Welcome back, Dear Reader, to the latest quarterly missive from Nick Lincoln. This edition has SIX articles.
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THE BUDGET: "AND EXHALE"
IN PREPARING US FOR THE WORST, THE CURRENT REGIME PULLED OFF A MINI-MASTER WORK
The Government’s reaction to That Wuhan Thing - hosing shedloads of money at what remains of our “economy” - has seen the National Debt enter stratospheric territory. If you believe this site, the Debt stands at around £2.5 trillion (that’s a two and a five followed by eleven zeros. Headache-inducing stuff.)
Without wishing to beat this into the ground like a tent peg, the Debt is increasing by £5,170 per second. And these figures don’t include unaccounted and unfunded liabilities such as State and public sector pensions. When allowing for these the National Debt allegedly hovers at around £5 trillion.
Source: https://www.nationaldebtclock.co.uk/
OK, this is where the bad news ends (for now, anyway). For it would appear that Supreme Chancellor Sunak has successfully kicked the can down the road and no-one cares. In reaction to his Budget of 3rd March the Great Companies of The UK - as measured by the FTSE-AllShare index - rose 1%. There was also praise across the political spectrum (see the quote from the former Labour MP Frank Field) for Sunak’s work.
For all the pre-Budget ̶l̶e̶a̶k̶s̶ talk of swingeing changes to Capital Gains Taxes, Income Taxes, Dividend Taxes, pension allowances etc there was little actual damage done. The conscientious, assiduous saver - planning for her future self and a typical thee-decade dignified, independent retirement - can continue to do what she and her financial planner have been doing over the years:
Minimising the tax she pays via a combination of dividend and salary remuneration (where possible);
Making use of the £20,000 annual ISA allowance;
Shovelling as much as she can into her personal pension, subject to various tortuous limits and rules;
Taking “profits” from her non-ISA investments each year, up to the annual CGT exemption;
Arranging her affairs in retirement so that she leaves as much as she can to those she loves, including what remains of her pension pot etc.
All of these beautiful, elegant, “plain vanilla” and totally effective solutions remain on the table.
Presently, anyway…
“To be successful in politics, you have to ride two political horses simultaneously. Rishi has done a budget for the hour and made the possibility of long-term prosperity to fight the next election. Best budget in my 42 years in politics.”
For it seems like the National Debt is someone else’s problem. Of course, this is true only if you have the callousness to regard your as-yet-unborn great-grandchildren as “someone else”.
Oh well, it is what it is. The day of reckoning will come but not in my lifetime. How can I be so sure? Because all my life this day has supposedly been coming. Yet it seems no closer now than when I was a nipper, watching wholesome TV courtesy of Jimmy Saville, Rolf Harris and Stuart Hall.
[This might or might not explain a lot, Dear Reader. I leave you to judge.]
Rather than reign in Government spending (I love typing things like this. It almost makes one feel it could actually happen) Sunak went for the lowest of low-hanging fruit: capitalism.
Sunak read the zeitgeist and realised that he could go after successful, profit-making businesses and - again - no-one would care.
So the vast bulk of his tax-raid is against anonymous corporations (owned and run and staffed by human beings but let’s all pretend otherwise) with a monumental rise in Corporation Tax from 2023 onwards.
According to the Office for Budget Responsibility (OBR) “the tax burden will rise from 34 per cent to 35 per cent of UK gross domestic product (GDP) in 2025-26. The OBR said more than half of this rise was as a result of the increase in corporation tax from 19 per cent to 25 per cent from 2023.” Source here.
Sunak is also freezing various personal Income Tax and pension allowances from next year, the effect of which will be to have more people paying more tax over time without the Supreme Chancellor having to increase the actual percentage rate of tax. It’s called Fiscal Drag, is the oldest trick in the book and - guess what - no-one seems to care.
So it’s head-in-the-ground time once again! Carry on regardless and be grateful that - for this year at least - our benighted leaders are letting us keep about the same of what we earned as previously.
having said all that, there’s some bleedin’ “tax-day” thing on 23rd march. talk about spinning it out!
““I built that . . . balance over a three-and-a-half-year period,”
he said. “And in a moment of intense hype, in a moment of
weakness for me, I messed it all up in a matter of a day.”
The 27-year-old said he believes he can bounce back from
this loss by the time he wants to retire. “But I should’ve
known better.””
DON'T TOUCH THAT BAR OF SOAP!
A tortuous cliché but it works: The more you touch a bar of soap the smaller it gets; the more you touch (or even look) at your investment portfolio, the same.
As if to (almost perfectly) prove this, The Daily Telegraph (DT) has just concluded its latest Fantasy Fund Manager competition (paywall).
For overseas readers of this newsletter, the DT was once one of the more respected British broadsheets. Today it has gone the way of all mainstream media and is nothing but a nauseating woke-fest of grievance studies and identity politics. For readers under 40: a broadsheet was a double-breasted full-spread newspaper that took two hands to read. For readers under 30: a newspaper was something…. Ah, heck - Google it.
Had it a semblance of wit and self-regard, the DT could, at the event’s conclusion last month, have used the results of its most recent Fantasy Fund Manager competition to deliver some compelling journalism. It could have taken the seemingly dominant narrative around the competition winner Peter Cowell, who turned his original stake of £100,000 into £139,388, into something far more newsworthy.
“I spent literally no time assessing the merits of the listed stocks, using my preferred ‘golden dart’ technique. This involves the throwing of a virtual dart at a virtual dart board and bingo, five stocks had been selected within a matter of seconds,”
While Mr Cowell was buying this and selling that during his three-months of “play the fund manager” someone else was doing absolutely nothing. Someone else was leaving her bar of soap untouched for the duration
For the real story of the Fantasy, Fund Competition is not who came first but who came second. This person hid behind the pseudonym “DolphinLegs” (I don’t know why: he or she should be immensely proud of their achievement. Perhaps it’s a real-life fund manager who didn't want to reveal her career is built on, ahem, a falsehood?)
Given that numerous studies have shown that men are more prone to chopping and changing portfolios than women, for these purposes I’m going to assume DolphinLegs is female.
She came second (out of over 6,000 entrants) after randomly picking five shares and then doing absolutely nothing for the next three months. In doing so she grew her original pot of £100,000 into £137,611 - less than £2,000 behind the winner!
The DT could have used this remarkable story to show the utter fallacy of stock-picking, how stock prices (especially in the short-term) tend to be totally random, and what a general waste of effort and mental energy the whole shebang is.
Of course, had it done so, the paper would have implicitly told its readers:
Our Fantasy Fund Competition is a fatuous yawn-fest of luck and hindsight biased “strategies for winning”;
Active fund management is - after costs always borne by the investor - at best a zero-sum game and, at worst, a totally sub-optimal way to pick up the broad market return offered by The Great Companies of The World.
And it’s this latter point - truly the elephant in the room - that cannot be discussed.
Look at any newspaper in print or in digital. Look at the adverts. Even in the non-money sections, the banners and pop-ups from fund management groups are relentless. The money sections themselves are nothing more than wall-to-wall fund management advertising, occasionally broken up with reheated copy via a tired carousel involving the boosting one month of gold, bitcoin, emerging markets, “the latest fad” etc and the denigrating of said the next.
To repeat: DolphinLegs nearly won “after randomly picking five shares and then doing absolutely nothing for the next three months.”
She did not touch her bar of soap!
Active fund management is all about touching the soap; thinking about the soap; looking at the soap; fondling the soap (maybe).
No sane newspaper proprietor is going to question the efficacy of fund management. This risks (no, it guarantees) spurning their advertising revenue. So the legacy media goes on prostituting itself further and further into irrelevance.
the runner up invested and did nothing for three months. do likewise for three decades+ and you’re a winner.
“Your first duty is to make yourself happy. It is only when you are happy that you can make others happy, too”
SPRING PRACTICE UPDATE
the beginning of the end or just the end of the beginning?
Nick Lincoln, IFA and owner of V2VFP Ltd
As you read this, we have just passed the first of the five dates in the Government’s tortuous pathway to normality.
On the 8th March schools re-opened (although some never closed - thank you The Lovely Penelope and other troopers for all you have done). Parents up and down the land are now to free to booze in the day without homeschooling obligations getting in the way.
On 29th March further gratifications are to be thrown our way (hello outdoor sports, goodbye those extra pounds). And so on and so on until, toward the end of June 2021, 16 months after it was “two weeks to flatten the curve” the nonsense finally comes to an end.
For now.
Clichéd image representing the season
Who knows what kind of world we will be re-emerging into?
It won’t be until the furlough scheme(s) end and the economy fully resumes that we will know the true state of things.
As I said in the Winter 2020 newsletter, I wish with every fibre in my body for the good health of small businesses, the backbone of this country in many ways.
Time will tell. I don’t pretend to be optimistic but then I don’t know what the future holds - and nor does anyone else, for the record.
Professionally, through February we have been running the figures on our client Model Portfolios, more out of curiosity than anything else. The last year and a bit has been unusual, to say the least. How did your and my investments fair over that time?
Remarkably well, as the next piece in this letter outlines.
Even as someone who believes my biggest value to people is helping manage investors and not investments it’s not always easy to maintain fortitude and resolve. The past 12 months have tested all of your and our mental resources.
Thankfully throughout 2020 and this year-to-date everyone I care for and care about has stuck to their financial plans. No panicking, and no pandering: the road to financial salvation inevitably leads to heavy ownership of and in The Great Companies of The World. This comes with short-term emotional stresses. How we react to those is key to pretty much everything.
The Lovely Penelope’s most recent creation. She will be taking commissions.
Spring is a time of renewal, of promise. Let’s put the rubbish year and a bit behind us and move on. Penny’s flow-art hobby is burgeoning and she is coming on leaps and bounds. Her most recent creation above has something of the seasonal feel to it: I see birth, water, light, life. I think it’s fabulous - but then I’m biased!
As ever, thank you for your faith in our services over this period. Do you think your friends and family are being equally well served by their financial counsel? Please remember I am here to offer a no-obligation review of their financial plan and the investments fuelling it.
Onwards and upwards!
“Even though they are going to be net buyers of stocks for many years to come, (investors) are elated when stock prices rise and depressed when they fall… This reaction makes no sense. Only those who will be sellers in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices”
TWELVE MONTHS IN THREE NUMBERS
Suffice to say, there’s been a lot going on. Let’s distil the financial stuff alone
In writing this piece I am focusing on money and markets over the last year or so. Not because I am a heartless bastard. Not because I am ignorant of the suffering endured by many in the last year. I am focusing on what I can knowingly comment on, in the hope it may resonate with you.
OK, with the weasel words out of the way, let’s begin our appraisal of “what the hell happened last year” with three numbers.
In early Spring 2020, as news of That Wuhan Thing emerged, investors got spooked - and quickly: the S&P500 declined one-third in 34 days, the quickest fall of such magnitude since forever.
Our client portfolios here at Values to Vision suffered likewise. If you are existing clients some or all of you will have some or all of your money in our snappily titled “100% Great Companies Of The World (GCOTW)” model portfolio. As you may infer, this little beauty is near-as-dammit totally invested in said companies (around 12,000 last time I bothered to check, which isn’t very often). These fabulous businesses are all around the globe and your investment with them is on a market-capitalisation basis. This is a fancy way of saying we don’t take bets on which world economy we think will be the next “engine room of growth” or some other tortuous cliché. No. We simply allocate your money in world stock markets according to the size of those markets.
First Number: (31.2%)
Although I say it myself, the 100% GCOTW Model Portfolio is a one-stop beauty parade of diversification and simplicity. In fact, it’s so good that pretty much all of my family’s invested wealth is tied up in it. [Note: this isn’t always the case: next time you’re chewing the fat with your adviser, make sure the medicine she is prescribing for you is the same stuff she takes. This isn’t always the case - I kid you not. How these people sleep at night is beyond me.]
Nevertheless, for all its charms, a fund chock full of equities will feel the brunt of any disturbance in The Force: you can diversify away from individual company risk; you cannot do so with systemic market risk. And so it was that last year the 100% GCOTW Model Portfolio fell 31.2% from 19th February to 23rd March. A £100,000 investment on that day in February would have suffered a temporary paper decline to £68,000 barely a month later. Scary stuff.
Second Number: 52.9%
OK, enough bad news. Subsequently, over the period 23rd March 2020 to 18th February 2021, the 100% GCOTW portfolio surged upwards (for volatility is a two-way street, Dear Reader) by the second number in our magic trifecta: 52.9%.
Such rebounds after rapid falls are common. They are also pretty much unreported (unlike the February-March 2020 bloodbath, with which the legacy media had the twin-joys of a supposed pandemic AND a financial meltdown to petrify people).
Third Number: 5.2%
And so this whipsaw story of a rapid temporary decline and then concomitant upward thrust leads us mathematically to our third number: 5.2%. This was the total return of the 100% GCOTW Portfolio in the complete 12 months spanning 19th February last year to 18th February this. As such it includes the whole ghastliness and subsequent recovery in one nice little annual bundle (because we like annualised figures, don’t we?)
This return (which allows for fund management fees) is OK. It’s not staggering (although it is around four times the return from so-called “riskless” investments such as Government bonds). It’s certainly ahead of inflation, that great destroyer of purchasing power. And it’s purchasing power that we are looking to maintain. That is the only reason we invest in the first place. It’s never to beat the market or some illusory fund-performance benchmark.
Note: the 100% GCOTW portfolio is - at the time of writing this in early March - now up 13.3% from its previous peak on 19th February 2020. We need all the good news we can get. My pleasure.
“The declines are temporary, the advance is permanent.” To pick up the permanent advance, you had to sit through the temporary decline. All of my clients did just that in those scary first few months last year. Is it easy? No! Despite that, is it the easiest path to a dignified, independent retirement, where the money outlives the people? Hell yes!
Can you follow this path do this if your adviser is a twitchy market-timer, forever telling you when to come in and out of the market? No! Can you do so if your adviser helps you focus on your financial plan first and foremost? Yes! People with a long-term financial plan act in accordance with the plan: people without a plan react to current events.
WE LEARN LESSONS IN ADVERSITY. THIS YEAR MORE SO THAN EVER. PLEASE PASS THE ABOVE ON TO SOMEONE YOU CARE FOR.
“The market is about the creation and distribution of wealth. The state is about the creation and distribution of power.”
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: The Jeeves Collection Vol 1
Author: P. G. Wodehouse
The light, brilliant writing and wit of Wodehouse lifts the spirits at any time. Given the year we’ve all endured this book is an absolute balm for the soul.
Narrating as Bertie Wooster, Stephen Fry brings all his vocal dexterity and timing to the fore as we enter the never-never land of an eternal Edwardian golden summer.
This audio collection contains four complete works and so comes in at just over 40 hours total listening. So it’s one to dip in and out of.
Remarkably, if you have an annual Audible “12 books for £69.99” subscription this can be purchased for the equivalent of £5.83. A bargain (and anyone who understands the Audible pricing model, do get in touch).
podcast recommendation
Title: TRIGGERnometry
Author: Konstantin Kisin & Francis Foster
Per their blurb: “comedians Konstantin Kisin and Francis Foster create fun but-serious conversations with fascinating guests. New episodes every Sunday night.”
A British podcast (hurrah) on broad current political events and themes. The guests are from across the spectrum and are given a gentle grilling by the hosts, two young men trying to make some sense of the madness.
screen RECOMMENDATION
Title: Zero Zero Zero
Platform: Now TV
Robert Saviano was the author behind “Gomorrah”, one of the best TV series I’ve seen, set amongst the Camorra crime families in and around Naples.
Now he’s back with “Zero Zero Zero”, another show based on one of his books. This time it’s international cocaine trafficking as we follow a shipment from Mexico to Italy.
Fast, brutal (don’t get attached to any of the main characters) and with movie-style production this is very good (if never quite touching the heights of “Gomorrah”).
NowTV has a habit of pulling shows after a while so watch it whilst you can.
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 1991 a First Class stamp cost 24p. Today? 85p. See detailed graph below:
Some nuggets to lessen the gloom (past performance is no guarantee of future returns etc):
Three decades ago - Spring 1991- the S&P 500 (The Great Companies of The USA) was valued at 375;
Today, 30 years on - Spring 2021- The Great Companies of The USA are valued at c.3,850;
In three decades these Great Companies have grown in value by a factor of 10;
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.”
