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Weekend reading: Thinking of Hetty Green as I dial back on shares

Weekend reading

Good reads from around the Web.

I have a soft spot for Hetty Green, and a bit of sympathy. There’s no doubt this super-investor of a century ago was a craven asset accumulator who put amassing a fortune above all else, but then so has been Warren Buffett for most of his life.

Yet whereas “Uncle” Warren is lovingly known as the Sage of Omaha, Hetty Green has gone down in history as “The Witch of Wall Street”.

Her black dress and hat didn’t help, but I think it was her ruthless and successful market raids in times of strife that got up people’s backs (or let’s face it: men’s backs).

Like Buffett, Green was greedy when others were fearful, amassing vast quantities of assets during downturns and then selling them at her leisure when the good times rolled.

This was back when cartels of wealthy speculators really did gang up to break each other and Green stared down more than her fair share.

She ended up insanely wealthy.

The only way is not up

I’ve been thinking about Hetty Green because for the first time since 2009 I’ve been a net withdrawer of money from the market this month.

Only a per cent or two here and there. Nevertheless it feels odd.

This year I’m not only doing it to defuse capital gains tax. I’m selecting the option to “transfer money back out to your nominated bank account”. In metaphorical Lord of the Rings terms, this is a dusty, cobwebbed path that has only been whispered about in myths and legends in my house.

I’m obviously not calling a top, nor claiming an ability to. As it happens I don’t share the doomy prognosis that this whole rally is built on phantasmagorical easy money. And for what it’s worth, I think the market is far more likely to be 100% higher than 25% down in five years time.

But there’s no denying these are “good times”. In contrast I remember ransacking my loft for semi-valuable junk that I could flog on eBay to keep buying even more shares during the darkest days of 2009.

I was lucky, but I might not have been rewarded so quickly for my boldness. The fact is I became massively overweight in equities, and I was very conscious of this when I welcomed my more level-headed co-blogger The Accumulator to the Monevator fold the following year.

My Colonel Kurtz style expedition to the limit of stock market exposure was not what I’d created this blog to be about. The Accumulator practices what he preaches.

Back to reality

That was then and this is now. Things turned out okay, and it’s just as important to be fearful when others are greedy as the more oft-cited opposite.

Having run with far higher equity exposure than is prudent for anyone who still hopes (/needs) to use a fair slug to buy a house, I’ve started dialling it back. I’ve been withdrawing cash, and also shifting some money into safer stocks and preference shares.1

Hopefully I’ll finally buy a house or flat soon (I really do want that big, cheap mortgage). But if I don’t buy then cash is an amazing asset over the short-term, even at a time of diabolically low rates, thanks to its great optionality.

Moody blues

As of Friday I’ve pretty much tripled my net worth since those 2009 lows (not entirely due my investments rising, but they did most of the heavy lifting) and if I’m honest I feel myself getting impatient if my portfolio doesn’t end the day or the week higher.

I’m taking for granted daily moves in my net worth that surpass my monthly earnings. A terrible sign!

This is a dangerous mood, and I’ve known it before — from before the crisis of course. Yet I probably wouldn’t be taking out anything if I already had the house. I would probably just tune the active portion of my portfolio to a more passive auto-pilot setting and take the summer off to refresh.

As it is I will definitely need some of this money within the next five years (perhaps the next few months) so I’ve returned to Personal Finance 101.

Or as The Accumulator might call it, sanity!

Hetty Green became super wealthy. Colonel Kurtz developed a death wish and got hacked to death in the jungle.

I hope to end up somewhere in between.

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: The Nuffield Health Bond is paying 6%, but there are tax complications. The Guardian wonders if it’s worth the risk.

Mainstream media money

Note: Some links are to Google search results – these enable you to click through to read the piece without you being a paid subscriber of the site.

Passive investing

  • There is no global bond index tracking fund2Index Universe
  • New US ETF to target total ‘shareholder yield’ – ETF Trends

Active investing

  • Nick Train: Valuing quality shares [Search result]FT
  • Hedge funds set to reach for mass market cash – Guardian
  • Preference shares for income – Money Observer (via iii)
  • Cambridge-based hedge fund tries cheaper approach – Dealbook

Other stuff worth reading

  • A different way to invest in life – Wall Street Journal
  • Markets and memory banks – Wall Street Journal
  • Could self-building go mainstream? [Search result]FT
  • The art market has gone bananas – FT
  • Retirement is bad for your health – BBC
  • Demand for fixed rate mortgages hits record high – Telegraph
  • The future of capitalism: The Chicago Mercantile Exchange – Economist

Book of the week: I recently met one of the 12 investors profile in Free Capital and he was just as enthusiastic about investing in real-life. Please note: This one is for active investors only!

Like these links? Subscribe to get them every week!

  1. Note I say “some”. I’m one of those nutters who owns a handful of Tesla shares, for example! []
  2. The Investor notes: Good thing too IMHO, you don’t want to track debt by market weighting! []
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{ 14 comments… add one and remember nothing here is personal advice }
  • 1 Curious_Sarah May 18, 2013, 11:17 am

    Quick question and tell me to go away if you think that I am too living up to my “nickname” but for my understanding, I’d like to know how much you have/had in shares?

    Don’t say if you don’t want to! (Well, you could decide not to anyway, but I mean to say I’d understand. 🙂 )

  • 2 The Investor May 18, 2013, 11:28 am

    @Curious_Sarah — I don’t mind answering in rough terms. 🙂 I’m at mid-80%s in shares now (including all funds, direct holdings, SIPP, etc) and high 80s if you count preference shares in there too. (I chalk them up in my ‘fixed income’ basket, but they are far riskier than investment grade bonds let alone gilts. Currently I own no bonds having even sold down the retail bonds I bought when their prices spiked up. I may buy some new retail bonds in the weeks ahead, though).

    I don’t currently aim to go below the mid-70%s in shares, so I’ll remain hugely exposed to the stock market and in fact set to ‘aggressive’ in financial advisor parlance.

    At the peak (or should that be the lows!) I was 100% in shares bar a few thousand pounds in an emergency fund. (And my nailed-down possessions! 😉 )

  • 3 George May 18, 2013, 12:03 pm

    Hello, long time, and congratulations on your achievement and journey.

    As a long-time reader and lurker from the first days of this webblog I for one would have appreciated more articles on that journey.

    I very much enjoyed (and in some cases profited from) your articles on bank shares, PIBS, commercial property (that was one I profited from), investment trusts and so on. You seem to do those less and less, and today you have given us a clue why (i.e. feeling like Colonel Kurtz).

    It is your website, I appreciate, but perhaps readers could have been left to decide what was best, if you wanted to keep writing those share investing articles?

    I know index funds are all the rage today and have nothing against your comrade The Accumulator, even if he does make “easy” passive investing seem as easy as manned flight to Mars.

    But it’s not for everyone (most?) and your thoughts on the direct investment route for me at least lay to the near side of the sanity spectrum than what we find in the broadsheets let alone on the Internet chat forums.

  • 4 Roger @ The Chicago Financial Planner May 18, 2013, 12:59 pm

    Thanks for including my indexing post. This is a great list of blogs and articles to check out this weekend. Enjoy your weekend.

  • 5 SG May 18, 2013, 1:21 pm

    Given your asset allocation, TI, and your housing situation, this seems to me a good strategy. I have very much the same approach, but a) I am older, b) I am a bit more risk averse and, consequently, c) have less equity exposure.

    I expect the FTSE100 to reach 9000 within the next three years, but I also expect there to be at least one big fall along the way. We are truly on the wall of worry at the moment. Yet, I am fairly relaxed.

    I have done a little part-selling recently of stocks where I have had humungous returns since 2008/9 (OXIG, PFC, PRU, RSW), but mostly I am going to hold or even buy, where I think there may be cyclical sector upside still to come, e.g., construction. However, my home LTV is now just 5% and I am still 45% in cash, so that’s quite an easy position from which to observe.

  • 6 The Investor May 18, 2013, 2:07 pm

    @George — Yes, I am sort of torn myself. I really enjoy writing those articles, but the more I see of how most people approach shares the more I think they should be passive, so it feels a bit like being an enabler in the AA sense. That said, I have kept doing some active articles, and will do in the future. It’s also possible that at some point I will consider some sort of premium/subscription area, so that most of the Google-able articles remain index focussed. I might even make a few quid from this site! Imagine!

    Re: The Accumulator, tad tough on him (at the least it’s Mars with jokes! 😉 ) but I — and indeed I think it’s fair to say “we” — know what you’ve mean. On the first level indexing is simple, but once you go beyond that there’s a lot of complexity to do it as cheaply and optimally as possible. There’s no doubt we’re the nerds of passive investing, but there seem to be a good few other nerds out there. 😉

    @SG — By any sensible measure I pushed the overexposure too far, but for various reason it was not as foolish as it may seem to some. (For instance, I’ve been unable to get a mortgage again until the past year or so, anyway, due to my mercurial and ever-changing income status. Even now it might be tricky, as my earnings were atypical last year as I sold out of a private company so didn’t draw much income as dividends from my own. This sort of thing tends to confuse the man/machine from the Halifax!)

    Re: Sectors etc, I agree, my active money has definitely been tilted towards UK housebuilders, US financials etc.

    @Roger — You too!

  • 7 Neverland May 18, 2013, 7:07 pm

    Massive money printing means its been a difficult period not to make money if you hold financial assets in the uk or the us

    I’ve made unbelievable paper gains out of the trend myself (about 8 years after tax salary I think)

    I do tend to share the view that the tap will be turned off sooner rather than later, especially in the US

    There huge sections of the less well-off population of the UK and US who have only suffered from all this printed money and that is plain wrong

  • 8 BeatTheSeasons May 18, 2013, 8:15 pm

    @ The Investor
    Don’t underestimate the difficulties in getting a cheap mortgage. When I spoke to London & Country a few months ago I found having a temporary job made it extremely difficult to get a decent rate. Whereas even a job offer in writing would have been ok, apparently. And then ‘affordability’ reduces the options further unless you earn a phenomenal salary and/or you’re buying a cheap property.
    And that was all just trying to remortgage a house I’ve owned for years without missing a single payment, not applying as a first time buyer.

  • 9 Rob May 18, 2013, 8:50 pm

    It is not so much that the Market has got more expensive. It is more a case that the volume of income from equities has increased from £57 billion to £84 billion and now the Market is working out how to value it.

    It is still less than half what it is paying for the income paid out by HMG on it’s debt.

  • 10 Neverland May 19, 2013, 2:15 pm

    @rob

    So how much of that difference is just BP?

    How much of the rest is just the result of the 30% depreciation of the £?

  • 11 The Investor May 19, 2013, 9:50 pm

    @neverland — Congratulations. Must admit from the gloomy tone of most of your messages I thought you were only long baked beans and shotgun cartridges! 😉

    Yes, good times… you know what they say: Everyone is a genius in a bull market.

    @BeatTheSeasons — Thanks for the tip. I’m going to speak to my bank of. 20 years in a few weeks. I’ll show them my finances and dare them to man up. I suppose if they don’t then (a) I’ll get to buy some value shares! (b) I’ll get a great rant for Monevator…

    @Rob — I agree, I don’t think the market is particularly expensive, but I do think people have rewoken up to its charms — dividend income and otherwise… Still if you’re going to be a bit active (and I appreciate you sensibly would say don’t!) then you have to be a bit counter cyclical I feel. As I say I’ll remain very long in any event.

  • 12 Neverland May 19, 2013, 10:03 pm
  • 13 Rob May 20, 2013, 10:01 am

    The BP dividend fell by a few billiion after the Macondo explosion and is now gradually recovering. Even so its payout is proabably 3 or 4 billion less than it might otherwise have been.

    About 50% of the dividends are declared in dollars and another 15 or 20% are earned in dollars but declared in sterling. So the sterling devaluation has probably increased pyaments by 15 to 20%.

    let’s hope sterling does not recover too quickly.

  • 14 Simon May 23, 2013, 2:32 pm

    Looking at how markets have behaved today, I’d imagine you’re not regretting dialling back a little!

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