MONTHLY NEWSLETTER – NOVEMBER 2023

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!

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