Being Wary of Men in Black Suits

2002: Men In Black 2 – Sonnenfeld
On your behalf (and mine) I have been seeking out the wisdom of “experts” again today, with the second and final day of the Morningstar 2012 conference.  That said, one of the most memorable talks was from Dave Fishwick, Head of Macro and Equities Investments at M&G who pointed to the flaws in human nature to consistently seek out the opinions of supposed experts. “Men in suits”, who purport to have a valid, credible opinion. He suggested that many of those claiming to have spotted significant moments of change, invariably have only done so once, and perhaps this has something to do with luck. This was acknowledged later by contrarian investor Alistair Mundy of Investec, who talked with great honesty about the need for Fund Managers, advisers and investors to be honest about our mistakes and to learn from them, something that is often difficult for Fund Managers in particular, to do. He pointed to the abilty of humans to forget all too readily and this is something that investors need to be mindful of in the coming months as yet more market turbulence is likely as European markets eventually figure out how they will address their problems.
The world has changed though, particularly in the credit markets, what was once low risk, is now arguably high risk, for which there is a considerable premium. The Bond market has seen huge inflows of money as investors seek safety, yet many corporate bonds are actually paying lower levels of yield (income) than equities from the very same companies. Risk has been moved from the private sector to the public sector, with sovereign nations more at risk than many investment banks. This is a fundamental change in the way Bonds have worked throughout my time on earth (or indeed anyone else’s for that matter). Luke Spajic of PIMCO, argued that the new upside down credit world poses questions for portfolio construction and something that I am currently reviewing, though thankfully believe clients are well positioned.
The key points from my perspective frankly have little to do with investment selection, but everything to do with having robust, repeatable processes that are tried, tested and work. This is something that I have constantly worked on for our clients over the last decade or so. Financial planning has a fair bit to do with artistry – applying experience and professional opinion to the reality of data. Ultimately though, achieving goals is the purpose of financial planning, not calling the market (right or wrong).. but helping our clients to get where they need to go, as cost effectively as possible and ensuring that purchasing power and lifestyle are protected.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
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Being Wary of Men in Black Suits2025-02-04T16:01:04+00:00

Time To Believe and Celebrate Difference

1990: Edward Scissorhands – Burton
Financial planning or more specifically, selecting investments from the global range is an awkward task these days. Today, following the latest round of not looking at a gift horse in the mouth, Greece having been granted a bail-out deal (which is not good news for anyone) have been downgraded by credit rating agency Fitch from CCC to C. They believe (as do I) that Greece is more likely to default, not less. The current package, would see a..wait for it… 53.5% “haircut” on Greek Government Bonds. Now these days I have little requirement for a trip to the hairdresser.. but imagine going to one and coming away with only half a haircut… it might have been ok in the 1980’s (passed off as fashionable) but unless you are a pop star, probably not terribly welcome. In essence this means that those holding the relevant Greek Bonds will lose half of their money… which granted is better than losing all of it.
The great sadness with this is that whilst there is much to criticise about the Greek economy, political and welfare system, this is incredibly harsh on Greek people, who are probably at melting point. This mess was caused by the credit crunch, the folly of the Eurocrats believing (as many still do) that one size fits all. Have any of them ever left their standard issue European hotel room and gone to a bar, shop or museum? Difference is the jewel that makes us human and frankly makes life so fascinating. Attempting to force a nation or region to all work in the same way, spend in the same way is Utopian lunacy. We go to the Med for holidays because of the weather, not because it is the best environment in which to build a car in a factory. I simply don’t understand the pre-occupation with the Euro. A Europe united does not mean a Europe the same. The continual denial of the reality that the Euro is broken costs us all more each day and is particularly punitive on the Greeks who are much maligned and all too unfairly. May I suggest a rewatching of Edward Scissorhands for those that continue to suggest we should all be the same or will they go on believing the “suits you sir!”.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
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Time To Believe and Celebrate Difference2025-01-27T16:19:47+00:00

Credit Rating Agencies and the Smell of Fire

2010: The A-Team –  Joe Carnhan
As a financial planner with expertise in investment, you may have read my post yesterday about the change in the Fund Manager of the Blackrock UK Fund. Well call me an old cynic, but today one of the ratings agencies (OBSR) has announced that it has reduced its “rating” of the fund from AA to A. One has surely got to ask the question why on earth they did not do this earlier? after all the performance has been disappointing for some time. An alternate view might be that the downgrade represents the increased uncertainty about the future due to the change in Manager, which is the sort of line that is offered. However, whilst I admit the analogy doesn’t hold entirely, this is a bit like yelling “fire” once the flames can be seen, rather than observing the smell of smoke somewhat earlier, which after all, is presumably the point of a ratings agency. The sad reality is that ratings agencies now seem to be having a disproportional impact on investment markets. Given the failings of credit ratings agencies pre-crunch, one wonders what ratings they themselves would attain. Sadly, there seems to be no plan B.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
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Credit Rating Agencies and the Smell of Fire2025-01-27T16:22:36+00:00

Rangers – What Lurks Beneath

1954: 20,000 Leagues Under The Sea
Financial planners often use the football league as metaphor for investment performance – the six top teams are fairly predictable each year and a sense that success breeds success. Relating this to the top performing funds is stretching things, though I acknowledge that sometimes this does appear to be the case. Invariably funds do not consistently perform at the highest level, with very few exceptions. There are some analogies that can be helpful, though not necessarily reliable – for example the duration of the manager, which for Fund Managers can be relatively short-term, but perhaps not quite as brief and sanguine as the very short-term tenures of the majority of football managers. The size of the football club would often suggest strength of resources (as it might for investment companies) but recent evidence would suggest (as any good business person knows) that governance and how an organisation is operated are the vital ingredients.
Take Glasgow Rangers typically either 1st or 2nd in the comparatively small pond of the Scottish Premier League. It would appear that this club (company) had forgotten (like many others seem to) how to run a business. Expenses cannot exceed income for very long. Ambition and desire can play havoc with reality. The use of tax avoiding schemes to pay staff were always questionable and certainly complex. The most recent takeover of Rangers by Mr Whyte used funds provided in advance of ticket revenues… which has a similar feel to it as using the future payments on mortgages to form a capital sum (which effectively was the mechanism that caused the credit crisis). What has this to do with investors? well nothing, unless you have invested in a particular Enterprise Investment Scheme (which is a higher risk form of investment) and run by Octopus, who amongst various holdings, have holdings in Ticketus. The money provided was essentially “working capital” that enabled Mr Whyte (having put up personal guarantees) to takeover Glasgow Rangers. Effectively swapping future ticket revenue for a lump of cash now. This is also similar to the demsie of Enron who operated on the unchallenged assumptions about the future. The implications of the arrangement and the collapse of Glasgow Rangers are being explored by both the administrators and Octopus. EIS investors know that an EIS investment is high risk and there is always a chance that they could loose all of their money, a pertinent question though, is what is the difference between business risk and carelessness? The two are obviously quite distinct.
So as fans of Rangers come to terms with the harsh reality that football is a business (however hard many try to present this reality as “inaccurate”) some investors may need to come to terms with “looking under the bonnet”. Investments can be incredibly complex, with all sorts of attractive promises, they should be designed to make money, but remember that the investor is only one party that seeks to do this, so too does the Product Provider and the businesses that are held within the portfolio. Certainly everyone makes mistakes, but the stockmarket is no place to learn life lessons, unless you really do have money to burnFinancial planning when done well involves considering investments carefully, looking under the bonnet and exposing the possibility of nasty surprises and coming to terms with the reality that there is risk in everything, but minimising these to a sensible level. Importantly reviewing and challenging assumptions in the light of real experience is also a vital part of the “work in progress” that a financial plan will include.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
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Rangers – What Lurks Beneath2025-01-21T15:54:49+00:00

Shapp, Crackle and Pop goes the Housing Market

1940: Boom Town – Jack Conway
Any Independent Financial Adviser worth their salt, that creates a decent financial plan for clients will advise people to clear debt. The main reason that the world is in the state it is at present is due to the excessive borrowing which has largely been used to buy property. This is a vicious circle as the available funds effectively mean that there is ample demand and as a result the price rises. So the credit crunch has hopefully taught us some lessons.
Of course it hasn’t. The media is still obsessed with house prices which fell by 0.2% in January according to Nationwide Building Society and the average home is currently priced at £162,228. In short, there are fewer mortgages available and people are electing to stay put, or upgrade by way of home improvements. Banks, who have been berated for getting us into this mess (who were in fact merely lending us all money that we demanded) and yes, they didn’t do a good job of vetting applications and ensuring that the mortgage was affordable. This was particularly rife in America. Anyway, the Housing Minister, Grant Shapps has launched the New Buy Guarantee Scheme. This is effectively a Government backed insurance scheme, and by Government I mean taxpayer. The purpose of the scheme is to encourage banks to lend 95% mortgages again. Meaning buyers need just a 5% deposit. I appreciate that to many this will seem like a great idea and mean that they don’t have to wait as long to build up a sufficient deposit. However, surely the debt-fuelled crisis was all about our impatience, buy now pay… well, some time in the future…maybe, rather than save first.
So what will this really mean? if the borrower defaults on their loan (and by European standards, this could mean missing 3 payments rather than the current 6) or the property suffers “negative equity” the Banks will have recourse to an indemnity fund – which is funded by house builders and taxpayers. So put simply, the Bank cannot lose, hence the thought that this will encourage them to lend.
Is it just me or is this complete madness? surely fiscal prudence is precisely what the Banks should have been doing and should be doing now. Certainly lend to those that can afford the loan, but getting back to a 95% mortgage is really admission that actually this is quite an expensive exercise and if you cannot put 10% of your own money towards a property, then one must consider if it is genuinely affordable. Of course I have sympathy with any first time buyer at the moment, but that’s because property prices are too high in relation to incomes, not because “they deserve it”.
Buying a home is a massive financial commitment. Many enter into a mortgage without giving proper consideration to the implications. Houses are not always easy to sell and certainly not at the price you would like to sell for. Income and employment is rarely certain. Domestic bliss and stability are increasingly uncommon. Becoming a homeowner typically takes more than 25 years – you only own the property once the mortgage is finally repaid and the Deeds are released to you.
The scheme will become available in March. It will be available to any UK resident buying a newly built property up to £500,000. So in theory, someone could have a £25,000 deposit and borrow £475,000, which under normal mortgage lending would require an income of around £135,000. Now if you earn £135,000 and don’t have £25,000 of savings for buying a home, can I suggest that you talk to a a good financial planner? The Government hope that this initiative will help first time buyers (and others) and stimulate the property market. I commend the sentiment, but this seems to be attempting to buck the market, which you may remember that Margaret Thatcher said was not possible.
Caveat Emptor.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
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Shapp, Crackle and Pop goes the Housing Market2025-02-04T16:04:38+00:00

More Unintended Consequences?

1932: Winner Take All – Roy Del Ruth
The efforts of Europe to sure up the way that everyone borrows money and how Banks lend money has broadly been welcomed. After all, it was primarily the overborrowing that caused the credit crunch. You may be aware that Banks need to lend more carefully… which in theory is a good thing, at least if one assumes wisdom and care are linked in this instance. As a result they have to hold more reserves themselves and effectively ask borrowers to do the same with larger deposits. Interestingly here in the UK loans are not treated as being in default until they are 180 days in arrears. In Europe and in the new proposed legislation this is 90 days… so what? well the so what is that Banks use this as a part of their risk pricing and consequential fees to the borrower. In short, if the rules are applied in Britain in the same way, without doing anything else, we are likely to see borrowing costs increase. I dare say that Banks will take the opportunity to charge more because more work needs to be done proving the loan is “safe” and ultimately it will be borrowers that lose out and I doubt anyone will be too surprised that Banks will probably come out on top.
As you hopefully know, I do not arrange mortgages, this is work that I tend to refer to a mortgage broker. However, how you plan to repay debt, with a proper debt reduction strategy is a different matter. Importantly I believe that most debt is not good, so it should be minimized or cleared, there are occassions though when debt can work powerfully for your advantage. But be warned, utlimately all debts need to be repaid. Lenders tend to hold property as security and here in the UK, debts must be serviced with significant consequences for those that fail to do so.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
More Unintended Consequences?2025-02-04T16:04:52+00:00

The Importance of Portfolio Reviews

2011 was a rough year for investors. Data for the year to 31 December is now held within our website, within the news section. The monthly report shows some significant double-digit falls over the year. There is a word of caution reading such figures though, the returns shown are only relevant if you invested money at the end of 2010 (for the full 2011 results). Had you done this, over the year investment in the Dow Jones was one of the few rising indices, up 8.4%. Oil and Gold being the only assets to outperform over the same time, both if which have taken more heavy knocks of late. Generally figures for the overall year were considerably worsened in the second half of the year, which is evidenced in the six month figures. This is where the bulk of the poor returns lay for the year and was primarily due to the Euro crisis and the consequential paranoia. However for those that followed my advice in the Spring and Autumn, my views of the markets appear to have been endorsed by reality and losses were not as bad as suffered by most, which doesn’t mean to say that returns were good, but certainly not as bad as they might have been. Whilst I don’t have a crystal ball and clearly take a long-term view of investments, short-term positions can be useful when the world looks decidedly uncertain. I remain cautious, yet optimistic. I hope that this helps clarify why we review portfolios and why clients need to respond to advice to rebalance or make alterations to portfolios. Importantly I review asset allocations throughout the year, but set allocations each Spring and Autumn.
 
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
The Importance of Portfolio Reviews2023-12-01T12:48:14+00:00

The Debt Crisis and Alternative Reality

2011: Another Earth – Mike Cahill

Here is an interesting short video providing an explanation about the current credit crisis and why the actions that are currently being taken are unlikely to help. To suggest that it is a controversial video would be an understatement, but for anyone wanting further information, this is a useful part of the discussion. Remember that pioneers are invariably thought to be mad. One might say that the approach is something of an alternative reality – another Earth.

Positive Money want us all to be better educated about the financial system, after all it has a huge impact on all of our lives. So for free thinkers everywhere this is an opportunity to hear another side of the story. This is a very short and punchy video, and given the inevitable number of repeats on television this Christmas, perhaps you will find it provocative and/or helpful to review the trailer and free video online. I will provide my own thoughts in due course, but certainly welcome contributions from all those interested. If you would like to email me your thoughts and contributions I can put these up on the blog in an anonymous style and/or include my responses as appropriate to anything that you raise.

DT

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
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The Debt Crisis and Alternative Reality2025-02-04T16:05:23+00:00

Peace on Earth, Goodwill to all men (mankind)

1967: The Thief of Paris – Louis Malle
Are you in the Christmas spirit yet? today is the day that many businesses have their office party, known by paramedics as “Black Friday” as it ends up being one of their busiest nights of the year – today probably not helped by the sleet across the country.
It would seem that the head of the Bank of France or Banque de France, Mr Noyer, is clearly not in a Christmas mood, calling for credit ratings agencies to downgrade the UK ahead of France. This follows an interview given to Le Telegramme. It seems that rather than taking responsibility it is far easier to carp about others. On Monday Moody’s published an Outlook report on the French Banking sector which was not as golden as the Banque had hoped. France had “erroneously” had its credit rating downgraded earlier ion the year, which was then corrected.  This follows news from Paris that yesterday the court decided that Jacques Chirac was found guilty of embezzlement (specifically redirecting public funds) and whilst unable to remember anything (medics say his memory is poor – he is 79 years old) was given a suspended prison sentence.
One gets the sense that a number of European Governments will be looking to kick the proverbial cat and the UK seems a likely target due to Mr Cameron’s decision not to give control of Britain’s tax and financial system to the EU. One does wonder why the Europeans believe that they are so well qualified to act as guardians of the financial system when the Euro has clearly been a complete mess. Joyeux Noel!
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
Peace on Earth, Goodwill to all men (mankind)2025-01-21T16:36:00+00:00

RBS, £45billion and Nobody to Blame?

2002: Catch Me If You Can – Spielberg
The depressing news today is that the £45.5bn  or so that you and I (and the rest of the country) coughed up to pay for RBS cannot be blamed on anyone in particular. The regulator has admitted to a raft of mistakes regulating RBS, but seems to have slightly side-stepped taking responsibility suggesting that Mr Brown’s light touch approach, a general widespread belief about the stability of the financial system and having limited skills, experience and resources were all contributing factors. In addition, legal advice was presented that essentially says you cannot prosecute for a law that does not exist.
RBS seem guilty of being “somewhat foolish” (massive understatement) in their assessment of ABN AMRO who they took over without adequate due diligence (which comprised of two lever arch files and a CD) and was funded the purchase with debt. According to the Chairman of the FSA, this degree of due diligence is typical of contested takeovers (gulp, surely the big Accountancy firms would not be guilty of yet another Enron?). The 452 page report will probably leave most wondering how on earth many of the “glaring errors” were not picked up before. IFAs are pretty livid citing the fact that had an IFA been responsible for such systemic poor governance, they would be fined heavily and probably have their license revoked permanently. They have a point, but clearly have not even attempted to read the report but simply respond to industry media headlines, which sadly will simply provide further belief that few of them actually do any proper research before commenting.
The FSA Chairman’s forward to the report makes interesting reading and states that the “RBS executive and Board were ultimately responsible”. So there it is – the RBS Board are/were responsible for basically being pretty hopeless, these people are listed on page 342 of the report, Appendix 2H, however a word of caution, not all were in-situ during the two key “hostile” takeovers of NatWest and ABN Amro.
I believe that the FSA are to be congratulated on a thorough report, one that offers much very valuable information to any organisation – small or large. Whilst the world remains in difficult economic conditions, surely we should be learning from the recent mistakes and ensuring that they are not repeated.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
RBS, £45billion and Nobody to Blame?2025-01-21T15:34:17+00:00
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