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Weekend reading: She thinks they doth protest too much

Weekend reading: She thinks they doth protest too much post image

What caught my eye this week.

Merryn Somerset-Webb was on good form this week writing about the FCA’s report into the asset management industry. Opining in the Financial Times [search result], Merryn laments all the talk in the FCA report of more, well, talk (or as the author’s call it, consultation).

Everyone’s favourite plummy personal finance punk has little truck for the industry’s excuses. For example, she writes:

My favourite part comes on page 84, where the FCA reports on conversations with stakeholders about the all-in fee. It turns out that several respondents were concerned about the “practical complexities” of an all-in fee. It’ll be hard to figure out transaction costs, they said. After all, trading costs “cannot be predicted accurately ahead of time”.

This is absolutely killing. A group of people who insist that it makes sense for us to pay them outrageously high annual fees on the basis that they are so good at complex forecasting — that they can look at, say, the 2,000 stocks listed in the UK and forecast which of them will do better than the others based on a pile of mostly made up spreadsheets — reckon there are insurmountable “complexities” in extrapolating what their own trading costs will be over a 12-month period from decades of their own data.


Well put.

I’m a little weary of being indignant on behalf of investors who to often seem unable to do even an hour’s homework of their own, but Somerset-Webb is made of more noble stuff.

Keep fighting, she says in her article. There is more work to be done!

From Monevator

I, Robot (or automatic investing for the people) – Monevator

Investment platforms to be studied by the FCA on competition concerns – Monevator

From the archive-ator: 7 ways to profit from other people’s folly – Monevator


Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1

Britons’ savings rate at record lows, says ONS – Guardian

Bank of England tightens mortgage affordability rules – Telegraph

When not frightening fund managers, FCA also studying car loans market – Guardian

Warren Buffett says the problem with the economy is people like him – CNBC

“In practically all countries for which evidence is available, there is a clear link between what your parents earned and your own earnings prospects”Bloomberg

Products and services

Childcare: All the schemes, how they work, how to apply – Telegraph

Property funds’ liquidity crisis lives on [Search result]FT

‘EU Pension’ planned for people who move between countries – Guardian

A Help-To-Buy scheme case study in London – Guardian

The Royal Mint is considering getting into the coin valuation business – ThisIsMoney

Comment and opinion

Free yourself from your investments – Of Dollars and Data

How many of Amazon’s dotcom peers from 2000 still exist today? – The Value Perspective

Happy warriors and the practice of realistic optimism – Abnormal Returns

Think hard before buying a London property [Search result]FT

No investor is fully passive – Morningstar

Bills! – The Escape Artist

[Some] investors have lost sight of the purpose of indexes – Bloomberg

How to deploy £10m for financial freedom [“Forced” to read Monevator 🙁 ]FireVLondon

This time really is different [On the evolution of markets]Bloomberg

Larry Swedroe: Alpha’s persistence is always at risk – ETF.com

An introduction to buy-to-let as an asset class – 7 Circles

The pros and cons of doing buy-to-let as a Limited Company – ThisIsMoney

Valuing Uber on a per user basis [Deep financial geekery!]Musings on Markets

The four Ls of retirement income planning – Retirement Researcher

Off our beat

The power of the Rotten Tomatoes website – Wired

How Twitter pornified politics – New York Times

Orbituary for the great Doctor John SarnoNew York Times

And finally…

“Overall I thought this was a good book. It’s full of practical ideas with lots of detail on how to calculate the various ratios. However, you will need to have some experience with income statements, balance sheets and cash flow statements to get the most out of it.”
– John Kingham’s review of How To Pick Quality Shares by Phil Oakley

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  1. 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”. []

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{ 28 comments… add one }
  • 1 Gregory June 30, 2017, 7:37 pm

    Yes, Scandinavia is a good example that a country can prosper without undue inequality.

  • 2 FI Warrior June 30, 2017, 9:58 pm

    Like Charlie Munger said, show me the incentives and I’ll predict for you what will most likely happen, so ‘regulations so light as to be invisible, a gossamer veil of tokenism’ inevitably delivers over-indulgence at the trough. (Adam Smith said it too in his words)

    To be honest, in the shoes of those who have the opportunity, having been born in the right place at the right time and knowing not a single banker was brought to book for 2008, most would gorge themselves sick. The financial economy is killing the real one.

    This can only hasten the crash as demand is sucked out of the system. Nothing learned.

  • 3 Aspheric July 1, 2017, 8:32 am

    Enjoyed Miles Johnson’s article on London property, good demonstration of how warped the market looks (also TIL Panglossian & usurious). The combination of record low saving rates (Guardian article) and believing that property is a ‘get out of jail free’ asset class is a risky combination. A popping of that bubble could lead to a lot of people in a lot of trouble.

  • 4 ermine July 1, 2017, 8:37 am

    @FI Warrior
    > This can only hasten the crash as demand is sucked out of the system.

    Talking of which,
    > Britons’ savings rate at record lows, says ONS

    Still, what the hell. They voted for it last year, they’re getting it. And the best of British luck to ’em all. At least in 1976 which was the last time we had such a savings suckout we seemed happier, because life was improving at its fastest rate in 1976 😉

    Britain is inconceivably richer now, but a lot more hacked off with life. There must be a money and happiness story in that somewhere…

  • 5 UK Value Investor July 1, 2017, 9:14 am

    ” [“Forced” to read Monevator ]”

    Don’t worry TI, most people thought Van Gogh was a madman and a failure until decades after his death. Only then did people realise the extent of his genius.

    Perhaps the same will be true of your good self and the Monevator website? (just don’t shoot yourself in the chest as Van Gogh did; that was definitely a bad move).

  • 6 eagleuk July 1, 2017, 9:34 am

    The new builds are overcharging buyers as prices difference is more than 120,000pounds in comparison to old houses.In my area, the new builds have no garage,offers small rooms,not even a proper driveway and garden in comparison to the houses build in 1996.The most of the residents in ne builds are first time buyers.My friend bought new build as a ftb because of help to buy scheme.The owners will have a serious problem if they have to sell these houses .I think another property bubble is on the way.

  • 7 Lee July 1, 2017, 12:00 pm

    Brexit has, to some degree, an element of comedy about it, but the Larry Elliott article on the savings ratio is shedding light on the reality ahead.

    It’s not looking good, and will undoubtedly get worse. I feel quite sorry for these financially squeezed people.

  • 8 Gadgetmind July 1, 2017, 1:02 pm

    I’m starting to think that one way to get a decent house is do a “grand designs” but plots of land are like gold dust due to our draconian planning regulations. Houses aren’t expensive to build but land OTOH …

    As for parental success mapping onto success of offspring, how much of this is them being given “unfair” advantages versus just them being taught the important of paying attention at school, working hard, and reading lots and lots of books?

    Common “memes” that I heard both at school and when doing minimum wage work during school/university was that eduction never helped anyone and that working hard was “sucking up to the man”. With life lessons like that in both ears, is it any wonder that some kick back and don’t achieve great things?

  • 9 The Investor July 1, 2017, 1:16 pm

    On property, I’m getting so bored of London’s lunacy that I might buy a flat in London soon just to move on (and trigger the collapse — I have a good seriously perma-bearish friend who has made me swear I’ll text him the moment I have an offer accepted so he can fire off a battery of awesome short positions. True last bear throwing in the towels stuff).

    Yes, it really does look like the combination of the tax changes, the shift in political opinion on high house prices being bad not good (which my bearish friend thinks is pivotal) and Brexit could finally trigger something. The trouble is I get told such by very certain sounding late 20-somethings and they remind me of me at that age, and given what happened next (reader: prices doubled again) I have my doubts. Eventually some generation of doomsters will be right and it will look obvious in hindsight… Think there’s a good chance it’ll be inflation that brings prices into line though, which will mean I still would have been better buying with a big mortgage even at this late stage in the game.

    The author is quite right about the 20-somethings believing buying is all that matters. We can scoff, but when you look at the world they’ve grown up in can you blame them? In London and the South East even the biggest financial crisis since before the Wars didn’t derail the London house price boom. (Yes, for reasons. But I’m talking about the result.)

    @Gadgetmind — I agree, those things are really valuable. But arguably those *are* the unfair advantages. It’s not the fault of a child born into a poor family running on a feeble “it’s all a con, work is for suckers” operating system that they were born there and not into a Home Counties hothouse. Sure, some can overcome it, but the statistics show that in the current era (perhaps without mechanisms like grammar schools, which have their own problems) they’re more the exceptions.

  • 10 Gadgetmind July 1, 2017, 2:30 pm

    So can we look forward to the “Restriction Of Encouragement Given To Children Act” of 2020 as part of a series of sweeping measures to reduce inequality by dragging everyone down to the same level? When much younger, I tried arguing with the “education gets you nowhere” crew as I endeavored to study for my A-levels in any quiet times of my seven hour after school shift (which finished at 11pm) but they sure seemed pretty sure of themselves. Of course, I’m pretty sure as to exactly where they still are and what they are still doing!

  • 11 FI Warrior July 1, 2017, 2:41 pm

    @ ermine, an article stuck in my mind years ago that said psychologically, people can take more pain when they see others around them in the same boat, but go ballistic when they look like the loser vs the herd surrounding them. This explains the longevity of the Soviet Union for example, where people had grinding existences, yet didn’t riot (even taking into consideration the penalties of oppression) because they couldn’t see the elite’s dashas; while here, you have Grenfell Tower and other silos of poverty in spitting distance of the silver-spoon brigade/sloan rangers/godlike existences.

    @eagleuk, I have an acquaintance working on a current project for the big house-builder currently in the news being sued for millions in snagging costs for homes of such poor quality that they were thrown up already falling apart. He advises anyone he knows to not touch them with a bargepole. Interestingly, those workers from Europe who’ve left due to the climate of intimidation have just been replaced by other desperates from non-EU states instead of a rush of unemployed ‘locals’ lining up for that backbreaking, semi-skilled, minimum wage, zero-hours, hard labour. (he hadn’t made the connection that escaping globalisation in the 21st century is futile, since the alternative isolation is similarly impoverishing) He also said the best to buy today is housing built in the 30’s because they’re the most solid; equal parts irony to tragedy in a sea of corruption.

    @Gadgetmind, apparently in Vancouver it’s got to the point where even the well-to-do middleclasses are allowing their youngish progeny to set up starter homes in their back gardens (no planning permission required) so they can afford to stay in the area where they were born and have a decant crack at life.

  • 12 The Investor July 1, 2017, 2:52 pm

    @gadgetmind — That’s hardly the only solution. We could instead spend more on education / intervene / bring back grammar schools / pay parents £20k for every A level a child gets, etc. I am thinking out loud.

    You may vaguely remember my comments after Brexit about my own upbringing. I had good parents and went to a 2000 strong comprehensive where from time to time violent morons ruled. (Some periods were great, and improved with later streaming). Anyway, point is I know what you’re talking about, and in my more generous moments when I forget these idiots have foisted Brexit upon us, I would prefer to interrupt the cycle so they don’t pass their poor mindset on to their own children.

  • 13 Gadgetmind July 1, 2017, 3:42 pm

    @FI Warrior – I suspect the “no planning permission” in Vancouver (just been in Surrey to the immediate south for two weeks!) relates to property on farms as elsewhere the zoning and rules are every bit as draconian as in the UK. Prices there have been raised to levels even exceeding SE England by money coming from China and “East India”. Interestingly, everyone there will explain to you, at length, which it isn’t a bubble as it will go on forever. Scary stuff!

    @TI, yes, I’d also like to break the cycle, but I haven’t got a clue how to do that as said mindset involves blaming everyone else for your own poor skill set, or even not accepting that it’s your skill set that’s holding you back.

    As for grammar schools, I benefited from one myself, and they provided a great way for those prepared to make an effort to get on in life despite a background otherwise devoid of “privilege”. I’m assured that even suggesting they might have had some good aspects is now regarded as somehow elitist!

  • 14 Learner July 1, 2017, 4:31 pm

    @FIW, same trend elsewhere: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11854505 demand for dual dwellings

    It’s really hard to envisage a way out of this post-GFC environment that doesn’t end badly for a lot of people. Anyone want to make a more cheerful prediction?

    Someone priced out of housing during their thirties, buying in their forties at higher interest rate is going to have a monthly payment double that of a peer who was able to raise a deposit and buy earlier. They’ll need a much higher income to meet affordability tests while having little left over to fund retirement – a double hit. Either rates are going to stay near zero indefinitely, or incomes have to rise or prices have to fall. The scenarios are all either unlikely (counter-trend) or pretty bad for large segments of society.

    Feels like the financial crisis still has a long way to run, and we’ll be looking back on it in 30 years the way our great grandparents looked back at the Great Depression of last century.

  • 15 FI Warrior July 1, 2017, 6:54 pm

    @Learner, re: ‘Anyone want to make a more cheerful prediction?’ ; I’ll try.
    The increasing difficulty for most of simply affording a dignified standard of accommodation in a civilized country may well force people to revert to living in multi-generational households, even if that is modernised via granny-flats or annexes so as to avoid stepping on each others toes on a daily basis. This would solve a whole lot of current social problems like the depression risks of universal isolation, general security, monitoring aged relatives, unaffordable basic bills and child care just as quick examples.

    The following brief explanation neatly articulates how those unavoidable bills are a direct consequence of corporate (vs healthy) capitalism, so are not actually inevitable, just a political choice by the establishment:- https://www.theguardian.com/money/blog/2017/jul/01/forget-austerity-government-cuts-profiteering-private-companies

  • 16 JonWB July 1, 2017, 11:56 pm

    The most important lead indicator I’ve seen on property was in the FT last week – 27,000 residential properties for sale at £1M+ listed on rightmove with only 429 sales recorded on land registry for April 2017. I make that over 6 years of supply listed if April is a typical month for sales volumes.

    The property market is most susceptible where tax is acting to take money out of the system. House price to income ratios are largely irrelevant if PAYE post tax cash flows are not setting the price of the asset – which has been the case for quite sometime in some areas. As property isn’t taxed (due to principle primary residence relief) much of it is recycled.

    The one area that is set to explode in number is the £1M+ owner occupiers who die. This will have to generate forced sellers in droves, due to the amount of IHT due on the estate.

    When coupled with the mortgage market review restrictions, stamp duty on second homes and significant levels of stamp duty at £1M+ that erode equity all having an effect as well, it doesn’t look promising.

    I think the other driver will be estate agents. They care much more about transactional volume than prices. So whilst representing the vendor, they are going to be putting huge pressure on vendors to reduce prices to generate transactions.

  • 17 YamiKuriboh July 2, 2017, 10:19 am

    Several great articles on buy to let and london property being bad buys at the moment. Will those buying now regret it in 10-15 years time though or will they be laughing at me from their yachts?

  • 18 Gregory July 2, 2017, 12:41 pm

    As the world is more and more artificial and virtual maybe numismatics will be more appreciated.

  • 19 Gregory July 2, 2017, 12:49 pm

    ” [“Forced” to read Monevator ]”
    We are all masochists aren’t we?:)

  • 20 Sara July 2, 2017, 4:04 pm

    OMG – you know about Dr Sarno – so few people in the UK seem to. Reading his books, especially “Mind-body prescription” saved my life by “curing” my RSI. It wasn’t easy, it took a long time [a bit like FI 😉 ] and the brain will always think up new ways to mess with you when you are under stress but I now know what it’s doing. I always want to go out and press the books into the hands of those with chronic pain but I also think you have to be at the point where you are so desperate, you will listen and absorb what he says. It sounds so much like “it’s all in your head” that most people automatically reject the idea. There is no “evidence” for his ideas – I can only say that it worked for me.

  • 21 The Investor July 2, 2017, 6:33 pm

    @Sara — Hi! Yes, the man should have won the Nobel Prize. Medicine is moving in his direction though, it’s already night and day compared to the early 1990s when he was first publishing. You’re right, people often get offended when you bring up his ideas with them. I would go into a lot more detail about my history but reluctant too in a public forum. 🙂 Very glad it worked for you!

  • 22 Naeclue July 2, 2017, 7:17 pm

    To reinforce what JonWB has said, I live in Battersea London where £1m really does not go very and have noticed a lot of estate agent signs around. A year ago you barely saw them as property changed hands so quickly. I think buyers may have evaporated. A similar thing happened in the late 80s with the end of the “Lawson Boom”.

    Lawson abolished multiple MIRAS tax reliefs on a single property, but set the cutoff date several months ahead. It was like pouring petrol on a bonfire. A crazed period where a lot of young people desperately bought property to avoid missing out on the tax relief. Once the deadline date passed it was as though a switch had been thrown and buyers vanished. That led to several years of declining prices, negative equity and all the problems that brought.

    I have wondering whether that switch was thrown again on the night of the Brexit vote. Trouble is, once enough buyers start thinking prices will be cheaper next year, a property crash will be self-fulfilling.

  • 23 Marked July 2, 2017, 10:09 pm

    Naeclue, Lawson’s MIRAS withdrawal wasn’t the reason for negative equity – it was a worldwide recession in the early 90’s that did it. Unemployment went very high again.

    Also I love all these people that say a bubble will burst shortly. True I think it’s a bubble, but no one knows the next time it will burst, and honestly who cares? You have an asset that you’re paying the mortgage off with – or put another way you’re paying your own mortgage instead of your landlord’s and eventually the house asset class will rise again. Eventually is another indeterminate duration. Think in the 90’s for the south east negative equity lasted 6 or 7 years.

    Great if you get in at the bottom, but it’s luck, and no skill to do it. Don’t think you’re clever if you do – just lucky!

    Btw , saw the stuff on education. I wish we had more people joining the trades. We talk about the NHS needing immigration protected – I think we can add the construction sector too. About 50% to 70% of the labour at construction sites is foreign skilled Labour because we can’t make tradesman anymore

  • 24 John Graham July 3, 2017, 1:03 pm

    @YamiKuriboh I doubt they’ll be laughing 10-15 years out if you buy something you’d otherwise have rented and you don’t move every 2-3 years. Over a 15 year window I wouldn’t be surprised if you’d still be better off having bought if the property lost 25-35% of its absolute value during that window.

  • 25 Naeclue July 3, 2017, 6:25 pm

    @Marked, you have the cart before the horse. The 1991 UK recession was part fueled by falling house prices. I grant you the recession did not help, but house price falls were happening for a few years prior to the recession.

    I am not blaming Lawson for the slump in housing prices by the way. His ending of multiple MIRAS relief was just the tipping point after many years of very high property price inflation. Similarly, if we see another sustained fall in prices, Brexit will not be the primary cause. I fully admit to having no idea whether we are about to see a slump. There has certainly been a slowdown, starting with the run up to the Brexit vote and foreign buyers holding off until the result was known. But we had a property slowdown after the financial crisis, which was very short-lived around where I live. Maybe this will be yet another short blip as well. I cannot help feeling it is different this time though.

    As to “Who cares?”, anyone stuck in negative equity and wanting to move will care. That could be a couple in a small flat with children wanting to move somewhere bigger, or a couple who have split up and wanting to go their separate ways (a particularly unpleasant situation), or simply unrelated sharers who want to move on, e.g. to buy a place with a partner and start a family or live somewhere else in the country or abroad. Other people who will care will be those unable to keep up payments, lose their property and still owe the banks money. Last time round it was these sorts of people who suffered the most and telling them that prices will eventually recover was little comfort.

    It is all very well to say negative equity only lasted 6-7 years last time. The problem is, when you are in a period of declining house prices and negative equity, you don’t know when it will end and it can all look very bleak.

  • 26 The Investor July 3, 2017, 9:30 pm

    I think if there is a sizeable house price crash, then the tax changes to buy-to-let — those implemented and the phased in changes to relief to come — are going to be a smoking gun, at least in London. I’ve been playing around with some scenarios and it does look like a genuinely significant structural change, compared to the innumerable triggers many of us have posited over the years that turned out to be pretty much wishful thinking from bearish would-be first-time buyers (like me much of the time!)

    Brexit may yet have an impact if it really does curb migration, but to be honest I wonder how much those sorts of tenancies will impact pricing in properties that a typical middle-class Monevator reader is looking at. Obviously there’s always a marginal impact but at a first pass I suspect a house full of Polish lads where someone is sleeping in the living room and two people are sharing one of the double bedrooms loses a body first. (I once visited a house where the pecking order was the most recent person slept in the hallway! Then as you stayed longer you moved up through the house. They were all having a whale of a time, incidentally, it sounds miserable on paper but wasn’t in reality).

    A big interest rate shock would kill the market. That seems very unlikely in the current world though, with the possible exception of a seismic currency shock. Not impossible with some Brexit scenarios but still more likely to be fudged over a decade rather than instant impact.

    But anyway, the buy-to-let tax changes are here already and they are real. Already new buy-to-let volume seems to be falling. Interesting.

  • 27 Sara July 3, 2017, 11:04 pm

    @ The Investor, us perfectionist, over-achieving, people pleasing worriers obviously need to stick together. Seriously though, there does seem to be a very slowly changing attitude to this in medicine. A book called “It’s all in your head” won the Wellcome medicine prize a couple of years ago but disappointingly the author doesn’t mention Dr Sarno once. It’s still an interesting read though.
    There’s also a physiotherapist called Georgie Oldfield “up north” who is a campaigner and has a YouTube channel.

  • 28 The Investor July 3, 2017, 11:45 pm

    @Sara — Yes, I’ve met Georgie, though not as a patient. Agree, I think Sarno could probably have diagnosed me from this blog! Haven’t read All In Your Head, will check it out. To be fair there’s been a ton of research over the past 15 years that Sarno didn’t always seem too interested in keeping up on for his part. Though if I’m keeping up to the extent he was into his 80s I’ll be very happy. 🙂

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