WHISKY – LIQUID GOLD?

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WHISKY – LIQUID GOLD?

I had the great pleasure of a short break in the Scottish Highlands in May this year. We stayed near Inverness, at a delightful B&B very close to the small village of Drumnadrochit. We had a fantastic view of Loch Ness, though given that I am something of a sceptic, didn’t venture into any of the monster museums.

Anyone that has been to the Highlands knows that the scenery is utterly fabulous. Huge wide open spaces, big skies, much like America. A part of our trip included visiting a friend who has set up a Whisky Bar in the distillery capital of Scotland – Dufftown. The Seven Stills has a wonderful little restaurant and vast supply of whiskys, do call in and say I sent you.

Anyway, I saw a piece on the news about a fire at a Jim Beam warehouse in the US. This reminded me of a tour around one of the distilleries we visited (well, it would be rude not to do so). The tour was interesting and by the end of the tour our guide was highlighting the merits of investing in whisky. There are huge prices being paid for whisky. Serious money snaps up “new” products (for which read, distilled and laid down about 50 years ago) and now decanted into bottles.

SOLOMONS IFA LIQUID GOLD ANGLE SHARE

Water to Whisky

I’m sure that for some there is money to be made in whisky, but not for most. Investing always comes with costs, these are explained and shown on your statements. The format has improved, but they are nothing short of useless in terms of explaining value. Stating the price of something is one way of showing a value, but.. whisky is designed to be consumed. Basic economics of supply and demand will inevitably mean that price rises with scarcity.

Angel’s Share

There are storage, security, insurance and maintenance costs incurred by a distillery for many years. The distillery I visited was holding a few barrels (casks) certainly as far back as 1967. A typical cask holds about 200 litres. The casks themselves are second-hand and from around the world, (typically Spain, Portugal and America) depending on the desired result would be changed to provide a different flavour to the whisky. Most casks last for up to 60 years. They leak and have to be fixed by a trained Cooper (there is a 5-year training process). The whisky evaporates and tends to lose 2% a year of its alcohol by volume every year! The distillers call this “The Angel’s Share”. I might call it an annual cost of 2%.

When a bottle finally goes on sale for a price of say £40 in most cases it has been in production for 12 years. The longer the production, the more expensive. To sell your cask (if you had bought one) from 1969 you are essentially selling something that has taken 50 years to produce, 5 decades of patience and “leaving well alone”. There have been 50 years of costs and inflation. This fact alone leads to the conclusion that there would be a very limited supply. Hence the £5,000 price tag for a bottle of 1969 Glenfarclas Family Cask S16, 2451. Yes, this is subjective to collector opinion. A 1999 “similar” bottle would be £265 for a 20-year-old bottle (new by comparison).

Inflation and intoxication

If we could have bought the bottle of 1969 Glenfarclas for £40 in 1969 today it would now cost £641.92 purely due to inflation over 50 years. So whilst this goes some way to explaining a £5,000 price tag, it is obviously only part of the story… the rest is in the perceived value, restraint and costs over 5 decades. In many senses there is also the survivor and success premium – of lasting the distance. You are only able to purchase what has survived. In the same way that you can buy shares in Shell but not Barings.

Leave it alone – stay off the good stuff?

If you are going to buy “alternatives” or “collectables” you basically have to leave them alone and wait for the impact of inflation, scarcity and perceived value. This might sound easy, but the temptation not to drink or consume your investment is fairly great in this instance. It is hard enough to persuade investors in mainstream investments to leave their portfolio alone each year, but for 5 decades? Even the Angels take something each year…

As for the fire at Jim Beam, it would seem that they lost 45,000 casks in the fire. This may have some impact on the price of casks sold to whisky producers around the world (in America the cask cannot be reused). It will also greatly increase the price of any surviving casks, but otherwise, I do hope they were insured against fire.

Dominic Thomas
Solomons IFA

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

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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WHISKY – LIQUID GOLD?2019-07-04T14:19:36+01:00

Picking Winners – Financial Myths

Picking Winners – Financial Myths

Most of the financial services industry thrives on inertia and misplaced trust. The investing world can be broadly broken down into two categories – active or passive management of money. The terms are not helpful but can broadly be best described as active management is where Fund Managers attempt to outperform the market by use of skill, philosophy and information. Passive management basically says this is possible, but impossible to do with any repeatable success, so invest into the entire market (or index) to obtain the market return.

There are skills, systems and processes needed within passive management if truth be told, particularly when an index is forced to alter its constituents (much like the end of season promotions and relegations). However, costs are generally much lower – unless you are unfortunate enough to own a Virgin Money Index tracker. Generally active funds are more expensive – considerably. This it is argued, is due to better performance.

Anyhow, research from American Dimensional Fund Advisers, who rather pride themselves of academic research and evidence, recently concluded their study of US funds available to US investors. OK, its America not the UK, but given that the US is roughly 8 times the size of the UK stock market, let’s use it as a better sample.

Coldplay - A Rush of Blood to the Head No.1 Album in 2002Atomic Kitten - The Tide is High No.1 single in 2002

The Unvarnished Truth

The evidence looked at equity funds and Fixed Interest Funds over 5, 10 and 15 years (2002-2017). Given that most people are investing for their lifetime, though behave as though they do so for about 12 months, these are sensible starting timeframes for such research. For the sake of brevity, I will discuss their equity fund findings (the results were much the same for both asset classes).

Of all the funds available, only 14% to 26% outperformed their Morningstar category index. The longer the time frame the lower the number that outperformed. So, in simple terms about 1 in 4 outperform over 5 years, 1 in 5 over 10 years and about 1 in 7 over 15 years.

Survival of the Fittest

However, even if it was as simple as simply picking funds on that basis, you are more likely to have picked a fund that closed. Over 5 years 18% of the funds did not survive (about 1 in 5). At 10 years this rose to 42% failing to survive (1 in 4). At 15 years, well just 51% of the funds you could have chosen from survived. That’s 1 in 2.

Top of the Pops Investing

As many advisers and most online sites promote and select “top performing funds” it may interest you to know that a Fund Managers historic performance does not ensure a decent future performance. The data revealed that top quartile performance for consecutive 3-year periods occurred on average between 17% and 33% of the time. In short, not many sustained even a short-run, or strong track records failed to persist. Coldplay and Atomic Kitten both had good years in 2002 (when the data range begins). Who remains “successful”?

As stated, an often-cited argument is that active funds cost more because they perform better (we have established that some do – 14% of them over 15 years). Higher costs mean better results, right? Well not according to the evidence. Those with high charges (fund manager costs) with an average expense ratio (AER) of 1.93% almost entirely underperformed (94% of them). Those with the lowest costs (AER of 0.83%) delivered better results, with 25% of them outperforming.

The research also found that trading costs also impacted results (unsurprisingly). Some Fund Managers changed their portfolios almost entirely, the more they did and the longer the timeframe, the fewer that beat their benchmark. Yet this is typically claimed to be their true skill. Only 9% of high turnover funds beat their index over 15 years.

Hey Big Spender…

I have been in this game for quite some time, but it doesn’t need much experience to learn that those with more money have more money to spend…. On their version of reality (marketing) which is why many advisers, Product Providers and media swallow the myth that active management costs more because it delivers more. It can, but only in a very small number of cases and the chances of selecting such funds is virtually non-existent when most look at 3-year top quartile performance data.

There is another way, a better, cheaper way. We call it low-cost investment techniques rather than passive investing, because there is nothing passive about it. High costs and excessive turnover are likely to contribute to underperformance. You can avoid this completely, if you want to.

Dominic Thomas
Solomons IFA

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

Email me to get in touch
Picking Winners – Financial Myths2018-06-21T16:30:43+01:00

Beatriz at Dinner

Beatriz at Dinner

It’s the London Sundance Film Festival, Salma Hayek is in town with her new movie “Beatriz at Dinner”. The story revolves around Beatriz, a massage “healer” who works at a cancer centre in Santa Monica. Apparently she also does the ocassional home visit. One such client is Cathy, the wife of a very wealthy businessman Grant. Upon completing her massage, Beatriz cannot start her car, is unable to leave the lavish gated community and is invited to stay for dinner, which is a small “work-do” with Cathy and Grant.

The scene is set for polar opposites to break bread together. The guests are all fantastically wealthy and are celebrating another successful development project which will likely have an environmental impact, but make them lots of money. The king pin is Doug Strutt, something of a small parody of the current thug that is president of the US. A man who bullies his way to wealth and clearly sees amassing more and more as a “game”.

Bubbles that burst?

Naturally, Beatriz is an animal lover, who also happens to be a deeply traumatized individual who is unloved. The scene is set for a frank exchange of views and an expose on the gulf between the have’s and the have not’s, or the bubble of the one percent. However, this is a Hollywood movie, so the subject matter which may have tickled those involved with its prospects, fails to deliver anything of substance other than well-worn caricatures. I might suggest that whilst the idea seemed interesting at the time, perhaps it fails because the story is a gnats wing from life in Beverly Hills.

In the Q&A session, Salma Hayek didn’t help matters either with her ramblings about purity and frankly failing to grasp the pain of character she plays. Perhaps because she is the daughter of hugely wealthy Mexicans and has married a French billionaire, that she has far more in common with Cathy and Grant than she may care to see.

Eyes to See

In reality, it is Grant and Cathy that are more representative of the liberal elite. It is they that are confused about friendship and relationship. Whilst having all of life’s finery, they fail to see their own hypocrisy and ignore the damage done to accumulate. Of course there is a degree to which most of us are like this. It is easier to ignore the exploitation of which we are both benefactors and victims. Indeed the neurosis of buying fairly traded anything is one of many grey lines that we navigate on a daily or weekly basis and with our largely comfortable lives we can afford not to be affronted. Whether that’s the fruit and veg or the “made in somewhere without” of our garments.

Finding Your Number

From time to time, I do wonder if this is what people think a financial planner does – make you rich. Whilst I am obviously not anti-money (I hope that is rather obvious) there is a point, which is called “enough”. Most do not know where this is – as it is undoubtedly a very individual answer. All good financial planners help reveal your “number” what you need to do all that you have affirmed to be your wishes and intentions. Yes with plenty of assumptions, slack for margin of error and disasters. This is a world of difference from Doug Strutt, who by failing to identify what he values, he constantly seeks unfulfilling highs which take him further and further away from a connected life. He takes life as way of finding it. His walls become higher and higher in every sense.

Choices

Money has the power to liberate and bring choice, how it is made brings many challenges in our global economy. However we possess choices too – whether to carefully consider at what we want from life or to simply get caught up being the next king of the hill. The uncomfortable truth is that our choices impact others. Yes we all need money but from that assertion springs a lot of questions.

Here’s the trailer.

Dominic Thomas
Solomons IFA

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

Email me to get in touch
Beatriz at Dinner2017-06-02T08:08:31+01:00
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