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Weekend reading: The US market has conquered all, but that won’t be how the story ends

What caught my eye this week.

Here’s a tenuously introduced quote from one of the greatest films ever made, The Matrix:

Agent Smith: It seems that you’ve been living two lives. One life, you’re Thomas A. Anderson, program writer for a respectable software company. You have a social security number, pay your taxes, and you… help your landlady carry out her garbage.

The other life is lived in computers, where you go by the hacker alias ‘Neo’ and are guilty of virtually every computer crime we have a law for. One of these lives has a future, and one of them does not.

What a movie! What a two-hour paradigm shift!

My only excuse for quoting it here is that I’ve found it popping into my head recently whenever I’ve read about the storming performance of the US stock market over the past decade.

Because as a British investor – where the FTSE 100 is barely higher than it was 20 years ago – who reads a lot of US investment blogs, one can feel like a bit of a Mr. Anderson.


Source: Bps and pieces [2]

In one life, it’s party time!

In the other, the Brexit-aggravated boondocks.

British steal

Yes, that FTSE 100 return doesn’t include the hefty dividend stream an investor would have received over the two decades, which would appreciably boost the return.

And yes, the wider UK All-Share has done a little better.

No, a private investor shouldn’t have all their money in the UK market anyway – arguably only about 5-10% – so this isn’t the last word on the fate of Monevator reader portfolios.

Granted, all of it. But that’s not what I’m writing about here.

What I’m talking about is a US stock market performance that is edging into the euphoric.

Albeit one where there’s been enough consternation about valuations over the past few years to perhaps work against a classic late-stage market mania – so far.

American markets made great again

The US market experience really has been exceptional, even as it’s crept up on us. As Michael Batnick writes at The Irrelevant Investor [3]:

Looking at the numbers, one can easily make the argument that we just lived through the best ten-year period ever for U.S. stocks.

Surprised? Check out his graphs for a glimpse at investing nirvana.

The danger always is to extrapolate the recent past into the future. As I say, plenty of people have been burned by actively steering away from highly-rated US equities over the past few years – including many commentators on this website. But their misfortune at missing out only increases the chances of a can’t-lose mentality taking US equities to bubblicious heights, as ever more people throw in the towel and belatedly chase performance.

Incidentally I’ve missed out, too. I’ve been underweight (though far from zero-weight) US equities for years.

Like bonds in the aftermath of the financial crisis, the maths tells you to be wary. Then the subsequent returns inform you that you were an idiot.

That’s stock markets for you – making the majority of people feel like dummies since the 17th Century.

Smorgasbord investing

Happily, my nervousness at US valuations (particular in my beloved tech sector) has mostly been tempered by a hard won humility as an investor – as well as a respect for momentum in markets.

Hence I’ve always kept a varying-sized slug of US equity in my actively-managed [4] portfolio, rather than bailing out entirely, despite my queasiness.

Most of us will do better to invest passively in a broad global tracker specifically because it hides what’s in the sausage from all but the most curious. Smart passive investors know enough to know that they don’t know better…

Either way, it’s paid to keep exposure to the US, and it’s cost you to be invested elsewhere.

And carrying that opportunity cost is just fine.

I often rail against what I call ‘in or out’ thinking, where someone will say they are avoiding equities because they’re too expensive or that they’ve no money in Europe or the UK because they hate the politics or they’re putting all their money into gold or Bitcoin.

All are fast track paths to being a terrible investor – and that’s true even if your hero call pays off in the short-term. Because nothing lasts forever, and I don’t believe anyone has ever proven their ability to perfectly switch all-in bets ahead of slumps and booms. (Remember the patchwork quilt [5] of annual asset class returns?)

Indeed it’s at times like these that it’s most important to remember why some of those laggards in your portfolio got into the mix.

Comparing out-of-favour assets to the underappreciated human appendix, Phil Huber [2] writes:

…certain aches and pains are part and parcel of owning a diversified portfolio.

The biggest mistake an investor can make is to put their holdings on the operating table and remove the very thing(s) they might need or want the most when the anesthesia eventually wears off.

In other words, there’s hope for my UK value stocks yet!

Have a great weekend.

From Monevator

The Slow and Steady passive portfolio update: Q2 2019 – Monevator [6]

Defined Benefit to Defined Contribution pension transfers – Monevator [7]

From the archive-ator: Tax relief upfront is the same as tax relief later – Monevator [8]


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 [9]

Inheritance tax: Major shakeup mooted by Office for Tax Simplification – BBC [10]

London house prices slide for eighth quarter in a row – Guardian [11]

Boris Johnson could scrap stamp duty for homes under £500,000 – Yahoo [12]

Peer-to-peer lender Funding Circle warns on revenues amid Brexit fears – Guardian [13]

Watchdog puts Amazon/Deliveroo tie-up on ice – ThisIsMoney [14]

The ‘green bond’ market leaves wildlife behind – Ozy [15]


How wealthy are you? – BBC [17]

Products and services

Barclays offering up to £708 in rewards for current account switchers – ThisIsMoney [18]

Sign up and invest £2,000 with Zopa by 20 July and you’ll get £100 – Zopa [19] [Affiliate link]

SmartSave launches one-year table-topping fixed rate savings account – ThisIsMoney [20]

Your state pension: are there missing years in your contributions? [Search result]FT [21]

Not just Woodford: six of seven star fund managers who went solo recently under-performed – ThisIsMoney [22]

Hargreaves Lansdown drops Lindsell Train funds from its buy list, citing conflicts of interest – ThisIsMoney [23]

Block on withdrawals from Neil Woodford fund extended – Guardian [24]

Mobile banking to overtake High Street branch visits within two years – Guardian [25]

Comment and opinion

Why things break: easy causes of business and investing failure – Morgan Housel [26]

Leave nothing to chance: 11 steps to securing financial accounts – Humble Dollar [27]

An alternative history of the ETF – Abnormal Returns [28]

Points to consider when investing a lump sum – Rick Ferri [29]

With emerging markets, bonds may beat stocks – Morningstar [30]

I have heart disease. GOOD. – Early Retirement Dude [31]

Stockholm: The city where spending £100 in 24 hours is impossible – ThisIsMoney [32]

The sacrilegious diaries: On the benefits of portfolio turnover – Albert Bridge Capital [33]

If active management is skilled, then who benefits? – Larry Swedroe [34]

What killed (or wounded) the value factor? – The Capital Spectactor [35]

One hand clapping [On the recent problems at UK active funds]Mutual Fund Observer [36]

Selling Vodafone: Mistakes made and lessons learned – UK Value Investor [37]

The earnings mirage: Why corporate profits are overstated [PDF, Geeky!]OSAM [38]

Why isn’t CAPM being retired? – Institutional Investor [39]


Ann Widdecombe’s political exhumation adds insult to ignorance in Strasbourg – Marina Hyde [40]

In turning their backs, Brexit MEPs behaved like attention-seeking toddlers – Guardian [41]

Kindle book bargains

#StandOutOnline: How to Build a Profitable and Influential Personal Brand by Natasha Courtenay-Smith – £0.99 on Kindle [42]

How to Give Up Plastic by William McCallum – £1.99 on Kindle [43]

Talking to My Daughter: A Brief History of Capitalism by Yanis Varoufakis – £1.99 on Kindle [44]

Flow: A Handbook for Change-Makers, Mavericks, Innovation Activists and Leaders by Fin Goulding and Haydn Shaughnessy – £0.99 on Kindle [45] [Note the paperback version [46] might be worth paying up for given the fancy design, not sure?]

Off our beat

Martin Wolf: Liberalism will endure but must be renewed [Search result]FT [47]

How Britain can help you get away with stealing millions: A five-step guide – Guardian [48]

Hack your holiday with behavioral economics – The Big Picture [49]

The mind-blowing potential of planting trees to tackle the climate crisis… – Guardian [50]

…but at the moment the Amazon is losing a football-sized area of forest every minuteBBC [51]

How a video game community filled one child’s final days with happiness – Guardian [52]

When passion for work leads to burnout – HBR [53]

And finally…

“No matter where you are in life, you’ll save a lot of time by not worrying too much about what other people think about you. The earlier in your life that you can learn that, the easier the rest of it will be.”
– Sophia Amoruso, #Girlboss [54]

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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”. [ [58]]