This page summarises all the latest comments and articles posted to the site. It is updated regularly. It includes my latest columns in the Financial Times and Spectator, as they are published, and outside contributions from regular commentators such as John Kay.
Publication of the latest edition of the Investment Trusts Handbook has given me an excuse to update the model investment trust portfolio I started when the first edition was being planned three years ago. The seed capital of £100,000 has grown since January 2017 to £152,500 on 25 November this year, including retained dividend income. The portfolio now consists of 12 investment trusts, up from 10 at the outset, mainly run by longstanding fund managers and widely considered to be among the best in their class. In keeping with the philosophy of my favourite investment mentors, the portfolio is designed to be managed with minimal turnover and this year, apart from recycling the dividend income, I have made only a couple of changes. That follows a move to de-risk the portfolio somewhat in the middle of 2018, which proved to be timely when the stock market fell sharply in the final quarter of 2018. I will be giving regular updates on this and two other portfolios I monitor in 2020. More details shortly on the Money Makers website.
So at last the extraordinary market conditions of the last two years - strong equity markets, dormant bond markets and record low volatility - have come to an end. The sharp sell-off in the stock market we have witnessed in the last few days is entirely healthy and long overdue.
Charlie Morris, Investment Director at Netscape Capital, and former head of asset allocation at HSBC, joins me for a wide-ranging discussion of global market trends in my latest Money Makers podcast, one of my regular big picture discussions with leading financial market participants. We cover oil prices, politics, interest rates, value versus growth and a fair bit more in the 30-minute podcast (Charlie speaks very well and pretty fast). In his view, all the variables are connected, but it is the future path of oil prices that holds the key to your asset allocation choices now.
Interviewing James Anderson is a lot more refreshing than grilling your average fund manager, as befits a man who runs one of the country's most venerable investment trusts in a most unvenerable way. The Scottish Mortgage Trust, established in 1909 by Baillie Gifford, has been taken in a new and more adventurous direction under its latest managerial team, which pairs Mr Anderson, a historian, and Tom Slater, a computer scientist, as co-managers. (This is a fuller version of an interview which first appeared in the Spectator in its May 22nd 2015 issue).
Behavioural finance has taught us a lot about the sub-optimal fashion in which investors (professional and private alike) arrive at decisions. It is 35 years since Kahneman and Tversky first outlined their version of what was to become prospect theory, highlighting the high value which investors accord to loss aversion relative to commensurate gains. Since then the field of behavioural analysis has expanded massively, most excitingly in recent years by aligning itself to the findings of neuroscience, which can track how different parts of the brain react to different intellectual and emotional challenges.
By using the emotive phrase “rigging the market” to describe the impact of high frequency trading on the stock markets, the author Michael Lewis has guaranteed himself both extensive publicity and enhanced sales for his new book Flash Boys. In addition, by casting his story in Manichean terms as a tale of one heroic outsider taking on the evil big boys of Wall Street, he risks courting the accusation that he is special pleading for one vested interest rather than taking a principled stand against wrongdoing in the interests of a more general truth.
The potential parallels between current events in the Ukraine and those that led up to the outbreak of the First World War 100 years ago are so superficially obvious that they may seem too trite to mention. The two cases are clearly far from similar. Nonetheless the recent crop of new historical analyses of how the world stumbled into war in 1914, when coupled with the latest events in Kiev and the Crimea, do prompt some thoughts about the way that modern financial markets assess risks and react to potentially low probability, high impact events.
Equity investors, says one leading US fund manager, quoted in a prominent national newspaper this week, are “having a hard time” finding anything fundamental to worry about, given the fact that the Federal Reserve has “made plain that we will have easy money for years to come”. Perhaps I should get out more – or at least spend time with a wider sample of the investment community, as my experience is quite the reverse. Most thoughtful investors I speak to are having a hard time not worrying about the implications of the recently reiterated public policy stance of the 100-year-old US central bank.
By chance last week I found myself rereading a favourite passage from a classic stock market text, The Money Game, in which the author, Wall Street veteran George Goodman, recalls the time back in the 1960s that his trader hero, known only as The Great Winfield, hired three “kids out of college” to do some trading in the mad bull market days of those far off days. The strength of my kids, so the trader explains, is “that they are too young to remember anything bad and they are making so much money they feel invincible”, while older investors are too haunted by the memories of past phases of euphoria that ended badly to join in the game of chasing richly priced stocks ever higher.
The FOMC decides this week whether to begin slowing its purchases of U.S. Treasurys. Concerns of a premature tightening in liquidity conditions have upset global bonds markets, and spread havoc in parts of the emerging world, especially in those countries with current account deficits. We expect investors to soon calm as they realize that an actual tightening in Fed policy is a long way in the future, and will lag the still modest revival in economic growth.