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Weekend reading: The easy money wasn’t easy

Weekend reading

Good reads from around the Web.

There’s a lot to enjoy in Morgan Housel’s useful reminder that buying the stock market in 2009 wasn’t “easy money”, but I especially liked his sample of all the claims in the subsequent years that the buying window had closed:

Barron’s, Nov. 2009: “The Easy Money’s Been Made”

Morningstar, Dec. 2010: “The Easy Money Has been Made”

MarketWatch, Nov. 2011: “The easy money has already been made”

TheStreet, May 2012: “The Easy Money Has Been Made”

Morningstar, Dec. 2013: “The Easy Money Has Been Made”

Barron’s, Oct. 2014: “The Easy Money Has Been Made”

CNBC, March 2015: “The easy Money has been made”

Do read the rest of Morgan’s article at the US Motley Fool website.

At this point my ego obligates me to mention that (by fluke!) I caught the bottom of the UK market to the day when I wrote in March 2009, :

Ultimately, if you’re not trickling money into the markets at these levels then I think you might as well forget stock market investing altogether.

I could dine out on this, but even this extract gives us a clue that there was nothing easy or legendarily prescient about this call.

I am talking about “trickling” money into the market on the cusp of the buying opportunity of a lifetime!

What a muppet.

More importantly, I’d been buying throughout the bear market in the months that proceeded the low (having, again partially fortuitously, turned quite a bit to cash in 2007, motivated by the need for a deposit for a house I never bought).

I also remember – because I was both buying and blogging at the time – that everyone hated the stock market back then, including many who today write like they saw the imminent rally coming in 2009.

Don’t believe them. Most of them were fearful, and nearly all of them didn’t.

And incidentally “fearful” isn’t a criticism here.

The best of them – of us – were fearful.

You had to have the right mindset to be buying in 2009. You had to know that equities have suffered severe reversals many times before, and you had to believe that this one too would pass – that capitalism wasn’t headed for the scrapheap.

And then you had to be humble enough to hold on.

It wasn’t easy to cross your fingers and buy in 2009.

But arguably it’s been even harder to stay humble and remind yourself again and again that you really don’t know what will happen next as the good times have rolled on – especially as all investing involves asset allocation decisions and taking a view, if only about your risk tolerance.

Easy peasy?

Hardly. Lemon squeezy!

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Barmy* bonds mini-special

  • Bonderland: The upside down world of fixed income – Value Perspective
  • …also the latest GMO quarterly letter – GMO

* Time will tell…

Other articles

Product of the week: Low interest rates are fueling an appetite for mini-bonds. I have invested in three so far, but only with token amounts. As the Telegraph points out, it’s very hard for outsiders to value these securities. Everyone benefits from the wisdom of the crowd when buying publicly traded stocks and bonds, but here you’re betting on a flimsy prospectus. That said, while I agree with the Telegraph that the proper “retail bond” rugby offering paying 6.5% from Wasps seems much better than the new, unsecured Innis & Gunn beer bond paying 7.25% on account of the Wasp bond’s asset backing, I wonder what it’d really be worth in a truly distressed situation? The liquidity of retail bonds is to my mind their greater benefit, versus mini-bonds. If you do want to play in the mini-bond space, I’d think of it as exactly that – play, like going to Vegas – and aim to spread my bets widely over time.

Mainstream media money

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 of that site.1

Passive investing

  • Value premium goes missing – ETF.com

Active investing

  • John Lee: The original patient capital trust [Search result]FT
  • Jim Slater: Buy Bovis not ASOS – Telegraph

Other stuff worth reading

  • Better safe than sorry – the future is in cash [Search result]FT
  • A world of difference: Tackling inequality [Search result]FT
  • Once a banker – eFinancialCareers
  • Why you must be the best at something in your career – Forbes
  • Lessons from the (latest!) millionaire janitor – Washington Post
  • The untold story of Silk Road: Part 1 – Wired

Book of the week: If you’re a disciple who can’t make it to Omaha for Warren Buffett’s jamboree this weekend then perhaps you could steal from his bookshelf? Only yesterday – and inspired by that list – I bought a non-investing friend a copy of Where Are the Customers’ Yachts? Timelessly funny stuff, which is just as well because it dates back to the aftermath of the Wall Street Crash.

Like these links? Subscribe to get them every week!

  1. Note some FT 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”. []
{ 20 comments… add one }
  • 1 Passsive Investor May 2, 2015, 1:08 pm

    @Investor. Great post. It is so easy to forget now how terrifying it was to be invested back in 2008-9. The older you are the more frightening it is too (more invested, less time to make up losses). Be ‘happy’ to suffer losses of 30% in one year is the best guide to knowing your risk tolerance in my view…. There will always be a next time.

  • 2 dearieme May 2, 2015, 1:20 pm

    If everyone starts squirrelling away very large sums in cash under the mattress metaphorical, the government will print new notes as part of a dodge to catch them out. A modest stash of fivers and tenners might be helpful though. Some gold sovereigns might not go amiss.

    A friend of ours has been clearing the house of a newly dead relative. He found a stash of ten bob notes, presumably secreted away by the deceased’s late parents.

  • 3 Mr Zombie May 2, 2015, 3:21 pm

    Great article TI,

    People do have a tendency to view the past with their 20/20 rose tinted glasses and say how things were inevitable given all the obvious signs. Obvious after the events perhaps.

    In 5 years from now I wonder how many articles will be written saying the next crash was so obvious, or how the continued boom was the only realistic option!

    Have a good bank holiday all. I hope you’ve all voted!

    Mr Z

  • 4 Naeclue May 2, 2015, 4:29 pm

    Thanks for the Barmy bonds mini-special link. This chimes with my current thoughts on gilts that I posted a comment on for another of your articles. Although gilts are not in negative territory just yet, it is reaching the point where the likely returns on them over the next 5-10 years does not make it worth the risk of holding them compared with just holding cash.

  • 5 Financial Samurai May 2, 2015, 8:13 pm

    Real estate. Now that’s the easy money because you can’t sell easily! You just buy and buy and relax and what your asset grow with leverage.

    I hope the bull market in stocks continue for 3 more years. Not counting on it though.

  • 6 Baby Boomer in Croydon May 2, 2015, 10:02 pm

    When we are born, grow up and have money to invest, buy houses, raise a family relative to stock market events to me seems just a matter of luck.

    At the time of these opportunities historically quoted I always seemed to have more pressing priorities.

    Now I am retired and fully invested I now keep a 40% cash position waiting for the next opportunity which never seems to come along.

    In hindsight I think each generation gets exploited one way or another until they learn and understand how and when to invest.

  • 7 M from theresvalue May 3, 2015, 7:58 am

    The Jim Slater article you linked to is very interesting indeed. He actually mentioned several housebuilders which might be worth investing in alongside Bovis

  • 8 gadgetmind May 3, 2015, 9:26 am

    I remember the arguments with the gold bugs and the survivalists during 2009 to around 2014, who insisted that the Western economies and their fiat money were doomed.

    It actually worries me a little that nearly all of the bears have capitulated ‘cos that means that we could now be in for a rough ride as these guys are consistently wrong!

  • 9 The Investor May 3, 2015, 10:32 am

    @gadgetmind — Yes, investor sentiment in the US particularly is extremely high. I certainly feel we’re due a bad patch in the US, and we’re closer to that than we were, but that’s a tautology (we’ll always be closer than we were!)

    I think this is something like the second longest period in history without a 10% correction in the US, from memory. However if the market goes up 11% before it falls 10%… 😉

    Low interest rates really are the spanner in the works. In most normal times you’d have seen rates on cash and bond yields soar in the past few years (“buy equities, cash is trash!”) but the Central Bank QE has quashed that, for good or ill or both.

    As ever, most people will be best off passively investing and rebalancing if/when a crash comes and ignoring the noise. (TM)

  • 10 Mathmo May 3, 2015, 11:03 am

    Interesting stuff this week, TI. Particularly around the role of cash. I can only assume Merryn is locked in some cash-bug’s basement and he is submitting her article – as that seemed unusually alarmist for someone that I consider to be a must-read level-headed commentator. I supppse it pays to punt out an extreme view every now and again so on the odd occasion you are right you can build your reputation on it… (Active fund marketing strategy, anyone?)

    Back to cash, I tried to post on Cauldron, but not sure if it submitted. I think the consistent way to think about emergency cash is to look at what you might need to spend (I use one year’s expenditure) and hold that in cash as part of your asset allocation: rebalancing automatically into and out of that on your chosen freqency/trigger. This removes the guesswork and stress from the calculation/decision. One year is enough to weather the worst 10% of most crashes so you can use the buffer to survive the worst of a downturn and top up on the way back up again. I think for those with better portfolios (ie significantly over 25 x expenditure) there’s huge security benefits in holding 2 or 3 year’s expenditure in cash. Particularly at the moment when cash doesn’t really look like much of a drag on portfolio performance (not that true passives would take that into account). The 3% in Santander with govt guarantee looks better than the gilt rate – but institutions can’t access that so exploit your advantage over other bond investors by preferentially using the products that you can!

  • 11 @algernond May 3, 2015, 2:40 pm

    It’s all very well using cash instead of bonds in an ISA or other investing account, but it’s a real struggle to understand what to do with the defensive part of a SIPP account at the moment…
    It seems maybe short term corporate bonds (investment grade) may be the way to go, but it’s really difficult find data that goes back more than 5 years for the relevant indices….

  • 12 Mathmo May 3, 2015, 4:58 pm

    @algernond – I agree it’s a nightmare within a wrapper — particularly a SIPP as at least with an ISA you could “de-ice” and use alternative products (Zopa, Santander123 etc). Although assuming you have both an ISA and a SIPP, you can use the SIPP to buy duplicate whatever is held in your ISA and so move the cash balance there.

    As far as I’ve been able to figure out there’s two options —
    – You can hold cash as a balance and hope that your provider doesn’t go bust (or hope that you’ll be bailed out if it does)
    – Alternatively it’s ultrashort bonds (e.g. ishares ERNS is a UK investment grade bond ETF, 4-5 month effective duration, 9 bp TER, yielding 55bp).

  • 13 ivanopinion May 3, 2015, 7:44 pm

    “You had to have the right mindset to be buying in 2009. You had to know that equities have suffered severe reversals many times before, and you had to believe that this one too would pass – that capitalism wasn’t headed for the scrapheap.”

    You also had to know (and this was my downfall) that the market would not keep falling for longer than it did. I could see it was a great time to invest, but I thought it would be even better in a few months time. By the time I realised that the market was recovering (not just a dead cat bounce), I had missed quite a bit of the upside. …Thankfully, not all.

  • 14 Uncertain May 3, 2015, 9:55 pm

    “You had to have the right mindset to be buying in 2009. ”
    I did, unfortunately I also had the right mindset to be buying in 2008. 😉

  • 15 theta May 4, 2015, 10:03 am

    The most difficult part was not to buy in 2009. The most difficult was to remain fully invested throughout the bull market, having started buying from 2008, experiencing the crash (while buying more) and then seeing a full recovery. Increasing the cash allocation of one’s portfolio made sense in 2011, 2012, 2013, etc. only to see the market keep grinding higher.

  • 16 SemiPassive May 4, 2015, 11:13 am

    Algernond, I’ve come to view SIPP and ISAs as a combined single portfolio, using SIPP for risk assets and then you can at least get interest on your cash within Cash ISAs as an alternative to bonds, for reasons already stated and detailed in the GMO article.
    But will probably drip feed into an actively managed strategic bond fund in my SIPP (one which has a fairly short effective duration) for the next year or two, as I have enough equity exposure for now. The tax relief on SIPPs at the currently generous level still makes them more tempting to save into than ISAs for 40% taxpayers, although that could change in a few weeks time….

  • 17 Shewi May 5, 2015, 9:56 am

    Surely you were obliged rather than obligated? 😉

  • 18 The Investor May 5, 2015, 10:09 am

    @Shewi — Depends if I was trying to make a lame joke about my supposed restraint in the face of my rampant ego I suppose… 😉

  • 19 Tim G May 5, 2015, 9:48 pm


    “As far as I’ve been able to figure out there’s two options —
    – You can hold cash as a balance and hope that your provider doesn’t go bust (or hope that you’ll be bailed out if it does)
    – Alternatively it’s ultrashort bonds (e.g. ishares ERNS is a UK investment grade bond ETF, 4-5 month effective duration, 9 bp TER, yielding 55bp).”

    I’d be interested to hear more of your thoughts on the second of these options.

  • 20 Mathmo May 8, 2015, 2:21 pm

    @Tim G
    My thinking has developed over the past few days on this issue — I’ve decided that with bonds at 180 and my future SWR at 400, I’m not a long-term owner, which means I’m playing dodge the train with interest rates. So I’ve stepped off the rails: most kind of the Conservatives to give me a rally to sell into.

    My thought on ERNS is that it’s an investment-grade short-term cash rate so it’s pretty dire in terms of portfolio return (net yield is 80), but very uncorrelated with everything else, so a good place to park wealth while waiting for equities to get cheap. In other words, it’s a classic cash part of the portfolio. I aim for about 10% cash, so if I’m unable to breach the wrapper walls, that’s my least bad option. Trading costs are a real stink at this sort of yield so unless you have a lot / long term view / cheap trading cost then i) might be cheaper.

    Gold is another place to dump this wealth (you can put an ETC inside a wrapper), depending on your view on the yellow stuff. I’m 5% barbarous.

    DYOR, of course.

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