What caught my eye this week.
Long-time readers will know that bankers are not good with money. They love to lend money on overpriced assets in the good times. They become fearful when stuff is actually cheap.
Some of the most terrible corporate deals of all-time were driven by bankers.
And many – perhaps the majority – of financial blow-ups occur after a useful innovation that works at a small scale on the fringes is pumped-up with banker steroids, made into a ‘product’, and then inflated until it breaks.
As for investing chops, one of my most financially successful acquaintances is a banker. And for maybe 20 years he only ever invested in bonds.
(I’m not sure what he does nowadays. I suspect his salary alone has taken him into the eight-figure club, which may be why I don’t get candid insights anymore when I happen to run into him.)
True, my acquaintance didn’t need to take equity risk, given he worked in finance and was going to make his nut from a paycheque anyway.
Except… whenever I spoke to him about investing in the stock market he used words like ‘punting’ and ‘casino’. Yet he still became a global president of some bank division or another.
He’s by all accounts (including more than one governments’) an excellent financier, so I guess he’s one of the good ones. The history of The City and Wall Street shows many others are clearly… less adept. At least assuming you think fiduciary duty should be in the job description somewhere.
Of course lots of us are slightly rubbish at our jobs. But most of us don’t still make six to seven-figures from them.
Our man inside
I admit my banker diatribe may be a little dated. Because thanks to the financial crisis, nobody really believes all bankers are rocket scientists anymore.
Outside of the US at least, most banks have been lousy investments for over a decade. Regulation put in to curb their excesses has proven that most bankers aren’t actually very good at generating profits unless they use a boatload of other people’s money to do it. They are nobody’s infallible masters of the universe these days. Except perhaps their spouses.
Indeed I even read an article in the Financial Times this week hinting that bankers themselves have gotten more realistic about their abilities.
Admittedly it was written by a banker from the world’s best bank – JP Morgan, which even I’ve occasionally invested in because it’s so classy – and as the FT writer notes, the author, Jan Loeys…
“…writes about investment strategy in a way that can sound like a subtle dig at how the other 239,999 [JP Morgan employees] choose to spend their days…”
But seriously, these strategy notes from Mr. Loeys sound like a treat.
In them he stresses that you can build a great long-term portfolio from just two asset classes – shares and bonds. Loeys also believes that most excess returns from alternative assets either never existed or have been arbitraged away.
So buy a world tracker and government bonds, he says.
Now I know what you’re thinking. Surely this guy reads Monevator?
Because he is preaching the gospel of passive investing:
The danger is that many of us tend to overrate our ability to call the market short term. It is our perception that the most successful investors over time tend to be the ones that base their decisions on what they can be quite confident about, which is generally the yield/value of an asset or asset class and its historical long-term relative performance.
Hence, a “realistic” individual investor is in our mind probably best off sticking with long-term value-based allocation and to ignore the temptation to trade the market on short-term beliefs.
The general perception that “retail” tends to buy high, after a market has rallied for some time, and sell low, after that asset class has gone through severe losses, would be consistent with many of us overrating our trading skills.
Ironic, isn’t it? Go to an egregiously-paid banker – or maybe read a blog instead (and consider becoming a Monevator member so we can make at least a healthy five-figures!)
Simply the best
Way back in 2010, Andrew Haldane, then in charge of financial stability at the Bank of England, asked if the contribution of the massively-expanded financial sector was a “miracle or a mirage”.
It’s fun to think that 13 years later, my new favourite banker can himself write:
Our industry does seem to love complexity and to abhor simplicity. The more complex the financial world is seen to be, the more managers, analysts, traders, consultants, regulators, and risk managers feel they add value and expect to be paid.
But there is a lot of benefit to the ultimate buyers of financial services and products to keep things simple.
Amen sir.
Do read the FT Alphaville piece, which includes links to Loeys’ LinkedIn videos, too.
And have a great weekend!
P.S. For those bankers among our subscribers, I didn’t mean you silly. I meant those other bankers, those ones standing over there thinking up acronyms…
From Monevator
What’s the deal with Monzo Investments? – Monevator
Reducing lifetime portfolio risk with leveraged ETFs – Monevator [Mogul members]
From the archive-ator: five lessons from my frugal dad about money – 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.
Mortgage approvals slumped to six-month low in August – Yahoo Finance
Energy bills forecast to rise in January to £1,996 – BBC
UK facing permanently higher taxes, says IFS – BBC
Meta pays £149m to break lease on central London office building – Guardian
Developers ordered to demolish ‘mutant’ tower blocks in Woolwich – BBC
More than 1 million children in UK sleep on floor or share bed, study finds – Guardian
UK economy grew faster than estimated since Covid – BBC
A fund manager is shelling out $269 million to buy and rejuvenate a clandestine network of tunnels under London – Insider
How UK inheritance tax compares internationally [Search result] – FT
Products and services
Coventry BS launches best buy easy-access savings rate of 5.2% – This Is Money
Dilemma for Muslim homebuyers compelled to pay high prices for loans – Guardian
Open an account with low-cost platform InvestEngine via our link and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
Average five-year mortgage rate falls back below 6% – Guardian
Is now the time to fix your savings rate? – Which
Open a SIPP with Interactive Investor and claim £100 to £3,000 in cashback. Terms apply – Interactive Investor
Surge in market-leading mortgage deals charging fees – Which
HSBC to allow international credit history for credit card applications – Which
Homes with amazing kitchens, in pictures – Guardian
Comment and opinion
How to make Isas even nicer [Search result] – FT
Best investments to own during a recession – Morningstar
How to outperform – A Wealth of Common Sense
Taking a good thing too far – Mr Stingy
A half a century later – Humble Dollar
Housing bubbles around the world – A Wealth of Common Sense
Morgan Housel on the new way we think about money [Podcast] – Odd Lots
Everything you can’t predict – Young Money
Le rêve est mort? – Quietly Saving
How sequence-of-return inflation risk impacts retirees [Deep] – Kitces
Why luck isn’t real – Of Dollars and Data
Treat alternatives like cuisines, not like distinct assets – Integrating Investor
Work/life balance mini-special
UK over-50s on switching to part-time work – Guardian
The career arc of the practical creator – More To That
“It is futile”: young Britons swap career-driven lives for family and fun – Guardian
Bill Ackman’s unusual concession to hybrid working – Yahoo Finance
Overrun with oversharing: LinkedIn has gotten weird – Business Insider
Naughty corner: Active antics
My experience with LTCM points to a key lesson for investors [Search result] – FT
It’s too soon to say the value premium is dead – Morningstar
Risks but potential rewards remain in private company investing [Search result] – FT
The curse of short-termism – Behavioural Investment
Who buys sin stocks? – Klement on Investing
Kindle book bargains
Quit: Knowing When To Walk Away by Annie Duke – £0.99 on Kindle
How to Read Numbers by Tom Chivers – £0.99 on Kindle
Freakonomics by Steven D. Levitt – £1.99 on Kindle
Creativity Inc. by Ed Catmull – £0.99 on Kindle
Environmental factors
Microplastics in clouds could be contributing to climate change – Sky
‘Supercontinent’ could make the Earth uninhabitable in 250m years – Guardian
Scientists will unleash an army of crabs to save Florida’s dying reefs… – Guardian
Undermining ESG may be working, but it’s ultimately irrelevant – CAIA
Robot overlord roundup
DALL-E 3 is here – OpenAI
AI-generated naked child images shock a Spanish town – BBC
Amazon makes multi-billion dollar AI bet with Anthropic – Axios
The Panopticon is already here – The Atlantic
Off our beat
How astronomer Johannes Kepler solved the marriage problem – Big Think
The tyranny of the marginal user – Nothing Human
Why do economists get paid more than sociologists? – Noahpinion
Facing Covid, US lawmakers made the least worst choice – The Big Picture
The Norwegian secret: friluftsliv boosts health and happiness – Guardian
Can you trust happiness studies? [Podcast] – Art of Manliness
I’m still thinking about the Roman Empire. We all should be – Fatherly
Are we losing the war on cancer? – The Walrus [h/t Abnormal Returns]
Anti-vaxxers are now a modern political force – Politico
And finally…
“Every evening I would close my eyes in a quiet place in my apartment … I would visualize the opening and walk myself through the day and imagine the different emotional states the market would go through… Then when you get there, you are ready for it. You have been there before.”
– Paul Tudor Jones, quoted in More Money Than God
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Yes I read the FT article but just thought Lars will be pleased!
Continuing my evolutionary theme-I regard all humanoids as large apes which they behave like most of the time distinguished only from their animal compatriots by being “cursed “ with consciousness ie knowing there is a future
One aspect of ape like behaviour indeed of all higher mammals is inquisitiveness and a low boredom threshold-obviously a serious adaptation to life on the savannah or else you get eaten!
Unfortunately this low boredom threshold seems to be counterproductive in investing ergo the reason for constant continual inventing new financial products
As a further side effect the low boredom threshold makes “buy and hold” or “stay the course” almost an impossible demand on investors
xxd09
I suspect that new financial products are motivated less by “boredom” and more by a desire to create something new and shiny to sell to unsuspecting mugs.
TI, I wonder are you writing to tell us to be simple, or is this more of a letter to recalibrate yourself?
When I find myself hunting for those unloved market segments, trying to find something to outpace the market, spot the thing the millions of other eyes on the market have missed to make a quick win, or try to find something defensive to counter fear of a market fall… it’s usually because I’ve got a bit fearful of losing. And that usually means my risk tolerance needs a review/reminder.
I think the answer is for me is to be sure I’m happy with the different buckets of money I have and being clear on the purpose for each one. A big emergency fund, a sensible passive combined ISA and Pension that will keep me warm and fed to my 90s, then perhaps a pot with more flexibility to cover the luxuries & allow myself to pretend I’m the CEO of KISS hedge fund. I think at the moment I have the boundaries of the buckets a bit too blurred. Do others split risk/purpose of fund over platforms to make this easier psychologically?
I imagine your banker friend with 8 figures in bonds sleeps pretty well and doesn’t worry about this! Ignorance is bliss and all that.
Just wondering if the bonds are best-ish ride is finally over. Last week having watched and read in a few different articles that now could be a time to buy bonds, I finally flogged some of my ISA shares and bought a vanguard bond ETF. It’s probably time to sell, and buy gold.
Speaking from personal experience middle-ranking permanent staff (AVP’s and up) at merchant banks can expect employer pension contributions in the 25% range. With a nut that large most staff, especially the middle-office, are more concerned about staying in direct employment than tweaking the makeup of their funds.
I was a contractor (pre-IR35) so swapped long term benefits for cash upfront (plus some non-trivial benefits such as no annual reviews, no HR hoop jumping, fear of outsourcing etc) to use as I saw fit, which I have to remember when old associates reveal the size of their accumulated pension pots.
Buying cheap global equity tracker + Gov bond ETF is very fine advice (all power to Lars), but what the FT article (JPM, Loeys) actually says is:
– to buy a “corporate bond fund”, and
– that Gov bonds are “only useful for managing drawdown requirements” and that “they have no place in your long-term strategy”.
I’m reading that and thinking, what is Mr. Loeys talking about? CBs are a horrible hybrid, with some of disadvantages and none of advantages of both sovereign debt and equities. Gov bonds are a cornerstone of balanced portfolios. Of course, people (including me) choose to do without them. But that’s not because there’s something inherently wrong with them as a long term investment. They diversify equity risk. They more or less remove default risk. Yes, people buying long dated bonds in the run up to 2022 on negative yields to maturity were taking a big term risk with rates; but how was it different for CBs v Gov bonds?
Everyone knows passive investing in tracking funds makes the best sense for nearly everybody nearly all of time.
The trouble is there are only so many articles you can write about it and the fees you can charge for following that strategy are meagre
So investment professionals are motivated to come up with something more exciting
There is also always a ready market in the consumer and institutional space for anyone offering a “special/exclusive” investment opportunity offering above average returns/lower risk
Just like if you ask most people they will rate themselves above average drivers
If they create a U.K. ISA with an additional allowance I will grudgingly use it. ISAs are too good to pass up. I may try and find an ETF that tracks the world except the UK in my standard ISA.
Usually around this time of year the media is speculating on reducing ISA allowances or having a ridiculously small lifetime cap of 100k, so at least there is some hope of the allowance going up. £25k would be nice.
Interesting Kitces article.
IMO, uncompensated inflation is the real hazard; and not inflation per se.
OOI, by my calcs UK RPI (Sept to Sept) 1915 to 2017 averages out at a tad over 4% but the average of all 30 year sequences (and, as it happens 35, 40, 45, 50, 55, 60, & 70 year sequences) is at least 5%. Also worth noting UK inflation SD 1915 to 2017 is > 6.5% – ie a whole lot ‘worse’ than the Kitces model assumes.
@TLI – Gosh, does it? I read it late last night and I must have missed that. Still, he’s not the first to argue for corporate bonds over government bonds. I believe the long-term record in the US is superior, even if the theory is they aren’t worth the risk and they don’t buffer when you want them to due to correlation in a downturn.
@KISS — Hmm, is your username a message to yourself or a reminder to the rest of us? 😉 As for Loeys and this piece, I just thought it was very interesting, both in itself but also I guess that his employer allows him to write this kind of thing. As for me, I hunt around in those obscure markets as much for fun as for profit. I’ve long argued it’s sub-optimal, which is why I often call it “naughty”. But I enjoy it and I’ll keep doing it at least until I don’t, at which point I’d switch to a purely passive strategy regardless of my active returns I think. 🙂
@TI absolutely myself, it’s a simple “don’t do anything stupid and you’ll be completely fine” reminder. The fear of missing out article, this one, and other recent posts really resonated with me, and the user name helps me re-enforce that it’s easy to overthink what’s an inevitable motorway-straight road to an easy life. But like you, it’s hard to resist the chance of *winning* against the market. I worry this makes me a gambler, but it’s controlled and usually breaks even!
The best optimisation might be to lower the saving rate by a few %, book the fancy holiday, and enjoy a few more Saturday afternoon pints of IPA. The latter seems to be helping today, at least. Keep up the challenging articles!
So many excellent, thought provoking links this week seems unfair to highlight any particularly, but reading Carlson / AWOCS Housing Bubbles piece struck by table of % Adjustable Rate Mortgages v Indebtedness and trying to understand how rate increases have been apparently so effective so quickly in reducing US inflation this year when US homeowners are neither much exposed to ARMs or (relatively speaking) especially indebted anymore. Who got sufficiently whacked by Fed’s rate hikes to destroy enough demand to moderate the inflation? Or was it, ultimately, actually a big supply shock, and all Fed had to do was just wait for it to equilibrate naturally?
Thanks @Al Cam #10 for UK RPI figs 1915-2017. 4% p.a. overall & at least 5% p.a. for each 30-70 yr sequence is, respectively, worse and much worse than I would have guessed the no’s at. Volatility’s no surprise though. Note UK average of 4% p.a. v US at 2.9% comes to ~3x greater appreciation in prices here than Stateside over a century. US$ traded at ~5 to £1 throughout much of 1800s until 1940, when devalued to ~4 to 1. Brief fall to parity in 1985 (with Plaza accord) was premature, but at ~1.2 today (and at near parity in the eye of the Truss tornado last year) it now looks in broadly in line with the long term difference in inflation rates.
Nice to see you caught the GDP revision – seems we outgrew Germany and the Eurozone as a whole since the pandemic. You missed that net migration is set to hit one million – twice what it was pre-brexit.
It’s almost as if those of us who identified Brexit wouldn’t be ruinous or lower migration were right 😉
‘Hark the experts ! Listen to the predictions !’
Sometimes common sense is the best approach.
Ofcourse you’ll convince yourself with hypothetical counterfactuals about what would have happened if we hadn’t left – in which we suddenly grew much faster than we had been doing, and ignore that you were saying it was ‘common sense’ we couldn’t get trade deals with Japan because we were one country not 27.
You’ll ignore aukus ( President Macron pointedly didn’t), the CTTP, our support of Ukraine, the political situation in Italy, and the ADF and National Rally polling in Germany and France respectively…
Maybe a net migration figure of a million should be the point you take the blue beret off and realise not only were brexit supporters not little Englanders but all the other predictions about us retreating from the world, not growing, becoming populist, not getting trade deals… just aren’t happening.
I’ll be back next year – hopefully we’ll have net migration of two million and a trade deal with India at that point… but if the evidence to date doesn’t convince remainers, not sure anything would
@TLI:
I did those stats a few years ago; prior to pulling the plug and fairly soon after that event stopped updating them. IIRC, I was trying to gauge what would be a sensible inflation assumption based on the historical record.
See: http://www.wolfbane.com/rpi.htm for the full set.
There are other sources, but none as long and comprehensive (ie monthly). Where the sources overlap I did some comparisons and they seem largely consistent.
Worth remembering that a) UK RPI is flawed and overstates inflation; b) there are other issues IMO with the US CPI that generally pull it in the other direction.
Just to be clear the “at least 5%” is the average figure for all the N year sequences mentioned (e.g. average for all 30 year sequences) and not the minimum. Also, I used the arithmetic averages, although the geometric ones are not notably different. The [arithmetic] medians however sometimes tell a slightly different story.
Should the link say Johannes Kepler? (not that I am Doubting Thomas)
“Nearly everyone should just buy a cheap global equities fund for diversification and a locally denominated corporate bond fund to minimise FX volatility, he says. Government bonds are only useful for managing drawdown requirements, so they have no place in your long-term strategy”.
Interesting, I’ve been starting to load up on both sterling corporate and gilts anyway now that the worst is likely over for bonds and I see the former as offering one of the best risk adjusted returns for a simple asset class at this point in time.
If you are buying for income rather than crash proofing then corporates make a lot of sense. But they hold up reasonably well even in crashes.
I’m obviously talking investment grade stuff here.
As for bankers who think equities are a casino, if you have “enough” of a pot already then something like 40% gilts (maybe split with linkers), 40% IG corp bonds, 20% High Yield/EM$ bonds would probably do pretty well from here on.
@Semi Passive #17: ultimately it’s all just guesswork. JPM may be proved right or wrong on local currency CBs, but query whether long run past data really justifies their dismissiveness towards Gov Bonds and so favouring CBs. Decades of portfolio allocation orthodoxy go against it, which isn’t to say it’s right and they’re wrong, but starting credences might reasonably lean to the conventional. At the moment you can get 4.5% on 10 yr UK Gilts and US T-Bills, and 5% for both Gilts and T-Bills at 2 yrs (with min. term risk). On justetf.com and looking at all UK CB £ ETFs: for Lyxor Liquid Corporates Long Dated UCITS ETF current yield’s only 1.2% (2.26% in 2022), for SPDR Bloomberg Sterling Corporate Bond UCITS ETF it’s 3.59%, iShares GBP Corporate Bond ex-Financials UCITS ETF it’s 3.45%, iShares GBP Corporate Bond 0-5 yr UCITS ETF it’s 3.18%, and iShares GBP Ultrashort Bond UCITS ETF it’s 2.79%. None looks attractive when compared to default risk free Gilt yields.
I was a quant in the investment banking world for almost two decades until the summer of last year. During this long time, I have never come across any banker who invested well their own personal income. Most people either squandered everything or chose seriously bad investments. One of my colleagues sold all his stocks and bonds after the Great Financial Crisis crash and kept everything in cash ever since!
Even the bank’s pension fund trustees were a bit clueless. I remember years ago trying to convince them to offer us short duration bond funds when interest rates were close to zero but they never seemed to understand the danger of just having long duration. The shortest duration you could get in the bank’s DC pension scheme was 23 years.
TLI you appear to be comparing those Corp Bond ETFs using 12 month trailing distribution yield when you should be looking at Weighted Average Yield To Maturity. iShares IS15 for example (the 0-5 year one) is showing as 6.38% at the moment.
@SemiPassive #20: good point and mea culpa. 0-5 yr CB ETF should have similar average duration to 2 yr Gilt at 5% pa YTM (or 2 yr T-Bill also @5%). So at comparable duration the premium for holding CBs over Gilts is ~1.5% (c. 6.5% v 5%). Is that enough? I don’t know. But, IMO, it doesn’t look especially generous or compensatory. Firms can’t print their own money nor levy tax, unlike the BoE and HMT. Interest charges on corporate borrowing has to be covered from revenues after operating expenses. Just one economic shock, and default risk can lead to a CB buyers’ strike. It’s not a risk off (safe haven type) asset, unlike for Gilts. It’ll tend to be positively correlated with equities when they fall. But unlike with stocks, the upsides for CBs are only fixed coupons and a return of principal at par on maturity.
The behaviour of the senior banker is not as odd as you think, and indeed is entirely reasonable.
The banker is already super long equities. His annual income and bonus will be hugely driven by equity returns. His bonus will significantly be held in unvested equity of his bank – which is high beta (especially to the downside). Indeed his entire career and the continuing existence of it is a direct play on equity returns.
So keeping a large cash and bond balance is entirely sensible.
@all — Nice to see all the comments on Weekend Reading so far everyone, albeit I guess it’s a sign that summer really is over judging by how enthusiasm for sharing one’s thoughts on one’s favourite nerdy-ish money and investing site seems to ebb and flow. (@TLI excepted, he’s our new super regular 😉 )
@Mr Optimistic — Indeed, a fellow poacher turned gamekeeper for Lars! 🙂
@xxd09 — Have you read “The Chimp Paradox”? Think you’d enjoy it.
@Hak — Yes, on a professional level they’re not as dumb with money as I’m amplifying here for impact. The ultimately explosive new products may pay well until they don’t. And I’m sure we’ve all seen Margin Call and big bank boss Jeremy Irons’ strategic decision to shovel out the dross even at the expense of the bank’s reputation to preserve its bottom line.
@Griff — Ah, the Griff contrarian indicator has been triggered, eh?
@Bill — Yes, the salaries are so large that the risks and incentives are very different than for most of us. Of course one can (I would) argue the salaries are generally too large (throughout financial services) but that’s an argument for another day.
@Neverland — Very true, they’re a bit like pop musicians with the need to come with something new and fresh to re-excite the audience…
@Marco — Yes it depends how the ‘UK ISA’ would be defined. I’m obviously against it in principle (Brexit-y band aid) but if I could buy Diageo and Unilever in it, say, then I probably would.
@Al Cam — @TA was excited by the Kitces’ article too. A bit above my pay grade as a humble share punter… 😉
@KISS — I have an article on this website called something like ‘Buffett’s folly’ that goes into the downsides of skipping buying the new sofa. (Basically, the compound interest calculator becoming the dominant operating system in one’s head…)
@TLI — Thanks for noticing the comment quality and adding commentary as always. I agree it was a strong haul. I actually went through before publication and removed a dozen or so links to perfectly decent articles as it was just too unweildy!
@BBlimp — Nice to hear from you, I had been slightly concerned. Hope you’re keeping well. 🙂 Agree the narrative post-Brexit has become less dire with these new figures. As you say I’d obviously lean on the counter-factual though — the UK economy used to be very strong, in absolute contrast to the Leave narrative, so who knows how well we’d be doing without that albatross around our neck. Even the article points out we’re still towards the bottom of the G7 anyway. Absolutely you win the point on immigration surging — I didn’t see that coming. Though to be fair nor did huge swathes of Leave voters. 😉
@Jiffy — Eek how did that happen! Red face. Thanks for pointing it out, fixed now.
@SemiPassive — Yes the record of corporate bonds is I believe a bit of a ‘puzzle’ (they’ve done better than theory would dictate) though I haven’t got a link to hand and have to head out in a mo’. @TA isn’t a fan, but then he believes Money Market Funds are too risky for the extra yield so tolerances vary 😉
@Tom Baker Dr-Who — Thanks for that colour. Fits my more limited experience, useful to hear from someone with so much more exposure!
@Daz — Agreed there’s some point to it, which to be fair I did mention it in the article. Still, one could easily make the alternative argument (he was so wealthy it was very rational for him to go extra-long equities after keeping his first 1-2 million in cash, at least when he was under-45 say). As I mentioned he really disparaged the asset class. Looking back I wonder if there was a bit of fixed income machismo in the mix too though. 🙂
@Daz (#23):
Indeed. This is the central premise of https://www.amazon.co.uk/Are-You-Stock-Bond-Financial/dp/0133115291
And it is this lifecycle approach that is the origin of your age in bonds and similar rules of thumb.
Interesting to hear from BBlimp again with whom I am rather more in tune than the Investor
But isn’t it great that we can have opposing views discussed in a civilised manner without being “cancelled”
Who has the whole truth?
Very few blogs do this
Re the Guardian-the Investors favourite newspaper?- I noticed a rather disturbing article yesterday re electric car insurance being refused or costing over £5000
Is this an another straw in the wind that the great green push is showing signs of serious stress?
xxd09
@xxdo9 There are a lot of anti EV stories floating around in the media at the moment. So much so that I suspect it is an orchestrated campaign. Most of it doesn’t hold up to closer scrutiny.
Interesting reading the talk about corporate bond funds on here and quite timely. I recently came across an old TI article from 2008, “The one number to beat if you want to retire early.”
I quite like the idea from that post of having a slice of my investments targeted towards a bit of income and I’m clearly never going to get to a point where the yield of a global tracker is going to provide much help in that way. So considering corporate bond funds, how do you know what the actual current yield is? If I’ve understood @TLI and @SemiPassive correctly then the quoted distribution on, for example, the Vanguard UK investment grade bond index fund lists a YTM of 6% and a distribution of 3.95% to 31st of August. If the YTM is only an estimate of what you would receive if holding to maturity and the 3.95% is based on trailing 12 months then what yield would I actually get in the here and now?
@TI > if I could buy Diageo and Unilever in it, say, then I probably would.
Seems to be the logical approach to a UK ISA, assuming it were in addition to the existing 20k ISA as opposed to instead of.
I would shovel every single IT* out of my normal ISA, some of them of 10 years standing, all my VUKE and VMID and a few odd shares AZN GSK etc out into a UK ISA. Ideally doing an ISA to UK ISA transfer, but using some of the new money from the additional UK ISA allowance to replace these in the existing ISA, leaving the cash liberated in the non-UK ISA
And backfill from the cash proceeds with VWRL, which I don’t think is actually the aim of the game ;). But do all this shovelling ahead of that nice man Keir Starmer probably cutting the ISA allowance down to size, although it’s probably not the biggest fire he has to fight.
* Depends what they actually mean by UK ISA. The UK, with it’s massive finance sector, has a bunch of notionally UK companies whose express raison d’être is to buy foreign shares, to the extend that it’s hard to imagine you would would design a Great British ISA to invest in Great British Enterprises without enough loopholes to make it like Swiss cheese. Expect to see a whole bunch of UK domiciled ETFs show up at the very least
@xxd09, Ducknald Don #26-27: Tufton Street Trussaholics at it across the board. Conscious that I quoted distribution yield rather than YTM for CBs above (mistakes happen); but a couple of days ago Civitas issued a report giving the onshore wind power cost at £1.3 mm/MWh, against a true figure of £50-70/MWh and, having gone and miscalculated those costs by a factor of over 10,000, then proceeded to mix up bn with tn in the other direction – overstating the overall cost of net zero in the UK by a factor of 15x (their erroneous £4.5 tn by 2050, against correctly calculated estimate of £300 bn):
https://www.theguardian.com/environment/2023/sep/29/how-a-thinktank-got-the-cost-of-net-zero-for-the-uk-wildly-wrong
@T-BDW #20: slightly terrifying to learn that bankers are so bad at investing, until I recall that I got scared out of equities in Mar 08 (about time @TI denounced the bankers) and didn’t get back in until 2013 (although I wanted to from late 09/early 10, IIRC correctly, but couldn’t bear paying higher prices, leading to it taking 3 yrs to bite the bullet). As @Daz #23 rightly notes though, there may be very good career reasons not to own any equities. Sadly, I had no such excuses in 08.
@SemiPassive: I may have given out some unnecessary anti-CB vibes. Calling CBs a horrible hybrid asset class is too strong. They’re an asset that has its own merits and demerits, like any other. No more, no less. Short duration CBs’ current ~150 bps spread over equivalent Gilts might well be enough for many others, but just not for me personally.
There’s an awful lot of high yielding stuff out there right now: e.g. infrastructure ITs like HICL with 80% of assets with inflation cover trading about the same yield as the YTM on CBs; and, going further out along the risk spectrum, there’s ITs like CQS New City and TwentyFour Select Monthly Income now at 8, 9, 10% yields; and the only UK Emerging Market small cap value ETF (at least that I can find) with a dividend yield of over 11%.
For anybody interested in the impact of making inflation stochastic rather than fixed, the free of charge tool Flexible Retirement Planner provides the necessary; see: https://www.flexibleretirementplanner.com/wp/
@TI – nice to be missed. I feel ‘Toward the bottom’ is slightly splitting hairs when we are talking about only six other members. Where the middle meets the bottom probably depends on which way you voted in 2016 (and we know which way the bbc did !).
We’re ahead of France (1.7pc) and well ahead of Germany (0.2pc), both of which had access to the all important free market – like we brexiteers always say, ‘If the free market is so valuable, why do so many economies within it do so badly’
@xxd09 – we’re a lot harder to cancel now 🙂 Remember when I posted something similar last year – they were all out saying what a disaster brexit was – genuinely believing inflation and higher interest rates were a local phenomenon brought on by Brexit and Liss Truss, unable to see any economic or social issues in the EU. Spain used the police to beat political protestors and imprisoned politician opponents – remainers maintained the Eu was a woke paradise. It took Italy to be run by right wing populists, national rally to surge in France and AfD to surge (1 in 5 voters in polling say they’ll vote for the Afd) in Germany for the penny to drop.
Re: Guardian report on EV insurance (#26 & #27).
If the reports are correct, there are certainly some strange things going on. However, I can offer at least one anecdotal data point. Panicked by the article, I nervously opened the renewal notice from my insurer which arrived Friday. Yes it had gone up – 26%. Irritating, but apparently smack in the middle of the general increases.
There are some bad actors out there desperate to slow the net-zero transition. Including, sadly, our prime minister.
I read the article by Jan Loeys, and watched his vid about bonds. Where would one go to get a reliable assessment of UK corporate bond ETFs? The recent Monevtaor update appeared to cover only government bonds (and yes, I have read the comments above suggesting that that’s what we should confine ourselves too!).
@T-BDW. Not sure I really can agree that bankers (or those in finance) are terrible at investing. My prior boss is now worth over $15bn and his private fund is averaging a return of 65%/annum, so he can’t be that bad!
I do think many in banking tend to shy away from equities. My own experience at JPM (at one point, just a few desks away from Jan) was that I always knew I was getting a lot more stock at the of the year, so I didn’t feel the need to load up on the S&P except when it was truly distressed.
Instead most that I know seemed to instead load up on London property. For most of my career that easily outperformed the S&P, especially once levered. I remember feeling that I had to generate significant alpha on my investment portfolio just to keep up with London property until about 2015.
@ZX: but can one really compare Platt with ‘traditional’ bankers? BCM started in 2000, so it’s been a while since MP last worked for JPM (as a trader/trade manager, rather than as a banker).
In 2008 he saw the vulnerabilities of TBTF banks and then positioned accordingly, since moving on to macro. Looking at the one interview he’s done online – for Bloomberg during the onset of the Eurozone crisis – he was notably skeptical about the European banks.
As an industry, banks worldwide have excessively lent against non-productive assets (esp. residential housing) and starved small, early stage businesses of finance capital. The real world consequences of this epic misallocation were seen in the DMs in 2007-9, and in the EMs since 1997, including in China now.
If bankers were good investors then they would have invested in small cap value, but, where equities have featured at all, it’s tended to be large cap growth, which has fared worst over the whole period of the Ibbotson data from 1927, notwithstanding the outperformance since 2009.
And PFs overweighted equities just as their valuations went bananas in 2000, only to flee to fixed income as decent share prices emerged in 2009. PFs and banks then stayed long the longest duration Gov Bnds even as yields went to near zero, or even, for some sovereigns, negative. Absolutely bonkers.
@TLI. I can agree Platt is an edge case but a lot of very good investors started at banks.
At an industry level, while I can agree with you that excessive lending against non-productive residential property is bad socially, I’m not sure it was irrational from the banks’ perspective. Govt and regulators wanted banks to lend excesively. They constructed Basel to give residential property advantages. They wanted cheap 100% LTV loans, liar loans etc. And govts wanted that because the public wanted that. The blame lies with the public who wanted something for nothing. As usual.
So, in hindsight, I find it hard to argue with many of my ex-colleagues who viewed equities as unnecesarily risky vs. London property. Personally, I was very resistent to going large on property. I somewhat rescued my error by buying something decent in early 2009 but never really got the joke. Property was easier to leverage, had no CGT due principal residence exclusion, and couldn’t fail since that was lethal at the ballot box.
I also think your view shows too much centrism toward equities. I worked at JPM, probably the most successful bank currently. Their success was never built on equities or bonds. It was built on derivative trading. Mostly interest rate swaps (where Platt came from). That was the profit centre. Frankly, there is a lot more to markets than utterly dreary equities. It’s just the media and retail never seem to see it that way.
@ZX: agree gov’s deeply complicit in this. It’s no conspiracy mind you, just a dire, depressing and enduring lack of relevant competence.
And it’s across gov’s world wide, of every political persuasion.
– In UK D Cam sought to encourage home building with Help to Buy, when a basic understanding of supply/demand would have led him to realise developers would just land bank and buyers bid up prices.
– Thatcher sold council housing hoping to create popular capitalism, but that’s just led to a shortfall and a massive growth of private sector rentals (Gen Rent unlikely to see any benefits in the property owning democracy Mrs T espoused).
– Clinton, for the very best of reasons, encouraged banks to lend further down the credit worthiness spectrum in order to try and increase social equity & mobility. The end result was misrated MBS and 2007-9.
– As for China, the one child policy means, inevitably, less demand for housing in the future. Yet, instead of channelling excess savings into domestic consumption, the state encouraged lending to buyers of 2nd or 3rd homes and to hugely leveraged developers in what has amounted to little more than a Ponzi and one which puts the Texan S&L fiasco totally into the shade.
Still bankers can’t escape a big share of the blame. They didn’t exactly complain about the status quo when it worked for them. Agree that the top flight institutions like JPM shouldn’t be tarnished with same brush, but the likes of HBOS, Lloyds, and RBS showed really astonishing levels of ineptitude and hubris.
I think the collapse in 2007-09 had huge psychological effects on people’s faith in & willingness to listen to figures perceived as ‘establishment’. If the banking house of cards hadn’t fallen in those years, I doubt the Brexit disaster could have happened in 2016.
“At the moment you can get … 5% for both Gilts and T-Bills at 2 yrs”
And about 5.6% in a two-year fixed rate Cash ISA.
Or 6.2% fixed for 1 yr with Guaranteed Growth Bonds (taxable) and 4.65% tax free on Premium Bonds (equiv. to 5.8% for BR, 7.75% for HR & 8.45% for AR payers who are over their PSA) – both through NS&I with the same security as for Gilts.
Really helpful adding the equivalent returns for basic and higher rate tax payers. Should be compulsory. Nice one TLI!
@All – Metro Bank proving their financial genius today (irony intended).