Investments & Investing & Wealth Management Archives

A Widow’s Ruin?

Dominic Thomas
Sept 2024 • 4 min read

A Widow’s Ruin?

The summer often produces plenty of occasions to open a bottle of bubbly as we celebrate various events or are simply enjoying ourselves. Perhaps this summer you have celebrated something, maybe a wedding, an anniversary, a big birthday or one of your family graduating. Champagne is invariably linked with celebration.

Living in the Surrey Hills, a short walk from Denbies, I have come to appreciate some of the English attempts to create Champagne – though of course we cannot call it such as it’s from Surrey not the Champagne region. I’m informed that the geology of the Champagne region of France is shared with Dorking (probably not news to the geologists amongst you). Anyway, perhaps you have your favourite – English, French, Spanish or Italian.

When it comes to naming things properly, I was intrigued by the story of Veuve Cliquot (in French meaning Widow Cliquot) which has now made the transition from a 2009 book by Mazzeo to a musical and now to film and is being retold at selected cinemas, so may be one to catch at home for most people.

The story is of the woman behind this now historic and luxurious brand. Business owners will relate to some of the struggles that she faced and conquered, not least of which were the weather, Napoleonic wars and general misogyny of the day. Women will relate, frankly because things have not moved on anything like as much as they should!

Quite how much is fact or fiction isn’t really that important; the messages of the film are there to be taken. Tenacity, optimism, acknowledgement of an inability to control the things you cannot, acceptance of the reality of things; stoic fortitude ushers in change by remaining true to principles and high standards. This is all beginning to sound a lot like the qualities that investors need to attain isn’t it.

I did not know the story and I was unaware of the meaning of ‘veuve’ – my O’ Level French has never been tested beyond very enjoyable trips to France. Whilst I am a regular consumer of wine, I wouldn’t regard myself as an expert; but I have come to enjoy Champagne over the years!

What I find generally inspiring are the stories behind many well-known companies. The original ‘Founder Story’ has been an often neglected element of most marketing, including our own. As Solomon’s celebrated our silver anniversary this summer, I was reminded that perhaps this is a little more than simply reminiscing. Of course there are many Founders and characters that are entirely unpleasant, which is often a subjective opinion, but sometimes … well not so much. Today, we are in a highly inter-connected world and we are all aware of particular billionaires or multimillionaires who are lacking any of the attributes that demonstrate much humanity.

I will never meet Barbe-Nicole Ponsardin who died in 1866 and I am highly unlikely to meet Mr Musk; but I have formed an opinion about both, based on the values that I hold. Yet this is perhaps the heart of the complexity of ethical, socially responsible or ESG investing. The world is complex, people are many things. To some, holding shares in an alcoholic beverage company is unethical, yet holding shares in Twitter (or whatever he wants to call it) invariably will not be screened out of portfolios. The focus is based on the product rather than those behind them.

How we use or minds, tools, resources, time and money are our unique choices and important to each of us being true to ourselves – however many selves we might each be, have or become. I can tell you that I shall be favouring (revealing my biases) the widow’s Champagne. A young woman who was widowed at 27, took on an embryonic vineyard, battled social norms and obstacles, fought for her own financial independence, eventually turning it into a legacy of quality, used in moments of joy and celebration. Now, that’s something that I think is worthwhile.

Here is a trailer for the new film produced by and starring Hayley Bennett, along with Tom Sturridge, Sam Riley and Ben Miles:

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A Widow’s Ruin?Jemima Thomas2024-09-23T12:32:17+01:00

Abu Dhabi D-I-Y

Dominic Thomas
Sept 2024 • 4 min read

Abu Dhabi D-I-Y

Those who read the financial press may have observed that Bristol-based DIY investment platform Hargreaves Lansdown, which has made the founders incredibly wealthy, has agreed sale to a private equity group. It will give shareholders cash up front and if the buyers are to be believed (careful Dominic), the investment will be long-term (meaning longer than the typical three to five years that a private equity group would normally wait before scuttling the ship). At an eye-watering £5.4bn, there will be plenty to go around for the brokers of the deal.

A shareholder in HL will be offered £11.40 for each share which was described by the Board as “fair and reasonable” (the share price reached a peak of £24.19 in May 2019 and had shrunk back to 2013 levels by April 2024 to £7.18.

Managers at HL will of course now be looking over their shoulders, particularly if they haven’t secured shares in the company themselves. HL is the largest DIY investing platform in the UK, but still three times the price of our favoured platform. Technically it is a DIY service with all risk residing with the investor (unlike an adviser relationship). Meanwhile HL’s own latest data suggest that revenue is up 4% but operating costs have increased rather more (by 14%) and profits are down. They hold over £155bn on their platform, with growth largely coming from market returns (remember this is investor selected funds).

I am sure that the consortium of CVC, Nordic Capital and Platinum Ivy will help many people to invest for their futures, I simply remain unconvinced that this will generally benefit the staff or ‘clients’. Certainly technology is expensive, check that again for regulated technology as AI becomes ever more embedded into trading structures and report generation.

Competition that will likely focus on speed and cost reduction is the logical path ahead and one that HL will need in order to persuade its DIY investors to stay on board. This is probably the crucial aspect that platforms tend to forget. Those who are motivated by low price will always seek a lower price. Those that do not see or understand the value of advice will not pay for it, but may inadvertently pay rather more in the end.

Personally I quite like HL, they enable a lot of people to start investing. They are expensive, often having somewhat questionable ‘relationships’ with some investment companies who are then proffered as “Best Buys”; but nevertheless offer a nice, slick DIY service. The staff I have met all seem perfectly decent. Whether the culture changes and cost-cutting becomes particularly deep remains to be seen. Private Equity firms generally look for a lucrative return for owners not customers.

In summary, if you really want to spend your time fretting about Sharpe ratios, alpha, beta, OCF and the right asset allocation, you can continue to do so. Alternatively, we can do all that and take responsibility for a sum that I can assure you doesn’t even buy me a trip to Abu Dhabi, though perhaps Bristol. Of course I’m simply envious that I didn’t think of it 40 years ago!

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Abu Dhabi D-I-YJemima Thomas2024-08-30T15:05:10+01:00

ISAs are being ”Simplified”

Dominic Thomas
April 2024 • 5 min read

ISAs are being ”Simplified”

I don’t like sounding (or being) cynical (there’s a but coming isn’t there!) … but – when a Government or HMRC use the word “simplification” they seem to merely describe their own thought process and nothing else. The intention is usually good, the real-world working, well … not so much.

There are some rule changes, announced by the Chancellor in the Autumn statement, that are designed to simplify the scheme and encourage more people to invest tax-free, allowing for a more ‘balanced’ investment portfolio. There are too many ISAs being used as cash deposit accounts by ‘nervous’ investors. Our clients tend not to fall into this trap, but of course millions of people do. Inflation is best beaten over time by investment into assets that grow (holdings in companies listed on the world stock markets). Cash is simply giving banks your money so that they can invest it for their benefit.

Here are the six reforms from HMRC:

The Government announced a package of ISA reforms and will make these changes to ISAs from 6 April 2024:

Increase the age for opening Cash ISAs from 16 to 18 and over. This is consistent with the age requirement already in place for opening Stocks and Shares, Innovative Finance and Lifetime ISAs.
Allow subscriptions to multiple ISAs of the same type, with the exception of Lifetime ISA, within the tax year, removing the limit on subscribing to one ISA of each type per year. All subscriptions must remain within the overall ISA limit of £20,000.
Remove the requirement for an investor to make a fresh ISA application where an existing ISA account has received no subscription in the previous tax year.
Allow Long-Term Asset Funds to be permitted investments in an Innovative Finance ISA, which does not require access to funds within 30 days.
Allow open-ended property funds with extended notice periods to be permitted investments in an Innovative Finance ISA.
Allow partial transfers of current year ISA subscriptions between ISA managers.

The government also plans to hold discussions with industry on allowing certain fractions of shares to become permitted ISA investments.

Most of this will not impact you, everything we do here at Solomon’s is flexible and one of the benefits of regular reviews is that we can assess and check ongoing suitability of the financial products we have arranged for you and the portfolio being used.

If you have any questions at all, please get in touch. If you need a review sooner than normal or feel one may be overdue, please drop us a line.

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ISAs are being ”Simplified”Jemima Thomas2024-04-17T16:48:07+01:00

The cautious investor

Dominic Thomas
Feb 2024 • 2 min read

The cautious investor

Rising interest rates that offer ‘certainty’ often appear a good solution for investors in an uncertain world. The thing about uncertainty of course is that it’s always present. You can remain holding cash in deposit accounts for years, trying to avoid market falls in the belief you are being prudent; sensible with your money. The uncomfortable truth is that we won’t know if you were right until many years down the road.

What we can do is look back at history and observe how missing out on returns impacted the valuation of portfolios, even if it was simply for a week or a month, the impact of sitting this one out can have (and has had) a substantial impact on portfolios. Second truth bomb – I have no idea when this might happen again. I don’t have a crystal ball to be able to predict such things.

I came across this neat little video by Dimensional (an excellent Investment Management firm with the unusual evidence-based approach whilst clutching a bunch of Nobel prize winners for their work in finance and economics). The data considers January 1997 until the end of 2021.

The key for investors, as it is in many aspects of life, is one of patience.

Dimensional video

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The cautious investorJemima Thomas2024-02-23T09:27:47+00:00

Timing isn’t everything

Daniel Liddicott
Jan 2024 • 6 min read

Timing isn’t everything

Despite a relatively rocky 2023, according to data provided by Timeline, global stock markets produced returns of around 15% for investors for the calendar year, attributed largely to a positive surge in performance over the last few months.

Consequentially, the end of 2023 saw UK investors flock back towards investing in equities as a reaction to their strong performance to end the year. As explained by the Calastone Fund Flow Index (FFI), this followed six months of a vast number of investors selling from equity funds between May and October 2023. Despite this, £449m was invested back into equity funds in November 2023.¹

Investors who decided to put their money back into equities at that time essentially chose to buy shares at a higher price than was available throughout the majority of 2023. This got me thinking – is there any other scenario in which people would be happier to purchase something when its price is potentially at its highest? So far, I have not been able to come up with anything! I mean, you wouldn’t wait to buy toilet roll until the price goes up, would you?

For the casual investor, the news and media are the main drivers behind deciding whether or not to invest in equities, painting extreme pictures of negativity and “never before seen” tanking of the market as a whole that will surely never recover – (SPOILER ALERT) even if this is not the truth. Whilst past market performance is no guarantee of future results, historically recovery has always followed periods of poor returns for equities. In reality, aside from taking information from the news, it would take a great deal of time, effort and resources to research market trends, to find and invest in equities that you believe are about to rise in value and help you to attempt to beat the market. This is where active fund managers come in.

SPIVA are a Standard & Poors (S&P) agency who monitor the performance of active funds and their managers against the major global stock markets. According to their data, only 7.81% of active fund managers in the United States were able to beat the market (S&P 500) over the last 15-years*. This trend can be seen for all regions that SPIVA gather data on, including Europe and the UK. Whilst the outlook for active fund managers improves over a one-year period (rising to 39.10% of managers beating the market in the US), consistent replication of these results is apparently impossible for the overwhelming majority. And these fund managers are afforded the time, effort and resources that I alluded to earlier, whilst still achieving poor results for those who invest in their funds.

The Timeline portfolios that the majority of our clients are invested in are called tracker funds. These essentially track the major global stock markets, aiming to achieve as close to market returns as possible with the aim of beating inflation, rather than beating the market itself. If you can’t beat them, join them! After all, we are trying to ensure that your money maintains the same purchasing power for decades in the future, to which inflation is the primary threat. The UK’s main stock market index, the FTSE 100, averaged an annual return of 7.3% from 1993 to 2023, with the average annual growth of inflation sitting at only 2.1% over the same period². The FTSE 100 provided average annual returns that more than tripled the growth of inflation. We believe that equities are the asset of choice when it comes to beating inflation over a long period of time.

If you have met with Dominic or myself in the recent past, you may have heard us refer to the importance of “time in” the market rather than “timing” the market. Leaving funds invested in equities for a prolonged period of time, which we would normally define as at least five years, affords your investments the time to recover from the inevitable, periodic falls that are certain to happen. It’s our job to help you “stay in your seat”, stick to your financial plan and remind you that these phases will come and go, just as they always have. Warren Buffett, often considered the most successful investor of all time, once said: “Wall Street makes its money on activity. You make your money on inactivity… it’s just not necessary to do extraordinary things to get extraordinary results.”

*Figures correct as at 18/01/2024

¹ Equity funds gather £449m inflows after six months of net selling (investmentweek.co.uk)

² How to invest to beat inflation – Times Money Mentor (thetimes.co.uk)

SPIVA | S&P Dow Jones Indices (spglobal.com)

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Timing isn’t everythingJemima Thomas2024-02-01T09:20:30+00:00

Beating the market

Dominic Thomas
May 2023 • 12 min read

Beating the market

Hopefully as a client, you understand my views about investing over the long term. One of the many constant challenges to investing is the fear of missing out. This is particularly apparent when you see a chart or data revealing the outperformance of a particular Fund Manager (these are known as active fund managers). There is a tendency to imply that the Fund Manager is particularly skilled and should be looking after your life savings.

The problem is that invariably you learn this after the fact. After the outperformance has been achieved, investing at the beginning was no ‘sure thing’, but it all appears all so obvious in hindsight. The Fund Manager now sits towards the top of the tables and you probably ask yourself “why haven’t I got any of that?”.

Well, because it’s difficult to pick winning fund managers. It’s even harder to pick one that provides continued success, they invariably tend to revert to average. I get emails every day from Fund Management groups attempting to change my mind and use their funds, which have of course performed rather well lately, picking up awards along the way, (otherwise they would have nothing to say). I might argue that this is like awarding someone that has simply tossed a coin a few times – a bit unfair, but not miles off the truth. What I find amusing is their commentary about how they are positioning their fund for the new current conditions. In other words, all the choices that resulted in that great performance is changing, underpinned by a belief that they have unique insight into the future. So do they?

Standard and Poors (S&P) are one of the agencies that rate funds and assess performance data. So in the interest of proving my point of view (I am aware of bias). S&P assessed European Funds (including the UK). I quote:

Very few actively managed equity and fixed income funds managed to maintain consistent outperformance relative to their peers over the three or five-year periods ending in December 2022
Of the actively managed Europe Equity and U.S. Equity funds whose 12-month performance placed them in in the top quartile of their respective category as of December 2020, not a single fund maintained its top-quartile performance over the next two 12-month intervals
Over a five-year horizon, it was statistically nearly impossible to find consistent outperformance. Among the 1,102 actively managed funds whose performance over the 12-month period ending December 2018 placed them in the top quartile in one of our reported categories, just two funds remained in the top quartile in each of the five subsequent one-year periods ending December 2022
Over discrete five-year periods, a greater-than-expected proportion of funds in three of six equity categories and two of four fixed income categories maintained relative outperformance. If performance were purely random in terms of comparing funds to their peers, one would expect 50% of top-half funds to remain in the top half over a subsequent five-year period. Our scorecard reports that an unweighted average of 54% of top-half Emerging Markets Equity and High Yield Bond (EUR) funds remained in the top half for two consecutive five-year periods
Over the long term, poor performance has proven to be a reliable indicator of future fund closures. Across the 10 categories reported by our scorecard, an unweighted average of 37% of actively managed funds whose performance placed them in the bottom quartile in the five-year period ending December 2017, were subsequently merged or liquidated over the next five years, while the comparable figure for funds whose performance placed them in the top quartile of performance for their category over the five years ending December 2017 was just 20%

Source: SPIVA European Persistence Scorecard: Year-End 2022 (May 2023)

If you wish to see the S&P report, do click here!

In short, there is about as much skill as there is luck when it comes to picking the ‘right’ companies to invest in. Active funds cost a lot more than passive funds (a terrible way to describe patience). One of the few things that we can control is the cost of investing, we can minimise it. At Solomon’s, the portfolios we use are weighted to global market sizes and are very low cost. In fact, the cost of the mix of funds is lower than 99% of all others. The portfolios are not available to anyone, cannot be accessed as a DIY solution and represent extremely good value.

The returns will reflect market realities and how much of your portfolio is held in global shares or bonds and cash. This ‘asset allocation’ is where the bulk of investor returns reside over the long term.

The most important ‘normal’ investment experience is that of underperformance. Over the long term the vast majority of funds underperformed. Active management takes more risk with your money by being selective and charges more; the results are poor; the winners are rarely investors and I might suggest a cursory glance at the remuneration of fund managers may provide some insight into who is.

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Beating the marketJemima Thomas2023-12-01T12:12:32+00:00

How long are you investing?

Dominic Thomas
Feb 2023 • 8 min read

How long are you really investing?

As you know, we use a risk profiling tool, indeed if you have been a client for some years you will know that these have evolved over time. These all tend to test how you feel about investment loss. It’s a bit like throwing a snake into someone’s lap and asking them how they feel about snakes.

In all my time as an adviser I have never met anyone that likes to see the value of their investments reduce. Yet of course they do from time to time – and time is the key word, or perhaps concept.

Investment returns come from companies providing “solutions” to society at large. This results in products and services being sold for a profit and investors in those companies share the rewards of the endeavour. Wherever you are now, take a moment to consider all the things in front of you, to your left and right, including your attire, and perhaps the medication and food you have already ingested today. It’s made, but almost none of it is made by you.

Risky business?

Almost all investment theory works on the assumption that whatever can reduce in value the most is more “risky”. Cash tends not to reduce in value much, except for the impact of inflation or the bank failing. Shares can alter in price dramatically in the course of a few hours. So to simplify, shares are classified as high risk and cash low risk, with Bonds (and there are numerous types) classified as a little higher risk than cash as they provide return of capital and fixed income, much like cash.

Getting the balance between how much you should hold in cash, bonds and shares will dictate your returns (we call this asset allocation). How long you invest for is also a key part of the results. Unfortunately we live in a world obsessed with the short-term and immediate, yet you will almost certainly be investing for the remainder of your life, which I hope is a rather long time.

The interactive chart below shows 1 year returns, 5, 10 and 20 year returns with increased allocation towards shares from Bonds. In this instance the chart uses purely UK data for UK shares and UK Bonds, our portfolios are actually global, but this will hopefully provide some help with long-term thinking and what “risk” really is.

Figures reflect back-tested data for the period 1926-2020. In cases where the minimum return is a positive number, the red bar still portrays the min return but with a positive percentage.

You can draw your own conclusions, using the intelligence bestowed upon you, or you can listen to the the latest ideas about what will happen in the next 12 months, I would advise and suggest taking a much longer-term approach. For the record, the UK stock market is only about 5%-7% of the world stock market, depending on the value of the pound, which is why our clients invest globally.

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How long are you investing?Jemima Thomas2023-12-01T12:12:37+00:00

Purpose – how to plan…

I have shelves of books about financial planning, investing and anything that helps me to improve how I do what I do and how to simplify, explain and address issues that actually matter to you our clients.

One of the lessons that I have learned over the last three decades is that planning for the future is often too far into the future to be meaningful. We all hope to have a rewarding, purposeful and enjoyable life, but thinking about the next thirty years (2052) often feels too distant from the present.

TIME TRAVEL

As I write, it is November 2022, and looking backwards is easier. Three decades ago (November 1992) is the same distance backwards as it is forwards to 2052. Back in 1992 we had just had the ERM crisis, unemployment was 2.7m, Charles & Diana were still unhappily married. The same time traveller distance back to November 1962 and 007 premiered Dr No and Z-Cars was first aired. The Cuban Missile Crisis had just happened, and The Beatles had just released their first single ‘Love Me Do’.

Suffice to say thirty years is a long time and much changes, though most of it is barely noticed on a day-to-day basis. As humans we tend to have short memories, often having to relearn the same lessons.

The cashflow modelling that we have been using with you since it was available, suffers from the same problem, projecting decades out into the future. Of course, I remind you that “this is a version of the future that almost certainly will not happen, as life is not linear and stuff happens” or something along those lines.

On the one hand I need to extol the rationale, logic and purpose of having a long-term mindset, and on the other I am aware that we really cannot predict anything. The last five years were probably unthinkable to most of us decade ago.

So we focus on the gradual accumulation of small changes that all add up to a better future. Taking advantage of improvements in technology, lower charges and efficiencies. Yet I still find the daily use of pad and paper something that I am unlikely to give up easily. Even holding a printed document is better than a pdf.

Planning ahead for me means considering the year, quarters, weeks and days. I use a planner and despite all the workflows and tech, the planner is really my personal account and guide. This is really a place for my values and aspirations or goals both personally and for the business. The self-accounting enables me to not simply get things done, but to get the important things done… or at least progressed.

Quarterly planning is nothing to do with investment valuations or market conditions, but ensuring you are taking action to progress towards your goals whilst living out your own values consistently and authentically. Planning with purpose.

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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Purpose – how to plan…Jemima Thomas2023-12-01T12:12:42+00:00

What drives investments returns?

What drives investment returns?

Here is a piece from another good communicator at Dimensional – one I have met (and he’s as thoroughly entertaining as he is decent). Weston Wellington (what a great name!) penned this piece for Dimensional and I have permission to share it with you, I think it provides some useful insights. I hope you agree. As ever, there are American references, but if we are looking after your portfolio, you will recall that we invest globally and that the US market makes up about half of the world stock market by valuations. Over to Weston…

A recent news item reported that Frederick Smith intended to step down as Chairman and Chief Executive Officer of FedEx Corp., the largest air freight firm in the world.

FedEx for a Mr Smith…

As a Yale undergraduate in 1965, Smith wrote a term paper for his economics course outlining an overnight air delivery service for urgently needed items such as medicines or computer parts. His professor was not much impressed with the paper, but after a stint in the Air Force, Smith sought to put his classroom idea into practice. He founded Federal Express (now FedEx) in 1971, and one evening in April 1973, 14 Dassault Falcon jets took off from Memphis airport with 186 packages destined for 25 cities.

In retrospect, it was not an auspicious time to launch a new venture requiring expensive aircraft consuming large quantities of jet fuel. Oil prices rose sharply later that year following the Arab states’ oil embargo, and the US economy fell into a deep recession. Most airlines struggled during the 1970s, and Federal Express was no exception.

But Smith’s idea found favour with customers, and 49 years after its initial deliveries, the firm is a global colossus with over 650 aircraft, including 42 Boeing 777s—each of which can fly more cargo than 100 Falcons. Although it took over two years to turn its first profit, FedEx became the first start-up in American history to generate over $1 billion in revenue in less than 10 years without relying on mergers or acquisitions. The journey has proved rewarding for investors as well—100 shares purchased at the initial offering price of $24 in 1978 has mushroomed to 3,200 shares worth over $718,000 as of May 31, 2022.*

Fred Smith’s idea is just one example of ingenuity that humans have exhibited for centuries. Sticks and stones led to hammers and spears, the wheel and axle, the steam engine, and eventually semiconductors and jet aircraft. The invention of writing made it possible to store and hand down information from one generation to the next, enabling ingenuity to compound into an ever-increasing body of knowledge. Although we often associate innovation with clever new technology, some remarkable developments have required little more than astute powers of observation. The curse of smallpox, for example, has afflicted humans with death or disfigurement for thousands of years. English doctor Edward Jenner noticed that milkmaids who had previously experienced cowpox did not catch smallpox, and in 1796, he took material from a milkmaid’s cowpox sore and inoculated James Phipps, the nine-year-old son of his gardener. Later exposed to the virus, Phipps never developed smallpox, and Jenner published a treatise on vaccination in 1801. Smallpox vaccines gradually eliminated the disease in countries around the world, and the last known case was reported in Somalia in 1977.

ONE INNOVATION PAVES THE WAY FOR OTHERS

Charles Lindbergh took off from Long Island for his historic transatlantic flight to Paris on May 20, 1927. That same day, J. Willard Marriott opened a nine-stool lunch counter serving cold A&W root beer in Washington, D.C. Ten years later he began to supply box lunches to airlines flying from nearby Hoover airport and 20 years later opened the world’s first motor hotel in Arlington, Virginia. Today, Marriott is the world’s leading travel firm, with over 8,000 hotel properties in 139 countries.
The now-ubiquitous microwave oven can trace its roots to a happy accident. While working on radar equipment in 1945 for Massachusetts-based Raytheon, electronics engineer Percy Spencer noticed that the chocolate bar in his pocket had suddenly melted. His curiosity led to the introduction of commercial-grade water-cooled microwave ovens in 1947 costing thousands and ultimately to countertop units available today for $99.
Frustrated by lengthy delays associated with loading and unloading cargo ships, trucking firm owner Malcolm McLean launched a shipping service in 1956 using standardized steel containers of his own design. Met with great scepticism when first introduced, his idea for theftproof stackable cargo boxes eventually transformed the global shipping industry—and world trade—by slashing dockside loading costs over 90%.
On June 26, 1974, cashier Sharon Buchanan inaugurated the era of barcode inventory tracking when she scanned a pack of Juicy Fruit gum bearing a Universal Product Code at Marsh Supermarket in Troy, Ohio. Barcode scanners eliminated the drudgery and inevitable mistakes associated with manual entry by checkout clerks and provided store managers with powerful tools to track sales trends. As retailers such as Home Depot, Ross Stores, and Walmart expanded throughout the country in recent decades, barcode technology played a key role in matching inventory with local preferences at each location.
In March 2022, a 20-year-old woman born with a small and misshapen right ear received a 3D-printed ear implant made from her own cells and shaped to precisely match her other ear. Although experimental, the procedure represented a significant advance in tissue engineering and could eventually lead to artificial organs such as lungs or kidneys.

THE BENEFITS OF INNOVATION ARE WIDELY DISPERSED

The benefits of innovation are widely dispersed throughout the economy, often in unpredictable ways. Apple Inc. became one of the world’s most valuable companies based on its clever marriage of the computer and the telephone; both iPhone users and Apple shareholders reaped substantial rewards.

On the other hand, suppose your fairy godmother had told you in 1935, at the dawn of commercial air travel, that this tiny sector of the economy would eventually become a gigantic industry with millions of passengers flying every year—including some flying from breakfast in New York to Los Angeles for dinner. What would your prediction be for industry pioneers such as TWA or Pan American? Most likely, bountiful prosperity and rewarding stock market performance. The millions of passengers materialized. The profits did not. Both firms went bankrupt. So innovation itself does not ensure prosperity in every case.

That’s why it makes sense to diversify. Investors are often tempted to focus their attention on firms that appear poised to benefit from innovation. But it’s difficult to predict which ideas will prove successful, and even if we could, it’s unclear which firms will benefit and to what extent. Software giant Microsoft has been a big winner for investors, with the share value soaring more than 100-fold over the 30-year period ending May 31, 2022. Discount retailer Ross Stores proved even more rewarding, as the stock price multiplied over 189 times during the same period. One firm developed powerful computer technology and the other applied it.

Civilization is a history of innovation—curious minds seeking to improve upon existing ways of meeting mankind’s wants and needs. Public securities markets are just one example of such creativity, and they have a history of rewarding investors for the capital they supply to fund such innovation. But a significant fraction of the wealth created in public equity markets typically comes from only a small number of firms; therefore, we believe owning a broad universe of stocks is the most effective way to participate in the rewards of ingenuity and innovation, wherever and whenever it takes place.

Footnotes

*Stock split information sourced from FedEx investor relations website. Stock price information provided by Bloomberg. This is not taking into account cash dividends or any reinvestment.

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What drives investments returns?Dominic2023-12-01T12:12:44+00:00

Wishes, forecasts & worries

Here is another great piece I came across by David Booth, Founder of Dimensional Investors. David is one of the genuine sage’s of investing and I have great respect for him and his business. So I thought I’d share this piece which is timely.

When I was growing up, our local newspaper, the Kansas City Star, was full of news and had one page for opinion. After decades of cable news and nonstop digital postings, I see more opinions these days than news. That’s not a bad thing. But when it comes to investing, it’s crucial to remember the difference between news and opinion, and how they are sometimes used to forecast the future.

Any time the government releases new data on unemployment or inflation or interest rate changes, people start claiming they can forecast the future. That’s not necessarily a bad thing either. But most of what I hear people say isn’t what I would call “forecasting.”

Forecasting is when you have a high degree of confidence in an outcome based on well-proven models. The weather forecast for a few days from now is a lot better than anything I read in the Kansas City Star about investing. The weather forecast is pretty darn accurate. I’d sure call that kind of forecast the right use of the word. That’s different from someone issuing a “forecast” for when the Dow will hit a certain number. Or when inflation will reach a certain level. Or which five stocks will rise the most over the next year.

So when people say they forecast that something will be at this level at that time, I don’t call that a forecast.

That’s a wish.

And when people forecast that something will go down at a certain time?

That’s a worry.

DON’T BASE YOUR PLAN ON WISHFUL THINKING

Do you really want to invest your hard-earned savings—the money you’ll need for your kids’ college or your own retirement—based on someone’s hunch or wish?

The good news is you can have a good experience without having to do any forecasting—I believe you just need to be a long-term investor with a truly diversified portfolio.

Over the last 100 years or so, the average return of the market has been about 10% a year.1 I won’t call it a forecast, but my best guess is that over the next 100 years the average annual return will be about 10%. Of course, there may be large fluctuations, just like we have experienced for the last 100 years (and like we have experienced in the last six months).

Instead of forecasting, focus on the power of what I think has been behind the stock returns of the last 100 years: human ingenuity. Millions of people at thousands of companies working to improve their product, enhance their service, and lower their costs—and all adapting in real time to a changing world. We witnessed the power of human ingenuity over the course of the pandemic. I’m seeing it again as companies adjust to deal with inflation.

The world has changed in so many ways since I was a kid reading the Kansas City Star. I still occasionally read it on my phone now. (It makes me chuckle when I imagine trying to explain to my grandparents that I read the newspaper on the phone.) While I expect the world to keep changing—I’m not forecasting when or how—I am confident that human ingenuity will be a constant. Whether in good times or bad, that’s reason to be optimistic.

DAVID BOOTH

DIMENSIONAL Executive Chairman and Founder

Footnotes

1 In US dollars. S&P 500 Index annual returns 1926–2021. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Indices are not available for direct investment, therefore their performance does not reflect the expenses associated with the management of an actual portfolio.

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Wishes, forecasts & worriesDominic2023-12-01T12:12:44+00:00

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