than the £250 that is was all through my working life with The Firm. Nobody else is going to go round giving you a £6000 p.a. one-way bet on a share price. Even if you think your employer is going to tank, take ‘em up on it, probably spreading your years out across five years worth of schemes. JFDI – it’s only now that I am beating out the win I achieved with sharesave with the appreciation in my ISA. The SIP scheme rate seems to have been upped slightly, from the £1500 p.a. in my day to £1800. This is of particular attraction to higher rate taxpayers and particularly HRT child benefistas – I’m still not quite sure I understand why we should be paying for 40% taxpayers to have kids but it’s a way of knocking £1800 off your taxable salary, so those child benefistas in the £50k to 60k twilight zone can use this together with pension contributions to become poor enough to get Government help with their children ;)

     

     

    1 Nov 2013, 8:57pm
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  • I’ve still got no idea what we are doing up here, mate. There’ll be trouble brewing…

    A while ago I posted the observation of a trader at FinanceRomance’s workplace, and it seems to hold just as much now. I was browsing the Ermine ISA, and looked at the bit on TD where they say the difference in purchase price and valuation and thought to myself WTF? Has there been a party on the markets these last few months?

    FTSE100. Mad, don'tcha think?

    FTSE100. Mad, don’tcha think?

    I struggled to find value this year, so I did a capital gains transfer into my ISA rather than buying new shares. And I’m still struggling to find value, though of course a lot can happen by the time of the next ISA allowance in April. Presumably our American friends are going to shut down the government a couple of times and generally give people the willies, though the last shutdown wasn’t really a great win on buying opportunities. In general I’ve dismally failed to find much worth purchasing. Royal Mail was a win, but £300, while worth having isn’t going to make a tremendous difference. The Direct Line IPO was more lucrative but that was so last year. I took a punt on Europe last year and swapped my HSBC dirty funds 1 for Blackrock’s clean funds in the same space, adding to it. That’s performed well enough since I suppose. But other than that, nothing much of note. I had to liquidate £5000 worth of The Firm’s shares to make space for the Royal Mail IPO, and have had a devil of a time finding somewhere to lodge the remainder. I’ve put half of it in RDSB because I had nothing from that sector, but the remaining half is in cash awaiting opportunities, and they’re thin on the ground.

    Let’s take a look around us at the twisted wreckage that still surrounds us in Britain. The economy seems to be doing well, but it’s been saved by a neutron bomb – the structures are standing but many people seem to be doing badly and falling behind. Some stupid tosser has gone and pumped up house prices again by charging about doling out free money 2 to people who can’t afford to buy houses. I suppose there may be a case for more Castle Trust I suppose. Or Grainger

    Grainger - on a roll

    Grainger – on a roll

    but everything about their fundamentals either offends me like the astronomical PE and the yield of <1%. In a HYP? Sometimes you hafta accept you know that you don’t know and leave alone – it’ll probably carry on rising forever – things to do with British housing tend to do that. Until I touch them ;)

    It's mad, it's bad, and it's gonna go downOver in my non-ISA account I have mainly index trackers, another wodge of Europe value shares from an idea by Monevator who has served me well once again. I didn’t have to hold my nose to buy in Europe because I was already in there and filling my boots because it looked like it was going to blow imminently. I used a generalist EU ex-UK index – and these were big European firms earning money all over the world, in some ways more attuned to a HYP approach, so I had some of that IDJV. I like a jolly bad smell in the morning when it comes to buying. Emerging markets have got that sort of feel at the moment, but I’m not yet that brave and I have zero expertise – this seems to be one of the few areas there’s something to be said for active management, but I’m damned if I know what that looks like. Whereas indexing seem to work a treat in the developed world – I may move on from being a HYP investor 3, now that everyone else is at it and mine is up to the target size to becoming a contrarian indexer – find regions/sectors out of favour and buy into them.

    But the biggest indication that there’s trouble ahead at t’mill is this extract from my ISA on the right. It’s telling me the markets are overvalued.

    In a previous life I would have loved everything going up, and would have piled in. This now gives me the willies – it’s frothy and it’s mad, bad, and it’s gonna blow at some stage. As a net buyer, I want to be buying after the blow, not now when the market is becalmed in the waters of irrational exuberance. I can’t say the sight of all those nominal gains doesn’t give me some sort of a sugar rush – the gain exclude the dividends which I recycled to buy more shares – the spreadsheet version of this looks more outrageous. But it doesn’t feel like it will hold. And I can’t find anything to buy that gives me decent dividend returns these days, not without having to take on dodgy operations.

    I’ve learned however – looking back at my 2011 review I have learned one simple move to improve my results no end. It’s simple

    never sell

    Yes, I’ve broken that rule to try and diversify my large shareholding of The Firm, from all the employee sharesave and Share Incentive Plan shares – it’s just mad to hold more than 50% of one’s total shareholdings in one firm. And I’ve broken the rule in selling that HSBC European Tracker to pick up Blackrock’s fund investing in…exactly the same thing, but with lower fees.

    Although that sea of green and some of those nice figures are great, the sooner we get off this high horse and back to buying territory the better IMO. There’s work to be done, this party needs to stop! Dammit, I’ve been so bored this year I’ve bought more index trackers than anything else – even Vanguard Lifestrategy 100% as I feel somewhat exposed with no US, not AsiaPac or Japan and no emerging markets, There’s no thrill of the chase there though, it’s not like buying something stinking up the place in the hope of a reversion to the mean…

    That trader was right in May, and he’s right again now. I’ve still got no ‘king idea what we are doing up here, mate.

     

    Notes:

    1. dirty with trail commission
    2. It’s not officially free, but who’s going to be paying off a 95% mortgage in a world of 6* earning multiples and falling real wages?
    3. move on as in leave my existing HYP shares right where they are, not sell and chop and change
    11 Oct 2013, 2:20pm
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  • the Ermine gets away with not getting struck off the Royal Mail IPO

    I’ll probably get slated as a scumbag capitalist running-dog for this but though I staked £10k on the RM IPO I didn’t get struck off the issue for being a filthy rich bastard, because I used Mr and Mrs Ermine’s ISA allocations and staked £5k on each 1. According to the Grauniad it’s all about the Sids 2, and not those disgustingly rich barstewards who regularly play the stock market. The schadenfreude is already dripping from the headline

    Royal Mail shares: thousands fail in applications for larger stake

    going on to explain

    Anyone who applied for more than £10,000 3 of Royal Mail shares – an estimated 36,500 individuals – will be left empty handed after the government chose to favour small investors over those who regularly play the stock market.

    So There! One in the eye for the 1%. Who of course bought theirs via the institutional offer which covers the majority of the shares but we won’t tell the little people that, shall we ;)

    Nice Royal Mail picture, Guardian - thanks for that, saves me from getting wet taking one and if you are going to call be a capitalist running-dog then I'll pinch your pic ;)

    Nice Royal Mail picture, Guardian – thanks for that, saves me from getting wet taking one in the rain  and if you are going to imply I’m a capitalist running-dog who shouldn’t have got a look-in then I’ll play true to type and pinch your pic ;)

    I can’t say I’m stupendously overwhelmed with two lumps of £750-worth, and an apparent £500 total profit at today’s price but so be it.It’s not a huge compensation for the slow destruction of my cash holdings by the Bank of England’s devaluation of the pound and attendant failure to hold inflation under control for the last five years but I guess every little helps ;)

    I suppose RM does fit well into a high-yield portfolio (HYP), and if I could consolidate the two holdings it would be about right for a single holding in my HYP – with the requirements of diversification I target single holdings at a roughly £2000 purchase price.  But I can’t as I don’t have another share dealing account yet. I did consider making even more applications but though I need to split my ISA soon because it is now well over the FSCS limit I avoided doing so because of the retail distribution review.

    Can I have my money back ASAP because there’s something interesting happening over the Pond…

    Now we have all the Sturm und Drang out of the way about Royal Mail can I have my £8500 back ASAP because our American friends are still playing silly buggers which should be good for share prices if you are a buyer. My ISA is maxed, and I could use some RDSB which has been falling nicely (I have no oilies at all so it’s an obvious hole in my sector diversification). And it’s October, always a great time of year for a jolly good punch-up in the markets. I don’t know what they do for Halloween on Wall Street but it clearly makes ‘em nervous this time of year.

    And what exactly is the organisation formerly known as the US government doing at the moment? How did they get here, and how the hell do they get out?

    The American government shutdown beats the hell out of me as far as getting my head round it. They seem to have a genuinely bizarre case when both houses have been democratically elected, it appears at different times. So the electorate presumably felt a bit right wing when they elected the house of representatives and a bit left wing a couple of years later when they elected the senate. And a bit left again when they elected the president. Or the other way round, God knows.

    Now oscillating from a little bit right to a little bit left is fine, it’s how Anglo-Saxon democracies work with first past the post systems. There’s a great big rump of people that always feel one way balanced out against an equal rump who always feels the other way, who are basically deadweight as far as changing things though I guess they are reflected in the two poles, if many of them felt differently the poles would have to shift. There there is a smaller remainder of fickle bastards such as ermines who sometimes vote one way and sometimes another. So the overall direction stumbles like a drunk between two narrow walls, first going one way before the pain gets too much then the other way. And some general directions of the poles go in the same way and the electorate doesn’t get any say in the matter, we need a third dimension for the drunk in the analogy, say going up a hill or something. He doesn’t get a choice about that, so things like State ownership of the means of production is currently out of favour 4 whatever party is likely to get in.

    The trouble is that the time-spaced sampling method of the American system means that we have contradictory views of what the electorate wants, because one lot was voted in a couple of years apart form the other. And the system seems to have ended up with these two opposing views glowering at each other, both with veto control. So we have a situation of a couple of alleycats who have come across each other in the night, and they’re a hissin’ and a-spittin’ at each other and neither can pass. Let’s hear it from some alleycats, shall we –

    There also seems to be a fair amount of argy-bargy and aggravation within one of the cats, as in the back legs and front legs aren’t in tremendously huge agreement about what to do. It seems to be a uniquely American problem – other countries have it set so all the elections happen at once so parties have to agree and set up coalitions before they get to throw their weight around. I can see why the Americans might want to space the elections out temporally, because of the sheer scale and logistics of the place. But it doesn’t seem to be reflecting the will of anybody at the moment ;)

    The stock market has been terribly boring this year, rocketing away from January and no really good buying opportunities, but now the Ermine’s snout is getting twitchy with the scent of a good fight brought on by the Americans, which should hopefully make buying an income cheaper. Hell, I might even be able to diversify with a US tracker is the S&P takes a hammering, and perhaps even the USD. At the moment the S&P500 is just too dear for me. Others markets will take a hit too, perhaps time to consider the FTSE100, which starts off more reasonably priced. It could be like being a stoat in a hen-house ;)

     

    Notes:

    1. in retrospect this was dumb, I should have gone 8k:2k or some such split, to spread my targets and opportunities against political fiddling
    2. Something vaguely disturbs me about encouraging Sids into a single, undiversified stock without at least providing them with the background information – which is that if you really are a new Sid to the stock market perhaps you should stag this issue and invest in a FTSE tracker with the proceeds in the interest of diversification. At least they should be exposed to the idea and why some people consider this a good idea. Unlike commercial IPOs such as the Direct Line one Vince Cable presumably owes his electors some duty of care ;)
    3. The Guardian confused me with the statement “Vince Cable, the business secretary, said that everyone who applied for less than £10,000 of shares would receive shares worth £749.10″ which implied I would have been outta luck. However, according to TD direct “all members of the public who applied for shares, up to and including applications of £10,000 will receive an allocation of 227 shares which is equivalent to £749.10 at the offer price.” so I would have just scraped through but with half as much allocated.
    4. I think the Green Party is in favour of that “We support high-quality public services run for people not private profit. We will protect the NHS and Post Office from privatisation and return our energy, water and rail networks to public ownership.” but they aren’t big at the moment
    10 Jul 2013, 11:17am
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  • Blackrock are crafty bastards with their fund names

    The Ermine is a europhile, in a sort of car crash tourism sort of way. And Monevator has just introduced me to a lower cost Developed Europe Ex UK Index fund than the Vanguard one, run by Blackrock.

    Now TD Direct’s interface as far as funds are concerned is ghastly. giving minimal information.So I roll up and want to buy me some Blackrock Developed Europe ex UK. How hard is that going to be?

    TD Directs Blackrock list

    TD Direct’s Blackrock list

    Hmm, Continental Europe D Inc it is then. So I take a butcher’s hook at the fund PDF and observe on page 38

    AMC 0.75%? WTF?

    AMC 0.75%? WTF?

    an AMC of 0.75%. So I back up and clock that the Trk is the operative word here and indeed I can elect to pay 0.15% on the tracker index. Bullet dodged and the right fund bought, but I wonder if Blackrock are being crafty bastards and relying on a fair number of people not paying attention enough.

    TD Direct’s interface is particularly crap when if comes to funds, and the fund universe seems to have a stupendous range of similarly titled products. Most of my dealings are shares so I’ve never been much of a fund sort of guy. TD’s shares interface is fine.

    F’rinstance here’s what part of my regular non ISA trading account looks like. In there is some anonymous Vanguard fund VAN FTSE DEV

    TD Direct's account file. Your guess is as good as mine as to what that Vanguard fund is

    TD Direct’s account file. Your guess is as good as mine as to what that Vanguard fund called VAN FTSE DEV is. The numbers don’t add up because I’ve suppressed a line of The Firm’s stock ;)

    So WTF is VAN FTSE DEV, I bought it earlier this year in a CGT exercise to diversify out of The Firm’s shares. It’s not exactly descriptive. I actually have a separate spreadsheet with the name, but assume I have only what TD shows me. Let’s review what I own from what TD tell me. The only way to win the information out of TD is to create a buy order, set the fund manager to Vanguard, then step through all the funds until they show me I hold this fund.

    the clue is I have this holding

    the clue is I have this holding

    This seems to be the only way to second-guess what I already hold. Crap, eh? Even a display of the ISIN code would be useful. Say I was The Accumulator with a shitload of index funds then this whole second-guessing game could get tiresome really quickly. TD get two times fatter on this fund than Blackrock, with their 0.35% platform charge, so I get to eat a 0.5% carrying cost on the whole thing. Not quite as bad as the 1% charge on my old CAT Virgin FTAS ISA of years ago, and on a £1700 stake it’s £8.50. Every flippin’ year, so if I hold this for two years then I have taken the shaft on owning the equivalent Vanguard ETF. The advantage of a fund is there is no transaction cost, so it’s still relevant as I plan to fly into the upcoming Euro storm whenever it blows, but once I have finished accumulating  it could be time to sell up and switch to an ETF for the hold stage to ditch those annual platform charges ;)

    I didn’t start off with funds and perhaps I am prejudiced against them, but there seems to be a lot of subtle charlatans in the field looking to get a hand in my money by dishonest means, from the naming conventions of Blackrock to TD’s fee structure. Compared to the honesty of paying to by a share or investment trust, and then just sitting on my backside watching the dividends roll in, this seems to be dealing with a bunch of dodgy geezers. It used to be that funds were cheaper than ETFs, but I only have to hold this small stake for three years to end up better off with the ETF.

     

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