What caught my eye this week.
A few weeks ago we discussed whether investing blogs were running out of things to say.
Perhaps this reached ace writer Morgan Housel via Chinese whispers as a death cry of “FINISH HIM!”
Because as if to rub salt into the wounds, Housel has now condensed a whole blogosphere of personal finance wisdom into one short post.
My favourite sequence of his Short Money Rules:
3. Good investing is 50% psychology, 48% history, 2% finance.
4. Great investing is 40% skill, 20% luck, 40% inability to tell which is which.
5. Bad investing is 40% overconfidence, 40% fees, 20% denial that keeps it all going.
It’s all good stuff, so do check out Morgan’s complete article.
(With luck he’s dropped the mic, walked off the stage, and left the rest of us to keep on waffling these points into 1,000 word epics… 😉 )
Have a great weekend everyone!
From Monevator
Updated! Low cost index trackers that will save you money – Monevator
From the archive-ator: A mortgage is just money rented from a bank – Monevator
News
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!1
Research reveals who made the most from UK property [Search result] – FT
Property repossessions at lowest level since the 1980s… – BBC
…but property professionals still gloomiest in a decade – ThisIsMoney
Amazon to launch first checkout-free stores in London – Retail Gazette
The fashion models struggling with a life of debt – BBC
JP Morgan is rolling out the first US bank-backed cryptocurrency – CNBC
£25m car scrappage scheme for ‘low-income families’ in London ahead of 2021 air quality clean-up – ThisIsMoney
(Click to enlarge)
BOE: Business investment diverged sharply after the EU Referendum – Sky’s Ed Conway via Twitter
Products and services
Should you have to pay exit fees if your investing site shuts down? – ThisIsMoney
New site launched to help workers claim uncollected pay – Guardian
Could you make £150 a month selling unwanted clothes on fee-free Vinted? – ThisIsMoney
How to improve your credit score [Search result] – FT
Ratesetter will give you a free £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter
Hargreaves’ own-brand funds under-perform [Search result] – FT
“Our MDF furniture brought toxic fumes into our home” – Guardian
Mews houses for sale [Gallery] – Guardian
Comment and opinion
When aiming for a target, consider the accuracy of the weapon – Portfolio Charts
What are the different measures of inflation, and are we being conned? – Guardian
Diversify when the upside is limited – The Market Cyclist
Budgeting with Cardi B – A Wealth of Common Sense
Do you like what’s in the tin of your global index fund? – DIY Investor UK
They Live [On big picture asset allocation biases] – Epsilon Theory
More evidence ‘tactical investing’ is code for ‘do worse’ – Capital Spectator
How to wreck a pension plan in three easy steps – A Wealth of Common Sense
Fund managers are still overweight cash and underweight shares… – Fat Pitch
…but other data suggests private investors have already piled back in – Dan Lyon
FTSE 100 dividend-based valuation and forecast for 2019 – UK Value Investor
Sovereign bond returns since Waterloo [research, via Abnormal Returns] – CEPR
Brexit
Britain is losing £40bn a year to Brexit, says BOE rate-setter – ThisIsMoney
Porsche is asking customers to commit to 10% price hikes if no-deal Brexit – ThisIsMoney
Dutch Brexit humour from outside the nuthouse – Simple Living in Somerset
Cambridge academic bares all in a bid to reverse Brexit – via Twitter
Kindle book bargains
Antifragile: Things That Gain From Disorder by Nassim Nicholas Taleb – £1.99 on Kindle
ReWork: Change the Way You Work Forever by Jason Fried – £1.99 on Kindle
Unscripted: Life, Liberty, and the Pursuit of Entrepreneurship by MJ DeMarco – £0.99 on Kindle
Off our beat
This man devised a formula for finding love, and followed it – BBC
Fun rant about our supposedly inevitable jobless AI future – Scott Locklin
The cognitive aristocracy – Of Dollars and Data
Water bottle signalling [Clearly I’m ancient, news to me!] – The Atlantic
“I stole £30,000 from my mum to make millions” – BBC
Would a $249 gravity blanket help you sleep better? – 1483
And finally…
“Superior investors are people who have a better sense for what tickets are in the bowl, and thus for whether it’s worth participating in the lottery. In other words, while superior investors — like everyone else — don’t know exactly what the future holds, they do have an above-average understanding of future tendencies.”
– Howard Marks, Mastering the Market Cycle
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I just finished reading ‘Flash Boys’ by Michael Lewis. I highly recommend if anyone has got an interest in the high frequency trading firms of Wallstreet. Does anyone have any other similar recommendations? I’ve read The Big Short, so something similar that isn’t too overloaded with information, yet is still detailed and easy to read. Ta!
“external sovereign bonds as an asset class. … Real ex-post returns averaged 7% annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of around 4% above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. The observed returns are hard to reconcile with canonical theoretical models …”
I admit that I am astonished by their discovery. Is this The Triumph of the Pessimists? Are those people who instruct us that we must always hold equities simply wrong?
Is there a temporal pattern? For example, did bonds do particularly well in the 19th century and particularly badly after WWII?
‘VitaJuwel bottles, which can cost more than $100, promise to “restructure” your tap water using the power of interchangeable crystal pods.’ Maybe I should sell a new line in bottled water: “melted snowflakes”.
Do you think I could make carrying an old-fashioned hip flask fashionable? But would there be room in my manbag?
Loojking back i think that less is more with investment in general.
Keep it simple safely.
For one thing, spending a lot of time dojng amateur “research” is time misspent.
Better to have auto regular investment in low cost etfs.
Focus the energy on your career and passions
I’m intrigued by the ‘diy investor’ piece on socially responsible passive investing.
He says “I guess also that if they (the oil and gas majors) do not (adapt) they will decline in size and become a smaller percentage of the index as alternative clean energy companies grow and replace them.”
Surely that’s the whole point of index investing?
It’s very difficult to work out what future businesses will grow and which will decline, without trying to factor in the chaos of climate change.
Who’s to say that climate change won’t more adversely affect those businesses that are ‘socially responsible’ as the impact is felt on consumers that those very businesses are targeting for growth, and that the oil and gas majors won’t evolve into very successful businesses as they rely less on traditional revenues?
It all seems very ‘trying to time the market’ for my liking, and the stress free way has to be to allow the index balance ‘naturally’.
(Not that I’m knocking ‘diy investor’ of course, it’s an excellent blog)
Some gems in the Housel piece. I particularly like:
‘Wealth is what you don’t see – money that hasn’t been spent, cars that haven’t been bought, jewelry that hasn’t been purchased, stuff that hasn’t been bought.’
@dearieme. I’ve never understood why retail tend to buy EM equities when they could buy EM $ sovereign debt. Based on the JPM EMBIG Diversified index, then over the last 20 years, EM$ sovereign debt has delivered 9.4% (10.4% in GBP) per annum with a return volatility of 8.3% (10.5% in GBP). That kills EM equities, and looks good compared to even the S&P500, in volatility-adjusted terms.
As a fixed-income credit product it’s definately not low risk. For example, the index dropped 21.8% between Jun 08 and Nov 08. As a spread product, it’s also benefited from the fall in US Treasury yields over the last 30 years. Nonetheless, it still offers a 6.45% yield, with duration of 6.8, giving a 95bp spread widening per year to still breakeven. It’s a classic carry product but backed by the fact that the debt fundamentals of most EM countries are in far better shape than developed market governments or, more importantly, the private sector.
Golly again. Thank you, ZX.
A good set of links as always. I particularly like the ones from This Is Money. Not so much for the articles, which or variable quality and value, but the glorious below the line comments. A wonderful confection of spleen, racism, ignorance and madness. If you ever wondered how turkeys can be persuaded to vote for Christmas, this is the mother lode, the Golconda.
@oldeyes — Indeed. With their BOE lost growth article you can see the journalist trying to anticipate all the ‘criticisms’ (e.g. he’s EU born etc).
–“A wonderful confection of spleen, racism, ignorance and madness. If you ever wondered how turkeys can be persuaded to vote for Christmas, this is the mother lode, the Golconda.”–
You think that’s bad? I sometimes look at Yahoo news articles and the comments have to be seen to be believed! Thirty years of propaganda and misinformation by the tabloid press has had the desired effect. The turkeys will vote for Christmas while the ERG members (what ‘research’?) will be raking it in. No doubt Rees-Mogg will be in his ‘Somerset Investment Company’ Singapore offices making millions in currency trading as the pound tumbles, though since Brexit’s champion, James Dyson is moving there, at least his carpets will be squeaky clean.
@Steve21020
Some may argue that the tabloid press is the underdog compared to the BBC / broadsheet MSM that has been brainwashing us into their utopian multicultural-globalist ideal for the last few decades.
@Gaz
I enjoy business disaster stories. As well as often being page turning thrillers, you get that WTF! moment when you understand what they thought they were doing.
There’s Liar’s Poker – also from Michael Lewis
Barbarians at the Gate – the story of RJR Nabisco and KKR by Burrough and Helyar
The Smartest Guys in the Room – the Enron story by McLean and Elkins. (This one provoked the biggest jaw drop)
The last one I can’t lay my hands on, may have lent it to someone, but I am sure others will recognise it. It was a book by an accountant and financial journalist dealing with the Worldcom, Tyco and other scandals due to focus on ‘the number’ – quarterly reporting and the need to make each quarter better than the last. It starts with nudging the numbers a bit by prebooking income, and ends up with completely fictitious accounts.
All good reads.
@Gaz — More Money Than God is a great book on the history of the rare pioneering hedge funds that actually smashed the market (until they didn’t). Very readable. https://amzn.to/2X9s4DJ
What I want to know is… where can I get hold of the Dutch hairy blue brexit monster as a soft toy? If cheap enough I’d get a stock in for the pleasure of seeing the dog chew them up.
To add to the reading suggestions… I also enjoyed When Genius Failed (hedge fund hubris) and The Believers (on the Madoff scam). For something less disastrous Money Mavericks: Confessions of a Hedge Fund Manager is a fascinating insight into how things work.
About the FT story on Hargreaves Lansdown. What with their multi-manager funds, the Wealth 150/50/whatever, the 0.45% charge, might DIY investing be better if HL just didn’t exist? Though I guess the trackers would take a hit.
Rule 21
Being nice to people ,excellent career advice, it’s so true,
I’d had rule 21b be “reassuringly expensive “
I have been trying to weigh up whether to add an Emerging Markets Govt Bond ETF of either USD or local currency denomination, and whether they have a place in my income portfolio. The iShares tickers are SEML and SEMB.
Obviously as a UK investor there is currency risk either way, the local currency SEML is more volatile but has a higher yield (6.3% vs 5.6%) and lower average maturity & duration.
Is the local currency flavour that much more risky for a UK investor? Surely all of the mixed EM currencies wouldn’t move down in tandem (against the GBP at any rate)?
Well, outside of watershed Brexit events.
— “I have been trying to weigh up whether to add an Emerging Markets Govt Bond ETF of either USD or local currency denomination, and whether they have a place in my income portfolio. The iShares tickers are SEML and SEMB.” —
I’ve had both for about 4 years and don’t intend selling soon. As far as I remember, they have different mixes of countries so having both gives pretty good diversification. Also, SEML pays out twice a year whereas SEMB is every month which, if memory serves me right, will bump up the annual total return, so may be better than SEML. I know you can play about with XIRR in excel to check this, but I haven’t done it in years.
@Old_eyes @The Investor
Thanks for the suggestions, much appreciated!
@SemiPassive. Historically, EM US$ debt has been a better passive investment than currency-unhedged EM local currency debt. It’s difficult to compare since SEMB is not indexed against the more commonly used JPM EMBIGD but the JPM EMBIG Core. This excludes many less liquid, higher yielding countries, and knocks around 70bp off the yield. The more widely used EMBIGD and the SEML’s GBI-EMGD indices are currently at almost identical yields. Historically, as a rule of thumb, this can be a signal that local debt is expensive to the US$ debt.
On a EM local currency bond index you have two primary forms of risk : EM FX risk (providing the bulk of the yield) and interest rate risk (duration 5). In practical terms, returns are driven more by FX risk given the higher volatility of EM FX vs. EM rate duration. EMBIGD by comparison is a US$ fixed income credit product containing US Treasury risk (interest rate duration) and EM sovereign credit risk (spread duration). Both have a duration of 7, with the spread duration providing more of the volatility.
To put that in numbers: since Dec-02 (the GBI-EMGD index start date), in GBP terms, currency unhedged, the index has delivered a return of 5.7%/annum, with a volatility of 11.4%, while the GBP-hedged index has delivered 4.7%/annum with a volatility of just 4.5%. FX hedging reduces volatility by around 60%. For comparison (and over the same time period), the EMBIGD has delivered GBP returns of 7.75%/annum with a volatility of 10.21%.
Thank you for your input Steve21020 and ZXSpectrum48k, very helpful.
As an intended long term holding I can hack higher volatility if the long term returns warrant it.
I may well split between the two ETFs mentioned so I don’t have to worry particularly whether the USD debt is either historically under or over valued against the EM currencies.