Its Not Harry

Comment and opinion for retail investors in the UK

Portfolios

Deep Dive – May 2024

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Out of this world

This month I am going to address a subject that no-one really likes talking about but which I think I have a responsibility to address because I and my subscribers are all getting that little bit older.

As the Pink Floyd lyric goes ‘another day older, another day closer to death’, which is just a truism, but as we get into our 60s and 70s and beyond (and most of my subscribers are in that age group), the number of days is not so many as it was. 

All is going swimmingly, until it isn’t….

I know from you, my readers, that one of the principal concerns people have when they start running their own portfolios is that, although it is not so difficult when you have some training and have accumulated a bit of experience, it is unlikely (although not so in every case, I know) that a surviving partner would be comfortable taking over at short notice, especially as this would be an added responsibility during a period of grief and when other practical tasks of some complexity may need attention.

So, what would you want to happen to your portfolio management if you are still in charge when you die, or if you lose your mental capacity, which could be a slow and let’s face it, hard to accept or even recognise process?

Can we (I count myself in on this problem, naturally) do something now to prepare and make the situation easier for our loved ones? 

Most of my subscribers are couples and one partner (male or female) is ‘running the money’.  A small number of you are single, but there is still a problem that has to be resolved by someone else when you depart the scene.  Older age may imply that the problem will arise sooner rather than later, but experience has shown me that even the relatively young can be hit by serious or even fatal health issues.

I believe we ought to at least do some logical thinking about this real issue and this article is an attempt to get you started.  As always, I am happy to respond to feedback and suggestions and pass on good ideas and advice anonymously.

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YAP – there’s gold in them thar central banks!

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You may have noticed a really significant increase in the price of gold bullion in recent months.

This is because something that we have known about for some time – continuous topping up of gold reserves by the Chinese central bank – is now seen as part of a more global pattern. With such large buyers active in the market, the price is bound to be well supported.

The reason for this anticipated expansion of central bank buying? Probably 2 main reasons, I think.

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Deep Dive – April 2024

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To kick off this new series of articles, I am going to express some opinions that are not rooted in traditional book learning or any specific academic research or publications, but my own observations of what actually happens in equity markets, taken over the last 4 decades and mixed in with my personal rather eclectic reading about human behaviour in the context of decision making – not specifically related to financial decisions.

You might call this ‘behavioural insights in equity market valuations’ but I suspect that is rather too grandiose!

NotHarry says….

The main points

I will be exploring 4 less obvious ways in which market valuations are created and sustained (or not):

  • Possible ‘invisible’ supply side variations and/or sudden excess demand

  • The ‘the majority view is safest’ syndrome

  • The Government interference problem

  • The ice break risk

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The Magnificent 7 ride again – but how many sequels can we expect?

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The table which will download if you click the link below demonstrates well how shares in the mega sized tech firms (branded the Magnificent 7 after possible acronyms got to be absurd and named in the downloaded document) have generated most of the main US market returns in 2023, and for those of us with funds that have a specific thematic bias, some excellent results too.

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Watching Brief – February 2024

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Geo-political scariness

Assessing the likely direction of stock markets always requires a multi-faceted approach.  One needs to be aware of the main macro economic trends within each major geographical region (broadly North America, Europe, the UK, the Asia Pacific region and Japan). 

Things like GDP growth levels, interest rates set by central banks and consumer and producer optimism indices will always get a mention in analysts’ and strategists’ presentations, and as context and drivers of market mood, these are important.

However, economics is an inexact ‘science’ and that sort of data is only useful to the extent that it becomes accepted wisdom and will drive market behaviour.  For example, a general consensus (which is the best you are ever going to get) that interest rates are going to come down will result in changes in the bond yield curve and that will have an impact on valuations.  If rates do not come down after a long wait, then the consensus will change and that will have some sort of impact.  This is just an example of a ‘macro’ factor impacting valuations and feeding into asset allocation decisions.

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Watching Brief – January 2024

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Happy New Year!

I promised a look back on 2023 and some pointers on what to look out for in 2024, with just a smattering of predictions for the coming year.  Let’s do it!

2023

I spotted that the FT ran a headline on December 31st along the lines of 2023 being the best year for markets since 2019. As 2020 was something of a special year due to the pandemic and the end of 2021 was the collapse of the long, fantasy driven, free money, bull market, that is not a hugely inspiring claim.  2022 saw the realization that fixed income stocks and growth equity discounts had been based on a wildly optimistic bet that interest rates would stay low for ever, so was an equally gloomy year (but one that many had seen coming).

Forwards into a new dawn?

2023 was in fact at the start very much a continuation of 2022, with an expected recovery in fixed income (bond) valuations deferred longer than many (including me) anticipated as central banks dramatized their heroic role in battling inflation with ‘higher for longer’ interest rates.  It was only in late October that markets collectively decided not to believe that rates were going to stay up much longer and a new, and I think permanent, upward trend in valuations commenced.

If interest rates were the main driver of 2023 markets as a whole, then a whole raft of economic problems in China, or more exactly the very negative perception of Western investors about China as a place to invest, meant that a place where you would have wanted to lower your asset mix exposure in 2023 was China and by implication, many Asia Pacific and Emerging Market funds where the managers were still sticking to heavy fund weightings in the main China and Hong Kong stock markets.

A place where I thought investors ought to be confident bumping up their asset allocations was the unloved UK.  Some funds with careful stock picking have already offered very solid returns from portfolios of mostly UK shares and I think this is just the start of a new phase when global money flows into UK companies with secure profits and ridiculously low P/E ratios.  A recovery in technology shares was kicked off by almost irrational enthusiasm for everything you could stick an AI badge on.

So we have arrived, for better or worse as always at the start of a new year.

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