AndyPo's Musings

Where Are The Customers' Knighthoods?

2012-02-01T01:33:00.000-08:00

(Sir) Fred the Shred vs. Fred Schwed (Jr.)

Last week Stephen Hester, the CEO of RBS, came under a lot of media and political pressure and gave up his million pound bonus. Yesterday Sir Fred (The Shred) Goodwin was stripped of his knighthood, to become just plain old Mr. Fred the Shred. Is this justice finally being done, or just a smoke-screen to keep the media and public at bay?

Today, business leaders are pointing out that this is unfair and anti-business; no previous knighthood has been removed without the person in question first being convicted of hanged. I agree. Shouldn't Sir Fred be convicted and sent to gaol (hanging is perhaps a little extreme). Or, since this financial mess is all about money, why not just strip him of that?

All this talk of Fred the Shred reminded me of the excellent, classic and amusing finance book: Where Are the Customers' Yachts: or A Good Hard Look at Wall Street by Fred Schwed Jr. It was written in 1940 after a similarly nasty period in economic history and the title refers to the old joke about a visitor to New York who admired the yachts that the bankers and brokers had in the marina. He then asked where the customers' yachts were. Of course, there were no customers' yachts. This joke dates from the 1920s or even earlier.

The book and the joke are just as relevant and funny now as they were when they were written, which is a sad reminder that although we have known that we have being ripped-off for generations, we seem to be powerless to stop it continuing. The banks and financial services industry take outrageous fees that are often rather opaque, from the investors and make a fortune even when they are losing their customers' money. Then, when they bankrupt themselves (and potentially the whole of the capitalist world economy) due to a combination of stupidity and greed they get bailed out.

An interesting example of excessive fees is that Warren Buffett (The best investor and third richest man in the world) could have turned $1,000 into $4.3 Million if you could have invested in his Berkshire Hathaway fund when he started (in the 1950s) If however he had been a Hedge Fund manager he would have taken $4 Million in fees leaving you with just $300,000. Actually he probably would have sailed off in an enormous yacht, to some tax-haven with your money long before that.

Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.

Hargreaves Lansdown: Sneaky Platform Fees

2011-11-19T05:48:00.000-08:00

I have never been a huge fan of the fund management industry: Their fees are frequently so high that the investor gets no benefit at all from the skills of the fund-managers, so I was rather disappointed to read in the latest edition of "Investment Times" from Hargreaves Lansdown details of a new "Platform Fee" for some funds.

Hargreaves Lansdown have always been one of the best stock-brokers or fund-supermarkets to use if you want to buy managed funds: (Unit trusts, oeics etc.). The biggest drain on investment returns, when buying managed funds, is the fees charged by the financial services industry: over-generous investment management fees, trading fees and advertising costs initial sales commission and annual commissions paid to the origial advisor who sold you the product. By investing with Hargreaves Lansdown you can reduce or eliminate the last two charges (Hargreaves Lansdown return all or most of the initial sales commission at time of purchase and most of the annual commission in the form of a loyalty bonus (in an ISA, but not in a SIPP)

Hargreaves Lansdown have reduced the charges on their ISA, SIPP and share dealing accounts (in August 2011) making them even more competitive. The annual charge on shares, ETFs, gilts, bonds etc. has been capped at £45 for the ISA (still £200 for SIPPs) and online dealing costs range from £5.95 to £11.95 depending on dealing frequency. Although as from 31st December 2011 they will be imposing a "platform fee" of £1 or £2 per month, on funds that don't pay them a trail commission, replacing the existing 0.5% fee for some and 0% fee for low cost trackers (such as HSBC trackers which were previously held for free).

This new platform fee is potentially huge, if you only have a small investment. If you hold £1000 of each fund you will pay £24 per year, or 2.4% (on top of the HSBC management fees) to Hargreaves Lansdown for them to look after your investment. Even if you have £5000 you will be paying about 0.5% which defeats the object of having a "low-cost" tracker fund. I shall be moving my investment of this type to another broker.

Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.

2011-09-15T03:16:00.000-07:00

I have just turned 45 years old, which was a bit of a shock; it rather crept up on me and has caused me to reflect upon my life and my decision to “retire” from a well-paid job to try to live by managing my own investment portfolio, almost four years ago. I also set up my own consulting company, to allow me to provide occasional consulting services, published a few articles on Squidoo and Helium and photos on Zazzle, but have been mostly living off my investments. I’m still solvent and even making a profit, so it can’t have gone that badly, but I didn’t pick my timing very well, coinciding with “the credit crunch” etc. So how has it all gone?

The task of generating an income from an investment portfolio seemed quite easy at first: Interest rates were high and National Savings and Investment (NS and I) Savings Certificates were available, paying inflation plus more than 1%, but dividends from banks and oil companies etc. were an easy source of slightly riskier income. Since then BP and many of the banks cut their dividends, interest rates dropped to the lowest in several hundred years, inflation increased dramatically and NS and I removed index-linked savings certificates from sale, leaving no way of definitely beating inflation.

Walking down Richmond-upon-Thames High Street a few days ago, I noticed evidence of the slow-down of the U.K. economy. Richmond is one of the more affluent towns and boroughs in London and yet there are several boarded-up shops, including HMV and Habitat a music shop and furniture store. Both big High-Street names. HMV is a particular reminder of the state of the economy, for me, because I foolishly bought shares in the company. Perhaps my biggest investment mistake for a very long time.

Apart from the HMV mistake (although they are still in business elsewhere in the country and even making a small profit, with possible turn-around prospects) I have actually managed to beat most professional fund managers. This may not be so must a demonstration of my skill as an indictment of the ridiculously high charges that many managed funds charge for doing little more than replicating a stock index, the fact I bought gold in anticipation of trouble in the banks and I got out of the property market close to the peak.

I wish I knew what will happen next in the world economy, as Europe struggles with it’s huge debt as do the UK and US and many other countries in the world. The volatility of the markets make my life more stressful than I had hoped, but I don’t miss the office politics, nor the many hours in the car or at airports that I endured while I was still part of the Rat Race.

Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained

What is the Future for HMV Shares?

2011-03-05T09:04:00.000-08:00

I had high hopes for HMV shares. In my current role as a boring value Investor, (which seems like the only safe strategy at the moment) HMV did look like a good, "contrarian", high-yield bet. But HMV is turning into a "Value Trap": a share that looks too good to be true which just gets cheaper and cheaper. With a PE ratio of less than 2 and yield of about 40% what could go wrong?

HMV was a profitable company with a shrinking business as ever more of its customers buy music as downloaded MP3s straight to their Smartphones or buy CDs, DVDs and Blu-Rays from Amazon or Sainsbury. HMV is the last UK High Street music store, as all the others gave up to the online competition. "Everyone" knows they can't survive, but I thought the perceived gloom was overdone, especially given the profitable and popular bookseller, Waterstone's also belonging to HMV. With a few shop closures, more emphasis on their online exposure and a radical re-brand of the remaining HMV shops to appeal to those who want to browse music on the High Street. Unfortunately even Waterstones business is vulnerable to downloaded books to read on the Amazon Kindles, Smartphones or iPads.

HMV had a very bad Christmas, with poor sales (down about 10%) partly due to the unusually heavy snow. They have made profit warnings and perhaps more importantly announced that they will be unable to meet some terms of their bank loans. They have a market capitalization significantly smaller than their outstanding debt (approximately £70 million and £240 million respectively, at time of writing). They will close 60 of their 285 HMV and 312 Waterstone's shops.

I bought HMV shares last year as a value investment, sold fairly quickly after a big rise in the price and a profit I couldn't resist, then bought again at an even lower price, repeating the process a couple more times and even getting a reasonable dividend. I thought I had become a genius trader (despite my original intention of this being a value investment) I still hold my last purchase of a few thousand shares at a significant loss that would wipe out my previous gains if I sold now, but I am going to hold in the hope HMV comes up with some sort of clever strategy.

HMV will disappear from the High Street unless something is done. People like to browse through music titles and touch real tangible, physical objects rather than digital downloads. They also make far better presents, so there must be some business for a few years to come, but HMV needs to find a reason for people to want to continue coming to their shops: A trendy music orientated coffee shop for teenagers to hang out, perhaps, or alternatively concentrate more on vinyl, the music format that just refuses to die and really is best purchased from a shop or maybe a more grown-up atmosphere for classical music lovers, who haven't yet moved to downloaded (generally lower quality) music. Unfortunately it would be impossible to suit all of these customers. The teenagers don't want to hang out with old people (and vice versa)

The Waterstone's bookshop chain will probably still have to be sold to help pay the bills, assuming they can get a good price for it. Alternatively there could be a rights issue (more shares created and sold to investors to raise more cash) but the existing shares would be diluted so much, due to the low valuation of the company, that this may not be viable, but I think there is hope for HMV's survival, if a suitable rescue package can be devised, even if it didn't turn out to be the great value investment I had hoped for.

I won't be buying any more HMV shares, even at 15p each, but I also won't sell the few I have.

Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.

Foreign and Colonial Pacific Assets Enforced Transfer/Sale

2010-08-07T09:17:00.000-07:00

Foreign and Colonial (F&C or FandC) have written to me to tell me that the Pacific Assets Trust Plc Investment Trust is no longer eligible to be kept in my F&C ISA, it is must be sold, transferred to another F&C Investment Trust or transferred to an ISA held with Alliance Trust. I hate it when I am forced to sell, especially at a random date, which could hit a bad day in the markets etc. so I would like to keep the Pacific Assets IT shares until I am ready to sell.

I have two options: Transfer the Pacific Assets Trust Plc Investment Trust shares to Alliance Trust for free, in which case timing is not important. I simply need to get a share transfer form from Alliance Trust web-site and set up an ISA account. I don't really want an Alliance Trust ISA account though - I would rather transfer to Interactive Investor or SelfTrade but to do this F&C will charge a huge fee of £58.75 transfer out fee.

The Foreign and Colonial Individual Savings Account is generally a good low-cost account, with very reasonable annual management charges both for the funds and for the ISA itself, but this seems rather excessive. Another option is to transfer to Alliance Trust ISA for free then transfer out from there for just £15, but that seems like a lot of effort. I suppose I shall have to opt for the transfer fee, or hope the Pacific Assets Trust Plc Investment Trust shares rally in the next few weeks so I can sell them at a decent price.

The deadline for the transfer is 30th September 2010.

Is Hyperinflation Just Around the Corner? Warren Buffet Seems to Think So

2010-07-19T05:35:00.000-07:00

National Savings and Investment (NS&I) have, today, withdrawn their index-linked saving certificates and last week veteran investor, Warren Buffett recommended that investors read the book When Money Dies, by Adam Fergusson, which examines the collapse of the Weimar Germany economy in the 1920s and suggested that the same could happen to western economies soon, if we are not careful. Money-printing (or Quantitative Easing) to boost the economy can cause devaluation of the currency and rampant inflation. The money can end up in the hands of the few and destroy the wealth of the masses. Do these events indicate that we may be heading for a period of hyperinflation or that governments around the world are all competing to see who can devalue money the fastest (i.e. to reduce their debts)

Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.

To be fair, the UK government, National Savings and Investments (NSandI) also pulled their fixed interest saving certificates and reduced the rates on many other savings products by 0.25% (with the exception of Premium Bonds which remain at 1.5% at the moment) so their claim that they are trying to reduce the competitiveness of their products may be true, but if hyperinflation or even just a higher level of inflation were to take off the index-linked saving certificates would become very expensive for them (currently paying a tax-free rate of 1% above RPI inflation which is about 5%)

There has been a lot of speculation recently about the possible demise of the Euro as individual members of the European Union start to get deeper into debt and the stronger countries such as Germany have to bail them out. It could happen, but it could happen to the dollar and the pound too if current policies of continue. None of these currencies are backed by hard assets, just effectively a piece of paper representing an undefined fraction of the economy of the country or countries that use it.

If you look at a twenty pound note if says in small letters "I promise to pay the bearer on demand the sum of twenty pounds" so if I go to the Bank of England and ask for £20 they will have to pay me the money in exchange for the promissory note, but what will they give me? four £5 notes, twenty £1 coins or twenty gold sovereigns? I hope it is the latter, but a gold sovereign is now worth in excess of £200 and yet has a face value of £1 so money has been devalued. A gold sovereign would now buy approximately the same as it always has, in terms of food, services, property etc, but fiat money (Latin for "Let it Be" i.e. paper money or promissory notes) have devalued every year. But why is gold real money? It is shiny and rare, but has no other use.

What is the meaning of money anyway? Many of the middle classes in England define themselves by their salary (and the value of their houses and cars), the rich by their total net worth, but it is the people paid by the hour who probably know the true value of money the best: e.g. someone on minimum-wage knows it takes nearly an hour of their life to earn £5, whereas a salaried worker may just think it is a small fraction of their annual salary and therefore not worth worrying about (even if it really equates to a significant fraction of an hour's labour). If however we think of the billions of poor people around the world who make many of the inexpensive goods we buy and throw away, £5 could be a whole week's hard graft.

To earn £100,000 you need to work hard and/or be very good at what you do (assuming you are not working for an investment bank in London) and you will also pay a lot of tax, possibly travel a lot and your hourly rate may not actually be that great. Putting in more hours will also probably not gain you much extra money. £100,000 puts you in the top 2% of the population. In most of England this would involve being a doctor, solicitor, a highly skilled senior engineer etc. but in The City of London you could earn this much by being a relatively unskilled back-office administrative worker in an investment bank, with no useful qualifications or knowledge of the banking industry (and probably still complain continuously about being poorly paid compared to their coworkers). This is a result of the banks being bailed out with tax-payers money: While the majority of the population gets poorer and more heavily taxed, a couple of hundred thousand people get a huge windfall. Effectively the value of money for these few lucky people has shrunk because when the companies they worked for failed, instead of losing their jobs and income they were given huge bonuses and enormous pay-rises. The result was while the rest of the population suffered the bankers went out buying Ferraris and ridiculously over-priced handbags. House-prices have also gone up a lot in certain areas in London because effectively money is worth less to those people who live there.

When situations like this arise money is devalued. The people who cause the economic problems actually benefit from them, impoverishing the rest of the population who are mostly innocent of the mistakes that caused the crisis. The masses, who represent the real economy have less to spend, but the few people who, if they knew what was going on should be in gaol or at least out of work and if they didn't, certainly didn't deserve the huge amounts of money paid to them, are awarded with huge sums of money to prevent their "skills" moving abroad. Their skills are not worth significantly more today than they were a couple of years ago (in fact arguably significantly less now their incompetence has been revealed) so money has been devalued and the situation is worse for the rest of the population who also have less money than before.

As pointed out above, the value of money varies depending on where you are in the world, but in much of the third world the majority are low-paid and the rich are very rich, with a very small middle class. There are often multiple economies running in each country with the majority excluded by class. The UK and many other developed countries are becoming divided in the same way.

While travelling in Egypt and other parts of Africa, India and South America I noticed how the tourist industry expected western style tips and yet we were surrounded by poverty. In Egypt a bus driver requested a tip of about £2 per person for a 10 minute shuttle trip from our cruise boat to a temple, with a group of about 30 people, making him twice the national average monthly wage (on top of his salary I assume) for almost no work at all.

In Cuba there are even three difference currencies in use: a Peso for tourists, one for locals and the dollar (unofficial) The dollar is of course the world's preferred safe-haven currency at the moment and allows comparisons to be made, but it's value is still very different in the hands of the world poor versus those on Wall Street.

In India a few years ago, degree and several years training could get you a good job, or you could work in a call-centre for an international country and earn a lot more.

The real value of money is determined by what you can do with it. In some parts of London property prices are so distorted by the City i.e. Investment Banking money, that a two-bedroomed flat may cost £3 Million which, when compared with the average property in the UK of about £150,000 is ridiculous. Ferraris, Astons and Jaguars are parked out on the street because a garage costs £250,000 or more (i.e. more than the cars) and even a parking space could be unaffordable. As the pound dropped against the dollar and the Euro prime London property was purchased by foreigners at what appeared to be bargain prices (for them) pricing local people out of the prime London house market.

I'm not expecting hyperinflation any time soon. There are a lot of deflationary pressures around the world, but the lack of action taken by governments and central banks, to combat inflation and the bubbles of excess cash in the hands of people who caused much of the current problem does make the future value of money look potentially unstable.

Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.

Where Can Apple Go From Here? Will Palm Make a Comeback?

2010-07-03T07:14:00.000-07:00

Yesterday I finally got my hands on an Apple iPad for the first time and was amazed by the cult status it has. Brandishing this beautiful object in a crowded pub resulted in whispered adoration from the surrounding tables. After more than two decade of designing silicon chips for the consumer electronics industry (including mobile phones and computers) I still struggle to understand what is going to become popular. I always like to believe that the clever bit is what I do: getting the maximum computing power, lowest power consumption, longest battery life, most functionality and cramming the highest number of transistors onto the smallest piece of silicon etc. Academically, I suppose that is the clever bit, but these days the money is made as much from the beautiful case, innovative ergonomics and most of all, the marketing and the cult status of owning a particular brand. Functionality is important, but fashion and being seen with the right gadget is more important. How times have changed. Gadgets used to be just for people like me (unkindly referred to as "geeks", although apparently even that is fashionable now too)

These days I am just as interested in which stock to buy as to which gadget. Apple seems too expensive, but then I am predominantly a value investor. Its price is huge because Apple can apparently do no wrong and even if they did people would still buy what ever they produce. The only way to grow from here is to continue dominating the ipod, ipad and iphone markets and invent new markets to expand into despite the new worldwide austerity measures being imposed. I can't guarantee that Apple won't do this, but it sounds like quite a risk. What about the competitors? Palm has recently been taken over by HP and they invented and dominated the touchscreen PDA market and the Android operating system seems to be the one to go for for anyone who really cares about such things.

So why is Apple so good? Is it just that the Apple fan club will buy whatever his company comes up with and Steve tells them to buy? Everything by Apple is a guaranteed success even before any of us have seen it. The iPad has already become the benchmark for this "new" type of device. I have heard several people say "I really want one. I don't know what I will use it for though". After my encounter with the iPad I must admit that I want one too, but I will check out the competition: Android devices and what ever the new Palm/HP coalition come up with before I take the plunge.

The interesting thing for me is how many people think Apple invented these new kinds of device and the concept of an App. Palm had hand held touch-screen devices a decade before Apple's iPhone and there are applications (mostly free) which work on all Palm devices until the Palm Pre, Pro and Pixi came out. The Palm Treo phone looks like a Blackberry and does everything a professional user needs (although the internet is a bit slow) including editing documents and spreadsheets and if you want to read documents on a reasonable sized screen or surf the internet with WiFi what's wrong with an old Palm TX, T3 or T5 (with a WiFi card)?

Will the austerity measures across Europe force people to spend less on expensive Apple products and internet contracts and opt for Android devices or even dust off their old Palm PDAs or will Apple continue to dominate the market? I'm not buying any more Apple stock right now, but almost everyone still seems to love Apple.

Why Did I Buy BP Shares?

2010-06-25T03:04:00.000-07:00

I am a value investor and, contrary to what everyone seems to think I am not a Day Trader (although I do spend most days staring at a computer screen looking at my stocks and shares and make the occasional trade) so I have been watching BP for years. It was a classic "Value" stock: low PE ratio, high yield with good cover etc (for explanation of these terms see this article) It pays a healthy dividend every quarter without fail and was perhaps the best dividend payer, over the last few years, in the whole UK stock market. Until now (The dividends for the rest of the year have been cancelled)

Over the years I have built up a reasonable holding in BP shares as part of my Balanced Portfolio through ISAs and Personal Pensions/SIPPs which I am happy to hold for the long-term, but in addition to that I have bought BP shares when the dividend yield has looked particularly good and sold again if the price has gone up a lot (i.e. fairly typical value investing, but when the oil spill occurred, rather than dumping my BP shares in protest, I bought more as the price dropped. The theory being that BP is a classic value share and therefore it's dividend is safe (Neil Woodford the master value investor at Invesco Perpetual disagreed and dumped his holding in BP long before the spill even happened) The price fell more and I decided that this was the perfect opportunity to buy even more, then it dropped more and I bought more... and so on.

Not once did I start to think that maybe BP was no longer a value share. It doesn't matter who was liable for the spill, BP is no longer the same kind of share. There has been so much news coverage and so much political activity around the subject that this share cannot be valued (in the short term at least) in the same way. Everyone has an opinion of who is to blame, about the stupidity of comments made by Tony Hayward and other BP officials, of Obama's response etc. As a result BP is consistently one of the most traded shares, being bought and sold by people who's valuation is based on news coverage and Technical Analysis ("charting") rather than "value"

There are several possible outcomes for BP which are based on a combination or politics, luck and even the weather, as much as economics. The benign steady-state, low growth high yield scenario is the least probable, which makes the share far less attractive for people who want a high yield, low-risk cash alternative. As a high risk, possibly high-return trading opportunity BP is far more attractive. Technical Analysis (i.e. charting) and news reports and probably going to be more reliable than Fundamental Analysis If the political situation is resolved, the leak stopped and the clean-up goes well, the share price should recover, but if there are any more problems it could keep dropping for a while.

I still hope BP will recover from this. Maybe not to the level it was at, but BP needs to survive to help undo the damage it has caused (although I believe it was not the only responsible party) and there are many pensioners in the UK and US who rely to some extent on BP for retirement income from their ISAs and Personal Pensions/SIPPs

Buy, Hold or Sell BP?

I already have BP shares and haven't sold them so, I shall continue to hold them, but without the anticipation of a steady stream of income (for a year at least). The damage has been done and if BP survives intact they should bounce back. With a cash flow of over $70bn and just $25bn of debt they should survive and eventually reinstate the dividend. The unforeseen events have damaged the company, but that is now in the price of the share and it would require more unforeseen problems to arise to damage it a lot more.

If I didn't have any BP shares I probably would buy some purely as a bit of fun: a gamble on the current drop in price having gone too far, but not as a part of my value investment portfolio

The UK Emergency Budget: Verdict (i.e. a bit of a rant)

2010-06-23T08:56:00.000-07:00

This looked like a good, fair budget at first, helping the less well-paid members of society at the expense of high spenders (via a 2.5% VAT increase) and the banking industry (a £2bn bank levy was imposed). Almost everyone, apart from those in the financial services industry, have had to help fund the bank bailout through their taxes, despite not benefitting much from rising wages over the last decade, while the employees of investment banks have been awarded huge pay rises (and slightly smaller bonuses than usual) to get round last year's 50% bonus tax, when in reality many should be out of work. So it seemed like it was pay-back time for the impoverished tax-payers.

But this is predominantly a Tory government, even if the Liberal Democrats appear to hold some power and in reality it is the lower earners who will hurt the most. Most of the budget was about spending cuts i.e. job cuts, mostly of lower paid staff and benefit cuts, which again affect the lower paid. Benefits for middle-class people were targeted, which makes sense, but middle-class seems to mean anyone earning more than the median salary (i.e. not much more than £20,000 a year) So this of course amounts to a higher marginal tax-rate for the lower paid (as their salary goes up the benefits are taken away) and really has no effect on many of the people who caused or benefitted from the financial crisis. The main tax rise was the VAT increase, which will affect everyone to a certain extent.

I am certainly not saying that cuts should not be made. Unfortunately this is essential and waiting is not an option either. Unproductive or inefficient jobs need to be removed and such jobs cannot be funded just to keep people in work. Excessive benefits that make it better not to work also cannot exist in an efficient economy, but where is the pain for the massively over-paid banking sector? £2,000,000,000 may sound like a lot to take from the banking industry, but it is far smaller than the amount they were given to keep them afloat after their mistakes, risk-taking, greed and incompetence caused all of this mess in the first place. And it is not just the directly bailed out banks that have benefitted - they have all benefitted (in a way that the rest of us could not) due to the incredible quantity of Quantitive Easing (QE) money pumped into the system. If they are so clever that they deserve such enormous pay packets, then they should have known that there was a finite risk of bankrupting the whole world economy if they continued doing what they were doing (and therefore many of them should now be in gaol, not enjoying their extra millions) and if they didn't know then they didn't deserve the huge pay-cheques in the first place.

The 30%+ pay rise that many banks have awarded their staff to evade the 50% bonus tax is evidence that they can afford to pay back what they owe quicker. The bank levy should be far higher. The idea that the banks are so important to our economy because they pay so much back in taxes is rubbish, because they are sucking money out of the economy with outrageous and unfair fees e.g. for poorly performing asset management or for monopolies and mergers that benefit the companies' upper management, the investment bankers and some financial traders, but not the majority of shareholders, pensioners or the employees. The rich get richer and the rest of the population can only hope to benefit from the "trickle-down" effect they have on the economy.

In a sensibly balanced economy people who work hard and/or have valuable skills should earn more (and pay more tax) than those who don't and those who fail should not benefit at the expense of everyone else. This budget certainly goes some of the way towards addressing some of the financial problems that we as a country are in, but does not adequately claw back the money that has been stolen from the masses to pay for the supercars and £1,000 designer handbags for the people who have benefitted from the disaster they helped cause.

Safe Investments for After The UK Emergency Budget

2010-06-21T09:02:00.000-07:00

On the Eve of the UK Emergency Budget, in which the new Chancellor of the Exchequer, George Osborne will attempt to tackle the enormous UK budget deficit, I am struggling to decide what to invest in and wondering what impact tomorrow's changes will have. One thing is certain: there will be tax increases and spending cuts and hence less growth in the economy, but how will asset prices react? Returns on cash are appalling when compared to the relatively high inflation rate making the option of just waiting to see what happens not a long term option.

VAT is one probable target which could have an effect on retail stocks although that may well be priced into the share-price already. Changes to capital gains tax (CGT) could however have an effect on one particular type of investment: Zero Dividend Preference Shares (a sub category of Split-Capital Investment Trusts) have been popular with higher rate tax payers because of the large gap between the 50% (or 40%) income tax rate and the 18% CGT rate, but if CGT goes up to closer to 40% these will become less attractive to very well paid people, but they may remain very attractive to everyone else and their cash/bond-like properties allow for very useful tax-planning (i.e. gains can be predicted and shifted into the most beneficial tax year)

Usually it would be advisable to buy zeros with long maturity dates to reduce the effect of stamp-duty and trading costs, but during times of uncertainty shorter dated zeros could be lower-risk. Here is an example of a Zero Dividend Preference Share (ZDP) that pays more than any one year cash bond (or even any 5 year one) even after the fees and stamp duty are paid and matures in just 11 months:

Edinburgh New Income Zeros (ENIZ) will pay more than 5% return in less than a year. Looks like a good safe investment. It has a negative hurdle rate of about -30% and a good cover of about 1.4 (see articles below for explanation) so, unless the next year is really bad for stock markets, it should pay out current price plus 6% (i.e. a little over 5% by the time stamp duty has been paid on the purchase) which beats any UK bank account over the same period and is a capital gain rather than income (although take notice of any CGT capital gains tax announcements in the emergency budget)

For more about how to value and choose Zeros, other types of split capital investment trust see these articles:

Zero Dividend Preference Shares

Split-Capital Investment Trusts

and

Ordinary Investment Trusts

Buy To Let is Not a "Value" Investment at the Moment

2010-04-28T03:31:00.000-07:00

Most of the expectations and calculations used by most inexperienced BTL ["Buy To Let" Property - see this related article] investors are set by the lenders. All of the BTL investors that I know perceive the magic break-even point to be a rental income that matches the mortgage: i.e. from then on all of the growth in the property is pure profit. This however is the criterion that the lender is concerned about for his risk calculations, not the one the investor should fixate on. What about the equity tied up in the property? How much income are you losing from the money tied up in your property which could be earning a very good return if it were invested in a similarly risky investment in some other asset class? Do not make the mistake of comparing a high risk investment that has a finite probability of bankrupting you with the lower risk returns available from other asset classes: Shares and bonds can drop in value, but they cannot bankrupt you and lose you your home (unless you use borrowed money to buy them)

This is a major miscalculation of many BTL investors: A geared (i.e. mortgaged) investment in property is a high risk investment even when prices haven't just tripled in the course of ten years. Put the numbers into a spread sheet and simulate what would happen if house-prices really did fall or if interest rates rose significantly. I know BTL is a long-term investment, but if your property portfolio is worth less than the mortgage (i.e. all of your investment has disappeared) or the income has dropped below the mortgage payments, or both, the lender will probably pull the plug on your investment just to protect their investment.

BTL investors' expectations of property price growth also seem to be completely unrealistic (in my experience) Generally people expect long term growth of inflation plus 10% to 20% We have just had a decade of growth at over 10% above inflation. It is mathematically and socially impossible for that to continue indefinitely and highly probable for it to reverse. Growth at just 7% above inflation would result in prices doubling every decade, quadrupling every generation and going up 1000 times (100,000% above inflation) in a lifetime (assuming a life expectancy of 100 by then). This is obviously ridiculous and banking on a growth rate above inflation minus 2% or even 5% would be a high risk strategy for the next decade or so.

I am a "value" investor and at the moment property does not represent good value, but will again at some time in the future. Buying a property with cash could result in a long-term stream of income and a reasonable hedge against inflation, but the real returns after costs will be quite low compared to other asset classes, because prices are historically very high. Buying with a large mortgage at this stage could bankrupt you very quickly or make you a lot of money if you wait for property to again become a true "value" investment.

One last point. As a fairly long-term renter I am constantly told that: "rent is dead money" which seems ironic, given that "Mortgage" is actually French for "Dead Money" (sort-of)

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I posted this on the CitiWire web-site in reply to an article entitled:"The real prospects for buy-to-let" By Lorna Bourke on 27th April 2010 under the pseudonym "Long Term Renter"

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Please also see my related article

Anthony Bolton the UK's Answer to Warren Buffett

2010-03-08T07:17:00.000-08:00

Just a few days after Anthony Bolton's 60th birthday he prepares for the imminent launch of his new China Special Situations investment trust; a much hyped new fund that will use his famous value investing skills to pick companies in China that will outperform in the rapidly expanding Chinese economy. But will he be able to find value in what has become a rather popular and expensive stock market?

I still hold investments in China, although I tend to buy and sell as the market gyrates. In most markets I try to buy individual shares, rather than funds, so I'm more in control, but with China, Asia and other Emerging Markets in general, I feel I don't know enough about the companies to do that, so I have mostly relied on investment trusts, other managed funds or ETFs. Most of my Asian and Emerging markets investments have performed extremely well over the last few years and I have taken some profits as the market peaked, then got back in again later. These markets are very volatile and have a tendency to come crashing down again after a strong rally. The China investment story is a very compelling one with fast growth and their economy to soon become the biggest in the world, but a lot of that story is already know by enough people to make the shares quite expensive i.e. a bit like the situation before the dot-com collapse, although of course there could be a lot more growth before anything like that happens, it's just that China is not cheap. Japan however benefits from China's growth and yet Japan is cheap because it has been such an awful investment for so long (I'm not necessarily saying Japan will go up and China will go down, I'm just getting a bit nervous about how well China has performed, to put much more money in at the moment - I did however buy into Japan, which might of course continue being an awful investment)

The main reason for being cautious about some managed funds is they do charge a lot and the only people who are getting rich are the fund-managers and financial advisors but investment trusts are usually much cheaper than unit trusts and don't pay huge commission to the financial advisors. ETFs are even better (although they are not managed by anyone so could be riskier unless you are good at timing the market) The new Fidelity China Special Situations fund is an investment trust, but it does, rather unusually, pay a commission to advisors and does a lot of advertising, all paid for out of the initial costs of setting up the trust, which is a bit naughty (and explains why so many people are being advised to buy it) There is also a hedge-fund style performance fee and a high management charge which will eat into the profits.

Anthony Bolton however is perhaps my favourite fund-manager who uses a value-based approach to choose shares. He retired from active fund-managing a couple of years ago to write music (and also to advise the new fund managers at Fidelity) but has been tempted back out of retirement to run this huge fund. He knows a lot about western markets and about contrarian value-based approach to stock-picking. He was perhaps the most successful fund manager over the last 25 years or so, but does he know all about China? China is very popular with retail investors at the moment so Fidelity (and Mr Bolton) will make a lot of money out of this new fund launch whether the fund does well or not. As an investment trust it may trade at a discount to its net asset value after launch causing it to drop in value immediately, hence the point that this is a long-term investment, although it could trade at a premium and make you lots of cash straight away, but who knows?

So after all that long rambling essay. Would I buy this investment trust? Given that I still have more than enough exposure the China, I am feeling nervous after the recent strong performance and I find the fee structure of the company a little too generous to some already ridiculously over-paid people, probably not, but if I had no exposure to China I would certainly consider it. Anthony Bolton is a very clever chap, but China is a bit of a gamble. It may do really well, but it could be a long term bet. Definitely don't put all of your eggs in one basket.

Fixed or Variable Rate Mortgage?

2010-02-03T02:43:00.000-08:00

Good question. Fixed mortgages should cost more than variable and especially long-dated and the economists at the bank probably know better about what the likely interest rate scenarios are and have priced them accordingly (what am I saying? the whole reason for the banking mess was that people thought that economist knew what was going on!)

To a certain extent supply and demand makes all mortgage products fairly competitive and their price reflects the price the mortgage lender pays for the money. i.e. the bond markets know best. The yield of long-dated government bonds is far higher than that of short dated-bonds so a long-dated fixed mortgage bond (CDO or what ever they are called these days) costs them more than a short-dated one. There is then a small premium for fixed mortgages based on the fact that they are taking risk of having got their calculations wrong, rather than you. On top of that there is the chance that they are also taking advantage of the homeowners being scared of losing their jobs etc. and charging a little bit more.

The main thing to think about is how would it affect you if the rates did go up early or a lot? Some people have to go for a fix because they would quickly go bankrupt if the rate went up dramatically, whereas if you are not over-stretched, taking the gamble (and pocketing the risk-premium and interest rate savings in the mean-time) could be cheaper (or much more expensive if the UK's credit rating is down-graded) but remember to save the difference in premium at the beginning to act as an insurance policy if the UK follows the path of Iceland or Greece. As one economist said recently "the UK is like Greece only without the sunshine"

Soooo... Personally I'd go for a fix if a variable mortgage could become unaffordable in the probable worst case scenario (i.e. very big mortgage) and a variable if I could afford the worst-case scenario (but also not spend the extra cash in the mean-time!) Actually, if I really had to make a decision at this stage I would rent rather than buying my home.

Other places to put your money...

Which Shares to Buy At The Start Of The “Teenies”

2010-01-05T06:28:00.000-08:00

New Year Investment Rotation: Buy Sainsbury (LSE: SBRY)

As we leave the Noughties and start pondering what stupid name to give the next decade, it could be a good time to review our investment portfolios. We have just had (or possibly missed) one of the best rallies in living memory for most of the world’s major stock markets; from the panic induced lows of March to the “Santa Claus Rally” of December the FTSE has gained over 50% and many other markets have rallied even more than that. Logically this could be a good time to take profits, after all, selling at a large profit can never be a bad idea and continued growth at that rate cannot continue (can it?). Not all shares, however, enjoyed such huge returns and if they were cheap in March they are still far from expensive now. With savings interest rates still historically low maybe it is time to shift money into some of the high-yielding shares that got left behind, rather than leave it languishing in a savings account.

What Might Happen Next?

Well, there probably isn’t going to be another 50% rally from here, at least not for the whole market and possibly even a dip in prices. There are a lot of uncertainties in the pipeline: interest rates will rise at some point, but when and by how much? Various previously safe countries such as our own may have credit rating downgrades and to misquote Donald Rumsfeld there may be an unknown quantity of unknown nasties hiding in the financial sector balance sheets which could either cause a few minor shocks or start a whole new banking crisis. Government bonds (Gilts) are usually a good safe haven, but they will lose value when the interest rates start rising, as will blue chip corporate bonds. Gold has had a good run and could keep going, but some of the recent rally was caused by the huge amount of QE liquidity bubbling up in all of the usual places. Similarly for property, which could also easily be upset by increasing taxes, interest rates and poor overworked, underappreciated bankers selling up and moving abroad to friendlier (and more tax efficient) climes. None of the usual safe havens look very appealing.

So What’s Left To Invest In?

I have several favourite UK shares that consistently provide a good dividend and tend not to be too volatile, which I frequently shift money in and out of; not exactly a proxy for cash but good boring medium-term investments with some protection from inflation: oil majors; pharmaceuticals; telecoms; food retailers etc. all the usual suspects. One particularly interesting share, at the moment is Sainsbury (LSE: SBRY) Its share-price, over the last year has done little more than just wiggle up and down a bit. No rampant growth and not eve n a little excitement at the imminent arrival of Santa Claus. Tesco (LSE: TSCO) and the FTSE100 however have rocketed upwards over the last few months. While not a proponent of technical analysis, I did notice that plotting Sainsburys against the market and its supermarket rivals highlighted the apparently low correlation of this share (i.e. low Beta and probably low risk). If the FTSE goes up SBRY may not follow, but if it were to go down the same could also be true, potentially reducing the risk of owning this share.

The Fundamentals

The P/E ratio for Sainsbury (LSE: SBRY) is about the same as Tesco at less than 16. The dividend cover is lower at 1.3 versus 2.3 making the dividend less secure, but the yield was a very respectable 4.24% (Tesco and Morrison both paid just 2.2%) Sainsbury has been gaining market share over Tesco in 2009 and the real key to determining the relative value of the supermarkets would be in accurately determining their growth rates, although that will perhaps only become fully apparent after the next few weeks of sales have been analysed.

Sainsbury (LSE: SBRY) is not one of the highest yielding shares in the FTSE100, but the dividends have tended to consistently grow each year and we do still need to eat, even if things turn nasty again, so the company’s profits should not suffer too much. Add to this the occasional rumours of takeover bids from oil-rich Qataris and there could still be room for extra growth. Obviously takeover rumours are little use to an investor if they never come to fruition, but they can be quite fun in the medium term: buy when the dust settles, then wait for the next rumour, banking the dividends in the mean-time. Sainsbury hasn’t had a great year, but should be a good safe bet with a higher dividend yield than it’s immediate rivals.

Zero Dividend Preference Shares, Corporate Bonds vs Cash

2009-10-27T05:22:00.000-07:00

If you have read my investment ramblings before you will know that I have been keen on Zero Dividend Preference Shares (the lower-risk type of share issued by certain Split Capital Investment Trust Companies) for a long time and more recently corporate bonds. The former had become very unpopular after a "miss-selling scandal", making them extremely cheap and an excellent investment over the last few years, but they have suddenly become popular again now the new proposed 50% income higher tax rate is on the horizon; ZDP profits are capital gains and are therefore taxed at just 18% making them far more tax efficient for high-earners. Corporate bonds have also enjoyed a huge boom in popularity because of their comparatively high coupons (interest rates) when compared to deposit rates. Both of these asset classes have increased in value, reducing the possible future rates of return. Both react positively to the reduction in bank base-rates and are becoming less attractive to buy now, although there may be some value left.

The case for both Zero Dividend Preference Shares and corporate bonds is complicated by the unknown future interest rates; Will rates stay low for years or start rising soon? As soon as the base rates start rising both asset classes will look less attractive, but even before that how attractive are they now anyway? Zero Dividend Preference Shares are best held to maturity, to avoid being exposed twice to large bid-offer spreads and the further away the maturity date, the more uncertainty there is over the bank base rates. Short dated zeros are hampered by very significant bid-offer spreads and charges eating into the profit.

The best short dated Zero Dividend Preference Shares currently available are perhaps Premier Renewable Energy and Premier Energy and Water (PEWZ) which are currently yielding less than 4% and 5% if held to maturity in December 2010 (excluding dealing costs and bid-offer spreads), but both have good share cover and hurdle rates (see this article for more about how to analyse these numbers). Another slightly longer-dated zero is Edinburgh New Income ZDP which matures in 2011, but still yields less than 4% and Utilico maturing in 2012 yielding a little over 4%. Longer dated zeros from JZ Capital Partners maturing in 2016 and Utilico maturing in 2014 and 2016 offer about 6% to 8%. The best way to compare these returns is against government bonds of the same maturity or "savings bonds" of the same or similar maturity. These look particularly attractive if you are a 40% or 50% tax-payer, but for other people a savings bond may prove a better (and safer) bet.

The case for corporate bonds is actually rather similar, although the tax situation is different: when base rates go up the fixed income return from bonds will look less attractive, causing a potential drop in prices and given the huge recovery in price over recent months taking some profit before this happens looks like a good strategy. It is always good however to have some bonds in a balanced investment portfolio.

Will The Equity Rally Run Out of Steam?

2009-08-13T03:53:00.000-07:00

Time for an investment update. I may have reduced my equity exposure a little early, but the corporate bonds have performed extremely well.

I bought iShares Corp Bond ETF (SLXX) a few months ago. There aren't a huge variety of UK bond ETFs, but SLXX has performed extremely well (up over 20% and a good yield) SLXX still looks good and the yield is still reasonable at over 6%, but the yields on gilts have gone up too as have the best interest rates on long-term savings accounts, so I'm not sure how much more capital gain is available from corporate bonds. The yield however should be safe, so as a long term investment it should do better than even the best cash account, until bank base rates start going up again, which could be a while yet.

SLXX just tracks the Sterling denominated investment grade corporate bond market and therefore has a huge exposure to financials (almost 60%) which proved to be beneficial, but does make it perhaps a little unbalanced. For a bit of diversification I also, reluctantly, bought some bond unit trusts and one high yield bond investment trust, Invesco Leveraged High Yield Fund (ILH) I try to avoid using managed funds, but they have actually, mostly, done just as well as the SLXX ETF, but over the longer term I imagine the annual management fees will eat into the returns. ILH has more than doubled in just a few months and paid a yield of well over 20% (although the percentage yield has obviously dropped now) Invesco Perp Corp Bond, M&G Strategic Corp Bond, Artemis Strategic (and several others in my ISAs) all seem to be doing rather well: up 15 to 20% and are still yielding between 4.7% and 6.5% (and closer to 10% for high yield funds)

After the recent share-price rally, taking profits and moving into corporate bonds could be a good idea, although the return from bonds will probably be much lower than over the last few months and I intend to reduce my holdings as soon as normal savings accounts start looking attractive again. Government bonds don't look good at the moment. I think that the equity market rally looks like it will run out soon and probably drop back. I shall pile back in if the FTSE gets close to 4000 again. I won't sell all of my share holdings in the mean-time though, but I will probably short the market with covered put warrants if it looks precarious.

I have been a big fan of gold for ages. I even have a little pile of gold sovereigns for insurance against a complete market meltdown. I have traded ETFS Silver and Gold Bullion Securities and ETFS Physical PM Basket, precious metals (PHPM) ETFs. I try to trade the volatility in gold and silver, but I also have some for the long term as an inflation insurance. I have a few mining shares too which are very volatile. Gold will do well in times of uncertainty and inflation etc. so it is generally uncorrelated to other asset classes and there is an old saying that you should have 5% of your assets in gold and hope it doesn't go up in value. I think there is a very good chance it will go above $1000 soon and then might rocket even higher, but it does have the annoying habit of dropping back for ages and of course doesn't pay a dividend. It should be a good inflation hedge as the dollar collapses.

Is It Possible to Make a Living on the Internet?

2009-06-30T08:30:00.000-07:00

How to Make Money Working From Home on The Internet

When I resigned from my job to "spend more time with my money" I starting researching the many claims I had read, about how easy it is to make money from the internet. Not because I needed to, but if there really is easy money to be had, then I wanted some of it. Here are the results of several months research into the subjects:

These are ways to earn money on the internet, that I have tried:

Publishing your travel photos or sell them via Zazzle.com

Answering surveys

Writing product and travel reviews

Writing in general

Trading Shares, Bonds, Gold Coins or Spread Betting.

Blogging

and, Squidoo

For details about all of these options and the relative merits please see the full article here...

These are all viable ways to supplement your income and can even be fun, but some of them really are a lot of work for not much reward. I have tried quite a few of these various internet sites and also a few riskier, internet trading strategies (which I have found to be much more lucrative per hour).

Make Money From Writing

There are many web-sitse that allow you to publish your creative writing, product or travel reviews (see details of all of these in the full article) but generally you will need to do a lot of social networking to get people to read your work and hence earn you money. Helium is an internet writing community where the emphasis is on enjoying writing good quality articles, getting them published and read.

Here are a few examples of articles written by me on Helium:

Rio de Janeiro: A Travel Diary

Classic Car Review: Ferrari 308 GTS

Car Review: Jaguar XJ12

Car Review: Jaguar XKR

Brazil Vacation

Savings and Investment Article

Bangkok (during a military coup)

Tiger Safari in India

Marrakech Morocco

Vacation in Cuba

African Safari: Namibia

Investing in National Savings Premium Bonds

How to Reduce Risk of Your Investment Portfolio

Investing in Corporate Bonds

For good earnings you will need to write a lot of articles, but they then keep earning royalties and you don't need to do anything (apart from rate a few other articles every 90 days to remain eligible for payment).

See my separate article about creative writing for money

The minimum payout is $25 (approximately £18)

Publishing Photos

Zazzle allows you to create a gallery of products (T-Shirts, mugs, stamps, mousepads, postcards, shoes, bags etc.) featuring your photographs or artwork. The products are created on demand, so there is no set-up cost, just profit when an item is ordered.

Conclusion

Giving up a well-paid job to try to make more money from interacting with web-sites, is a very risky thing to do and even achieving minimum-wage is quite hard, unless you really are taking a risk, such as share or commodity trading/spread-betting.

From the methods described in this article, the best guaranteed payment, per hour of time actually logged into the various sites, comes from some of the survey sites. Generally this is rarely much more than minimum wage (e.g about £6 per hour in the U.K) although avoiding low-paying surveys improves returns and with practice they can be completed more quickly than the specified amount of time.

Writing and publishing on an internet community and review sites can result in reasonable payments per hour of writing, if you discount the time spent reviewing other peoples' work and interacting with the community, which is more time consuming than the writing; if you enjoy the community aspect these can be a good way to earn some extra money and have some fun, but including the time spent reading and reviewing other peoples' work they pay a very low hourly rate.

If you want to make big money on the internet then you either need some money to invest and you need to take some risk. My compromise, is I trade shares, bonds and commodities (gold coins) over the internet and spend most of my time monitoring the markets, but simultaneously, during the breaks and when the markets have no obvious direction, I make a bit of extra cash from these other methods.

Bonds and Convertibles, Zeros and Gold. What shall I buy?

2009-06-19T05:08:00.000-07:00

Another exciting week of investing/trading is coming to an end. I am still struggling to find any definite direction in most of the markets that I am monitoring. Opinion seems divided more than ever: Are we in a bull market or is this just a bear-market rally? Should we worry about deflation or hyperinflation?

My opinion is that this is probably a bear-market rally, that will stop abruptly, but I hope that it will go on a bit longer and I expect that we will have deflation for several more months followed by inflation and possibly hyperinflation. So what am I doing about it?

I'm still very keen on Gold and Silver, both in the form of coins and Exchange Traded Funds (ETFs) Gold and Silver prices are quite volatile, so I buy on the dips in price (or when sterling is strong versus the dollar) and via Black Rock Gold and General fund (gold and gold mining shares) inside my ISAs (Individual Savings Account)

Corporate Bonds have had a very good run, since I invested heavily in them, both in terms of income and capital gain. I expect (and hope) this will continue for some time, because the yields are high compared to cash, but interest rates are creeping up, so I am keeping a close eye on that, so I can get out if necessary. I didn't avoid banking bonds, unlike many fund-managers, which has been beneficial too. They weren't as risky as many people thought and paid a very good yield. The same seems to be true of high yield bonds too. I bought Invesco Leveraged High Yield Fund (ILH) which is one of the few Investment trusts that invests in bonds (due to unfair taxation of ITs, although this has been changed in the last budget) ILH has performed extremely well.

Zero Dividend Preference Shares (ZDPs) have been in the news rather more than usual recently, because they are very tax efficient (they don't pay a dividend, so all return is in capital gains) and the new 50% income tax rate for high earners in the UK makes them more attractive than ever. For a full article about how split capital investment trusts work See my article here

JZ Capital Partners Zero Dividend Share winds up next week after making me a nice steady 8% APR since I bought them a couple of years ago. New JZ Capital Partners zeros will be issued
, also paying about 8% until maturity in 7 years time. Ecofin are also launching new zero dividend shares at £1.00 each with a life-time of 7 years and a gross redemption yield of 7% (i.e. £1.60 will be paid to each zero share holder on expiry) They have a cover ratio of 4.5 and a hurdle rate of about -20%, so these are relatively safe.

Another interesting alternative to zeros and bonds is convertibles. M&G Global Convertible fund looks good: probably a fairly low return, but good protection against all eventualities. If stock markets continue to rise the convertibles can be conveted to shares and if they don't they continue behaving like bonds.

Le Mans 24 Hour Motor Race, 2009

2009-06-07T07:09:00.000-07:00

It is less than a week to the Le Mans 24 Hour Race: The best motor race in the world. It starts on Saturday 13th June at 2pm Central European Time.

Le Mans, in France, is famous for the 24-hour race, which is a favourite of many British car racing and classic car enthusiasts. Various classes of sports car compete in a battle of reliability, attrition, fuel efficiency and speed during one weekend a year in mid June (13-14 June 2009). It is a full weekend event; the race starts on the Saturday afternoon at 2pm and runs continuously for 24 hours, but for the average British person the fun begins some days before at the start of the road trip to France. And there are some races and testing in the days leading up to the race weekend. The race is organized by Automobile Club de l'Ouest and the official web site is www.lemans.org and is held at the Circuit de la Sarthe starting at 14:00

I have been to this event several times, in a variety of classic and not so classic cars: the last few times I took my old Ferrari 308 (the Magnum car) or Alfa Spider (similar to the one Dustin Hoffman drove in The Graduate), but the majority of the British contingent have classic British sports cars.

Here is an article about the event and some photographs from previous years...

Tuscany, Italy: Beautiful Countryside, Art, History and Wine

2009-06-04T03:17:00.000-07:00

I recently returned from a very enjoyable trip to Tuscany in Italy (or "Chianti-shire", the favourite holiday destination of many english tourists) A well deserved break: a few days away from the gyrations of the stock-markets.

Tuscany is beautiful part of Italy with many picturesque medieval hill towns, which are relatively close together, separated by beautiful countyside, rolling hills, olive groves and the vinyards of the Chianti making the region and neighbouring Umbria ideal for a driving holiday.

Our route was: Pisa, San Giminignano, Montepulciano, Cortona, a vinyard on the "Chianti Road", Volterra, Lucca, then back to Pisa. We rented a small car; a Fiat 500 - a modern version of the classic 1960s Italian Car Driving in Italy is relatively easy on the main Autostrade roads, although is more difficult on the small road. A small car is a good idea for some of the medieval towns. Driving in cities is more difficult.

The "Chianti Road" runs between Siena and Florence and is an excellent route to take through the Chianti vineyards of this famouse wine region. Greve In Chianti is the biggest town en route, but staying at a vineyard could be a more pleasant experience: great food and of course wine straight from its source.

For Hotel recommendations and reviews: See this European Hotel Review Article...

Investment Dilemma

2009-05-31T03:02:00.000-07:00

I have been a big fan of Zero Dividend Preference Shares, (the safest share class of Split Capital Investment Trust Companies) for several years now, after the mis-selling scandal in which these shares were sold as a guaranteed return product to risk-averse investors. The prices of even the safest ZDPs dropped after a few risky ones collapsed. No one else would buy them, so I bought lots of them, making a very nice return. There are few left and the ones that do remain are only returning about the same as Corporate Bonds, but they still represent a good value and have the advantage of all profits being capital gains (i.e. useful for tax-planning)

I have some which are about to mature: *JZ Capital Partners, but I also own the riskier Highly Geared Ordinary Shares.

*JZ Capital Partners is an interesting case. The ZDP shares wind-up on 24/06/2009. The company does not have adequate cash to pay the ZDP (JZCZ) shares, on this date, although more than enough assets. The Highly Geared Ordinary Shares (JZCP) of the company have no defined end-date and a rights issue has been proposed (7 shares issued for each 3 shares held) in order to fund the cash payment of the JZCZ ZDP shares.

The Dilemma is: Should I buy the newly created shares in the rights issue? If I buy them and the company fails after the ZDPs are paid off I will lose my money, but if I don't buy them and the company survives I miss out on potentially huge profits.

I have a few days to decide...

My first post - Investment musings

2009-05-30T03:55:00.000-07:00

I didn't intend to write a blog; I'm far too busy for that and blogs are just sooo 2008, but I have relented. I shall give it a try. I need to keep a diary of my investment ideas and why not publish this in the form of a blog?

After "retiring" from a proper job in the Silicon Chip design industry, where I worked as a design consultant, I set up my own company to provide consulting services and training, but I am also a semi-professional photographer, keen traveller and stock-market trader, so I expect my blogging will be more about these topics than chip-design.

I tried to use a Squidoo TwitterStorm lens: Investment Ideas to record my cunning investment ideas, but many of my posts have been lost and I found it difficult to express myself in so few words.

My latest investments have been:

Gold and Silver

Corporate Bonds

Gold as an insurance policy against economic disaster and/or hyper-inflation and corporate bonds because they appear to be extremely undervalued (see the articles above for more about that)

With economic worries all over the world you'd be mad to invest in anything at the moment, wouldn't you? But there is always a bull-market in something somewhere in the world, but where is it? Is it best to play safe, keep your money in the form of cash or just pay down as much of the mortgage as possible or take a gamble while prices are low. Will they go lower?

Government Bonds (or Gilts)

Government Bonds are a safe haven investment. AAA rated countries such as USA and the UK will always pay back your money and the annual "coupon" (interest) so what can go wrong? Some major economies (including UK and US) are perceived to be not quite as safe as they were and while no immediate downgrade has occurred their is a reasonable chance of it happening soon. This will probably not cause a default, but will result in a reduction in value. Also if inflation returns bonds prices will fall as interest rates rise to combat it and the real value will be eroded.

Blue Chip (Large Company) Stocks and shares are cheap, but will they get cheaper?

There are historically good dividend yields from big household names, but will they pay their promised dividends? If not, both their value and the income stream could be impacted. Pay careful attention to the safety of their dividends and/or buy a selection of shares in unrelated industries to reduce risk, or buy a collective investment such as an Exchange Traded Fund (ETF) or an Investment Trust

Corporate Bonds pay a huge yield, but will they default?

Historically high yields, compared to bank base-rates after a Hedge Fund sell-off (bonds were sold by many companies in need of cash) if markets return to normal the yield spread between government and corporate bonds should shrink causing a significant gain in value. This has already started to happen (May 2009) but could go a lot further. As with government bonds however, if inflation returns, bond prices will fall as interest rates rise to combat it and the real value will be eroded.

Gold is a great insurance in times of financial trouble, but doesn't pay any income. (See related article)

Which economy: USA, Europe, U.K. Japan...?

Or just leave you money in cash (But Dollars, Sterling, Euro or Yen?)

Zero Dividend Preference Shares look very good.

Zeros (ZDPs) behave much like Corporate Bonds except the profit is returned in the form of capital gains at the end of their lives, so these too have looked very attractive (especially for those hoping to avoid income tax) There are, however, just a few left with good gross redemption yields and suitable time to maturity to make a purchase worthwhile (see the link above for details of how to value them)

Investment Trusts look very cheap.

Investment Trusts often sell at a discount to their net assets, especially at times of economic stress, so there are some bargains around (if you think markets will recover soon)

Spread-betting can make you money in any market (or lose you money)

A Balanced Portfolio i.e. all of the above might be a good bet?

Buying some Gold could also be a good insurance against your currency being devalued?

Or how about hedging your portfolio with derivatives, Options, Warrants or Futures

Please leave comments. What do you think is the best bet at the moment? Do you believe in Technical Analysis (Charting) for predicting price movements?