What caught my eye this week.
War pioneer and on/off conqueror of Europe, Napoleon Bonaparte, supposedly said he’d pick a lucky general over a good one.
Investors might take the same deal.
Alas, there’s apparently no evidence that Napoleon stated the preference that’s famously ascribed to him.
Which is a shame. Trying to invade Russia in winter seems hubristic. It’d be nice to think there was some offsetting humility and self-awareness in the mix. A little balance to the man.
Of course, bloody and chaotic 19th Century battles and trading stocks at your online broker might not seem to have much in common. And that’s because they don’t.
But one thing they do share is that fortune plays a big role – especially in the short-term.
(If your experience of investing is any closer than that to getting shot at close-quarters with a musket, you might want to consider switching platforms).
Sympathy for the Devil
Indeed for some academics the jury is still out as to whether even a long-term record of out-performance can better be chalked up to luck.
Warren Buffett, they say, is just the same kind of statistical anomaly you’d expect to see if you asked a few hundred million people to flip coins and someone did a thousand heads in a row.
I don’t believe this myself. But I do accept we’ve not got much evidence to go on.
Investing in securities as we recognize it today has only been going on for a few lifetimes, and only over a limited number of economic cycles, with a very quirky sequence of returns (e.g. World War 2), and with technology and society broadly headed in a particular direction.
Would we know the name Buffett in a parallel universe where the Nazis conquered London or the semi-conductor was invented 20 years earlier?
We cannot know. But it seems unlikely.
For a less existentially taxing case study of luck at play, consider my history with Amazon shares.
As a former Amazon shareholder – and keen watcher of the technology sector – I gasped with everyone else when Amazon shares fell more than 10% on Friday.
Amazon’s market cap is over $1 trillion. Ten percent of that is real money, even for Buffett.
The stock eventually pared its losses as the day progressed and the market ripped higher, but still I couldn’t help thinking about my lucky escape. (And thanking the investing gods!)
Long-time readers may recall I sold my large – un-sheltered – Amazon holding back in February 2021.
Around that time I also disposed of a big position in a technology trust that I’d been holding forever, again outside of an ISA or a SIPP.
Why were they unsheltered, I hear you rightly ask?
Well that was a legacy of getting religion about ISAs only several years into my journey (and of pensions being unattractive alternatives, prior to the reforms).
I spent many subsequent years trying to manage down these positions, given the limited annual ISA and pension contribution allowances.
Which is why I have always been strident that you shouldn’t be as dumb as me and instead fill your ISAs to the max.
And also how I learned so much about defusing capital gains tax, despite not owning a boat.
Start me up
Anyway, by early 2021 I had it down to just the tech trust and the Amazon shares outside of my shelters.
These two now-huge-for-me positions lasted longest for two reasons.
Firstly they paid no dividend. Rightly or (as it turned out, given the capital gains, probably) wrongly I had prioritized dealing with un-sheltered income payers first. Not least because I hated the self-assessment paperwork.
But secondly, as time went on I knew I faced a capital gains tax bill of many tens of thousands of pounds when I did tackle them.
I’d diligently used my CGT allowances to defuse down those other holdings. So there was nothing to spare in any given year, which meant I faced the high-quality problem of ever-larger gains and a bigger nailed-on future tax bill.
After all, my Amazon stock had more than ten-bagged1 since I bought it.
Paying taxes on investment gains savages your returns. It also feels rotten – like you took all the risk and Joe Spender down the road gets some of your gains.
Still by early 2021 the size of the position and the fact it was unsheltered was doing my head in.
So I sold: at $3,328 in old money, or $166.40 today.2
Time is on my side
Amazon shares fell below $100 on Friday, so you can imagine my feelings. I’d dodged a more than 40% loss by dumping my shares very close to the top. I was well ahead, even after the tax bill.
Yet more evidence I’m an investing genius!
Indeed if I was another kind of commentator I’d get a dozen TikTok videos out of all this.
Alas, the real story is more edifying.
For one thing, while I was certainly worried about the frothiness in markets in early 2021, I was more focused when it came to my Amazon position on UK politics and the state of the nation’s finances.
Because while it didn’t seem like State borrowing would be a problem so long as low rates prevailed, the new Covid-era chancellor Rishi Sunak had made plain he wanted to make down-payments on the national debt.
The talk was that capital gains tax would rise.
Now, I’ve heard that such taxes are going to rise every year for as long as I’ve been investing. Platforms invariably provide quotes to the financial media every ISA season. This encourages people to put more into tax shelters, and hence increase the platforms’ assets under management.
All good fun, but not something I took very seriously.
But this year was different.
Even by early 2021 lots of people had already forgotten just how generous the State had been in supporting workers and the economy through 2020. But the fact was the bill was enormous, and it had been put on the never-never.
So I could well believe taxes would rise. Why not target investors who’d made an unexpected killing in the lockdown bubble?
I have to be humble then because I sold partly in fear of capital gains tax rises. Doubly humble, given that as things turned out the capital gains tax rise never came.
Strike one off the genius tally.
But secondly and even more candidly, if I’d held Amazon in my ISA then I’m pretty sure I would have sold it years earlier. I would never have been sat on such a big gain in the first place.
Even today I tend to turn over my portfolio fairly frequently as an active investor. (Remember my Tesla car crash?)
In those days I was much worse.
It’s not quite a bad as it might seem. My overall returns are good. Stuff I sell tends to get recycled into other stuff that does well, on average.
But at the same my returns over the years have been juiced by my stellar run with Amazon.
And the reality is that if I’d held Amazon in an ISA – especially ten years ago – I’d probably have banked my profits after the first 100% or so.
Hence leaving maybe 1,000% on the table.
So there you go. As I watched Amazon tank this week (and Alphabet and Meta too, given the big position in the technology trust I’d sold at the same time) I allowed myself a smile.
Perhaps I even started to tell myself a story about how good an investor I am.
But I’d prefer to tell you something closer to the truth, which is that this time I was definitely a lucky one.
Have a great weekend all!
Plum: can an app help you save and invest more money? – Monevator
All about bond duration – Monevator
From the archive-ator: Hey buddy, want to buy a conglomerate? – Monevator
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!3
Weak pound delivers £7.2bn boost to UK dividends in 2022 – UK Dividend Monitor
Which pensions will rise with inflation in 2023? – Which
Foxtons profits from sky-high demand for London properties to rent – This Is Money
Elon Musk clears out Twitter bosses in $44bn deal – BBC
Stocks bottom first – The Irrelevant Investor
Products and services
From Premium Bonds to savings, NS&I boosts rates across its range – NS&I
Mortgage shock: what next for embattled borrowers? [Search result] – FT
FCA proposes new labels to make it easier to choose sustainable investments – Which
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
“People had to urinate in Pringles pots”: passengers on Avanti travel trauma – Guardian
Given their mediocre show in 2022, UK investors aren’t missing out on ‘buffer funds’ – Morningstar
Isolated homes for Halloween, in pictures – Guardian
Comment and opinion
White couch – Fortunes & Frictions
The bear hasn’t broken passive yet [Search result] – FT
“Why has my pension transfer value plunged from £740,000 to £340,000?” – This Is Money
I’d like to fix your dryer – Joseph Wells
How the 60/40 portfolio makes a comeback – Of Dollars and Data
What could the new UK prime minister mean for your money? – Which
Indexing has saved investors $403 billion since 1996 – The Evidence-based Investor
Infrastructure as an inflation hedge – Klement on Investing
Dividends as the answer to the safe withdrawal conundrum – Freedom Day Solutions
Crypt o’ crypto
Matt Levine’s big Crypto story was all the rage this week – Bloomberg
Naughty corner: Active antics
The advantage of high dividend stocks in a stagflationary environment – JP Morgan
It’s the best time for bonds in more than a decade – Think Advisor
Story stocks – Humble Dollar
Is GSK a good stock for dividend investors? – UK Dividend Stocks
Quality time for small cap [Free registration to read] – GMO
Thematic versus momentum investing – Finominal
Understanding Snowflake, the highly-rated cloud darling – The Diff
How the Fed causes (model) inflation – Barry Ritholz
Kindle book bargains
The Charisma Myth: Master the Art of Personal Magnetism by Olivia Fox Cabane – £0.99 on Kindle
Mastering The Market Cycle by Howard Marks – £0.99 on Kindle
Go Big: How To Fix Our World by Ed Miliband – £0.99 on Kindle
Talking To My Daughter: A Brief History Of Capitalism by Yanis Varoufakis – £0.99 on Kindle
World close to ‘irreversible’ climate breakdown, warn major studies – Guardian
Transition to net zero will cost $100 trillion globally in green investment – BNY Mellon
A warming Med is forming crystals and belching CO2 – Hakai
Climate crisis fueling unseasonably warm October in UK and Europe, say experts – Guardian
In praise of spiders – Outside
Off our beat
LinkedIn, where irony goes to die – Young Money
AI-generated political figures as Warhammer figurines – via Twitter
How the UK became one of the poorest countries in Europe – The Atlantic
AI will require you to relearn how you use the Internet – Bloomberg
Expectations and reality – Morgan Housel
48 hours in Wrexham – Inside Hook
Eat mushrooms, cut down on meat, and use the microwave for health and the planet – Guardian
“I wake up at 8.59am, one minute before my remote job, and I don’t care what you think” – Fortune
A manual for the low-EQ leader – Summation [h/t Abnormal Returns]
“Members of Parliament would once have expected to wait a decade or more before entering the Commons and joining the Cabinet, if they ever did. Rishi Sunak did it in 50 months.”
– Michael Ashcroft, Going For Broke: The Rise of Rishi Sunak
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- That is the shares had gone up more than 900%. Actually it was even more than that – the return clocked in at 1,095%. [↩]
- The shares were split this year, 20-for-one. [↩]
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]
That Atlantic article is pretty dark. Reminscent of that old Tullet Prebon Thinking the Unthinkable – might there be no way out for Britain report written by Tim Morgan around the time of the GFC. Updated to tell us what did happen.
Obviously I and the Atlantic are card-carrying members of the Anti-Growth Coalition 😉
Nice bullet dodged on Amazon, sir!
@ermine — Cheers, although ever since the problem has been thinking about if/when to get back in… 😉 As for The Atlantic piece, obviously I agree.
Great piece – I wish I had sold out more at the peak. So now through my slow “Sticky fingers” I am left with a bit of a “Beggars Banquet”
> thinking about if/when to get back in…
I do hope you are getting back in, I am buying SMT and I don’t even believe in the growth paradigm. |And was burned by the previous dotcom flavour of this movie 😉
I was trying to work out how much Elon Musk clearing out Twitter has affected my VWRL holding, but TWTR seems to have had a small market cap compared to the tech behemoths, out of the top ten holdings. Presumably there’s a minor injection of cash from the liquidation that Vanguard has to deploy on other stuff.
@ermine — Well far too early in 2022 I started buying lots of broken disruptive tech, much to my later chagrin. The sort of stuff that was down 50% when I bought and fell another 50%+… But most of the very biggest tech behemoths stayed strong most of 2022 (notably Meta aside, which is basically Zuckerberg setting fire to all its money, for good or ill, in the middle of an advertising cashflow collapse). It’s only recently that GOOGL and AMZN came back onto my radar again really. Apple’s bounce on Friday shows again to me how oversold conditions have/had become.
@Chris S — Thanks, and thanks for spotting this week’s references! 😉
p.s. Sorry, forgot to say Twitter is not that large really, even after the 2021-priced deal. The shares went nowhere for a decade. I own various US tech companies you’ve never heard of that are around the same size or bigger.
Interesting that the rest of the Nasdaq ignored this drop from Amazon and is up on the week. Indexing is another way to get lucky…
The article about spiders was a fun read. They really are interesting little creatures. I’ve got two in my flat not paying rent but it’s fun to watch them and they take care of the fruit flies
It was a novelty to read the Freedom Day article advocating income investing for retirement rather than total return with SWR, particularly coming from a US advisor.
@The Investor : What was your thesis on Amazon at the time of your investment? Did you think you were buying Walmart in the 1970s (Amazon as the Walmart of ecommerce), or did you think you were buying ADP in the 1960s (AWS)?
On a point of information Napoleon set off for Moscow on 24 June, practically midsummer’s day, not in winter. And Hitler kicked off Barbarossa on 22 June.
It may of course well be true that a bit of calendar and map work would have alerted them to where they might expect to be by Christmas…
Found the Fortune article to be paywalled. Yahoo news have also posted it where you can access it for free: https://finance.yahoo.com/news/proudly-wake-8-59-m-125900235.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAKgajnBwUeMyeBDXqASIp5lSKj2t5o9un0ORzD7eUsYNO3m2bsapbuWCwDQUX8l7c3zFlSwUP-_wEFWoNmiMMG-CxzI84FVbxQmwbna8MI8cfAsHssiVFbfst_XRRAwjQukW8GWJNqMD-V7tAFJVZ_jSx0FwWwmLyBx_TPb4QSKK
For tax reasons I Sold 2k of s&p500 dec 08 dated put derivatives in Jan 08 *face palm*
Would have netted close to 50k if I’d held and ****** the cgt
Don’t let tax wag the investment dog.
Congratulations on dodging Amazon’s reality check!
Nice introduction, but personally, I would rather follow Lord Nelson’s thoughts than Napoleon’s. Napoleon rejected the great democratic ideas of the French Revolution in favour of the classic banana-republic dictorship government structure with a General as the absolute supreme ruler of the country. Even General Winter proved to be greater than him!
As to luck, I’d rather not have to count on it. There’s an entertaining recent Odd Lots interview with Dr Doom where, near the end, he was asked what investors should do in the current climate and he describes something very similar to what I have been doing. So far it’s been working really well. This week I even managed to get a nice positive return in USD! Here is the link to the podcast:
@Calculus — Well Apple was up 7% on Friday… 😉 And actually the equally-weighted index has been outperforming the market cap index notably this week. (As it generally does over time from memory, due to the small cap exposure). So agreed, lots of ways to do something unfortunate to a cat as I always tend to think.
@Owen — I generally let them proliferate too, but I had to take a mouse-sized one out (of the house) the other day as it was disturbing my TV watching scurrying around the floor!
@DavidV — Yep. Must admit after this recent tech crash I like the idea of dividends in retirement even more, and I say that as someone who I guess has made my bones tech/growth investing. Actually toyed with putting everything in to a selection of mildly-discounted equity income ITs last year. I’ve run such a portfolio for my mum (supplemental, not her main income) for very nearly a decade and make a handful of trades a year and I often think it’s a thing of beauty.
@Owl — This was partly Jeff Bezos (and his strategy/thinking incarnate in Amazon) and partly the fabled flywheel. AWS was luck too, except in as much as I bought thinking good things could happen with all the moving parts and its position versus other incumbents. If AWS/cloud hadn’t happened I’m inclined to think Amazon would have found another way to do well, though I concede given the state of e-commerce stocks at the moment that’s a stretch. But then, I didn’t expect a 12-bagger when I invested either. The very best tech/growth firms have a lot of optionality and tend to surprise, I’ve found. Of course the also-rans seem at some point like they do, too. So again, luck. Hence diversification (and why I tend to sell/reduce too soon, though I’m getting better. A bit.)
@B. Lackdown — Well there’s only so far one can wander into an analogy for the sake of historical accuracy! But yes, I’ve read harrowing accounts of both belligerents in those wars finding themselves in snow having dressed for summer etc.
@BigPat — Thanks. Odd, worked for me! Maybe they have a time limit or something.
@Prometheus — I’ve been hurt by tax-mediated decisions too (I once had a non-trivial sum of my portfolio in a once-famous and for me un-tax-sheltered small cap that cratered that I hadn’t reduce because of taxes, though my pot was smaller then and I had a lot more moving parts going on outside tax shelters) but I’m not really a fan of that dog/tail phrase. Personally I’d choose investments that could go into an ISA/SIPP over very slightly more attractive investments that couldn’t, if there were ever such constraints again. And the wealthier you get the more paying attention to tax is kind of more bankable not-really alpha. 😉
@TBDW — That particular Dr Doom should be very grateful for luck. He predicted one financial crisis, sort of, 15 years ago, and then has been mostly wrong ever since, including incidentally when the market started climbing out of that crisis, yet people still interview him. I don’t make a big deal out of it (a shame for me as nobody else will) but I would take my own forecasting (/guessing) over his any day of the week. I don’t even find him a very insightful commentator on market structure etc generally, among the perma-bears (versus say Albert Edwards who often has really interesting things to say). But your mileage may vary which is cool by me. 🙂
@TI – have always been interested in ITs but don’t really understand how I would pick one over another. What’s your decision making criteria for the ones you put in your mums portfolio? Thanks for weekly posts and links, taught me everything I know.
@Nomis — That’s a huge huge subject I’m afraid. It’s naughty active investing, so a ton of different stuff goes into it. (I don’t believe in simplistic rules except maybe as first-pass filters.)
Broadly though I’m looking for trusts I think are a bit cheap (not least evident in the discount) and ideally out of favour (both as trusts and the underlying holdings) that deliver a usefully higher dividend income with a long track record of keeping up with inflation (at least until this past year! 🙁 ). I’ll always look also at what they actually hold.
I sell some and buy others now and then, but very indolently, unless there’s some kind of regime change on or distressed bargains about.
I wouldn’t recommend anyone doing this who doesn’t have deep feelings and inclinations to get involved. You will not be missing out on anything easy.
Remember you can just buy a Vanguard world tracker or similar and get a 2% yield. Job’s done and move on. 🙂 On a total return basis, I’d expect that to do better than most people’s attempts to cherry pick trusts that do better.
But if one doesn’t care as much about maximizing total return as you do about a stable/growing income (and/or you think you have edge) then it’s an interesting avenue to pursue.
With all that said we ended up not really drawing the income, and started recently taking out lump sums. So from the non-edge perspective we probably should have gone VRWL anyway.
(None of the above is personal investment advice, obviously 🙂 )
@TI (#15) – I agree with you about Doctor Doom. What pleasantly surprised me in that interview is that even in the total Armageddon he’s envisaging, he thinks that a portfolio like mine would do fine!
@TI ok thank you for explaining. I’m firmly in accumulation now with 90% plus in vanguard global all cap already so think I’ll stick with this for now.
So interesting to read other people’s experience of selling, frequently a hit or miss activity despite prior careful research.
We sold our entire Hong Kong portfolio towards the end of last year. Since then, those shares have fallen by about 47% so we dodged a bullet. Furthermore, I was, as usual, ridiculously tardy in converting the HK Dollar proceeds so avoided a lot of the fall in sterling.
I would love to claim I am a rival to Warren Buffet, but it was an absolute fluke. We wanted to use some of that cash to move to a better house and that finally got us off our posteriors.
We returned from Hong Kong 5 years ago and it took that long to get round to repatriating our investments there…..chronic lethargy!