Welcome back, Dear Reader, to the latest quarterly missive from Nick Lincoln. This edition has SEVEN articles.
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2020: BETTER THAN FORECAST!
THAT WUHAN THING HAS CAST A SPELL OVER THE YEAR. BUT IT WAS SUPPOSED TO BE A LOT, LOT WORSE!
We’re finally coming to the end of what has been for all of us a long, difficult year, certainly the strangest one of my life - and yours, I have to imagine. As this is written there’s still over a month to go. Lord knows what could happen in that amount of time!
Hanging over everything, of course, has been That Wuhan Thing. Whether we know close friends or family affected directly by the virus (I don’t), we have all been subject to the endless capricious reactions to the virus. A reminder if you needed one: the virus and our response to it are not the same thing. Never forget that, especially in the coming months and years when we will be asked to pay for the 2020 Government By Decree.
And yet…. 2020 has actually panned out way better than predicted. I’m not just talking about those previously suffering from TDS (Trump Derangement Syndrome), now overjoyed at the prospect of OrangeManBad leaving the Oval Office, to be replaced by Joey No-Pulse of the twinkling eye and grey hairpiece.
“I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.”
No, I’m talking about the serial catastrophists, the “apocoholics”, who simply cannot wait to deliver appalling (in every sense) forecasts of doom and who always seem to have a large, adoring audience (the media) to forecast to. These joyless cretins thought 2020 was going to be a motherlode of bad.
By way of example, according to Fox News, these four things were supposed to have happened this year:
In 1990 The Washington Post (then still a serious newspaper) reported that the USA “may warm 6 degrees F from 1990 to 2020”.
The reality? According to NASA, the USA has warmed roughly 1 degree.In 1989 The New York Times (again, back in the day, this was not a comic) reported that US oil deposits were dwindling away, and that by 2020 there would not be enough domestic oil left to keep the head of Exxon USA “interested.”
The reality? Proven US oil reserves are much higher now than they were in 1989.In 2000, Discover Magazine (me neither) predicted a billion people would starve by this year, thanks to “tech-caused inequality”.
The reality? “…from 2000 to 2020, global extreme poverty fell by about a billion people, according to the World Bank, as technology connected the world and allowed people in developing nations to access capital, production know-how, and aid from developed countries.”In 1997 Reuters cited a Lancet article saying 8 million people would die by 2020 thanks to climate change (previously called “global warming” until the damn globe refused to warm in line with those pesky computer models. See point one above).
The reality is so far from that as to be laughable. Per the Fox News article: “None of these predictions came true, and aren't even close to coming true,” said Roy Spencer, a climatologist at the University of Alabama in Huntsville. “It's amazing that the public can continue to believe apocalyptic predictions despite a 95 percent decline in weather-related deaths in the last 100 years.”
Why all the love and attention for these serial catastrophists? It’s because of “extrapolationism”: we see today’s problems and project them forward decades, all the while ignoring the one thing that separates us from the apes (in addition to our being able to whistle The Avengers theme tune): ingenuity. As Marian Tupy of HumanProgress.org says “People only think about how can we solve things with current technology. They underestimate human ingenuity.”
And only one asset class captures human ingenuity: The Great Companies of The World. Partially owning thousands and thousands of these Great Companies lets you and me financially gain from the the advances humanity makes, acknowledging all the while that for every four or five permanent steps forward, we sometimes temporarily stumble back one or two.
This is why our doctrine of always having a financial plan - marrying your goals and aspirations with your current and future financial abilities to satisfy them - is paramount to everything we do here. In my experience, people with a plan ride out events and apocalyptic predictions. People without a plan react to the exact same stimuli by changing things on the fly, meddling with their portfolios, doing everything they subconsciously can to ruin their financial future selves.
No financial plan = no investment portfolio. Not now, not ever.
Coupled with always having a financial plan is then having the ability to tune out the three headed Cerberus that is KPR (Kuenssberg-Peston-Rigby†). Remember: the “apocoholics” only breathe because of the oxygen the modern media gives them. Turn this off at the source and immediately your life becomes better.
Trying to make long-term, rational Investment Policy on the back of “experts” and their forecasts (I’m looking at you, Neil Ferguson) is like trying to find James Corden funny: it’s simply not possible.
As this shit-show of a year draws to a close, hold those you love a bit closer, for a bit longer. And remember that optimism about the future is the only rational outlook; that ignoring human progress over the last couple of millennia is an illness (medically defined as “pessimism”) ; and that there has never been a better time to be on this planet than now.
NO-ONE FORECASTED THAT WUHAN THING LANDING LIKE A DEAD BAT IN 2020. No-one knows what 2021 will bring, either. Deal with it.
† - Beth “shoot Dominic Cummings” Rigby temporarily demoted to the naughty step. How delicious!
“As we consider the events of this year, beginning with a global pandemic followed by the steepest recession on record, a 34% market decline, 20% unemployment, a 44% market rebound and more recently civil unrest and mass demonstrations, it is instructive to realize that no pundits or commentators predicted these events. Yet the same pundits and commentators who failed to predict what has already happened are busy predicting what is going to happen next. From the timing of a vaccine to the shape of the economic recovery, from stock market forecasts to election results, the media is filled with experts delivering worthless forecasts.”
THE PROPERTY PRICE (MIS)PERCEPTION
IF WE ONLY CHECKED OUR INVESTMENT PORTFOLIO VALUES EVERY TWO DECADES!
Before you property loving maniacs (and I say that from a position of love) start foaming at the mouth I acknowledge that investing in property is one way to accrete wealth. It’s way better than doing nothing (also known as “leaving your money in the cash death trap”).
However, we do have a blind spot with property, which I’d like to address. Inspiration comes from this article in which we were told that US property prices had seen “a 106% increase in just two decades.”
Superficially that sounds impressive. Any asset class that more than doubles in value has to be a thing of beauty, right? The answer is “yes” - but only if you ignore Old Father Time. And we can’t do that.
Turns out a 106% increase over 20 years is equivalent to an annual return of…. 3.7%. Knock off US inflation over the same period and the real return (and real returns are always the only ones we care about) is 1.6% per annum.
That’s before running costs. Still think 106% sounds impressive?
Over the same period, the US stock market returned 2.6% pa in real terms. That ignores dividends (the same way the above figures ignore potential rental income in the overall property returns. Rent is a big factor in investment property returns. Here I’m just focusing on asset price appreciation alone. Shoot me.)
So why the love for property over other ways to save for your future self? I believe it’s down to the pricing misperception.
You only really know the value of anything when you come to sell it. The Great Companies of The World (GCOTW) are being bought and sold almost continually, throughout the day, around the world. Their prices - and thus returns - are constantly in the public domain.
Property is not like that. I moved house in 2018, for the first time in 18 years. In those years I really had no idea what my old house was worth and didn’t particularly care. I only started to really really care when I had to sell it. And when I did, I “netted” around £200,000 over the original purchase price. That’s a decent wedge. On paper.
Again, that figure means nothing without the context of time. In real terms (allowing for UK inflation over the 18 year period), my house grew at 0.42% per annum! Pop that champagne Rodney!
If the GCOTW were priced as infrequently as property people would behave differently. But shares are priced every second of every minute of every hour of every trading day.
Although this is desirable and necessary it leads to bad behaviours. Namely, over-trading, buying high and selling low. Rinse and repeat.
Again, for the record: I am NOT bashing property as an investment, either as your primary residence or to let out to tenants for rent. Investing in property is way better than doing nothing. But it would be nice - and healthier - if we (especially here in the UK) were to have a more informed view of property in the round.
Imagine if you could invest in the great companies of the world and not be allowed to look at the value of your investment for two decades. How easier life would be for all of us!
“Anyone who isn’t embarrassed of who they were last year probably isn’t learning enough.”
WINTER PRACTICE UPDATE
orwell and good: it’s christmas covid-19-84 style
Nick Lincoln, IFA and owner of V2VFP Ltd
Well we’ve made it this far. We’re staggering over the finish line and Christmas is in sight. What started out as “two-weeks to protect Our NHS” back in March has, to date, morphed into a nine-month home detention with some time off from Nanny for good behaviour in between.
And now we learn that, miraculously, Covid-1984 cannot infect us over the festive period: the rules are being relaxed and we are being given Christmas back. Who knew the Government could take it in the first place? Apparently that is the case and nobody seems to care that much, which I find both equally baffling and frightening.
For we give up our essential liberties at great long term risk. Once a great number of our forebears gave their lives so we could have our freedoms: now we are giving up those freedoms without so much as a fight. And the harder the Government cracks down, the more thunderous the applause from some sections of society, as presaged in this scene from one of the naff Star Wars prequels:
One thing is for sure: a record number of us will be criminals over the festive period, many of us for the first time (or second time, in some instances. I know who you are). I confess I have spent little to no time studying the Government’s byzantine Xmas lockdown rules - that paint drying on the spare bedroom walls won’t watch itself. The gist seems to be that the regs are near-impossible to comply with on a practical level. We will all be transgressing in one form or another.
For if Couple A invite family related Couples B & C over on the 25th for a day of turkey crown, flatulence, festering resentments and arguments then all of these couples are breaking the law if they have or will see other family couples (namely the families of their partners).
Clichéd image representing the season
It’s loony-tunes. And if you try and comply (you will but you won’t) then you’ll be ranking who you want to see and - more dangerously - who you do not, often in diametric opposition to your other half. These are issues that will generate sufficient tension to make non-compliance with the rules the path of least resistance.
Indeed, I have already spoken with friends and clients who’ve effectively said “Sod the law, this is nuts” but that’s not for me to comment on….
So this is where we are. A world that’s always teetering on the edge of crazy has tilted a little more this year. Fear not: it will tilt back to “normal” level madness in time and then we can all get back to what seemed really important at the very start of this year: working out exactly what dirt Greta Thunberg has on the world’s technocrats such that she can make them endure her terrifyingly awful rants.
For the record: I am not missing Ms Thunberg one iota.
Reflecting on this year of all years I express my thanks to all those in the public and private sector who have stayed working, on the frontline, through it all. This includes my wonderful fiancé, The Lovely Penelope (TLP), who has endeavoured to keep her brilliant school open and running throughout, in the face of vehement opposition from the unions.
To those of you running small businesses (or employees of such) my heart goes out to you, especially those in hospitality. Never has one sector been treated so inhospitably. Everything crossed for you that 2021 is better in every way.
This season, turn off the news (in fact, turn off the TV if you can). Focus on those things you can control and that are important; turns out most of what goes on around us is neither. Be amazed that despite all the bad news from the three-headed Cerberus that is KPR† the values of the Great Companies of The World are higher now than they were at the start of the year: the fuel which fires all of our financial plans burns as brightly as ever.
Thanks to your faith in our services over this amazing year. TLP and I wish you and yours a happy and healthy Winter 2020. In other words: ̶S̶e̶a̶s̶o̶n̶'̶s̶ ̶G̶r̶e̶e̶t̶i̶n̶g̶s̶ Happy Christmas to you all. Onwards and upwards!
† - Beth “shoot Dominic Cummings” Rigby temporarily demoted to the naughty step. How delicious!
“We don’t make movies to make money, we make money to make more movies.”
"ARROGANT, VOCAL AND DUMB"
So much is in the above shot that I need say little. So here goes me saying, er, little
The author of the above Tweet from December 2018 is Paul Claireaux. He is not a regulated financial adviser. He purveys “Financial Education” - the distinction is lost on me. What I do know is that Mr C can make statements like the above with zero comeuppance. By contrast, were I to strongly imply to my clients that the markets are overpriced and perhaps we should sell out (something I have never done in over two decades as an IFA), I would be deemed to be giving advice.
The bigger point I wish to make, Dear Reader, ties in beautifully (and I do say it myself) with the theme of the lead article in this edition of the Hat-Tip Newsletter. Namely: predictions - as Yogi Berra once so brilliantly opined - are really hard, especially about the future.
Hopefully you can see the squiggly thin blue line on the graph above. It’s the prices of The Great Companies of The USA (S&P500 index) covering the time since Mr C sent out his non-advice Tweet of late December 2018. The subtle three numbers are reference points which I explain and expand on below:
The S&P at the time of Mr C’s Tweet was indeed around 2,500. Although Mr C thought we could no longer ignore market valuations, the market decided it could ignore him and went on a rip for the next year and a bit.
That rip stopped sharply and abruptly with That Wuhan Thing landing like a dead bat in March this year. The S&P dropped 34% in 33 days - the fastest drop of that magnitude ever. Turns out the S&P was overvalued. Also turns out Mr C didn’t predict That Wuhan Thing. Go figure.
Despite Chinese Flu, the S&P500 is now at new record highs. Of course, it’s way way higher than it was when Mr C last gave one of his crystal balls a quick spit and polish.
As I type this, the S&P stands around 3,700. Since that Tweet in December 2018 the Great Companies of The USA have appreciated in value by 48%. That ignores dividends (not that I needed to make more of a point: sometimes I just can’t help hammering that tent peg into the ground).
Perhaps I am one of the “arrogant, vocal and dumb elements in the financial adviser community”. If that means I’m one of the few who passionately believes that great investment outcomes are determined by great investor behaviours - and almost nothing else - then count me in. Those are labels I’m happy to wear.
arrogant, vocal and dumb. if the cap fits….
BANKING BONUSES
Are you using your banking perks?
Sometimes I write something that is, prima facie, boring. I’m afraid that this could be one of those times. Bear with me because if you make it to the end of this piece you may be in a position to save yourself a few hundred pounds a year.
Interest piqued? Good. Let us proceed.
I cannot claim this empirically but intuitively I imagine nearly all of my Dear Readers have some form of banking package. That is, you pay a small monthly amount to your preferred current account bank provider and in return you get a suite of benefits. Typically these would include at the very least a pre-arranged overdraft.
For as long as I can remember I have paid the equivalent of £20 a month for the privilege of having a NatWest Reward Platinum current account. In addition to an agreed overdraft (even financial whizzos like me go overdrawn on a pretty regular basis) Reward Platinum gives me:
Worldwide travel insurance;
Mobile phone insurance;
Car breakdown cover;
Discounted travel perks;
Cinema and film rental discounts;
Tastecard membership.
£432 for a one-way taxi trip from Wales to Watford
Do I use all of these? No. I couldn't, for example, care less about discounted cinema tickets. However, I have used the worldwide travel insurance, mobile phone insurance (twice I have lost my phone after a long day of “networking” where I am “tired and emotional”) and car breakdown cover.
I used to use the Tastecard for dining discounts at various chains (hello, Pizza Express) but for some reason I haven’t been eating out much this year. Can’t think why...
The car breakdown cover was invaluable to The Lovely Penelope and me earlier this year. Driving back from St Davids in deepest Wales, still to get past Swansea, the gearbox “went” on my automatic. Suffice to say, we were going no further in that car on that day.
Using the banking app on my phone I made contact with Green Shield, and lo, an orc emerged from the valleys to tow my car back to civilisation. Because of That Wuhan Thing, Penny and I could not travel with the tow truck driver. Instead we had to get home by taxi, also arranged via Green Shield.
Long story short: an incurably cheerful Welsh Ayrton Senna eventually picked us up and we bombed it on the M4 until we hit interminable roadworks around Slough. By the time we’d handbrake turned into our cul-de-sac the fare had reached the giddying heights of £432 (see photo above)! By the way: there are no functioning speed cameras from Wales to Berkshire. Just sayin’.
All of this was covered by my Reward Platinum package. Green Shield picked up the tab.
So… if you’re paying separately for things like breakdown cover, mobile phone insurance, travel insurance etc it may be worth your while checking what you’ve already got within your personal banking suite.
lockdown number 231 has meant we all have time on our hands. perhaps even enough time to check the small print of our banking contracts. wow - what a time to be alive!
“My wife and I were happy for 20 years. Then we met.”
WOT I'VE BEEN CONSUMING
{Click on the highlighted “Title” to go straight to the source. This will open in a new window, because we’re nice like that}
book recommendation
Title: Show Your Work
Author: Austin Kleon
“Show Your Work” is a small square of a book that punches hard.
We may not all be creatives or working in the arts but we are all producing “stuff”. Kleon’s coffee-table-perfect work addresses our innate desire to both know what people are doing in their creative lives, and to show others what we ourselves are doing.
The author’s message is that it’s never been easier than now to do this. So go do it.
Read the book. It’ll make more sense than this review.
podcast recommendation
Title: The Rubin Report
Author: Dave Rubin
Gay? √
Jewish? √
Born and raised in New York City? √
Now lives in Los Angeles? √
Dave Rubin is all of these things, and one might think he √ all the boxes as a fully-fledged liberal “progressive”. And once upon a time he was.
But saddened and then sickened by what he saw as the “culture war” tendencies of the American Left (more regressive than progressive), Rubin began a personal journey of self-discovery. This journey and his political evolution is a work-in-progress, evidenced in his podcast (one or two episodes a week typically).
A good interviewee, Rubin uses his background as a stand-up comic to throw light and relief on to some pretty dark topics. His skill is to see both sides of an argument without leaving the listener in much doubt as to where he stands.
screen RECOMMENDATION
Title: Fear City
Platform: Netflix
By the 1970s the Mafia had a grip on New York City. The “Five Families” and the ruling Commission had their fingers in so many pies they were truly a business, with chains of management and a board.
Using the obscure Racketeer Influenced and Corrupt Organizations Act (RICO), Rudy Giuliani - appointed as U.S. Attorney for the Southern District of New York in 1983 - began an extensive wire-tapping operation of the Five Families.
Huge amounts of incrimating evidence was gathered. In the 1985-86 Mafia Commission Trial, Giuliani indicted 11 organized crime figures, including the heads of the Families.
This three-parter moves at a rapid pace and covers the whole shebang, from 1970s Mafia domination to 1980s decimation. Lots of key people from both sides are interviewed and give the production a comelling drive and punch. Pithy language…!
“CLIENT: “Can I open a stocks and shares ISA or have I missed the boat and should I wait for a drop in the economy when the 2nd wave of Covid hits?”
ME: “You should definitely open a S&S ISA. The boat is never ‘missed’: it’s always in port, waiting to offer berths to all who understand that timing the markets is irrelevant if you’re investing for years and decades. Your berth awaits.””
INFLATION IS TO RETIREMENT WHAT CARBON MONOXIDE IS TO HEALTH
This is a recurring piece. Each quarter the figures will be appropriately updated. Why? because while the numbers will change around the edges, the message is eternal!
A typical retired couple may well see one partner live for three decades or more. Over such a long period, the annual cost of Lifestyle could more than triple. Says who? Says me: financial planning involves enormous ambiguity. If you want certainty, die now.
So an example Lifestyle cost of £50,000 per annum entering retirement could later escalate to £150,000 a year, just to keep standing still, to keep buying the exact same amount of “stuff”.
If you really must, some prosaic evidence: in 1990 a First Class stamp cost 22p. Today? 76p. See detailed graph below:
Some nuggets to lessen the gloom (past performance is no guarantee of future returns etc):
Three decades ago - Winter 1990 - the S&P 500 (The Great Companies of The USA) was valued at 329;
Today, 30 years on - Winter 2020 - The Great Companies of The USA are valued at c.3,600;
In three decades these Great Companies have grown in value by a factor of 11;
In addition, the dividends paid by these Great Companies have risen five-fold in those 30 years.
The last three decades have seen three severe "get me out of here I can't stand it anymore" bear markets (2001-3, 2007-9 and Q1 2020) and numerous smaller temporary declines.
Source for US market figures here. Why US data and not UK? Because the Yanks have this kind of thing publicly available and we don't - yet.
Dear Reader, the big risk to a dignified, independent retirement Lifestyle is the destruction of purchasing power via inflation. Like carbon monoxide you can't hear it, smell it, see it, taste it. Yet inflation will silently, stealthily kill your wealth.
The cure? Possessing a Financial Plan fueled by ownership of The Great Companies of The World: equities.
The problem with the cure? It's really really hard to stick with your Plan and stay invested through the horrendous-but-always-temporary-declines. The cure for the cure? Having a tough-loving, empathetic counsellor to stand between you and "the big mistake".
Having stated the problem, and maybe scared you witless, I hope the above figures give you a glimpse as to the only rational, moral solution for a healthy couple facing a three-decade plus retirement!
“Inflation: odourless, tasteless, and utterly poisonous to a dignified, independent retirement.”
