What caught my eye this week.
Well that could have been a lot worse, eh? Remember: at the start of 2023 we were assured that both a terrible recession and most likely further stock market falls were all but nailed-on.
But as things have turned out, the global economy has held firm. Even in the UK, where consensus forecasts were for a 1% decline in GDP versus the 0.5% advance that economists now believe we’ve seen.
Hardly a rip-roaring year – and I’m putting aside the high-profile conflicts making life miserable for various millions right now – but I think anyone would have taken it in January.
As for stocks, US equities have chalked up a barnstorming recovery, led until very recently by the so-called ‘magnificent seven’ tech giants. These genuinely great companies look pretty expensive today – just like they did in December 2022, before they soared.
Passive investors who shrug and say “who knows?” are smarter than they sound.
Mystic missive
So what will we see in 2024?
Who knows! (See, I can be a clever clogs too).
But if you’re a sucker for disappointment you could have a read of Vanguard’s 2024 forecast.
This 24-page PDF is mostly focused on the prospects for the future path of interest rates – an editorial decision which is in itself a kind of prediction.
Indeed perhaps the report’s most strident declaration is that ‘bonds are back’:
The transition to a higher real interest rate environment has challenged investors in the last few years, leading to negative bond returns in both 2021 and 2022. Central banks increased policy rates at the fastest pace in decades and yields increased by 300 basis points or more. Long-term yields – a strong predictor of expected returns over the long-term – are now back at levels last seen before the GFC in 2008.
This development has raised our expectations for fixed income returns significantly, to around 5% on an annualised basis over the next decade, for UK aggregate bonds and global ex-UK aggregate bonds (hedged).
As a result, our outlook is better than it has been during the past decade.
Higher forward returns are of course the silver lining to the unprecedented price declines for bonds that we’ve seen over the past couple of years:
![](https://i0.wp.com/monevator.com/wp-content/uploads/2023/12/vanguard-bonds-back-2024.jpg?resize=518%2C596&ssl=1)
None of which should be a shocker to Monevator regulars.
We stressed much the same thing a year ago and have written more about bonds in the past 18 months than in the preceding 15 years…
Britain not a bargain?
Finally, on a provincial note the fund giant is curiously contrarian on the apparent cheapness of UK equities.
Vanguard says:
…our views are reflected in the declining expected valuations in our 10-year annualised UK equity return forecast.
Despite some expected rate relief, price/earnings ratios must ease somewhat for UK equities to return to fair value.
Now you know what passive investors say…
…who knows.
But as a dumb and naughty active investor, I have more in (select) UK equities going into 2024 than for many years, albeit mostly in companies with a global outlook. So I’ll be studying Vanguard’s contrary view closely this weekend, as I work my way through the post-Christmas chocolate hoard.
Hope you have a great New Year’s Eve – whatever your expectations are for the 12 months to come!
From Monevator
A capital idea – Monevator for Mogul members
From the archive-ator: Try saving enough to replace your salary – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Surprise inflation fall could see Bank of England cut rates faster – BBC
UK becomes first G7 country to halve its carbon emissions – City AM via Yahoo
Sunak accused of ‘desperate’ inheritance tax cut briefing – Sky News
Top 10 in-demand property hotspots in the UK – Guardian
The hedge fund traders dominating a massive bet on bonds – Bloomberg via Yahoo
Science debunks the myth of ‘beer goggles’ – Sky News
![](https://i0.wp.com/monevator.com/wp-content/uploads/2023/12/UK-house-price-falls-2023.jpg?resize=721%2C496&ssl=1)
UK house prices fall at fastest pace in more than a decade [Search result] – FT
Products and services
Read your energy meter now before the Ofgem price cap rises – Guardian
Could physical cash soon be extinct? An expert’s five-year review – This Is Money
UK savers urged to act quickly for the highest-paying fixed-rate accounts – Guardian
Get £100-£200 cashback when you open an account with Interactive Investor. Terms apply – Interactive Investor
An expert guide to Christmas present returning and other refunds – This Is Money
Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
The 5.4% fixed rate that’s only available if you have a maturing NS&I bond – This Is Money
Is healthy food more expensive? – Be Clever With Your Cash
How to avoid a kitchen extension nightmare – Guardian
Hargreaves Lansdown cashback offer for pension transfers – the largest pots are eligible for £3,500. Terms apply – Hargreaves Lansdown
Ultimate fantasy homes in Great Britain, in pictures – Guardian
Comment and opinion
Why [US…] stocks have astounded – Morningstar
Four timeless investing principles that never change – Darius Foroux
Don’t trust your gut – Humble Dollar
Only pessimists pick bottoms – Investment Talk
24 rules for 2024 – Humble Dollar
CEOs will soon admit return-to-work mandates don’t boost productivity – Fortune
Larry Swedroe: momentum’s turning points can be costly [Nerdy] – Morningstar
Forecasting and predictions mini-special
What will happen to house prices and mortgage rates in 2024…? – Guardian
…and what about gas and electricity prices? – This Is Money
Will 2024 be an up year for the stock market? – Of Dollars and Data
2023: another miserable year for stock market forecasters – Maths Investor
Naughty corner: Active antics
The offbeat markets that offered bumper returns in 2023 [Search result] – FT
AI models can’t analyse SEC filings, researchers find – CNBC
Munger’s Daily Journal warns of lower returns without him – Business Insider
How to earn $23m aged 33 as a quant in a hedge fund – eFinancialCareers
Things learned in 2023 mini-special
52 interesting things learned in 2023 – Kottke
The biggest breakthroughs happening in science right now [Podcast] – The Ringer
81 things that blew our minds in 2023 – The Atlantic via MSN
[Another] 52 things learned in 2023 – Kent Hendricks [h/t Abnormal Returns]
Kindle book bargains
When McKinsey Comes to Town by Walt Bogdanich – £0.99 on Kindle
The Birth of Netflix by Marc Randolph – £0.99 on Kindle
A Kidnap Negotiator’s Guide to Influence and Persuasion by Scott Walker – £0.99 on Kindle
Dead In The Water by Matthew Campbell – £3.99 on Kindle
Environmental factors
COP28: where do greener investors go from here? [Search result] – FT
Swedish ‘Spotify of heat pumps’ hopes to reach more UK homes – Guardian
The global population will get to 10.4bn, then drop – SMH [h/t Indeedably]
Natural History Museum describes more than 800 new species – BBC
Plan to restore UK’s rainforests welcomed by campaigners – Guardian
World’s tallest wooden wind turbine starts turning – BBC
Farewell, Java stingaree, the first recorded marine fish extinction – Mongabay
Brexit (sub) standards mini-special
How post-Brexit UK is drifting from EU standards – Guardian
Pint-sized wine bottles are all that survives [pointless] Imperial measures push – BBC
UK’s fintech firms face ‘growing skills gap’, warns top chief… – City AM
![](https://i0.wp.com/monevator.com/wp-content/uploads/2023/12/UK-net-migration-2023-1.jpg?resize=680%2C389&ssl=1)
…despite migration being at [hilariously ironic] all-time highs – Sky News
Off our beat
Respect each other’s delusions – Morgan Housel
Oliver Burkeman: how to stop wasting your life [Podcast] – Mark Manson
Australia has a gargantuan property price problem, too – BBC
Living funerals – Sky News
Rewrite for humans – Seth Godin
Slowing the clock – Humble Dollar
And finally…
“We have three baskets for investing: yes, no, and too tough to understand.”
– Charlie Munger, Poor Charlie’s Almanack
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The outlook and mood felt so dismal in 2023 that I could hardly look at my main investments which have sat untouched – although I was very tempted to touch them – in the Vanguard 80/20 Lifestrategy fund. Imagine my surprise when in my “December YoY Review” I was up 9.4%. That’s despite Brexit. Despite Trump. Despite Biden. Despite Ukraine. Despite Gaza, Despite Johnson, Sunak, Truss, Farage, unstoppable immigration, house prices collapsing, terrible weather, floods, we’re all doomed. Happy New Year everyone!
I don’t know how I’ve done: the year doesn’t end with a “9”.
It would be remiss not to mention my tech-biased SIPP has totally redeemed itself notching up a handy 34 percent and overcoming the loss of last year. This was helped by rebalancing from cash progressively over the first half of last year, and switching to currency hedge some holdings. Saying that Ill put this quick bounce-back down to luck mainly!
On the year ahead – I will stick with the theme, after listening to my sensible side and dialling down the equity balance.
I also pulled the ripcord recently on partial lump sum drawdown which took a bit over 3 weeks to action through HL and it was quite something to see the balance move across the Rubicon as it were. Will invest privately or pay off a good chunk of mortgage, depending what pans out over the next few months.
Happy New Year All and thanks TI for the seriously prolific blogging. To echo Sarah’s comment last week, wealth is of little value without loved ones to spend it with.
A year is the time it takes this 3rd rock from the sun to do an orbit. Means nothing more. All 2024 forecasts can be ignored, except as entertainment. Ken Arrow (subsequently Stanford Economics Prof. & a joint winner of a Nobel Prize), was an Airforce weather forecaster in WW2. He’d been assigned a task of forecasting the weather a month ahead, but found long-range forecasts were no better than numbers pulled from a hat. He asked to be relieved of this duty. The reply was: “The Commanding General is well aware that the forecasts are no good. However, he needs them for planning purposes.” What actually matters is not where we end up this time next year but to have a financial and investment plan that can more or less survive uncertainty and surprises, and has a decent shot over 30 or 40 years of meeting objectives which are reasonably in proportion to the funds committed.
Indeed, 2023 turned out much better than expected. I withdrew almost 3% of my total investments to fund a folly (i.e., building a lake house) and yet have just reached a new all time high! With only about one third of equities in America and only about 45% of the portfolio invested in equities, my total return from January 2023 until now has only been just short of 6% though. But I’m not complaining because the total volatility has been around 5% since I started measuring it back in 2016.
Happy New Year!
How much of these investment reports are for professionals and how much for mere mortals? (Or disinformation)
It’s hard to tell the difference between getting the inside scoop on the next big thing and what is a pump and dump scheme…
2023 was a story of two halves for me, negative net worth growth to the middle of the year and up massively in the last 6 months.
I don’t know why and I don’t really care too much either – one of the benefits of being (mostly) passive is to not have to either pick winners or study the form.
Keep up the good work in 2024!
Happy new year all – Monevator team, Moguls, Mavens and the rest.
Exciting times – 2023 finishing with a flourish – highs across numerous funds in the portfolio (except for them bonds funds – I’m over that now).
18 months out – and cashed in 25% of outstanding offset mortgage from ISAs in readiness for “the transition” – trying not to be greedy and also our 2 year fixed rate will expire in a few months. Will take a bit more in the coming months as hope momentum continues….who knows?
This upswing certainly helps confidence that the plan is robust and OMY is really not necessary!
Bring on 2024 – in the meantime, KeepOnKeepinOn…!
Love reading this website and checking out the links every week. This weeks’s “top things i learn in 2023” was a fun read. I do find it interesting though that despite all the turmoil and anxiety we went through, boring vanguard passive funds are up over the year – gives some weight behind the philosphy of just setting up a monthly passive investment and just checking annually, would have saved some headache this year. happy new year All
Im finding it impossible to know where to invest for 2024, most of my money is in short term bond ETFs at moment, I dont fancy jumping into SP500 tracker at all time highs and FTSE250 tracker doesnt look appealing either as I cant see UK economy ever doing well again.
Hopefully an early year sell off will give me a chance to jump into US stocks as I dont want to sit in short term bonds for another year.
I fancy energy/oil stocks alot as the green energy thing is all fake/not profitable but even they are quite high
I have eschewed opening my newly gifted and pristine copy of The Investment Trusts Handbook 2024 thus far, and so that’s my New Year’s Day reading nicely sorted for me.
Done my budget for 2024 and updated the monthly spreadsheet.
Great news with the recent upswing means there’s enough to cover my monevator subscription!!!!
As for FIRE, still in limbo hit the numbers, but might be adding another year to the plan as the kids just finishing uni and may need a bit of help…. don’t press the trigger when in a correction, don’t press the trigger when at highs, don’t press the trigger when an excuse can be found.
HNY all, I’m off to ponder and rebalance some eqs to bonds as it’s that time of year
Thanks for all the interesting and entertaining posts. I haven’t commented before but I have read every post this year and you can be sure I will be reading and appreciating those in the future. Also a big thanks to all those who post such well thought out comments I often find them as entertaining and enlightening as the main course.
As a side note If I cashed out on just two buys based on things I’ve read on here I could cover the subscription charge for the next 40 years! …here’s to hoping I’ll still be reading then 🙂
Interesting to see the Vanguard article on bonds. if I’m reading it correctly the chart shows the 10th / 90th percentile forecast back in Dec 2021 with the actual performance then going wildly outside of this forecast. Noting that the last couple of years bond performance has been the worst for decades, however it seems the chart gives the best evidence why it’s fairly pointless following any forecasts! Interesting to see their forecast on UK stocks – no doubt UK Value Investor will have something to say on this at some point.
@Seeking Fire — The UK market has a growth problem, I feel, which makes it even harder to work off higher valuations. Inflation might have helped here, but the last year or so has seen the currency strengthen which is also short-term bad for UK corporates, given the majority of FTSE 100 firms earn most of their profits overseas.
I do think you can find selective value, but then as a naughty stockpicker I would say that. It’s certainly interesting that UK jewels like DGE and ULVR have done nothing for investors lately. I recently picked up some of the former (an on/off holding for me for years!)
@TI, @Seeking Fire: Apart from ITs (where, IMO, there’s some value now in LSE listed infrastructure trusts like GCP (@9% div) INPP (@6%), HICL (@6%) & SEQI (@8%)), I’d hate to have to pick any individual company shares, esp. from the Footsie.
That said, if a gun were put to my head, my first 2 choices would be DGE & ULVR, reflecting @TI’s preference above. They’ve each got wide and, hopefully, durable moats.
However, if it’s deep value that you’re after, then it might just be worth taking a look at (and running a slide rule over) ex US Small Cap Value (SCV).
Compared to their history/averages:
– Small cap is now at a discount to Large;
– ex US is at a discount to US;
– value is at a discount to growth; and
– within ex US markets, Emerging Markets are at a discount to Developed ones.
As a ‘factor’ combo, ex-US SCV therefore now looks borderline absurd cheap on a relative basis. For one example, DEM ETF (via WisdomTree’s US site on 28 December) gives the following metrics:
Price/Earnings 6.76
Estimated Price/Earnings 7.33
Price/Book 1.05
Price/Sales 0.73
Of course, SCV (and DEM) may very well continue to underperform vis a vie large cap, market cap weighted DM indices like the S&P 500. And, for example, DEM’s div yield seemingly recently got cut from 11% down to 8% p.a. without a commensurate rise in the price (although it is up a bit in recent months).
But, if you’re looking at mean reversion/ deep value, then I’d respectfully suggest that there may be more obvious choices perhaps than the FTSE 100 (and the FTSE 250, for that matter).
Rightfully, the Efficient Market aficionados out there will point out that the price metrics may just reflect the extra risks & they may very well be right (EMs and SCV must surely be higher risk and deserving a discount).
My only observation/point here is that the discount is currently bigger compared to its history for ex US SCV than is the case for UK indices (relative to the US indices, or to the ACWI).
@TLI — Thanks for the comment, I’m confused about your acronyms though. DEM seems to be an emerging market tracker not an ex-US small cap tracker?
Last I looked US small cap didn’t look too dear, even, given its growth potential. I probed @TA a few months ago for a US small cap tracker but I didn’t act on it though I did buy the North Atlantic investment trust. (NAS).
If everything stays roughly as it is now re: yields (/gets better) and geopolitics, then my gut feel is everything looks ok to good value except for large US growth, and the latter look like the best companies the world has ever seen so even they can be justified. (At least until AI disrupts them away… 😉 )
Fully prepared for this comment to look silly in 12 months time as always though haha.
@TI: many thanks. I was thinking of the relative cheapness across time compared to its own long term average & compared to US large cap growth now of EM SCV because it, above all else, seems to be pretty much the cheapest thing going just now, at least if one excludes esoteric and hard to assess stuff.
Unfortunately, there’s no ‘pure play’ EM SCV ETF out there in the UCITS space presently. Nor can I find an ex US SCV ETF, although there is the Vanguard FTSE All-World ex-US Small-Cap Index ETF (VSS), but with no Value premium in there.
So, DEM was the nearest thing to hand, at least that I could readily find (WisdomTree’s EM Equity Income UCITS ETF).
HY is, IMO, a fairly poor manifestation of the Value ‘factor’ (compared to any of TTM or forward P/E, EV/EBITA or to P/S) but, for EM Small Cap Value stocks, it looks like it’s all that there is out there.
Whilst I try, as far as reasonably practicable, to keep politics & investment allocation decisions separate (otherwise, I’d be all in on ESG, as a progressive lefty, which would align with my values but not with getting value for money on the available range of my investment choices); I’d note here that the Honourable Member for the Eighteenth Century, Jacob Rees Mogg, has a hand in the Somerset Emerging Markets Dividend fund; which I guess does a similar thing to DEM, but without the big tilts to size and value. Needless to say, it charges a much heftier fee than WisdomTree levy for DEM.
There’s USSC and ZPRX ETFs for US & European SCV respectively, but SSGA have, rather unfortunately, recently chosen to delist the GBP versions on the LSE, which for me means having to pay up for Dick Turpin rates of highway robbery on FX fees to HL in the ISA, which frankly I’m loathed to do.
BTW: picked up the excellent Edward O Thorp’s autobio over Christmas (you kindly mentioned it in your reply to me in the comments on @Finumus’ first Mogul piece). It’s been very entertaining and educational so far.
Just a footnote to #17: VSS ETF no longer on offer on HL. Possibly due to Packaged Retail and Insurance-based Investment Products (PRIIPs) regulations. So, if you want a UK listed GBP base currency ETF for ex-US small caps on HL, then you’ll have to either try another platform or a different product provider than Vanguard.
Thought for the day: Lao Tzu said, “those who have knowledge don’t predict. Those who do predict don’t have knowledge”