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TCFP72: Various summertime observations….

Good morning, it looks like summer might break out this week, be sure to make the most of it if it does. On the off chance it doesn’t, here’s a collection of recent observations:

All forecasts are next to useless (the weather?), and economic forecasts are downright dangerous if you act on them. Only consistently accurate non-consensus forecasts are of any use if you hope for returns greater than market averages. I know of none.

Why do we have equities, bonds and cash (as required to spend) in our model portfolio? This phrase caught my eye: “Bonds and cash to sleep well, equities to eat well.”

Which means bonds and cash to take care of today, equities to take care of tomorrow. Having one without the other (unless you are unencumbered and under 40) is suicide, you’re juggling chainsaws.

If your financial plan could do with a 1% pa “performance boost” there are two options. Bust a gut trying to wring 1% more out of the stockmarket, i.e., try to beat the market.

Or spend 1% less. Don’t tell me that, if your monthly budget is £4,000, you can’t find £40 of fat in it…..

We are all playing different investment games. Your financial plan and investment strategy is unique to you. Warren Buffett has different investment objectives to you. So do pension funds, university endowments, your neighbours, relatives and me.

The correct approach for you is the one that best matches your plan.

My analogy is the car you need when you are young, free and single is very different to when you have two kids, two dogs and 10% of all the Lego in the world….

Why buy the index and not individual shares? I came up with this analogy.

If you like watching any sport (like me) there’s always something good on TV somewhere, you’re rarely disappointed and, if you are, something good soon comes along.

If, however, you only like football then it can be hit and miss; in a particular week the live matches might be terrible and sometimes there are no matches at all. But some weeks will be brilliant, but will they be brilliant enough to make up the difference?

But if you only like to watch, say, Ipswich Town play football, then you’ve endured an almost entirely miserable experience for the last 36 years. Not only that, they are rarely on TV and you have to make the effort to actually go and watch them. Or you might have picked a good team that are on TV a lot and are regularly successful. But, beware, they all fade eventually.

For “sport”, read global stockmarkets which will never disappoint if given enough time.

For “football”, read an individual sector (like tech, finance, utilities, infrastructure) which will do brilliantly sometimes and not others.

And for “Ipswich Town”, read an individual share – Debenhams or Tesla? Boom or bust.

Which is why we are “superlite” active managers. We believe in the global stockmarket and compounding returns and not getting in the way of either.

We are comatose, passive investors. We only come to life when cold, hard evidence presents itself. If markets are down 30-40% then it has always made sense to buy cheap.

And once we have, we go back to sleep and wait for the next opportunity to present itself. It always will, it’s simply a matter of time.

Compounding is the only secret investment sauce that can be relied on. Given enough time (about 12 years to start kicking in properly), compounding (growth on your previous growth) results in exponentially greater returns. It’s a simple matter of maths.

There are two obvious points here. First, you’ve got to get to 12 years, and you’ve got to not panic during those 12 years so that there is growth for new growth to grow. That means sitting through apparent market insanity, and accepting a certain level of hassle to get what you want (much like life?).

The simple solution is having us drum this into you.

For your children and grandchildren, it means setting up pensions and Junior ISAs for them as early in their lives as possible. As it isn’t your money anymore, you can relax and they can’t get into their accounts and muck them up.

And then imagine when they reach 18 and your £100 pm has become £45,000 – what do you think they are going to think about the power of compounding? What might they do for the rest of their lives? And how chuffed are you going to be?

How’s that for a download? I certainly feel better for that, I hope you do too!



Boring But Effective | Truthful, Helpful, Kind 

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