Did you know I get paid nowadays to read for hours and hours. Paid to do what I love. Magic. And as a result I come across lots of books, articles and reports. This month there’s been stuff from the sublime to the ridiculous. I’ll cover some for you, but first some good news from US billionaires Warren Buffett, Bill Gates, Elon Musk and Mark Zuckerberg. The key to financial success they say is to read lots and lots of non-fiction. Still time for me yet then. What’s new this month?
According to a study this week by the Institute of Incomplete Information, 9 out of every 10. Now that’s about as helpful as the announcement last week by the Office of National Statistics that the UK Savings Ratio just hit a 50 year low at only 1.7%, whatever that means. But their statement was enough to trigger a spate of new gloomy financial prediction headlines and “bad news” reports.
But before you reach for the Rennies again let me remind you that this is the same Office of National Statistics (ONS) who a couple of years back quietly conceded that their UK GDP quarterly reports had been wrong for over 15 years thanks to a calculation error. Wrong of course on the low side, never higher for some reason. And we’re still waiting for their apology for spooking headline writers.
Mind you skewed economic reporting happens elsewhere. Last week the US equivalent of ONS announced that their original calculations of this year’s first quarter US economic growth had been recalculated and was out only by 100%. Actually they never said that. They just said the original increase had been reported as +0.7% but it should have been +1.4%. And then they crossed their fingers that we wouldn’t notice.
Remember what I’ve said before about “Nullius in Verba”? Roughly translated as “don’t take their word for it so check for yourself”. If you haven’t tried it please do. It will help you to stay on the right side of the markets and keep your blood pressure in check. Now let’s have a look at how ONS calculate the UK Savings Ratio. (Investor Warning - sit down first with a stiff drink close to hand).
“The savings ratio is expressed as a percentage and is computed by dividing average household savings by average household disposable income. Both are computed by average* governmental statistical organisations. Average household savings reflect the portion of average household income not spent on average current consumption and is instead is invested in capital markets or used to buy assets”. At this point it’s worth bearing in mind that the average human has one breast and one testicle. (*I made that “average” up, but it’s possibly accurate).
What do ONS include as an asset? “Investments include stocks, bonds, bank accounts and even hiding money under the mattress. Capital gains are not included”. What? So Bank deposits are investments as is cash under the mattress? And they don’t measure increases? Really? How do they confirm these “averages” then? And who’s looking under our beds? Scary stuff.
Another thing that bothers me about all this is that if we were really saving almost 10% pa fifty years ago in the UK as ONS claims, how come the majority of long term savers are now retired with so little income or wealth, as claimed in umpteen surveys I read every month?
As to not saving enough, could it be something to do with the constantly scary news headlines together with the fact that UK Interest Rates have been close to zero for over 8 years? Guess when “they” last raised UK interest rates? It was exactly ten years ago. And since April 2009 the highest they’ve been is only 0.5%. Right now it’s 0.25%. At that rate a “tax free cash ISA investor” has to wait 288 years to double their money before inflation. Best of luck with that.
Meanwhile other reports confirm that record amounts are piling into the latest popular investment crazes, Tracker funds which copy a stockmarket index and are cheap, and Absolute Return funds which aren’t cheap but use complicated systems to try not to lose money. Hint - replace “Return” with “Dire”. Now what has Warren Buffett said about investing? Goes something like this….
1) Research Before You Invest. Make sure you understand your investments before you invest.
2) Resist Trends. There’s always trendy stuff to buy. Instead invest in proven track records.
3) Beware investment activities that produce applause; great moves are usually greeted by yawns.
Ten years ago Property funds were the trendy investment. Money pages and TV programmes competed for investors’ attention. Remember what happened next. Next was the turn of Index Trackers. Celebrity doomsayers chant their mantra “it’s mathematically impossible to beat a cheap index tracker” without bothering to check the facts. If they bothered to read a few hours every day, and ignored the rapturous applause they’d easily spot the flaws.
A FTSE 100 Index Tracker is simply overweight in popular overvalued shares and under weight in unpopular undervalued ones. And when a crash comes along a tracker meekly follows. Yet investors as far as I can tell don’t like nasty surprises. That’s why from at least ten years ago we developed our football team approach. Tight at the back, keep control of the ball, don’t lose, and play only top goal scorers up front. Who wants to back an average football team?
One thing that stands out though when I read all these financial articles is that there’s far too short term an attitude amongst most analysts, scribblers and investors. Add that to an obsession with cheapness and there’s more trouble ahead. Ten years ago in Letter from Linlithgow I wrote about checking out unfashionable “yawn” sectors notably Technology funds. I wrote “So it’s probably nota bad idea to nibble away at one or two technology funds if you haven’t already done so”.
Ten years ago this Summer, Apple introduced the iPhone and Jeremy Gleeson took over as manager of my favourite Tech fund, now up over 300% since beating the FTSE100 total return 5 fold. Hardly surprising when the Index has less than 1% exposed to Tech companies even to this day. Think for a moment what the iPhone has replaced- your library of books, dictionaries, your CDs, radio and TV, camera and cine camera, computer and road maps for starters. The moment it all really clicked for me was over 6 years ago when my 3 year old granddaughter advised me to “Google it Granddad”.
Last week experienced Tech fund managers visited us. Fascinating. They reminded us that Moore’s Law has cut the cost of memory by one fifteen millionth over only 40 years! Their conclusion? We ain’t seen nothing yet. Stay positive folks. And maybe own a bit more Tech?