UK Business Outlook Report November 2023.

This report is produced 3 times a year, the results for the third of 2023 show the following findings:

• The UK headline index dropped to +37% in October, signalling the softest projections for business activity in a year.
• Non-staff costs and output prices expected to rise at the slowest rate since February 2021.
• Strong hiring forecasts keep wage expectations near record levels.
• Higher interest rates weigh on investment plans as Research & Development spending expected to fall.
• Cost pressures likely to delay business sustainability targets.

An Audience of Zero

In the world of success stories, it’s easy to forget that every master was once a beginner, every superstar had moments of doubt, navigating the sea of obscurity with no goal other than doing the work. But what does it really take to start something new, what struggles will there be along the journey?
Tiger woods is one of the most renowned golfers in history, yet he would have started with an audience of zero. Although a talented child he still had to practise for hours, fine tuning his swing, mastering the course, and absorbing the defeats long before he garnered an audience or payment.
Similarly, when Lewis Capaldi, the Scottish singer-songwriter and musician, started his musical journey he wasn’t selling out stadiums or topping the charts. He started playing to empty rooms and faced rejection from multiple record labels, and would have feared never making it big, but he still showed up and played to an audience of zero.
Starting anything new, whether a business, hobby or a dream, the journey always starts at the base of a mountain. Not in front of a crowd but an audience of zero. There is always the question – is it worth it? But lessons are learnt, and characters formed along the way.
Every success story starts with the decision to try. Whether it’s Tiger picking up his first golf club or Lewis penning his first lyric, every legend starts their journey with an audience of zero, facing the same fears and uncertainties we all confront. So, the next time you stand on the brink of something new, remember you are in good company. It’s not about how you start but how you persevere and where you end up. Enjoy the journey, the destination does not exist.

What is risk?

For Theresa May it turned out there was nothing in the world riskier than running through a field of wheat…..NOT an example that resonated with the rest of the country!
In the world of finance, people spend a lot of time being far more precise about what risk is. If it can be pinned down to one number, it feels more controllable and presentable.
But it is more complicated than that. Risk measures aren’t standardised like measures of volume, distance or weight.
If ten people were asked to pour a pint of lager, fill the glass to the brim and that’s a pint. There would be ten identical pints. But, if ten people were to measure the risk of the FTSE 100, it could easily end up with ten completely different answers.
Let’s look at one of the favourite measurements of risk, volatility.

This table shows the volatility* of the FTSE 100 calculated in two different ways.

*Volatility refers to the amount of uncertainty about the size of changes in the price of an asset, usually measured by standard deviation (which we use here for the FTSE 100).
A higher volatility means that values might move around a lot in either direction. A lower volatility means that a security’s value tends to be more stable.

Source: 7IM/Factset, as of 30/10/2023

The frequency with which you measure volatility has a material difference on the outcome, as does the time chosen.
Over five years, measured daily, nearly 18% volatility, but if measured monthly over ten years its 12% – one third lower!
Strangely though, in the last column the FTSE looks a lot more volatile measured monthly from the middle of the month compared to the end of the month.
Does that mean anything? Well, it might.
If a bartender poured 10 different quantities when pouring a pint there would be chaos, also they would be breaking the law! The same is true for portfolios, if you don’t pay attention to the inputs to make sure they are consistent.

Clear Financial Advice Staff News

We are delighted to announce that Harrison Anderton is now a fully qualified paraplanner, after passing his final exam.
Well done, Harrison!

Anyone know?  No-one?

It is the 15^th century German merchant and cleric, also known as Fugger the Rich. Of course, it is!
He was given this name by following a simple strategy:
“Divide your fortune into four equal parts- stocks, real estate, bonds and gold coins. Be prepared to lose on one of them most of the time. Whenever performance differences cause a major imbalance, re-balance your fortunes back to the four equal parts.”

(As with all quotes, there’s a furiously active sub-Reddit where people argue over the legitimacy and the accuracy of the translation from 15^th Century German.)

The secret to his wealth is in the second part of the quote. Its not enough to have a good portfolio, you must keep it in good shape.
He had the psychological commitment to take profits from his successful Hungarian copper mines, and spread them into loans to the Vatican, into precious metals and property.
He rebalanced.

We can see the impact by looking at the chart above where interest rates at an average of 5.35%.

Between 1993 and 2007, the FTSE 100 returned 199% – a £10,000 investment ended up being worth just under £30,000. Government bonds returned around 170% – £10,000 turned into £27,000.

A 50/50 portfolio, rebalanced every month returned halfway between the two, about £28,500.

Here you can see the power of rebalancing.
Taking the portfolio back to a 50/50 split at the start of each month results in a return of 196%! £10,000 turned into £29,600, just short of the full equity portfolio.
The equity portfolio falls 46% from its high at one point, whereas the 50/50 portfolio’s largest drawdown is 15%.This process of diversification made Fugger by most counts the richest man in history!
When he died in 1525, he was worth 2% of the whole of Europe’s economic output, which equates to roughly $400 billion in today’s money. Not a bad result from boring old diversification!

It’s never too early to get ahead of Christmas!

Christmas cards are now available, please consider buying them from Clear Minds Charity.
£5 for a pack of 10.

To order please click here

2024 is going to be a busy year in politics.  Our attention is naturally drawn to what happens in the UK, the bigger picture shows an absolute election-fest across the world!

It is guaranteed the golden question will be asked:

Depending on political allegiance and occasionally, emotion, this question is often loaded with pre-conceived ideas. To avoid getting into the trenches on this, a better route to form an answer would be via data.
The US is a good example to use as it’s the biggest economy in the world, the election cycle is a nice fixed 4 years, and there’s lots of data. Looking at the annualised return of the US market or each four-year period (identified by the President who started, even if they didn’t finish).Here’s one of those pre-conceived ideas:

It’s often assumed that a Republican government is more “market-friendly” than a Democratic government. But does that tally up?

No – almost unbelievably, the average annualised return for each party’s period in power is the same: 7.2% pa.

So the answer is:

The investment world is bursting with buzzwords designed to prey on investors deepest fears, while ignoring their needs.

Let’s dive into the hypothetical. “Wealth preservation” is essentially a siren song for the wealthy, naïve investor- someone with a load of cash, no investment acumen, and paralysing fear of losing a single penny.

So what does “money” really mean? Most equate money with currency, so if you were to have 10 million golden coins today, you would expect the same amount when you cash out, regardless of when that is. But there is always inflation (the slow, steady destruction of your money’s worth), and the hidden menace of low returns (a risk no one talks about). The way to combat both threats is to park that money in a global equity fund. There would be market swings, but history suggests that the pile of golden coins, if left untouched, will grow in the long term, it may even multiply!

The “wealth preservation” myth is like spoon-feeding clients what they desire, not what they truly require. Why is it that only the affluent seem to hear this tune? Is it the false notion that once they have financial independence, there’s no further need to invest? This is one of the
many delusions peddled to the rich.

The attempt to safeguard your currency by adopting an inefficient investment strategy due to fear of short-term market fluctuations is financial folly. Investment trends show the returns are real and within reach.

In recent years we are used to seeing charts like the one below with one equity market trouncing the others.
Guess which line represents which equity market?

You picked the US for the orange line…didn’t you? After all it’s usually the case. The rest of the world lags behind and “US Exceptionalism” is a term which is bandied about.Over time these repeated patterns stay embedded in our brains. For more than a decade the S&P 500 rule the world and it’s hard to imagine a picture where it doesn’t dominate. Like interest rates – they were low for so long that people couldn’t consider a higher rate world, until it happened!
But it wasn’t so long ago that the US market wasn’t the world leader.

Taking you back to the mid- 2000’s…..
Remember, Greece was hosting the Olympic Games and winning the European Football Championships.

The first ever YouTube video was published and Netflix was mailing out DVDs.
The charts were ruled by the Sugarbabes, Busted and McFly, and listened to on CDs.
If you were an investor, you were desperately trying to avoid the US equity market:

For four years, between 2003 and 2007, the US equity market trailed almost every other investable index. Japan, Europe, the Emerging Markets and the FTSE100 outperformed by more than 20%. We tend to assume that today’s trends are the final state of the world, but as the disappearance of the tank top and Blockbuster prove, things will change!

Permanent placements decline at weakest rate in three months.

Temp billings return to growth.
Pay pressures ease as staff supply continues to increase.

Price and value are two different things, as Warren Buffett knows, and when it comes to investing, we often forget that! We get obsessed with price but that’s not the whole story.
Since the start of 2000 investors in the FTSE 100 have had various events to deal with.
The graph below shows some of these. The UK’s flagship index has grown from around 6600 to around 7600 over that time.

That’s a price return of about 14% or about 0.5% per year which doesn’t seem a lot, but that does include dividends. These are a huge part of the value received from investing.

Over the period the FTSE 100 had an average 3.8% annual dividend. With that included the picture changes completely as seen below. (Both lines rebased to 100 at the start of 2000)

Rather than a 14% return over nearly 24years, the return is closer to 170%, around 4.5% per year. People concentrate on the price of what they bought, but if they invested £100,000 back in 2000, it would be worth £270,000 today.
That’s the value of reinvesting the dividends!

It’s never too early to get ahead of Christmas!

Christmas cards are now available, please consider buying them from Clear Minds Charity.
£5 for a pack of 10.

To order please click here

Unfortunately, financial scams are on the rise, targeting individuals, businesses, and even government agencies! These scams come in various forms, from phishing emails to investment fraud and doorstep scams. Falling victim to these fraudulent schemes can have devastating financial and emotional consequences. To protect yourself and your assets, it’s essential to stay informed and vigilant. In this article, we will shed light on common financial scams in the UK and offer tips on how to avoid them.

Investment Scams:

Investment scams are prevalent in the UK, often promising high returns with little to no risk. Scammers use enticing advertisements, cold calls, or fake websites to lure victims into investing their money. These fraudulent schemes can lead to substantial financial losses.How to protect yourself: Always research any investment opportunity thoroughly. Check if the firm is registered with the Financial Conduct Authority (FCA) and consult their warning list of known scams. Be sceptical of unsolicited investment offers and resist high-pressure sales tactics.

Banking and Phishing Scams:                                                                             Phishing scams involve scammers posing as legitimate institutions, such as banks or government agencies, to obtain sensitive financial information. Victims may receive fake emails, texts, or phone calls requesting personal data like bank account numbers or PINs.

How to protect yourself: Never share personal or financial information through unsolicited emails or phone calls. Verify the authenticity of the contact using official contact details provided by your bank or relevant organisation.

Pension Scams:                                                                                                                 Pension scams target retirees, offering false opportunities for early access to pension funds or promising unusually high returns on investments. These scams can result in the loss of life savings and retirement security.

How to protect yourself: Consult the government’s official website for information on pension scams. Be cautious of unsolicited offers related to your pension and seek advice from a trusted financial advisor before making any decisions.

Doorstep Scams:                                                                                                   

Doorstep scams occur when fraudsters visit homes, often posing as utility workers, tradespeople, or charity representatives. They may pressure victims into making payments for services or goods that are never delivered.

How to protect yourself: Always ask for identification from individuals visiting your home. If in doubt, contact the relevant company or organisation to verify their identity. Don’t make payments or sign contracts on the spot without doing your due diligence.

Averages are everywhere and although they can help to simplify things, they are not always useful!

But, no-one in the UK has exactly 1.9 children!!
Sometimes averages are worse than useless, they are misleading……
U.S. Air Force Lt. Gilbert Daniels found this whilst trying to design a cockpit for the average US fighter pilot in the 1950s. More than 4000 pilots had 10 key measurements taken – chest/legs/arms. Not one of the pilots matched the overall average! He might have the average arm-span, but longer or shorter legs, or wider or thinner chest. The average pilot did not exist!
We see the same thing in finance, The average year in markets does not really exist.
Although the average return of the S&P 500 (Standard & Poor’s) over the last 42 years is 10%, only once in this time has the actual annual return been 10% (in 2016). Only three other years are even within 2%, there are positive years, sideways years and terrifying negative years.
When setting our expectations, the chart below is a good reminder that the average annual return isn’t at all common.

Value of a brand

Guess what this map shows? There is a hint in the colour scheme……

It shows where, as of 2023 you can officially buy Coca-Cola. If you are in Russia, Cuba or North Korea you are out of luck.
Unsurprisingly, as ‘Coca-Cola’ is the second most understood word in the world (after OK) according to Coca-Cola, it is arguably the most successful brand ever.
The idea of a brand is clearly worth something. If offered all of Coca-Cola’s business empire- the recipe, the factories, the distribution, the fridges, but not the logo, would you get a good deal? Is it the label or the product you want? Difficult to answer, for lots of big companies globally not just Coca Cola. What’s the iPhone worth without the Apple logo? Or a burger that isn’t Big? How much of the cost of your flat white is in the Starbucks logo on the side?
One of the most significant trends in investing has been the rise in intangible assets over the last fifty years – intangibles aren’t just brands; intangible assets includes software, copyright, patents and even consumer data (our data!).The chart below shows the change in the US market. Most of the value of the world’s largest market isn’t visible or touchable.

The vibrancy of the services sector drove the rate of expansion of the global economic activity to a one and a half year high in May.
Business optimism and solid job creation continued as companies reported a further upswing in new orders.
As the graph shows, the J.P. Morgan Global Composite PMI Output Index rose to 54.4 in May up from 54.2 in April, to signal expansion for the fourth month in a row. The index is produced by J.P. Morgan and S&P Global in association with ISM and IFPSM.
The service sector outperformed manufacturing during May, with the growth of activity accelerating to its best since November 2021. The growth of manufacturing also improved to an 11-month high.
The survey covered business services, consumer goods, consumer services, financial services, intermediate and investment goods, who all registered output growth in May. The quickest rate of expansion was in financial services and the weakest at investment goods producers.