Moneybox and Platforms

This week BBC Radio 4 Moneybox featured the running spat that seems to be developing in the investment platform market. Platforms are online administrative services that both advisers and clients can use to buy, sell and value investments. To say that they vary considerably in price and functionality would be an understatement. There’s an entire market for helping advisers assess what platform is best for their clients (which I pay for and use for no small sum of money). In essence there is a price war or what I might call a race to the bottom. Cheap is not always good, but then neither is expensive. Moneybox kicked the tyres on the new Hargreaves Lansdown (HL) platform, which is really aimed at DIY investors. As far as I’m aware (which means from the latest research data) they have a decent platform with a reasonable range of funds. Their new charges aren’t that competitive and whilst they provide extensive fund information (most now do) as the HL spokesman said on air, there is the belief that they provide “the best funds at the best prices”. Whilst I can understand this statement, it rather betrays the belief that selecting “the best” fund is easy to do. It isn’t. This is a convenient belief, I might suggest delusion and one that DIY investors also suffer (hence a marketing match made in cyberspace).

Here’s the big one

Ok, here’s the big issue that the financial services industry generally doesn’t want to acknowledge, but when you read the next statement, and reflect on it, you know it is true. Here it is. It is not possible to consistently outperform the market without taking additional risk to the market. You might want to re-read that. Now there are some that that do outperform, but do so over the very short-term. Given that most fund managers do not manage their fund for very long, (a cynic might suggest that they quit whilst ahead) looking at the longer term performance of winners is equally unhelpful. Suffice to say a very small percentage outperform the market over 20 years… and the proportion that do is about the same as random chance. Its also depends on when you buy into a fund and don’t forget that hundreds of awful funds are closed and if had been included, would demonstrate that an even smaller proportion outperform over the long-term. Here is a chart a friend of mine shared recently.

Experience isn’t priceless, but it is highly valuable

As for the platform, well on one hand it is an administrative system. They are not all equally as good as each other, they all have different charging structures and functionality. A key issue for me is “does it work?” and you’d be surprised at how many fail the test. Theory is one thing, reality is another. A good financial adviser will review the platform you use, sometimes it is better to move, sometimes it isn’t. Whilst it is important (always) to challenge the way things are to improve, the assertion that there is “one way” of doing things, that “cheapest is best” or that similar products are in fact “all the same”, is simply not accurate. Experience isn’t priceless, but it is highly valuable.

Profit or profiteering?

However, let us not ignore some obvious facts, there are vested interests. Financial advisers (myself included) are not charities, we are businesses. Platforms are businesses, Fund Managers are businesses. All need to make a profit to continue to exist, the real question is what level is reasonable and fair – which is almost impossible to answer to everyone’s satisfaction. Moneybox challenged the 71.5% profit margin that HL make.

Dominic Thomas: Solomons IFA

Moneybox and PlatformsDominic2023-12-01T12:38:48+00:00

What Is Evidence Based Investing?

What is evidence based investing? in short it is the use of data and mathematical formula to prove a rationale for investing. The Efficient Market Hypothesis says that market prices are fair: they fully reflect all available information. This does not mean that prices are perfect; some prices may be too high and some too low, but there is no reliable way to tell. In an efficient market, investors cannot expect to earn above-average profits without assuming above-average risks. Market efficiency does not suggest that investors can’t “win.” Over any period of time, some investors will beat the market, but the number of investors who do so will be no greater than expected by chance.

Successful investing, like many things, begins in the mind…

It is important that an investor has an investment philosophy, for this guides and shapes decisions. Even if the theory is one of random chance, this would require a consistent approach to implement it. The problem with investing is that it becomes an emotional experience – and it shouldn’t. When you see your portfolio rise or fall in value, you have a gut reaction, often this is not good for you. There is a temptation to believe that beating the market is due to additional skill or knowledge, a belief forcefully proposed by active fund managers, who make their living by beating the market – or trying to. The sad reality is that few of them do (really few) and when taking a long-term perspective it is very difficult indeed to pick those Managers that can consistently outperform. Most Fund Managers don’t hang around for long, many funds get closed and when you consider the charges they apply, few (and I really mean a few) actually outperform.

Would you prefer evidence or guesswork when planning for your future?

My role is to help investors achieve the market returns for the various assets into which they invest. The main point being that when investing your money, I do not see any advantage in putting it at additional risk. This is essentially what most investment managers have to do in order to beat the market. Economic theory has backed up and evidenced this approach over the long-term and you may have seen me recently tweet at Eugene Fama was awarded a Nobel prize for economics. His research and theory together with that of others has helped inform the research used and investment philosophy that we adopt for our clients. Here is a short video about his pioneering work.

Dominic Thomas: Solomons IFA

What Is Evidence Based Investing?Dominic2023-12-01T12:38:31+00:00

Ancient History Lessons – Pompeii: Life and Death

I wonder if you have managed to get tickets for the Pompeii exhibition at the British Museum. Its a good exhibition, though much will be very familiar. It seemed to me that one of the main themes of the exhibition was that life has not really changed that much from AD79. Life for those living in Pompeii at the time had many similarities to our own, indeed one might say, that barring the evolved communication systems and utilities, daily life was more or less the same.

Certainly we don’t have slavery in the same way, though we are all aware of the human traffic around the world. One might also argue that many are enslaved to their mortgages and debts and unfulfilled jobs. Women have the vote yet we are aware of the many inequalities in our own rather advanced society, let alone those in cultures where difference is less tolerated.

Why do I bring this to your attention? well, apart from the fact that you really should try to get over to the British Museum (become a member for free access to the exhibition and a very good lunch) the point I am trying to make rather laboriously, is that life doesn’t change as much as we think it does, indeed change is slow. Not technological change, but social change. Business is about providing services and goods that people want. Investing is about participating in those enterprises. So when a business fails to provide what people want or need, its outlook is fairly bleak. This may be due to a change in technology (Polaroid) or it may be simply failing to realise what you “do”. Again Polaroid.

Back to Pompeii, as a financial planner, my job is not about predicting the next eruption (ok the link is tenuous). My job is to help you prepare for the future. If you decide to live at the foot of a volcano, then this carries additional risk, you may or may not experience an eruption, but are you prepared if there is one? Selecting investments from a sea of options that can blow up and go horribly wrong, should not be taken lightly. Sure you may get lucky, the San Andreas fault has not yet swallowed the West coast of the US and yes there is a good chance you will inherit money, or win the lottery, or come up with the next brilliant idea for an app on itunes. However, it would be wise to have a more prudent plan as well. There are really two costs to taking good advice – the cost of taking it, and the cost of not taking it.

Dominic Thomas – Solomons IFA

Ancient History Lessons – Pompeii: Life and DeathDominic2023-12-01T12:23:46+00:00

What Tennis Can Teach Investors

Success is contagious, but sadly less contagious than pessimism. As we digest the weekend that has happened, with a new British Wimbledon men’s singles champion the media is flooded with soothsayers. It has been a good 12 months for British sporting interests. Congratulations to Andy Murray for a spectacular victory at Centre Court, very well deserved and reminds me of a post on my old blog site from 2 years ago. Also Mr Froome collected the Tour de France yellow jersey and is leading after 9/21 stages, the Lions also thrashed Australia. There are of course many more sporting events to come this summer and British interests are very much alive.

It has been suggested that Andy Murray’s life will now change considerably. Well, he probably will now be regarded with legendary status in British sport, but winners tend to win a lot and hopefully Andy will continue to have success in Grand Slams, with two to his name now. However being number 1 is not an easy feat. Success longevity requires a huge a mount of perseverance and frankly quite a bit of luck. Luck – for keeping fit and not having significant injuries. There are very few that reach the pinnacle of their sport, by becoming a champion. Take tennis as an obvious example, dominated by just a few players.

Thankfully investing is not about being number 1, it is not about “winning” and beating everyone else. However, most people do not have a “successful” experience of investing. This need not be the case. Most investors behave as though they have to win the game, constantly adjusting positions trying to eek out advantages. The truth is that a successful investment experience does not rely primarily on skill, it relies upon discipline. Even the great tennis players make mistakes as we saw throughout the Wimbledon championship, often players beat themselves rather than get beaten. Investors can learn a lot from tennis and sport. It takes dedication, persistence, a long-term mindset, a thought through strategy and above all discipline to keep at it, keep believing and playing the long game.

Dominic Thomas – Solomons IFA

What Tennis Can Teach InvestorsDominic2023-12-01T12:23:45+00:00

What We Believe About Investing

I’m working on the new website which will hopefully go live at www.solomonsifa.co.uk tomorrow. I was working on trying to describe our investment process and what we believe about investing, then came up with this (which is not our investment process) but thought it may be of interest. I’d welcome feedback, I’m very tempted to put it as a page within our new look site.

What We Believe About Investing

Long-term investment in equities and equity-like investments should provide a better chance of beating inflation over the long-term than cash, for which there is considerable historical evidence.
Cash is an important asset class and one that provides necessary reserves for living and unforeseen events. Everyone should therefore have some cash.
Inflation is a vital element in determining real returns.
It is not possible to consistently beat the market.
New investments are made with a time-frame of a minimum of 5 years.
Existing portfolios need to be carefully reviewed in light of target dates.
The future is unknown and that markets and investors behave erratically.
It is very unwise to borrow money in order to invest it and we do not advise it.
Nothing is guaranteed in real life, investment is risky.
It is possible to lose all your money.
Markets will go down, they will also go up.
Investing should not be entertainment.
If something sounds too good to be true it probably is.
If you don’t understand the investment, don’t invest.
There is little point in paying investment managers to outperform the market if they fail to do so consistently.
Part of our role is to minimize the cost of investing, not the entire role.
Tax should not the primary reason for investing.
It is very difficult, if not impossible to “time the market”.
Money is something to serve us, not the other way around.
There are very few successful DIY investors, but far more “how to” finance authors.
Investing is often emotional, successful investing is not, it is a disciplined process.
Compound interest is a lovely theory, but returns are not fixed, it remains theoretical.
You can only control the things you can control; you cannot control the market (legally).
Be prepared for disappointment, but remember that good things happen too.
Diversification reduces risk and returns, which is appropriate for most investors.
Sadly, you cannot have a high return without risk.
There is no such thing as the best investment, just a suitable one.
Insider trading is illegal, but being observant is not.
For any business to continue it must make a profit.
Historic performance data tells you what might have happened, not what did happen; actual performance is what you get because of what you did.
However harsh, tough or burdensome the regulation, there will always be crooks.
You cannot spend a %, you can only spend money.
The market is a place where people agree a price for disagreeing about the value of something in the future. Remember that it is a place for buyers and sellers.
If everyone else is doing something, that is not a good enough reason for you to do it too.
When your friends, colleagues or family offer financial advice, make sure that they are willing to be sued if it transpires that it isn’t legal, compliant or simply wrong.
You will not be the next Warren Buffett; even he struggles to be Warren Buffett each year.
You are wasting your time if you are looking for the next Apple or Microsoft.
A great investment strategy is worthless unless you implement it.
There is an awful lot more to life than “keeping up with the markets”, the media reports what has happened and speculates what might happen. If you think about it, this is remarkably like a trip to a fortune teller. If you throw enough out there some of it sticks.
Capitalism, by its very nature will morph into something that the market wants.
Insurance is something you need when you don’t have capital, it is a “replacement cost” if you do.
A bad investment experience should be used as a learning opportunity.
Don’t forget the investing lessons you have already learned.
As others have said, constantly repeating the same behaviour whilst expecting different results is a form of insanity.
Experts disagree.

What We Believe About InvestingDominic2023-12-01T12:23:05+00:00

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