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Weekend reading: where the wild things are

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What caught my eye this week.

The speculative stock sell-off I flagged up at the start of December has started to chip away at the markets more widely.

The US Nasdaq index is more than 10% 14% off its highs.

Several mega-cap tech shares – a big chunk of the US indices, and hence a meaningful stake in global tracker funds – are down about the same, too.

Microsoft and Meta (née Facebook) are 10-20% off their highs. The biggest, Apple, is getting there.

And ‘FANG’ stock Netflix1 plunged more than 20% overnight on earnings suggesting pandemics don’t last forever and growth is slowing hard.

Other former blue-sky high-fliers have already lost more than three-quarters of their value.

Look at price graphs of Peloton or Zoom2 for a taste of what happens to story stocks when the story changes.

The first cut is the cheapest

So far the declines only amount to about a 6% drop in a global tracker fund, from a UK perspective.

Pretty piddling. Could it get worse though?

Who knows – but veteran investor Jeremy Grantham is sure it will.

The founder of GMO and a self-styled witcher when it comes to bubble bursting, Grantham warns:

Today in the U.S. we are in the fourth superbubble of the last hundred years.

Previous equity superbubbles had a series of distinct features that individually are rare and collectively are unique to these events. In each case, these shared characteristics have already occurred in this cycle.

The checklist for a superbubble running through its phases is now complete and the wild rumpus can begin at any time.

Read Grantham’s entertaining note for more, including graphs like these:

As Geralt Grantham sees it, the bottom-right corner is about to get… interesting.

Now, you should know that Grantham has been calling the US overvalued for years. In 2013 Grantham foresaw the market going 20-30% higher before crashing. He’s been using the word ‘bubble’ since at least 2014.

Timing is the perennial curse of those who’d oppose a runaway market – but eight years is still a long time to claim you weren’t wrong but early.

With that said, anyone who lived through the Dotcom bust will recall the pattern of the frothiest stocks falling first.

We’ve seen sufficient crazy madness over the past two years to tick Grantham’s ‘euphoric’ box, too.

Add rising yields (even in Germany), expectations of rate hikes in the US – roiling growth stocks and government bonds alike – and a flattening yield curve, and Grantham might have all the ammo his bubble-bursting needs.

Steady as she goes

Naughty active investors (like me) will act as we see fit, for good or ill.

Wiser passive investors shouldn’t panic. Not least because they’ll probably do better than most active types just by sticking with their plan.

Think how often our Slow & Steady portfolio updates begin with The Accumulator shrugging off some brouhaha, then detailing further gains.

As Aswath Damodaran – dubbed Wall Street’s ‘Dean of Valuation’ – conceded this week even as he calculated stocks were 10% overvalued:

If you look at history, it seems difficult to argue against the notion that market timing is the impossible dream…

The most important thing is to have a well-constructed, diverse portfolio.

You could have owned almost anything up until late 2021 and seen it go up.

Everyone is a genius in a bull market.

In a bear market we all feel like idiots. Crashes come with the territory of investing, but don’t make it harder on your future self than it needs to be.

Put yourself in a position to hold – and ideally buy more – in a slump.

For now: have a great weekend!

[continue reading…]
  1. Disclosure: I hold. []
  2. Disclosure: I also hold Zoom. Alas. []

Deep in the winter, there’s nothing like snuggling up with an asset allocation quilt. Investing’s most colourful data dump ranks the main asset classes (and sub-asset classes) by annual return. The result is a patchwork of good and sorry fortune. 

As you scan its riot of colour, the asset allocation quilt always poses the same question: could you have picked these winners and losers in advance?

Is there a predictable pattern coded into this crazy Super Collapse-style tile game? Or is it all so random that a passive investing strategy is best?

Go passive and you won’t ever see your initials in the Hall of Fame. But neither will you lose all your lives…

Asset allocation quilt 2021

Our American chums have this asset allocation quilt business all sewn up.

But we decided it was time for a British cut!

So here’s the rankings for the main equity, bond, and commodity sub-asset classes from 2012 to 2021 (plus 10-year annualised returns to boot) from the perspective of a UK pound sterling investor:

A table of annual returns for 12 sub asset classes over the last decade.
  • We’ve sourced annual returns from publicly available ETFs that represent each sub-asset class.
  • The data is courtesy of justETF – an excellent ETF finder, screener, and portfolio building service.
  • Returns are nominal1. Returns take into account the Ongoing Charge Figure (OCF), dividends or interest earned, and are reported in pounds.

Stitch up

Aside from being the worst pullover pattern ever, this quilt’s standout feature is the exceptional performance of the S&P 500 over the past decade.

Indeed US equities achieved a podium place in eight out of ten years.

That record is:

  1. Amazingly consistent
  2. Potentially consequential for the next 10 years

The relentless rise of the S&P 500 has led directly to expectations of doom for US returns. Think of a ‘you’ve had it too good, for too long’ morality play, backed by numbers.

Like many we’ve sounded the alarm about this for a while. I recently rebalanced the Slow & Steady portfolio, taking some profit from US gains.

Global equities have also been a consistent performer – not too surprising given the asset class is more than 50% weighted towards those same all-star US stocks. Global equities have not claimed the top two positions these last ten years, but they have lodged in a narrow band between third and sixth place.

The upshot is a fine advert for diversification. Global equities benefited from US exposure. But the other weightings didn’t drag them down too badly – and they might someday be a lifejacket if US shares start to sink under the weight of their expectations.

Meanwhile the UK equity experience has been a very British tale of class division. Except here the little guys beat the big boys! The mid-cap FTSE 250 firms trounced the international large caps of the FTSE 100.

The FTSE 100 is one of the poorest performing markets of the past decade. Sadly its sleepy constituents also dominate the passive investor’s go-to UK index: the FTSE All-Share.

Is there a case then for upping your exposure to the more domestic FTSE 250? It’s tempting.

But if you do it simply on the basis of the last ten years then beware of mean reversion – the market’s tendency to backhand anyone who reads too much into recent results.

King of the swingers

The Emerging Markets reputation for wild volatility is woven into our quilt in violet checks.

Almost every year, this geographic catch-all has either shot out the lights or shot itself in the foot.

Technically, most of us should probably have more Emerging Markets than the typical 5-11% slice present in leading global tracker funds.

That’s because in theory our asset allocation should align to the world economy.

But China alone accounts for 18% of the global GDP pie, according to this infographic.

I’m in no rush to up my allocation.

Rocket fool

Fans of violent volatility will also love the broad commodities2 asset class picked out in orange.

This one looks like a failed rocket programme. Stuck on the launchpad for the first four years, broad commodities bursts into life with a meteoric 30% lift-off in 2016.

It then does an immediate 180-degrees and tombstones straight back down in 2017.

A couple of hiccups later and commodities goes stratospheric again – rising over 40% in 2021 like a pillar of flame.

I suspect the asset class will remain on top of the world for about as long as the next Virgin Galactic flight.

Over the decade, broad commodities are the only asset class to hand in a negative nominal annualised return (-1.3%).

Subtract inflation for the real, wealth-sucking, return.

Trading places

Take notice of how the multi-coloured mayhem settles into a more familiar pattern when viewed via the rightmost ten-year annualised returns.

Bonds are towards the bottom of the heap, gold does even worse, and we should expect commodity future funds to deliver bond-like returns (with equity-style volatility) so that looks about right, too.

Equities sit atop the ten-year column just as prime slabs of capital should.

But the divergent outcomes among the different equity sub-categories show why we need all sorts in our mix.

Long-term investing is a game of sliding blocks. The S&P 500 could easily trade places with the Emerging Markets or even the FTSE 100 in the next decade.

The common thread here is expected asset class behaviour. Over time equities should do well but we don’t know how the sub asset-classes will stack up. Meanwhile, the other asset classes are there to patch up the holes when bad years for equities leave our portfolios needing stitches.

Take it steady,

The Accumulator

  1. That is to say they are not adjusted for inflation. []
  2. Broad commodities are represented here by a diversified commodity ETF that gains exposure via commodity futures rather than the spot price. The broad commodities category includes energy, agriculture, livestock, industrial and precious metals []

Weekend reading: The office

Weekend reading logo

What caught my eye this week.

Will we or won’t we? Go back the office that is. Although I say ‘we’ to give the vibe that we’re all in this together. But rather like a backyard reveler in Downing Street during a pandemic, I walk to my own beat.

More than 20 years ago I discovered I could mostly do my job from home, and more efficiently too.

“Sod the office!” quoth I. “And be damned with the commute.”

Perhaps I capped my (traditional) career prospects, but I never looked back in terms of quality of life. Working from home was like playing the game on easy mode. More time, fewer distractions, chores done incidentally during screen breaks, and always in for deliveries.

Most of you also now know that drill now.

Indeed, one good thing about lockdowns – bar the parties, natch – has been the world discovering how practical it is for more people to live this way.

Well, I say ‘good thing’ to again hit an inclusive note – but for me it’s been a step backwards.

More people in Waitrose at lunchtime. Everyone wanting to Zoom instead of just leaving you to get on with it. Double-digit house price growth in my fantasy rural retreats. The world has changed.

For many workers all this freedom is a revelation.

Bloomberg reports this week that 55% say they will quit if forced to return to the office.

No wonder we’ve all asked how long it will last.

Life’s too short

US cheapo broker Robinhood is just the latest firm to offer most of its staff permanent work from home, saying:

Our teams have done amazing work and built a strong workplace community during these uncertain and challenging times, and we’re excited to continue to offer them the flexibility they’ve asked for by staying primarily remote. 

Facebook and Twitter are two other big tech firms that have pledged to enable staff to keep working from home.

But Google has just taken a step in the other direction. While stressing it was forging a hybrid model rather than enforcing office labour, it nevertheless just plunked down $1 billion in additional commitments to its UK offices.

Reuters reports that:

Google plans to refit the building so it is adapted for in-person teamwork and has meeting rooms for hybrid working, as well as creating more space for individuals.

The new refurbishment will also feature outdoor covered working spaces to enable work in the fresh air.

Google says it will eventually have the capacity for 10,000 workers at its UK sites, including the one being developed in London’s King’s Cross.

Rishi Sunak, UK chancellor, even put his name to a quote that celebrated the move as a commitment to the UK tech sector.

On that political note though, I did wonder as I watched Google executives do the interview rounds whether this was in part a PR move?

The company was rolling out huge office buildings around King’s Cross before the pandemic. It was already pretty all-in.

Why not give the UK government something to cheer about ahead of the next furore over corporate taxes or some dodgy militants on YouTube?


A $1 billion is a lot to spend on PR though. Clearly Google is serious about its 6,400 UK workers having at least a foot in office life.

However this vision couldn’t stop Google postponing its global return to work plans last month, as the Omicron wave hit.

Many others have done the same. And of course in December it became official UK government guidance again to work from home if you could.

Those who believe the traditional office’s days are numbered think these delays have put the final coffin in things returning to how they were.

Nicholas Bloom, professor of economics at Stanford University, told the BBC that any hard return-to-office dates are dead:

“Endless waves of Covid have led most CEOs to give up, and instead set up contingent policies: if, when and how to return to the office.” 

Bloom believes that at the least the future will be hybrid now.

I see pros and cons. For example I chose to go into a client’s office a couple of times a week for a few years, which also gave me a bit of social contact. But it also meant I couldn’t exactly leave London for the Orkney Islands.

Hybrid working takes wholesale geographic reckoning off the table.

Perhaps that’s why the populations of UK cities have held up better than some predicted during the so-called ‘dash for space’.

After Life

A scattered workforce can make the office seem a bit of a nostalgic throwback, like wearing bowler hats to work.

As one worker told the BBC:

“I won’t come in regularly until there is a critical mass of people here.

There’s no point in leaving the house if I end up doing video calls anyway.”

The bottom line is I still don’t think we know what will happen next.

This week veteran commentator Barry Ritholz pointed out what a weird recovery we’re seeing across the spectrum.

No wonder those April 2020 thoughts of two weeks at home and we’re done seem so quaint these days.

Hubble is maintaining a long list of big or famous companies’ back-to-office strategies. What’s your favourite firm doing?

Wherever you are, have a great weekend. The evening’s are getting lighter!

[continue reading…]


FIRE update: nine months in – the onset of winter

FIRE update: nine months in – the onset of winter post image

Before FIRE (Financial Independence Retire Early), my bleakest time of year was always the first day back to work in January.

The real magic of Christmas is that we collectively agree to suspend reality for a precious few days. It’s as if we’ve been gifted an enchanted remote control that pauses the world.

Then some fool unfreezes it again and we’re back to business as usual.

As work problems piled up faster than party invites in Bojo’s inbox, my answer was to immediately book another holiday.

Must. Have. Something. To look forward to.

Post-FIRE, there’s no cold bucket of reality to the face.

It’s midwinter and the short days still seem to close early like a sleepy village shop.

But if simple pleasures are the secret to a good life, then FIRE lets you order a constant supply.

Plumbing the depths

My first day back after Christmas this year was spent having a Mr Money Mustache-style new skills adventure.

Not to overshare, but the toilet packed up.

And if the last year has taught me anything about Brexit Britain, it’s that I can’t get a plumber when I need one. They forgot to mention that one on the bus.

But what a chance to fully embrace the FIRE lifestyle! Exchanging pointless blah-blah meetings for the free-time to learn new tricks instead.

Isn’t that what it’s all about?

Okay, so I’m not rigging up a solar still or travel-hacking my way around Asia.

But c’mon! You gotta take it where you can get it.

At this point, I must confess that I’m not a DIY enthusiast. My opening gambit was to google: “How does a toilet work?”

I was starting from a low-skill base. But a mere five hours later I’d uncovered a torn diaphragm in my Fluidmaster Pro Bottom-Entry Fill Valve.

As painful as that sounds, I fixed it with 97p worth of new seal. The master toilet was back in business!

High-fives were declined by Mrs Accumulator until I’d been hosed down in the garden.

Alright, it wasn’t that bad but I’ll still spare you the harrowing mobile footage documenting the gruesome detail.

How much would my plumber have charged if I could get him? £100 to £150 I’d guess.

Instead, as an ex-knowledge worker, I got to feel semi-useful for a change.

I’ve heard of the happiness U-bend but maybe this is taking it too literally?

Flush with success

So FIRE isn’t all all-glamour and chasing cows, huh? Seems not. But at least it wasn’t another bog-standard day at the office.

I no more want to fix toilets for a living than I wanted to mop up torrents of BS in my old profession.

The killer is routine. The killer is doing the same thing day in, day out, and at a hundred miles an hour.

With time on your side, most problems dissolve away.

Even a slow day can be filled with fun in disguise.

Making a home. Playful verbal jousting with Mrs TA. Discovering an unexpected talent for following YouTube videos then claiming all the credit.

I can’t go back.

Take it steady,

The Accumulator