The Autumn 2022 Newsletter was written in the weeks before and published the day after the passing of the Queen.
Accordingly, it contains no reference to this momentous event. This will be addressed in the Winter issue.
May Her Majesty rest in peace.
Welcome back, Dear Reader, to the latest quarterly missive from Nick Lincoln. This edition has FIVE articles.
If for some bizarre reason you enjoy “The Hat-Tip Newsletter” please do forward it to family and friends.
"LET'S WAIT UNTIL IT GETS MORE EXPENSIVE!"
AS PRICES FALL, VALUE RISES. YET “INVESTORS” DON’T WANT VALUE - THEY WANT EXPENSIVE.
Human beings. What to make of them? Tell us that Marks and Spencer are doing a Meal Deal involving Chicken Kiev (never to be called Kyiv), or that Waitrose has 25% off English sparkling wines, and we’re off to the races, filling up our trolleys with enough garlic-butter-infused battery-farmed breaded poultry to feed a small army, an army that could now bathe in decent fizz if it chose.
Likewise with almost any good or service: if it goes down in price, we find it more appealing (and kick to the back of our craniums the worrying thought that perhaps we were being overcharged previously).
However, when it comes to owning slices of The Great Companies Of The World (TGCOTW), we go all bats in the belfry. When the cost of buying TGCOTW goes down, we run for the hills.
Naturally - given that “human beings are failed investors” - we do the exact opposite when share prices rise. As value leaches away we can’t wait to pile in. Worse: as the markets get more and more expensive, we listen to share tips from taxi drivers. Even worse - we act on them.
You might think this is nuts. I think it’s nuts. But it happens. Over and over and over. The latest evidence is outlined here. Buried in a pile of numbers is one gem. For context, remember that, by mid-March 2022, the prices of TGCOTW had fallen by 13% from the start of the year.
“Overall, [UK] investors pulled £7.1bn out of funds in the first quarter of this year.”
Yes, that’s right. As shares got cheaper and cheaper to buy (they were on sale), “investors” were instead selling them. Investors were selling out of a sale.
Other numbers in the article are similarly blood-chilling. For example, during the “key tax year end period” around April (also cretinously known as “ISA season”) money going into UK-based funds fell by 91% compared to their 2021 total. In April of last year, £6.2bn went into UK-based investment funds. This April? Just £553m.
During the challenging Q1 2022 period, investors had three moves to make.
In order from delightful to dumb, here were their options:
Put more money into their investment pots (ISAs, pensions etc). After all, “stuff” is on a 13% sale! If it were Chicken Kievs, the battery farms would be running at full steam, bread would be crumbing on sight, and garlic growers around the world would be jumping for joy.
Do nothing: sit through the temporary decline and stick to the Plan. A sensible, dull approach and way better than item three below.
PANIC AND SELL! Not only do you spurn the chance to buy TGOTW at a nice temporary discount, you actually sell out of them. YOU - not the markets - turn a temporary decline into a permanent loss. You’re a disgrace to humankind and deserve a damn good flogging.
Note: Options One and Two probably involve a relationship with an empathetic, caring, behavioural investment adviser. Option Three categorically doesn’t.
option three falls squarely into “the big mistake” category. who is here to stand between you and the big mistake?
“Pessimists sound smart. Optimists make money.”
IT ALL STARTED FORTY YEARS AGO TODAY
NO ONE KNEW IT THEN BUT AUGUST 1982 WAS FINALLY THE END OF THE DISMAL 1970s.
About the kindest thing you can say about the Seventies was that it produced some stellar TV. Other than that, it was a dismal decade in nearly every respect.
An example?
My paternal grandparents drove a brown Austin Allegro, with beige faux leather seats and a brown faux leather square steering wheel. The Allegro was the worst car produced by the dying-but-not-quite dead nationalised British car industry of that time, an industry which could knock out awful vehicles at the drop of a shop steward’s hat.
Any colour you want. As long as it’s a shade of brown.
Poor taste aside, a litany of awfulness hung over the Seventies like a bad Laura Ashley printed dress. Economic strife; football hooliganism; the Troubles; OPEC and the three-day weeks; a pervasive sense of economic and cultural decline; national sporting ineptness (the 1976 Montreal Olympics and the English national soccer team being perhaps the paradigmatic exemplars).
It gets worse. Throughout the 1970s inflation remained at stubbornly high double-digit levels, even as unemployment rose and rose (the dreaded “stagflation”.) So acute was the post-industrial malaise we were known as the “sick man of Europe”.
Throw in the Yorkshire Ripper, Jimmy Saville, Rolf Harris and Stuart Hall and you also had a pervert’s paradise.
And as the decade lurched closer to its chronological close, we had the 1978-79 Winter of Discontent, whilst our cousins over the Atlantic were suffering the Carter presidency, the worst in living memory until the current administration came along.
As one decade replaced another it seemed these patterns would persist. The Reagan and Thatcher administrations had both come to power promising to make tackling inflation a high priority. To their credit, the words were backed up with action. This came at a great short-term cost: interest rates were raised and maintained at high levels, and Government spending was reduced. Both measures were seen as tools to conquer inflation. But with these actions came bitter and ugly recessions here and in the USA.
And so by 1982, it seemed that not much had changed. Although inflation was thankfully now starting to moderate, the economic landscape was brutal. Companies were collapsing, unemployment was getting stratospheric. And the UK and US stock markets were still in their 1970’s stupor, unable to get out of their own way:
On 9th February 1966, the S&P500 (The Great Companies of The USA) stood at 94.
On 12th August 1982 - roughly 6,000 days later - the S&P500 was at 102.
A cumulative gain of 8.5%. Over 16 years!
Suffice to say, four decades ago, nobody - despite Mrs Thatcher’s best efforts - was advocating share ownership as a way to personal financial salvation. Why would they? In August 1982, with interest rates in double-digits, you could leave your money in the bank and get more in one year than the stock market had managed in total in over a decade and a half!
If the darkest hour is just before dawn, then 12th August 1982 was that desperate 60 minutes. Yet on that date, almost exactly forty years ago (when a pint of beer was about 60p and a first-class stamp 15½p), things finally turned.
Number One on 12th August 1982.
Western economies - liberated from the shackles of high inflation, trade union militancy and over-regulation - started to bloom. On the 12th of August 1982, unbeknown to anyone at the time, the curtain came down on the 1970s. The bear market was finally over.
Over the next five years, the S&P500 more than tripled, and here in the UK, the FTSE-AllShare rose even more.
These were giddy, tremendous times. The odd misstep came along the way, such as the vicious but short 1987 Crash, but a pattern of rising markets and growing economies with benign inflation lasted until around the turn of the century.
I was born at the end of the 1960s and was thus a (near) sentient child of the 1970s. I could feel the change in the air as the 1980s progressed. I left school in 1987 with two useless A-Levels and could walk into almost any shop or office and get proper, full-time, final salary pensioned employment.
How times have changed. We are now back into a cycle of seemingly perpetual economic strife. Business growth is stagnant; Western Governments have printed themselves into trillions of debt; inflation is back in the system and looks permanent; Russia is once again The Great Bear, effortlessly trolling us.
Across the board, our politicians are tax-and-spend weirdos who think Keynesian economics works (it doesn’t) and that you can print money without worrying about inflation (you can’t).
Oh well. In time, everything goes full circle. at some point, economic sanity will be restored. Beer, however, will never AGAIN be 60p a pint. Sorry to break it to you.
“The bitterness of poor quality is remembered long after the sweetness of low price has faded from memory.”
AUTUMN PRACTICE UPDATE
What a bloody marvelous summer!
Nick Lincoln, IFA and owner of V2VFP Ltd
What a summer! Surely the best since 1976, and one even enjoyed by the eco-loons. They always look so pasty, so let’s hope they got agonising sunburn caught a bit of the sunshine whilst glueing themselves to the M25.
The only downside to such weather is that our lawn looks a write-off but so does yours, I imagine. I’m told by people who know about such things that it will come back once the rain does.
The Lovely Penelope (TLP) and I have packed a lot in over the last three months or so and we hope you did too: there was and is a lot of catching up to do after the madness of the previous two and a bit years.
Doing our bit to save the planet the same way the super virtuous do (see: Markle, Meghan et al) we’ve been flying off here there and everywhere. Spain, Ireland (twice), and most recently Corfu: no part of Western Europe has been spared our share of aviation-induced CO2.
We experienced no significant flight delays or queues, “despite Brexit”. Strange, really, given that the Dying Legacy Media could seemingly write about nothing else in the early weeks of the Summer holidays. It’s almost as if the “news” and “reality” are two different things…
What else? TLP and I found the time to get married at Watford Registry Office (big spender, me). She’s lovely and I’m lucky. And that’s all I’m saying about that.
Mesmerising. Like the artist herself.
Mrs Lincoln’s flow art goes from strength to strength. If you have the misfortune to be on Facebook you can “like” her Page or something. This may grow into an actual side hustle. She’s certainly good enough.
In terms of V2VFP, the business year runs to the end of June and the most recent 12 months have been the best yet in terms of turnover.
I went out on my own in mid-2008 and have never looked back. Things are of course always changing and challenging.
The biggest recent change? If you had told me 14 years ago that I would be holding all meetings “in the cloud” I would have giggled at you. But, reaping the Wuhan Dividend, I’ve given up the office in Radlett and now do client-facing financial planning work exclusively via the medium of Zoom.
So far this has worked very well for all parties. Time is truly the scarcest resource: if we can save it here and there (and use it better when we’re burning through it) then that has to be a good thing.
Practicing Gratitude
I write the above being totally cognisant of the Cost of Lockdown Crisis that is afflicting many, and which will only get drastically worse once winter arrives. I am grateful for the situation I find myself in. I take nothing for granted.
Whatever our woes are, we live in the greatest country in the world, immersed in a culture that (still) embodies freedoms and liberties utterly alien to large swathes of the earth’s population.
We will find a way out of our current travails, probably despite the best efforts of our ruling class! Literally, as I type this, news of the new Prime Minister emerges. Let’s hope she’s not as inept as the various iterations we have suffered over the last three decades and who have led us to the pretty pass we are in.
I won’t hold my breath.
I hope all is well with you and yours. Speak soon.
“It is not a daily increase, but a daily decrease. Hack away at the inessentials.”
WE'RE ALL DOOMED!
OR MAYBE NOT. ANOTHER PROGNOSTICATOR OF DOOM FALLS SPECTACULARLY SHORT OF HIS OWN MARK
Harry Dent, a US “strategist and newsletter publisher”, is one of the more vocal and high-profile doomsayers. For years, he has been making his light-on-the-chuckles prophecies. The fact these are rarely born out in that pesky domain known as reality seems not to daunt Mr Dent one dime.
However, our desire to be told what will happen seems unquenchable, and so Mr Dent (who runs a seemingly successful subscription-only newsletter service) and his ilk merrily plough forth with incorrect guesses about the future. Now and again, like a stopped clock, they get it right. This then seemingly gives them enough credibility to throw out prediction darts for years, neverminding that the actual dartboard remains singularly untouched throughout.
Earlier in the year, Mr Dent said we were in the midst of an unprecedented market crash. Specifically, he forecast that “by the end of March, the market could be down “30%-40% or more..”
Strangely, this did not happen.
Nor did his next crystal ball revelation, that by the middle of 2022 we would be witnessing the “biggest crash in a lifetime”, where shares would plummet by as much as 90%.
However, Mr Dent had the grace to step back a little bit and realise the petard he was hoisting. In the same March article, he also said that, if his “huge, longer-term crash” did not occur by midyear, “I’m just going to have to shut up.”
Some could take such a clear-cut offer as proof that there actually is a God. Sadly, Mr Dent was unable to hold himself back from further guesswork. Just last month he quickly broke his promise to keep schtum and instead opined that the end of times was coming, just not when he first thought it would:
This will be much worse than 1973-1974 or 2000- 2002. Before we see a bottom, it will be at least the end of 2023.
I’m projecting that the S&P will be down roughly 86% before this is over, and the Nasdaq will be down 92%.
“It’s tough to make predictions, especially about the future.”
The only thing worse than the forecast of an “expert” is a forecast given with such precision (86%? 92%?) as to somehow suggest it’s the end result of a precise mathematical formula and hence not up for debate.
Yogi Berra’s famous quote pretty much nails it. And if predictions are tough to make, financial ones are really tough. There’s just so much going on all the time. One input only has to change an iota (inflation, economic growth, a staggering piece of human innovation, a new war or a ceasefire for an old one) and everything gets a reset.
This is why we don’t bother with financial or economic forecasting. Leave it to the fools and those who follow in their wake. These people are lost to us.
“You can burn me at the stake if I’m wrong,” said Mr Dent in August. please, someone: fetch the firelighters.
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 1992 a First Class stamp cost 24p. Now? 95p. See the detailed graph below:
Some nuggets to lessen the gloom (past performance is no guarantee of future returns etc):
Three decades ago - Autumn 1992 - the S&P 500 (The Great Companies of The USA) was valued at 419;
Today, 30 years on - Autumn 2022 - The Great Companies of The USA are valued at c.3,900;
In three decades these Great Companies have grown in value by a factor of nine;
In addition, the dividends paid by these Great Companies have risen five-fold in those 30 years.
The last three decades have seen four "get me out of here I can't stand it anymore" bear markets (2001-3, 2007-9, Q1 2020 and right now) and numerous smaller temporary declines.
Source for US market figures here. Why US data and not the UK? Because the Yanks have this kind of thing publicly available and we don't - yet. Also, the US market is enormous. By comparison, the UK market - at under 5% of worldwide market capitalisation - is tiny.
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.”
