Weekend reading: Trading places
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The money perspective article is interesting. I plain refused to believe the similarly boosterish Aeon article about this in the West, in a similar vein, but perhaps they were also right, given that big picture.
It’s harder to get a perspective across a lifetime, because I also accumulated capital, so the reference point is changing.
“Dumb Money” and films like it are wonderful financial lessons for investors especially the small guys
They also allow the amateur investor the vicarious pleasure of “trading “ without actually having to put any money down except the price of the film ticket!
Education never stops,human nature,s willingness to get a bargain/gamble is eternal
For a small investor like me constant reinforcement of the benefits of index investing and then “staying the course” is a dynamic state that needs constant reminders
Hats off to the artists and bloggers(Monevator) that help most of us to keep on the straight and narrow investing path!
xxd09
The Causal Fallacy link struck a nerve. I have had to spend a fair bit of time around Stratford in East London, not the post-Olympic bit but the original town. There is little crime compared to when I was a youngster but lots of bad behaviour, ranging from rude to the obnoxious to the downright intimidating.
Society needs rules, or an etiquette, to work and it does not take much for it to break down. People copy others and if they see someone ‘getting away’ with it they are more likely to do the same, to the detriment of everyone.
zero’ charges as ‘materially misleading’ – AIC. The IT sector is getting to the point where their charges figures are going to be forever suspect. I never did see a satisfactory explanation of how their charges are listed wrongly. It looks to me like they are trying to cover up high charges.
“Boomers’ money secrets are a ticking time bomb for their kids”
Fortunately, or wisely, we have so far avoided that sort of mess. But I still worry a little as to how, when I have pegged out, my widow and offspring will locate all our money. It’s all listed in notebooks but obviously not with passwords and the like. And of course I’ve not produced a Treasure Map of where all our gold sovereigns are buried.
Actually we don’t have any gold sovereigns but if we did how/where would we store them? I thought I’d had a couple of decent ideas but both opportunities have since vanished. And even if I found a satisfactory solution, how/where would I record it?
A word of warning: when a cousin died a swine at the Care Home stole her keys and let herself into the house and stole some valuables.
“ Quite literally, everyone who bought into GameStop can’t make money off of doing so because somebody’s got to be late to the selloff. Which is why this whole thing is such a particularly sad expression of aspirational capitalism; the meme stock people celebrate their own jocular spirit of togetherness, but fundamentally all of them are looking, someday, to fuck the people who wait too long.”
This encapsulates Bitcoin perfectly. Bitcoin is sadly much more harmful than meme stocks due to pointless and eye watering energy wastage.
The Canadian Tesla option guy story on Sherwood is possibly even better than Dumb Money.
There’s probably whole tiers of discussion one could have about the duties and boilerplate protection for “financial advice” from organisations but it does seem that he might have a case that professionals singularly failed to save him from himself. Though I suspect reading between the lines he might also have been suing them if they’d moved a substantial chunk of his portfolio into boring indexes and he’d missed out on further Tesla growth.
Guess I can’t quite understand the mentality that let it all ride on one company (and let’s face it one highly unstable individual). Mind you I’d likely have cashed out at below the first C$10m and gone to live a quiet life.
Great to hear Monevator name up in lights on the fantastic Merryn (Summerset Webb) Talks Money podcast this week! Hopefully that drove some extra traffic to the website.
The episode was “How safe is your pension pot” released on Tuesday, if anyone wants to listen (only 12 mins long)
John Stepek is clearly a long term reader, which is (well deserved ) high praise, for the treasure trove of insight that is Monevator
“…joining thousands of spaced-out hippies in a farm…”
Unless it’s the one with the special kool-aid
To many Keith Gill was a folk hero and probably remains so. There were lots of Keith Gills but he cut through just at the right time. It’s more a socio-political story than investing one of course and the lessons and some of basic themes from the story will not doubt replayed in part in the forthcoming US election.
I will be booking a movie ticket for some light entertainment.
@AlCam. Regarding whether I am buying pre-retirement or at retirement. I think the idea that we can break up the process discretely into accumulation vs. deaccumulation is not always helpful. Twenty years ago, my post-tax income might have been 100% of my net worth. I was in accumulation mode. Now, it’s 5%. Practically, my net worth is being driven more by my portfolio than my job. Retirement is coming in the next few years. I essentially look more like a deaccumulator. So, my portfolio needs to reflect that now.
I’m also accumulating linkers to partially hedge the risk that real yields fall back into negative territory. I fear that much more than real yields rising. My bias is to buy longer-dated linkers now, not short-dated ones. I still have incoming cash and nominal bonds to hedge that. And, yes, this is somewhat of an active view.
About FX hedging, as I said, I see that as a totally different view from whether I buy foreign linkers or not. If I had a foreign portfolio of 70% equities and 30% bonds, and decided I wanted to be 50% FX hedged, it matters not whether that 50% is 30% FX hedged bonds and 20% FX hedged equities or 50% FX hedged equities. Same currency position.
Right now, I am not hedged on many of my USD assets. Theoretically, FX risk is uncompensated volatility, so I should hedge. I see FX, though, as basically an active decision for every currency pair.
@GF – have also been dismayed by how poorly the ‘over-reporting’ of investment trust charges has been explained. Ultimately though, as I understand it, the argument boils down to this:
Investment trusts are listed companies with a relatively stable number of shares (being closed-ended), therefore their price is determined not only by the value of the assets (net asset value, or NAV) into which they invest, but also supply and demand for the shares in the investment trust.
That supply and demand is affected (upfront) by the costs charged to NAV, which is why most investment trusts trade at a discount to NAV.
Investors will be willing to pay a higher price for £100 of NAV that’s subject to 0.3% per year of costs (e.g. management fees) than £100 of NAV subject to 2% per year of costs, all else being equal, i.e. being relatively predictable in advance, costs are ‘priced in’ (upfront) as part of the share price discount.
With the costs already being reflected in the price paid for the shares, the costs obviously act as a drag on the NAV over time, but they don’t act as a drag on the share price at which you can sell later on down the line (unless the costs change, affecting the discount rate).
Therefore “costs are not a direct drag on investment returns”, so you can act as if the costs were zero, the same as for shares in any other listed company like Shell or HSBC or AstraZeneca (all of which also pay lots of money to management to make capital allocation decisions as part of the running of the company, but are disclosed to investors as not having an ‘ongoing charge’).
With open-ended structures like funds and ETFs, by contrast, which (more or less) can only be bought or sold at NAV, costs act as a direct drag on investment returns.
Hope that helps
Screwup by me. My comment #11 seems to have gone into this thread, when it was aimed at the prior thread.
@John Thank you for your explanation. In your explanation you say ” the costs obviously act as a drag on the NAV over time, but they don’t act as a drag on the share price at which you can sell later on down the line (unless the costs change, affecting the discount rate). ” I would say thats not true because if the share price is at a discount to the NAV then any reduction in the NAV due to costs will be reflected in the share price assuming the discount remains the same. When you do sell at a later date on down the line then the costs will have eaten into the returns on the NAV and assuming the discount remains the same, will have to be reflected in the share price. Costs do impact on returns and will register in the share price, you cant disregard them.
@ZX (#11):
Thanks for the interesting additional info re the Q’s I posted at the earlier @TA posting. Very interesting and I get the idea of getting your longer term [linker] hedges in whilst they are relatively well priced and covering the nearer term using a different approach whilst you are still working.
Regarding Gamestop – I quite liked Eat The Rich : The Gamestop Saga. And regarding fraud / Ponzi schemes – Madoff – The monster of Wall Street is also quite good. Both on Netflix.
Thanks for the FT article on care costs.
It’s unaffordable to live with this kind of condition once you have high care needs due to something like advanced MS. In fact, MS is the second main medical condition (after cancer) in terms of the number of people going to Dignitas.
It is so sad that every government has failed to sort out both the cost and the (never even mentioned) quality of social care. I don’t understand why more people are not up in arms about it.
As an ancient -Haphazard-wife and I now 78 -with a lot of our friends disintegrating around us -these sorts of thoughts are ever present
Personally have told the children that I don’t intend to hang around-saved enough money in the kitty for Dignitas for both of us (wife and I) -if required
Care home fees if needed are upwards of £50000 pa if a care home becomes necessary
Obviously the more the kids look after us the less if any care home fees required( increased inheritance!) -luckily we have 3 kids with functional families to fall back on-is that good luck or thinking/planning ahead?
Interestingly one of my children married a Muslim and in the Muslim marriage ceremony there is a specific obligation to look after the parents-they appear to mean it too!
I think the Government has a role to play but some personal responsibility is required too -a balance to be struck here
What is also interesting and eye opening is how much care actually costs -a cost that was bourn by families in previous generations
Will there ever be enough money to solve this scenario-probably doubtful
xxd09
@GF – I think the argument is that future costs affecting the NAV is known in advance and is therefore already reflected in the share price, i.e. it’s priced in.
Here’s the clearest explanation of it that I’ve found elsewhere, with a useful and simplified – maybe even oversimplified – example: https://www.hawksmoorim.co.uk/research/articles/disclose-dont-double-count/
For what it’s worth, I’m not saying I completely buy the argument, just relaying it. Seems to me it may be a bit more complicated, as investment trusts rarely have fixed lives, and often use other mechanisms (unpredictably sometimes) to manage their discounts, e.g. continuation vote provisions, buyback policies etc.
@John, I appreciate that you don’t completely buy into the argument. I have seen the material before, that you highlight in your post. In my opinion the material from Hawksmoor is total nonsense and an attempt to make their point of view credible. If you were to take their example and apply it to an IT without a finite life then the discount would be almost 100%. I haven’t yet seen a credible explanation of IT double counting of costs because it’s not possible to do so.
@xxd09, @Haphazard (#17, #18)
Care home costs: While there are a number of sites out there specifying the range of expenses that care homes have (e.g., 24 hour staff costs, heating, laundry, food etc.) I have never seen a breakdown of the actual costs (e.g., salaries for those who actually do the work appear to be minimum wage or slightly higher). However, I note that £150 per day (close to the £4.5k per month average) is not that much more than staying in a good hotel (OK, I usually stay in Premier Inn types) and the care home includes more services and a higher staff/resident ratio).
@Alan S (21)
My experience of care homes dates from 2018/19 when my now late mother was in a care home. The annoying factor IMHO is the knowledge that self-funders are cross-subsidising those that are council-funded as the level councils will pay is totally inadequate to cover the care home’s costs.
@Haphazard. “It is so sad that every government has failed to sort out both the cost and the (never even mentioned) quality of social care. I don’t understand why more people are not up in arms about it.”
The govt never sorted out the sort of collective insurance scheme that was needed because the voters – now the retirees that need the care – would not elect them with such a policy. Even as late as 2017, PM May got clobbered by retirees at the polls for even touting a very modest scheme to make people pay. It’s not the govt’s fault. This is down to the voters being too tight!
So people have no right to be up in arms because this scenario was predicted 30-50 years ago. That’s the flipside of improved longevity and medical advances. Rather than just die, as in prior generations, you are now far more probable to find yourself either physically or mentally unable to care for yourself, with a very poor quality of life.
@dearieme #5,
You could always store them with the Royal Mint.
https://www.royalmint.com/invest/secure-storage/new-secure-storage/
https://www.royalmint.com/invest/secure-storage/new-vault-storage/
I was working in Germany during the 1990s when they introduced their long term care insurance system. You pay 1.95% of your salary (2.2% if you don’t have children!). It seems to cover a wide range of benefits and allows for example cash payments to family members who provide care in the home. As @ZX mentions above I don’t know why it is politically impossible to do something like this here.
@ZX. “I’m also accumulating linkers to partially hedge the risk that real yields fall back into negative territory. I fear that much more than real yields rising”. This is also a concern for me as I’m in my 30s. Would you be able to advise a rough %allocation to long duration linkers for someone around my age? Any advice would be much appreciated.
@Pinch Much to be said for the Royal Mint option, though it does add a cost of carry. Tail risk is the ghost of FDR rising, after all they say history doesn’t repeat but it rhymes – increasing levels of war, populism etc. You first have to inquire within as to what dark fears you are hedging with physical gold.
@ZXSpectrum48k > Rather than just die, as in prior generations, you are now far more probable to find yourself either physically or mentally unable to care for yourself, with a very poor quality of life.
I recall that as a kid, while I didn’t see it personally, people would just keel over of heart attacks way back when. Indeed, my Dad did just that on the living room floor. Although I think Carl Jung had the edge, sharing a really good bottle of wine and then not waking up the next day, there’s something to be said for that old time way of going.
I really do hope that the bill on assisted dying passes, preferably before I may need it. I saw that with my mother, who was perfectly lucid but had a rotten quality of life towards the end, she had been Type 1 diabetic since she was 11 and 70+ years of that catches up with you. There was nothing that could be done, though at least she was on palliative care.
@ZX
‘Rather than just die, as in prior generations, you are now far more probable to find yourself either physically or mentally unable to care for yourself, with a very poor quality of life’
The Medical Industrial Complex is designed to keep people in a chronically ill state, and from as young an age to as old an age as possible. It’s no good having well customers or dead customers. This is perhaps not the voters fault, since which ever party they vote for will always be in cahoots with it.
@ermine – assisted dying is a slippery slope. Just look at what the Trudeau regime is pushing in Canada.