The best of the week’s money reads.

I was sad to see Steve Jobs finally throw in the towel this week on his ability to run Apple, the company he first founded and later saved.

Over the past few years, Jobs has led one of the greatest companies the world will ever see, produced peerless products (I haven’t bought a non-Apple computer since the Amiga!), fought cancer, and seemed to be having a whale of a time throughout.

There’s many lessons from Jobs’ life that I wish could inspire my day-to-day living as much as they do when I first encounter them.

But perhaps his most universally inspiring message was the simple one he gave to a class of US graduates:

“When I was 17, I read a quote that went something like: “If you live each day as if it was your last, someday you’ll most certainly be right.” It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: “If today were the last day of my life, would I want to do what I am about to do today?” And whenever the answer has been “No” for too many days in a row, I know I need to change something.”

Steve Jobs is 56 and his net worth is at least $8 billion, but that hasn’t saved him from the random mutation of his cells. He is an artist who happens to have the technical foresight of Thomas Edison and the business acumen of Henry Ford. Or maybe he’s Bill Gates with an eye for colour.

He’s also a charismatic leader that can rally his people around him despite being difficult to work with, or even obnoxious.

Most importantly, Jobs can say “no, that’s not good enough” and demand a prototype is improved. Such an obsession on quality is incredibly rare. It is the difference between Apple and its rivals, and the difference between capitalist flair and bureaucracy (aka Nokia).

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Many investors seem to be confused about whether you can hold foreign shares in ISAs.

The answer is simple: You can!

According to HMRC, you can hold foreign shares in an ISA as long as the shares are in a company listed on “a recognised stock exchange anywhere in the world”.

HMRC doesn’t specify exactly what it means mean “recognised”, so you may have trouble if you want to snap up some Mongolian-listed bargains.

But shares listed on the New York Stock Exchange, NASDAQ, German companies listed on the DAX, and shares traded on the other big markets around the world are all eligible.

The same rule holds for corporate bonds issued by overseas companies.

To be clear, I’m talking about stocks and shares ISAs here, specifically the ‘self-select’ variety that enable you to buy and sell whatever shares, ETFs, bonds, or any other permitted investments you want.

Many investors choose to get overseas diversification through index or managed funds, where they buy the collective fund through the manager, and they’re fine, too. New country-specific ETFs are being launched all the time.

The only stipulation is that such a fund must be recognised by the Financial Services authority to qualify for holding in an ISA. Anything you or I need (or should) invest in will qualify.

Investing in foreign shares

There are a few other complications to be aware of when investing in overseas shares in an ISA.

Broker discretion

Your particular broker may not enable you to buy or sell overseas shares on any or all major stock exchanges, even if you are legally allowed to hold them in your ISA. Or you may need to fill in forms to do so. For instance, all the brokers I use insist I fill in a W-8BEN form to trade US stocks.

Currency risk

Buying and holding overseas shares exposes you to currency risk. This can be a positive or negative depending on how the UK pound performs, and as such it additionally diversifies your portfolio in currency terms, as well as the potential diversification you’re getting from the performance of different stock markets around the world.

Withholding tax / double taxation

Holding overseas shares exposes you to tax complications, even in an ISA. We’ve written the definitive article on withholding tax, so go check it out. The key takeaway is usually you can avoid being taxed twice if you find and fill in the correct form. For instance, the W-8BEN form allows UK investors to pay a lower rate of US tax (15% instead of 30%) on dividend income from US shares.

Higher dealing costs, but no stamp duty

Brokers usually charge you more to buy and sell overseas shares – even shares listed on very liquid markets like the NYSE. But the good news is most other territories don’t charge stamp duty when you buy shares, saving you 0.5%.

Have ISA, will travel

The big restriction for UK private investors looking to invest in shares in an ISA remains the ban on companies that trade on the AIM market.

This ban holds despite lobbying that the restriction is no longer valid, given the changes to capital gains tax treatment of AIM shares – and the fact that you can hold AIM shares in a Self-Invested Personal Pension.

But as for buying and holding foreign shares in an ISA, the world is your oyster!

 

You don’t have to take my word for it that you should buy when shares fall: In this article you can listen to Tim of the Psy-Fi blog instead.

When stock markets dive into a pit of despondency, the prices of shares fall fast, as they are treated less like claims on a business and more like lottery tickets.

In investors’ heads, the little switch marked ‘Risk’ flicks over – and at such times, investors seem to forget company valuations to focus on anything from the oil price to politics.

When we’re worrying more more about how the Italian Prime Minister is going pay for his next bout of bunga bunga than whether Tesco can maintain its earnings record, there’s something seriously awry. Yet these are excellent times to be a contrarian investor.

“If you want to have a better performance than the crowd, you must do things differently from the crowd.”

– Sir John Templeton

If you’re a seriously contrarian investor, these are the times you live for. You hoard cash like a miser while everyone is spending theirs like a millionaire, and then you spend like a billionaire’s daughter while everyone else is trying to “preserve their capital”, whatever that means. (Buying gold, perhaps, although by that account most billionaire’s daughters are already great investors).

What’s really odd is that anyone out of short trousers has lived through falling markets before: the dotcom bust of 2000, the crisis after 9/11 and the subprime implosion of 2007. Anyone intelligently investing in shares at those moments of fear has done astonishingly well, despite the fact that the noughties were supposedly the lost decade for stock markets.

Still, this isn’t carte blanche to throw caution to the wind, mortgage up the wife and kids, and start buying shares. Times of great fear reward thoughtful investors who have a plan for just such occasions.

There are many possible plans, but here’s one loose set of rules:

1. Save in advance

Build up your cash pile when other investors are fearless. Stash away dividends and funds from takeovers, top-slice, or even sell overvalued companies. Keep the money where you can get access to it – government bonds or cash are the only riskless places (and neither are really riskless, but all things are relative).

2. Create a watch list

If you want to stock pick rather than just buy index trackers, then prepare your long list of companies you’d like to buy if the price was right. When markets start falling you need to know what you want to own, and the price at which you’re prepared to own them. Make sure you have a decent margin of safety.

3. Buy when shares fall

Plan to buy when markets are down. It’s really difficult to buy today when you think you may be able to buy cheaper tomorrow, but it’s a necessary mental discipline. The late, great contrarian investor Sir John Templeton used to set deeply discounted automated buy orders because he knew how hard it was to buy in falling markets – and he was one the best investors of the last century!

4. Be picky

Don’t buy a share just because its price has fallen a long way. It may have fallen a long way because it’s a lousy company. Bear markets reward fundamental analysis as good and bad firms both get hit, often indiscriminately.

5. Be patient

Don’t buy all at once. Some panics end quickly, others drag on for months or even years. Being contrarian doesn’t mean being stupid: plan to feed your money into the markets over several months. Six months to twelve is about right, although if you’re looking at greater than 20% of your portfolio value then even longer may be prudent.

6. Lose to win

Don’t focus on how much you’re losing. No one runs through the hallowed halls of the London Stock Exchange with their hair on fire and ringing a bell announcing the end of a bear market. By the time we know for sure so will everyone else.

Although money wisely invested in the stock market should eventually reap returns many times greater than the alternatives, you can never guarantee an exact time at which you can extract it. So don’t put money in the markets that you may need to repay debt in the short-term. That’s not risky, that’s stupid.

You can read more from Tim on his Psy-Fi blog.