Weekly Roundup, 16th April 2019

Kate Beioley reported that VCTs have had their second-best year of fundraising ever, and the best since income tax relief on subscriptions was cut from 40% to 30%.

• It’s linked to the gradual squeeze on pension allowances since 2010.
• Restrictions on buy-to-let and the reduction in the dividend allowance are also factors.

VCTs are now your safest bet to lower your income tax bill (though not that safe).

The record year for VCTs remains 2005-06, just before Gordon Brown relaxed the amounts you could put into your pension each year.

• They raised £779M that year, compared to £731M in 2018/19.

Alex Davies of specialist broker Wealth Club (( Disclosure – I mostly use Wealth Club for VCTs )) said:

Many investors have been sitting on their hands waiting to see if we can get through the Brexit fog. If it wasn’t for this uncertainty, I am sure this year’s figures would have been significantly higher.

FE TrustNet says that generalist VCTs have returns 27% over five years (I’m going to assume that this doesn’t include the tax relief).

• In contrast, Biotech and healthcare VCTs lost 26%.

There was no data given for AIM VCTs, which I think have done quite well in recent years.

Time is money

Jason Butler had an article about the value of time.

• Since it’s non-renewable, it’s obviously the most precious thing we have, but few of us act that way.

Many people waste the precious time they have left doing work they don’t enjoy or spending money on things that don’t improve their wellbeing.

Jason argues in favour of outsourcing difficult or unpleasant tasks, but I’m not entirely convinced.

• This approach works well if you have highly paid, meaningful and very time-consuming work that you can substitute for the “chores”.

But I don’t, so I think it’s better to do my own cooking, gardening and odd jobs around the house.

• My partner does have access to the right kind of work, so she does it when she can (admittedly, most of her outsourcing comes my way).

Where I do agree with Jason is that it’s a good idea to avoid the “bullshit jobs” that are so prevalent today.

• These are only worth doing when you are young and can save enough money from them to secure your future.

Jason cautions that we need to add in expenses and commuting time when working out what a job is really worth to us.

• He gives the (fairly extreme) example of a job that seems to be worth £22 an hour but is actually only worth £8.57 per hour. (( If only blogging paid that well ))

Think globally

Ken Fisher advised us to think globally.

• He says that international business cycles have been linked since at least 1790, when England and America were linked.

By 1890, Europe, Canada, Australia and parts of Asia were involved.

It’s highly unlikely interest rates soar and bond prices plunge unless the cause carries global heft. Local wobbles won’t ripple globally. It is the reverse: the wider world pulls most individual country wobblers back towards the average.

Thinking globally safeguards you from local panic-driven errors. Many fear America’s yield curve, but yield curves across Europe [are] nicely positive. The US won’t enter recession when banks can borrow in Europe or Japan for next to nothing, then lend in the US at higher rates.

Armchair trader

Nick Johnstone wrote about his first three years as an armchair trader.

• He’s and English graduate and former freelance journalist, so perhaps not the ideal candidate.

He became interested in the stock market during the 2008 financial crisis, but didn’t place his first trade until June 2016 (which shows remarkable patience).

Nick quotes research from Investment Trends which says that 2M people in the UK placed a trade in the year to August 2018.

• 100K of these were newbies.

The number of online retail traders in the UK has double over the last decade.

• One third of the new traders are aged under 35 and one quarter are women.

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For some reason, Nick started out trading £200 lots of Argentine companies, before moving onto UK stocks hit by the Brexit referendum result.

• 80% of his current portfolio is now in the US.

I’m not sure what the purpose of this article was, but all I can say is please don’t try this at home.

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Nick provided a list of “10 essential reads for would-be investors”:

1. Black Edge, Sheelah Kolhatkar
2. The Alpha Masters, Maneet Ahuja
3. The Growth Map, Jim O’Neill
4. Stock Market Wizards, Jack D Schwager
5. Principles, Ray Dalio
6. The Intelligent Investor, Benjamin Graham
7. You Can Be a Stock Market Genius, Joel Greenblatt
8. More Money Than God, Sebastian Mallaby
9. Big Debt Crises, Ray Dalio
10. Crisis Economics, Nouriel Roubini

I’ve read four and a half of these – and only Stock Market Wizards and the Greenblatt book would make my own “must read” list – but I will investigate the rest.

Unhealthy relationship

In the Economist, Buttonwood wrote about the unhealthy relationship that reserve managers have with the dollar.

The dollar’s share of reserves has fallen to 62%, but managers struggle to diversify away for two reasons:

1. The alternatives have flaws, and
2. The pain of a weaker dollar is too much to bear.

Reserve managers appear to be countercyclical investors, selling when others are buying. This is rather cheering. The dollar looks overvalued on many benchmarks. And if anyone can take a long-term view, it ought to be reserve managers.

At the moment, private sector buying seems behind dollar strength.

• If it dries up, and dollar weakness leads to reserve manager selling, it could be a different story.

Which presents a different problem to the reserve managers – keeping their own currency at a competitive level to support exports.

• This means that they often end up buying back the dollars they have sold.

Independent central banks

The Economist had two articles (1 and 2) on the importance of independent central banks.

• Independent banks have helped to conquer inflation since the early 1990s.

But today, Trump doesn’t like Fed raising rates, and the banks in England and Turkey are also under some pressure.

• A lot of senior jobs at the ECP are up for renewal, and policy could change there, too.

Naturally, the Economist is against any interference.

• But the question becomes what is meant by independence?

Central banks have certainly not played a neutral role in economies and markets over the last decade.

• Despite QE, the recovery from the 2008 crisis has been slow, which has weakened their position.

And the interest rate rises that most banks are keen to implement as soon as possible could lead to global recession.

• The banks themselves fear a recession before they have got rates high enough to support meaningful cuts as stimulus.

Tax and Gini

The newspaper also looked at the effects of tax policy on Gini coefficients of income inequality across various countries.

• Britain’s tax system came out of it pretty well, but Ireland, Finland and France are spectacularly redistributive.

Quick links

I have eight for you this week:

1. Alpha Architect looked at Investment Strategy in an Uncertain World.
2. And at a “Remarkable” new factor – The Cash Conversion Cycle.
3. UK Value Investor said that Rightmove could be good value.
4. And told us to avoid these three value traps.
5. The Adventurous Investor wrote about Loan Book Blues.
6. And had some bonds for yield and diversification.
7. Movement Capital summarised the case for international stocks (rather than just US stocks).
8. And Forex Live reported that 76% of forex traders lost money last month.

Until next time.