A Quick Quiz!

Who are the two people below?

Source: Paul Souders and Drew Angerer/Getty Images

You probably know who the guy on the left is.

• Jeff Bezos.

• Ran a very successful US-based consumer business, which he retired from in the last 18 months.

• A company which you definitely know and probably use. And which has been one of the great investment success stories of recent times.

 But what about the guy on the right-hand side?

• Roger Whiteside.

• Ran a very successful UK-based consumer business, which he retired from in the last 18 months.

• A company which you definitely know and probably use. And which has been one of the great investment success stories of recent times.

There are no points for identifying Amazon’s CEO. But if you knew that Roger Whiteside ran Greggs, well done, because I didn’t!

So, here’s the real question:

Knowing what you know of both businesses, who would you have invested with 10 years ago in order to maximise your returns over the decade?

You probably knew this was coming … it’s not Jeff!

If you’d bought Amazon shares on 1st Jan 2013, you’d be sitting on a gain of 675% as of last Friday (17th Feb 2023).

But Greggs delivered a gain of 699% over the same period!

Source: Bloomberg, 31/12/2012 to 17/02/2023

One company redefined global online retail. The other delivered surprisingly good vegan sausage rolls.

As always, as the chart above shows, everything depends on the luck of timing because if you had cashed in your Amazon shares in late 2021, the result would have been very different.

Of course – disclaimer alert – we are not recommending that you invest in either stock (unless as part of a diversified portfolio), but it is a great reminder that market-beating returns don’t always have to come with space-hopping Silicon Valley billionaires. Delivering cheap, tasty food to hungry commuters worked just as well …

As always, if you have any questions about this piece or any other finance related matter, please do not hesitate to get in touch.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

It’s That Time of the Year Again!

As we approach the end of the 2022/23 tax-year, thoughts inevitably turn to end of year tax planning and any unused allowances (ISA, Pensions etc.) that may be available.

The ISA allowance for 2022/23 is £20,000 and if you have not made a subscription (or perhaps you have only made a part subscription), there is still time to use this allowance if you have the funds available.

Since 6th April 2016, in addition to the subscription, it has been possible to top-up ISAs by any amounts withdrawn during the tax-year, including any charges deducted. This means that even if you have not made a subscription this year but have ISAs from previous years, your personal ISA Allowance may be more than £20,000 because of charges deducted during the year. If you made a subscription at the beginning of the tax-year, you may still have a residual allowance left because of these deductions which can be utilised by 5th April 2023.

If you have a Standard Life Wrap Account, the scope for top-up (in addition to any unused subscription) does not apply, unless you take physical withdrawals from your ISA. This is because Standard Life deduct ISA charges from the cash held in your Portfolio and not from the ISA itself.

If you have a Transact Wrap Account and you would like to know your personal ISA allowance for the remainder of the 2022/23 tax year, you can access this information on the Transact website. From your home page, select reports and from the drop-down menu, select ISA Subscriptions.

If you would like to use the balance of your allowance before 5th April, please ensure you advise us of your intentions before the end of March; we will be very pleased to assist.

Just for information, the ISA Allowance for 2023/24 is likely to remain £20,000 each, so £40,000 per couple. There is a Budget on 15th April, however, so this could change.

Capital Gains Tax (CGT)   

Currently, rates for CGT are 10% for Basic Rate Taxpayers and 20% for Higher Rate Taxpayers, where property assets are concerned (excluding the main residence) the rates are 18% and 28% respectively. There is an allowance each year (currently) of £12,300 before CGT becomes payable. You may recall that in Jeremy Hunt’s emergency Budget last year he announced that CGT allowances will reduce to £6,000 in 2023/24 and then reduce further to just £3,000 in 2024/25.

Income Tax rates of course, are 20%,40% and 45%, so quite a bit higher than taxes on capital gains!

It might be sensible to at least consider using this year’s CGT allowance before the end of the Tax Year. If you do wish to look into this, please do let us know and we will try to assist.

If you have a General Investment Account (GIA) with us worth more than £250k, we will be contacting you individually over the course of the next couple of weeks or so.   

Many of our clients will not need to take any action, as most assets are held within ISAs and Pensions, where CGT does not apply.

As always, if you have any questions about this piece or any other finance related matter, please do not hesitate to get in touch.

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

The Cruel Law of Percentages

I am grateful to a friend at 7IM for some of the following:

This news story was everywhere last week (in near identical form).

Let’s not talk about whether Facebook Meta is going to rise or fall in the next few months though….because we have no way of knowing (and neither does anybody else). Instead, let’s talk about how we think about gains and losses. Because in finance we talk in percentages all the time.

“FTSE 100 up x%. Gilts down y%. Portfolio returns are z%.“

But humans don't intuitively work in percentages. We can just about deal with "10% discounts" in a shop, but the minute it gets into "17% rise, followed by a 12% fall", our brains start to struggle.

And, as tends to happen when we’re struggling, we oversimplify.

"Up 50% and then down 50% – sounds like it's back where it started ..."

"Down 30%, up 35% – must be higher than before ..."

But that simplification is wrong. And sometimes really wrong.

The chart below shows the reality. And as it's a picture, the brain understands it more easily.

It’s not so complicated when we take a moment to think about it, if £100,000 falls in value by 50% to £50,000, then that £50,000 must double (increase by 100%) to get back to £100,000.

Bringing it back to Meta, and its soaring share price last week.

Since the start of 2022, the stock is still down 45%.

So, glancing at the chart above, it needs another 80% gain to get back to where it was.

Suddenly that 20% day doesn’t seem like nearly enough! Unless of course you happened to buy the stock after it had suffered the worst of the falls.

Volatility of this magnitude is not uncommon with individual stocks that fall into and often spectacularly, out of favour seemingly overnight, but it is less common with a highly diversified portfolio. This is because the economic conditions negatively impacting a particular stock are almost certainly simultaneously positively impacting another; one business’s weakness will often be another’s strength. A diversified portfolio recognises this, leading to a smoother, if not always a positive investment experience. The positive experience comes with fortitude and patience on behalf of the investor.  

As always, if you have any concerns about your own financial arrangements or would like to discuss whether you are truly making the most of your money, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered FCSI

Managing Partner

A Market Review of 2022

As the seemingly interminable month of January finally draws to a close, I thought you might be interested in the Market Review of 2022 which has just been published by our investment partners, Evidence Based Investments (EBI).

It’s a reasonably accessible document which looks at the major actors that influenced the global economy and market returns over the 12 months to the end of 2022.

The link below will take you to the review.

EBI 2022 Market Review

As always, if you have any concerns about your own financial arrangements or would like to discuss whether you are truly making the most of your money, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered FCSI

Managing Partner

A New Locum for Clearwater!

Firstly, a very Happy New Year (if it’s not already too late to be saying that), I do hope you had a relaxing and enjoyable Christmas.

As an inevitable consequence of marching time, I am, rather regrettably, starting to look my age and this has prompted several clients to ask, ‘What would happen to our financial arrangements if anything happened to you?’ It is a very fair question, none of us know how long we have and why should I be immune from the illnesses and accidents that do sadly befall others.

So, I just want to reassure you, by sharing with you the plans we have in place should such a catastrophe occur.

In the first instance of course, Kim and Adam, are here to help; they know you and the plans we have built with and for you. They will, therefore, be able to respond to any immediate enquiries you may have. Together we have built your financial plans for the long term, and it is unlikely anything occurring to me in the short term, should affect them.

However, in the event of a longer-term absence, it is vital that you continue to have support from a similarly well-qualified financial planner. I have therefore sought to find another adviser who could step in to help if needed. My priority has been to find an adviser who works in the same way we do, has the same experience and qualifications as I do and is familiar with the same systems and solutions we use and recommend. They would need to be able to hit the ground running if it came to it and with minimum disruption to you.

After a fruitful search I have found such a firm, Financial Planning Partners Ltd, run by brothers David and Andy Hearne. They are both Chartered Financial Planners who have each been in the financial planning profession for over 20 years. Based nearby in Berkshire, their business provides a virtually identical service to ours and as a result, I am confident that David and Andy, would be able to provide an excellent continuation of service to all our clients.

From their side, David said the following: ‘I’ve known Graham for a number of years and as Certified and Chartered Financial Planners we are both dedicated to providing the best independent advice and financial planning service to all clients. Graham and I have found ourselves mixing in the same circles, using the same services, and recommending the same solutions and this feels like a very good fit. We hope we won’t ever be required, but we are ready and willing to help if needed.’

David was recently awarded the Certified Financial Planner of the Year 2022 at the CISI Financial Planning awards. Of course, I hope nothing untoward happens to me that requires his help, but I am confident that Financial Planning Partners, with the ongoing help of Adam and Kim, will be ready to step up in a worst-case scenario.

If you had any concerns about this issue, I hope this reassures you that we do have robust plans in place.

As always, if you have any concerns about your own financial arrangements or would like to discuss whether you are truly making the most of your money, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered FCSI

Managing Partner

Festive Greetings!!!

Adam, Kim and I would like to take this opportunity to thank you for your continued support and of course to wish you and your family a very Merry Christmas and a Happy New Year!

At this time last year, I wrote the following:

“Who could have imagined at around Christmas time in 2019 what was soon to follow? A global pandemic that in some way or another has affected all of us and those we hold dear.”

Well, just as we thought we might be in for a recovery period following COVID, we have once again been knocked sideways by a War in Ukraine, an energy crisis, the like of which we haven’t seen since the 1970s and roaring inflation, which has wrong footed central banks …… again! I think it’s safe to say that 2022 has been another difficult year for everyone and yet all my wonderful clients and indeed family and friends have continued to face the challenges of living in such uncertain times with good humour and pragmatism!

As with quite a number of years now, in lieu of sending individual Christmas cards, we have decided to make a donation to a worthy cause.

I lost a dear friend, Den, earlier this year and at his funeral his sons spoke movingly of his very humble background in Liverpool. Den’s father died while he was very young and his mother struggled to cope on her own, something which I imagine was quite common in those days. One day, his closest school friend Pete said to his own mum, ‘Can Den come and live with us?’ He was thus taken in by another family without an adoption certificate in sight, a post War 1950s’ community at work.

Den went on to have a very successful career with United Biscuits and latterly running his own business, Imagine Consultants, named after his beloved Beatles, whose songs he would sing loudly at every possible opportunity.

When his beloved wife, Pat, succumbed to early onset Dementia, Den stepped up to the plate like a true champion, caring for her selflessly until eventually this was no longer possible; he was devastated by her passing in 2021.

He was a great skiing and cycling companion, he was a deep thinker, a wicked storyteller and a very compassionate man who cared greatly for those who were less fortunate than himself.

The picture below is of badges that his sons had made up for us all to wear at the funeral. I can say, without contradiction, that if we were indeed all ‘More Den’, the world would be a happier place.

At his funeral, Den’s family asked for donations in lieu of flowers to go to The Salvation Army, an organisation which meant a great deal to him and they are our chosen charity this year, I do hope you will approve.

I do hope 2023 brings you all you would wish for and, of course, a resolution to the war in Ukraine.

With very best Christmas wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Just How Bad is the Energy Situation in Europe?

I am always fascinated when I read something that seems contra to the narrative we are being fed by the mainstream media and what follows really did have me scratching my head. If we are to believe what we are being told by the BBC etc. we are in the middle of a very serious energy crisis, supplies of gas to Europe have been restricted because of Russia’s invasion of Ukraine and the closing of the Nord Stream pipelines; resulting in incredibly high prices and threats of blackouts etc. BUT, maybe things aren’t quite as they seem.

The following is taken from a communication I received yesterday from 7IM Investment Management.  

“The English Channel is the busiest shipping lane in the world; more than 500 ships a day pass between Dover and Calais.

It’s even busier at the moment, because there are over 60 tankers moored smack bang in the middle – the red dots on the map below.

More than half of these are carrying Liquified Natural Gas, waiting to deposit it into specialist terminals in the UK, France, Belgium and the Netherlands – those green triangles.

Some of them have been bobbing around there for over a month.

But if we have an energy crisis, why aren’t these ships unloading? Is supply and demand dead?!

Source: 7IM/Bloomberg/ https://www.marinetraffic.com/

Well, no. Economics isn’t broken. It’s just really difficult!

There are two things at play here.

First, October 2022 was seriously warm – the seventh hottest since 1884. The mean temperature across the UK was 11.5°C, nearly 2% warmer than normal. In London on 29th October, it was 23°C! Lots of those tankers started their journeys (from the US or Qatar) expecting Europe to have already started turning on the central heating. But we didn’t. So, our day-to-day demand was lower.

Second, the campaign to stockpile gas ahead of the winter has been extremely successful – see the table below. Europe’s storage is at 94% of total capacity - with the understandable exception of Ukraine. That stored gas accounts for nearly one third of normal annual consumption for Europe, so those tankers aren’t needed yet.

Source: https://agsi.gie.eu/

Now, we don’t know how cold this winter will be. Or how windy it will be. Or what will happen with Russia. Commodity prices are influenced by so many external factors, it means any statements about gas prices in the next few months (higher or lower) should be treated with extreme caution. 

PS.

The data on Marine Traffic is incredible.

Just look below at the “Pleasure Craft”; all yachts leaving the Mediterranean and heading for the Caribbean for the winter …

Not at all relevant for investing, more for reasons of envy …

Source: 7IM/Wikimedia Commons/ https://www.marinetraffic.com/

I do hope you found the above as interesting as I did.

As always, if you have any concerns about your own financial arrangements or would like to discuss whether you are truly making the most of your money, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered FCSI

Managing Partner

EBI Portfolio Rebalance – November 2022

If you hold your investments with Clearwater via the Transact or Standard Life Platforms and your portfolios are managed by Evidence Based Investments (EBI), you may have been wondering about some recent transactions on your account. These transactions, initiated by EBI, are as a result of a periodic rebalance; there are no charges associated with the rebalance.

You may recall that previous rebalances were carried out on an annual or ad hoc basis and your permission would have been sought, as part of this process. With the new Vantage Portfolios EBI have the discretion to conduct such rebalances without prior reference to the clients and that is what has happened on this occasion. In addition, EBI now conduct rebalances only when individual funds breach certain thresholds, this maximises efficiency and reduces unnecessary trading.

The following has been taken from the recent communication from EBI to us, explaining the rationale for the rebalance:

“EBI monitors the drift of all assets within the model portfolios and as of today, the Emerging Markets element of our Earth Portfolio range has drifted away from its initial target to breach the set tolerance limit. It is therefore important we carry out a rebalance to bring the portfolios closer towards their target asset allocation and ensure the risk profile is maintained.” 

Rebalancing is not carried out to obtain any performance advantage, although this can happen, it is to ensure that portfolios remain within the agreed risk parameters.

As a number of clients have queried these unexpected transactions, Adam and I have decided to notify everyone in advance next time.

I do hope the above makes sense but, as always, if you have any concerns about your own financial arrangements or would like to discuss whether you are truly making the most of your money, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered FCSI

Managing Partner

Inflation

As we all wait with bated breath for the Chancellor’s statement tomorrow, I am indebted to 7IM for the following:

“We all know that “Beauty is in the eye of the beholder”. But that idea applies just as much to economics as it does to art. Take the hottest topic around – inflation.

A survey by the Bank of Japan last month found that 86% of the population had seen “unfavourable price rises”, with 46% of them saying the prices were “SIGNFICANTLY” higher than a year ago.

Sounds serious.

Until you realise that annual inflation in Japan is 3%.

It’s tempting to ask what all the fuss is about. After all, we’re at 10% inflation here in the UK (11.1% as of this morning)! But remember the “eye of the beholder.” It’s about what’s “normal.” Inflation has averaged 1% for forty years in Japan. So even a tiny increase feels brutal.

Compare that to somewhere like Sri Lanka, where inflation is a savage 66%. But actually, in Sri Lanka, surveys aren’t anywhere near as negative as in Japan. That’s because average inflation over 40 years has been 11% (and often above 20%). A different baseline for comparison – resulting in different behaviour.

Source: IMF WEO/7IM

Thinking about different inflation experiences around the world is a helpful reminder that what you’re used to defines what you expect.

And the follow-up to that is that what you expect dictates your reaction to what happens.”

I really enjoy considering how psychology influences financial decisions and stats like this are a reminder that whilst we think we all see the world in the same way, our interpretation is entirely dictated by how we frame it.

That’s why numbers are never the whole story when it comes to investing – it’s about the people behind the numbers as well.

I am delighted to report that none of my clients panic when confronted by volatility as part of a long-term investment strategy, and I like to think this is because I have conditioned them to expect it! None of us like it when it happens BUT, we know how to react when it does, and that is to wait for it to pass.  

I do hope the above makes sense but, as always, if you have any concerns about your own financial arrangements or would like to discuss whether you are truly making the most of your money, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered FCSI

Managing Partner

The Optimist’s View

It is hardly surprising in recent times that there has been considerable volatility in the bond and equity markets; turn on the television, listen to a politician or open a newspaper, and there is a good chance you’ll see someone prophesying imminent economic doom.

Such claims serve to depress stocks (and bonds) in the short term, but they do also provide opportunities in the long term, the expected future return of the market is always greater after such falls, no matter how counter-intuitive that might seem.

Optimism

Kevin Kelly, the founding editor of Wired magazine, wrote in his essay The Case for Optimism that: “The psychological temperament of an optimist is not a sunny disposition or a Pollyanna delusion that everything is ideal. Rather, optimists believe that bad things are produced by temporary causes that can be overcome, while pessimists believe bad things always happen, and if anything good happens, it’s temporary.”

Optimism is always essential in long-term investment but especially in periods of drawdown (market falls). It gives us the chance to discern signals from noise and identify the gap between perception and reality.

Looking ahead

Entrepreneurialism and societal progress require a great deal of optimism because it reminds us of what is possible, and it helps us to imagine what the future might look like.

In 1889, Charles H. Duell was the Commissioner of US patent office. He is widely quoted as having stated that the patent office would soon shrink in size, and eventually close, because……..wait for it -

“Everything that can be invented has been invented.”*

Charles H. Duell*, 1899

How could anybody be so short-sighted, particularly after the motor car had only been patented by Carl Benz in 1886? Just think of all the inventions, innovations and advancements that were made after 1899 and throughout the 20th Century – the aeroplane, computers, space rockets, the mobile telephone, and the internet for example. With the advent of each of the above examples (and of course many others) entrepreneurs took risks, they sought investors, they employed many staff who then earned wages (on which they paid tax) and spent them in the economy, helping to perpetuate the virtuous circle we know as capitalism. It’s not a perfect system capable of leading to great inequality in the distribution of wealth, but it’s the best system we currently have and almost all advancements in living standards can be attributed to it. I am putting the creation of a welfare state to one side in this piece but that too must not be overlooked when reflecting on how we live today.

Charles H. Duell’s problem was that he wasn’t an optimist! The optimist in me says that capitalism, for all its faults, is likely to continue to drive invention and innovation and prosperity will follow.    

Most of us would agree that there is still much to be invented and discovered. We tend to think these new ‘inventions’ will be more extraordinary and advanced than those which preceded them, but that might not necessarily be entirely true. An invention or innovation need not be revolutionary, or even unique, to be significant, many ‘new’ inventions are derivative of their predecessors.

From door locks to light bulbs, shovels to toilets, and the classic mouse-trap, innovation comes in many forms and from many directions, often right under our noses. Sliced bread? Bottled water?

Nothing is so basic, or so great, that it cannot be made better

Levi Strauss & Company studied their evolving customer along with their 501 iconic denim blue jean, created in 1873. Levi’s noted that the most requested alteration for tailors “around the world” were for hemming and tapering the leg of the classic 501. Thus, this year, Levi’s re-invented the classic blue jean with built-in “customization and tapering:” the new Levi’s 501ct.

First there were leaves, then hand towels, and then cloth rolls one would pull and reuse. (disgusting when you think about it…) Next was the ‘folded paper towel dispenser’ and in recent years the ‘hot air dryer’ replaced the towel dispenser.

And, now, Dyson has replaced the air dryer with their ‘Airblade.’ Anyone who thought no more money could be made from people washing their hands in public lavatories was very much mistaken! Sometimes the innovations that drive up living standards and create great wealth for their creators and their investors (that’s us by the way) are just simple improvements on what has gone before.

Take the following example:

According to Wikipedia, “Belts have been documented as an item of male clothing since the Bronze Age.” — Roughly, 2500 B.C.

And yet, Randa Accessories, which is the world’s largest men’s accessories company, selling over 40 million belts each year, opened its ‘Belt Lab’ in 2015 with the goal of doubling the size of the entire belt market.

Recent innovations include the reinvention of the holes in belts — now reinforced with ‘industrial-strength’ materials sandwiched between layers of leather, an improved ‘patent-pending’ reversible belt buckle technology (black to brown, leather to fabric, dress to casual), a new leather ‘stretch’ belt feature, new point-of-sale fixtures, new size, and colour replenishment modelling, and more.

To most of us, a belt is just a belt, a commodity, but to Randa it’s not; it’s much more than that, it’s a lifestyle accessory that can be refined adjusted and improved, seemingly endlessly, for greater profit!

Necessity can be the mother of invention, and/or innovation and it can be found in every facet of our lives.

In summary, we don’t need something as fundamental as a new internet to be invented every year for the stock market to go up and for investors to have a successful long-term investment experience, something Charles H. Duell would have done well to figure out.

I do hope the above makes sense but, as always, if you have any concerns about your own financial arrangements or would like to discuss whether you are truly making the most of your money, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered FCSI

Managing Partner

* There is no documentary evidence he actually said this but I really hope he did!