The Magical World of Derren Brown.

Five great technical revolutions have defined the progress of mankind… The Stone Age…The Bronze Age…The Iron Age…The Industrial Revolution…The Information Revolution. Now Robotics and Artificial Intelligence will become the sixth revolution to take mankind forward. Perhaps this era would be bettered named the Age of Magic.

We may not understand how Derren Brown appears to be able to levitate and walk on water, but we do know that it is achieved by misinformation and trickery and so we can rest easy. This is not the case with the advances in technology, such as medicine, robotics, nano and artificial intelligence sciences. As these become increasingly more complex, they are rapidly becoming more akin to magic for the bulk of the population. Technology is developing faster than education can instruct. Those that can keep up, the whizz kids of today such as Zuckerberg and the like, will become the controlling wizards of tomorrow.

Twelve months ago I wrote an article saying that technology funds invested in companies immersed in the Information Revolution should still be a good source for capital growth. Most of these funds carried Google, Apple, Microsoft, FaceBook, Cisco, Alibaba and Amazon in their portfolios, all the well known companies from this era. The concern was that these have massively high valuations and there is always the possibility of an imminent correction around the corner. They are also mainly dollar denominated, and any movement in the relationship between the dollar and sterling produced instant change for sterling based investors. Nevertheless these funds have still produced great returns.

Polar Capital Technology up 53% in the last twelve months….Scottish Mortgage Trust 45%

Henderson Global Technology 40%….L&G Global Technology 36%…AXA Framlington Global Technology 36%.

I have been struggling to find those companies and funds that are immersed in the “magic” technologies of the future. It turns out however, that many of these businesses are getting their development and expansion money by giving up equity to the likes of FaceBook, Amazon and Microsoft. So by default I am already invested in the “magic” via the technology funds I already hold. Maybe this new equity ownership alone will be sufficient to fight off the argument of over evaluation and bubbles in these older established businesses. If there is any truth in that, then maybe the technology funds above will not run out of steam and will continue to deliver the goods.

In the meantime it appears that Polar Capital is launching a unit trust that is going to hit the sweet spot. It is going to be called Polar Capital Automation and Artificial Intelligence Fund and its aim is to hold forty to fifty businesses all directly working in Derren Brown`s world of magic. That is one for me to hold!

Investing does not always have to be a case of controlling spinning plates.

When my grandson was born my wife`s mother invested a £1000 for him. This was placed with Invesco Perpetual in a Managed Fund. Sixteen years later following the introduction of Junior ISAs we were able to transfer the grand sum of £1950 into one of these. This represented a pathetic growth of 95%.

Now my grandson is mathematically skilled and well able to understand the vagaries of currency, stock-market and fund movements. He is also of an age where a bit of excitement does not go amiss. Between us we agreed that as D.C.I Hunt would have said “Now was the time to fire up the Quattro”. Two years later his portfolio stands at £3050 a growth of 56%. Keep that up for another ten years and he has £30,000 towards a deposit on a house.  So what rules did we lay down for our investment strategy?

-We would use only the weekly numbers and statistics published by The Saltydog Investor.

-We would not be swayed by the opinions of financial pundits, thereby avoiding being shipwrecked in an ocean of information.

-We would only be invested in a few funds which were all in growth I.A .sectors, and if such a sector did not exist at the time we would be in cash. That made for a very simple all or nothing pie-chart.

-The key point of this approach was for him to understand that it would be essential to be an active investor on a weekly basis when necessary.

So far this approach has been successful, but it is definitely not for the shy or those close to retirement. The last two years has seen him invested at different times in basically four sectors, Technology, China, UK Smaller companies and Japan. Currently technology funds such as Scottish Mortgage Trust, Polar Capital Technology, L&G Global Technology and AXA Framlington Global Technology have been carrying him forward.

There is no doubt that a good run of momentum feels amazingly good, and really can undo the knots in your rope. It is however inevitable that you will lose sometimes. The trick is not to make a habit of it!

Build yourself a brighter financial future

It’s frightening how much of people’s savings is just lying around doing nothing.

Why is this frightening? Because if you want a comfortable retirement for you and your family, you really need to make sure that your money is actively working for you – not just ‘sitting under the mattress’.

According to the UK Investment Association there’s £200 billion currently held in cash ISAs. With today’s low interest rates, this money is earning virtually nothing and in many cases, is actually losing value. It’s also claimed that there’s twice this amount – £400 billion – lying around in underperforming ‘dog funds’. This is such a huge waste. And if your money is in a cash ISA or a useless dog fund, you really need to consider how much this is costing you. It could be tens of thousands of pounds.

You have done the difficult bit, which is to save this nest-egg and place it into an ISA protecting it from future tax demands. Then you have sat on your hands and not done the easy bit, which is making it grow in a safe and sensible fashion, whilst allowing compound interest to work its magic.

Let’s say you have £25,000 in savings. Just look at the difference in returns over the next 5 – 20 years, depending on whether you put that money in a cash ISA or invest it conservatively in the stock market.

A cash ISA might give you 1.5% interest. A conservative stock market investment could give you a 7% return, and in this example, I’ve then deducted £300 p.a. for costs. Here’s the startling difference in results:

ISA
1.5% return.
Stock market
7% and £300 p.a. costs.
DIFFERENCE
5 years £26,930 £33,340 £6,410
5 years £26,930 £33,340 £6,410
10 years £29,010 £45,030 £16,020
15 years £31,260 £61,440 £30,180
20 years £33,670 £84,400 £50,730

As you can see, even after just 5 years the stock market strategy is ahead by over £6,000. And if you keep the stock market strategy going for 20 years, you’ll be up over £50,000 and your savings pot would be more than double what you would have got from a cash ISA. That’s an enormous difference. And if you want to maintain your lifestyle in retirement, whether that’s going to the golf club, enjoying holidays, or simply living comfortably and leaving an inheritance, then now is the time to take charge.

Please bear in mind that the financial industry is not really motivated to help you out. Why? Because they earn their fees, year in, year out, whether your wealth increases or not. Your savings pot is ‘your baby’ and no-one else’s, and it’s in your hands to turn the situation around.

Many people quite wrongly liken stock-market investing to going to the races. They say that “when they follow the horses, the horses that they follow, also follow the horses” and they are put-off. That however does not have to be the case. Remember that it is not wise to ask for advice and directions from somebody who has not been where you want to go, and this applies to aspirations for your savings as much as it does to seeking road directions. Please look at the graph below and you will see that the cautious Saltydog Tugboat portfolio has by and large avoided the five major stock-market falls over the last six years, and yet still produces an average annual return of around 7%.

SDI-port-Oct-2017

Not everybody will have the ability and temperament to run their own investment portfolio, but there are many more that can, than think they can. Today, DIY investing is possible for anybody with a computer and access to the internet. The arrival of fund-supermarkets has made it cheap, quick and easy. To be successful you need continuous up-to-date accurate information, and it is vital that decisions should not be based on rumour, speculation and hearsay.

The Saltydog Investor was developed to assist people in making these initial steps. We are enthusiastic advocates of active fund momentum investing, and issue weekly unbiased performance numbers to use for decision making. We invest in funds, and advocate that investment decisions should be based on selecting the Investment Association sector first and the fund second. When a sector is performing well, like a rising tide it will float all the funds in that sector. Momentum, like compound interest, has energy and strength to produce the growth that we are looking to achieve.

And why do we use funds? There are a number of good reasons.

A fund collects the money of many individuals and invests it into many companies within its sector – thus giving you helpful diversification. In other words, your eggs are not all in one basket, as they would be if you only bought one company share. In addition, a fund will be run by a professional  manager, usually with a team of researchers who have the time and skills to select and monitor the fund’s assets. Funds are also highly regulated, ensuring that your money is protected from any financial misfortune which may happen to the organisation that is running the fund.

 

Why Donald Trump is good for investors

As I write this article Donald Trump has been President of the U.S.A. for 200 days.

Remember that, at the time of his election, Trump was promising to kick-start American business. The question is: Has he done that?

During his first 200 days Trump has signed forty three bills into law. Fifteen were reversing trivial Obama regulations, fourteen were routine and ceremonial in content, five were merely bureaucratic tweaks, and nine were space, science and veteran bills. There has been no infrastructure spending spree, no great reduction in taxes and a total failure to repeal Obama Care. As an outsider looking in, one would say that this performance was pathetic and does not stand up to comparison with that of any recent modern President.

Yet the Dow Jones Index has crossed the 22,000 mark for the first time, up nearly 20% during the Trump administration. Unemployment continues to drop, wage rates show signs of increasing, house building is increasing and inflation is still under control. The dollar measured against the basket of its main trading partners has fallen by 10%, resulting in imports becoming more expensive and exports more competitive. As an American worker what is there not to like about all of this?

Surely the above has not been orchestrated by the Trump administration since none of the members stay long enough to have any influence, and Mr. Trump is too busy on his phone.  Perhaps it means that preventing politicians from making changes and interfering with the status-quo allows the economy and the nation to settle and from there go on to improve and strengthen!

In the U.K. with Brexit negotiations underway the key politicians amongst the “Remainers” and the “Leavers” are acting like flies in search of a windscreen. Maybe a period of inactivity from these people would benefit the U.K. economy just as it has in America.

For those of us in the cheap seats with no influence on forthcoming events, all we can do is continue to watch the Saltydog numbers looking for those sectors that are moving forward and getting out of those sectors going into reverse. Recently it has looked as if UK Small Companies, China and the Emerging Market Sectors are going to continue with their run after the interruption of the recent election. The dark cloud on the horizon is still the so called Gilts and Bond bubble, but at the moment they continue to rise so it is still a question of being ready to move quickly should it become necessary.

It was Jesse Livermore who said “The desire for constant action irrespective of underlying conditions is responsible for many traders’ losses.” Under those circumstances cash is a good investment. Be cautious and avoid “good night Vienna”!

There is no such thing as a free lunch.

By whatever measure, the result of the recent election could turn into a disaster for business and the United Kingdom.  Obviously enough there are big consequences for the stock market too.

The principles of trend investing work whoever is in power. So in that sense, the Saltydog system is completely apolitical. But with the political and economic risks I see at the moment, I feel compelled to speak out.

Forty percent of people voted for a hard left socialist leadership that believes in the doctrines of Marx, Engels and Lenin. It has also been reported that a majority of teachers and University staff also voted for Labour. Not surprisingly then, with this educational influence and the ability of social media to misinform and rabble rouse; we saw the young inexperienced 18 to 26 year olds voting for this economically challenged socialist agenda. It is incomprehensible that the Conservatives did not shout out that socialism has never worked, and is a proven disaster for the populations of the countries inflicted with this disease. There is no such thing as a free lunch, except for the ruling Dictators and their party comrades!

Three recent examples of this infliction are;

-The German Democratic Republic run by Erich Honecker and his Socialist Unity Party (1971…1989)

-Cuba run by President Fidel Castro (1959…2008)

-Venezuela run by Hugo Chavez and his United Socialist Party (1999…2013). Succeeded by Nicolas Maduro.

All three are similar in that the population lived in poverty and dereliction whilst being subjected to the terrifying attention of a secret police force. In the case of East Germany it was rescued by being absorbed into capitalist West Germany. Cuba after the death of Castro is now becoming capitalist and was assisted by a lifting of USA sanctions; it has now become the fastest growing economy in South America.  Venezuela used to be one of the richest countries in the world on the basis of having enormous oil reserves, then Chavez took power and became the darling of the socialist world, making vast social commitments with money that the country did not have. The price of oil subsequently fell and the economy collapsed. Today crime is rampant, hospitals no longer function, parents desert their children to prostitution and food is so scarce that eating pets is considered normal.

These corrupt country leaders all became vastly wealthy at the expense of their populations.  Yet all these men have in the past been lauded by Corbyn, McDonnell, Abbott and McCluskey. They have thrust their Marxist ideology forward, as an improvement to the democratic one that we presently enjoy in the United Kingdom. Today, aided and abetted by television and social media, we live in real danger of a future Labour government taking control. This would mean a programme of high taxes, uncontrolled public spending, nationalisation, union monopolies and soaring national debt. Under these circumstances we might well be taking the first steps down the same road as East Germany, Cuba and Venezuela. Yet the same people who have been taken in by these socialist “sellers of snake oil” do not realise that they will be the first to suffer when the economy collapses and unemployment and inflation soar.

I am however an optimist and a believer in the greatness of the United Kingdom. Hopefully we will find future politicians with an understanding of national economics and the ability to stand up for the well-being of the country. Those that understand there is an inequality between the rich and the poor that needs addressing now; who can balance austerity with the need for a secure NHS and an education system fit for the future; who accept the need for inward investment and controlled migration, in order that we can maintain high employment and free enterprise. People who realise there is nothing wrong in wishing for a better world, but accept that it must be earned and cannot be gifted. The wolf is at the door, now is the time for them to step forward and be recognised.

Whatever the political outcome in the next few months, as Theresa May tries to form a working government and negotiate Brexit; as Corbyn promising everything and anything to anyone who will listen; as Donald Trump appears to be becoming an irrelevance in the States, it is virtually certain that the markets are going to be volatile.

And this means it’s never been more important to take on active management of your investment portfolio.

Now’s the time for you to be watching currency movements and the basic make up of your portfolio. It is not a time to be passive, sitting with your fingers crossed hoping that the “investor fairy” is going to be kind. Instead, keep track of the Saltydog numbers and graphs, and be as active as necessary. Identify the trends be they or up or down and act accordingly. Never forget that  in times of uncertainty, whilst inflation is low, cash is a sensible place for some of your money.  Good luck to you and the country!

 

 

 

The recent few weeks have been enough to give the devil the hot sweats!

Last year Brexit, and this year the election – what a nightmare this has been for your average DIY investor. Politicians and commentators demonstrated, yet again, that they were never going to be stopped by a lack of facts and accurate information. Perhaps, instead of giving politicians the keys to the country, we would be better off changing the locks!

After the unexpected Brexit result, sterling fell by around 15% and this meant any fund with a high proportion of dollar based investments made very nice gains, whilst your sterling based funds fell back. A few months later the U.K. economy started to show improvement on all fronts, and sterling started to stage a recovery. All change again, the ‘UK Smaller Companies’ and ‘UK All Companies’ sectors were on the move forward making handsome gains, until the turmoil of the recent general election campaigns brought that momentum to a halt. Then along comes the election result, and it is a hung parliament where Theresa May`s Tory government is expected to be kept afloat by the Northern Ireland D.U.P.  Unexpectedly, Sterling did not immediately tank, but hiccupped and we all wait with baited breath to see what happens next.

One sector that has been making progress through all this unrest, as we have discussed many times before, is the Technology sector. Until recently we at Saltydog had been looking for those funds that might be investing in the new generation sciences rather than those of the recent ‘Information Age’. Then it dawned on us, that it was those very same companies Amazon, FaceBook, Alphabet, Apple, Microsoft, Alibaba, Netflix and the like, which were hunting down and buying these new technology start–ups. So in fact, the technology funds that we already own were invested into the new sciences, and so were we, but second-hand and by default.

This got me to thinking about how vulnerable we might become in the future. If these enormously wealthy companies can sift through these new tech. businesses, and purchase at will, then are we in danger of seeing them becoming world dominating retail and I.T. monopolies? It would become a similar situation to the Middle Eastern oil countries of the 1970`s who, lacking competition, were able to dictate oil prices to their customers. A take it, or leave it, situation.

Imagine Amazon with another twenty years growth to their warehouses and data centres. They could dominate supply chains across the retail market from food to clothes and everything in-between. They would be able to control prices and freeze any competition out at will. The High Street, and out-of-town, shopping as we know it today will have disappeared. They will have the ability to decide who sells what to whom and at what price. A similar situation could also exist on the Internet where these huge monopolies will decide what we watch and what we learn. I guess this is a bit 1984, but it might take world legislation to prevent it happening.

Back to the real world, and it would seem that those of us at Saltydog who are invested into Technology funds will be able to enjoy the growth of these enormous companies. The p/e. ratios that they carry at the moment may look like bubble prices, but perhaps they are simply reflecting the huge profit opportunity they are creating for the future.

Every time that I am wrong the world makes a little less sense.

I recently read a full-page advertisement from a respected Fund Manager.  They were advocating that as a private investor your money should be placed in the hands of global businesses for the long term. That currently it was far too difficult to anticipate stock market movements with Mr. Trump being President of the U.S.A. Also, as a U.K. citizen with the uncertainty of Brexit, a passive approach with the bedclothes pulled over our heads was probably the best approach for the next few years. In other words, let the finance industry take the strain and “your money”.

Now that is strange, because after the declaration of the Brexit referendum as sterling fell in value it was straightforward to move your money into dollar based funds and reap the gain. Then as the months passed it became obvious that the U.K. economy was not going to hell in a handcart, in fact the reverse was taking place. The economy was strengthening and real inward foreign investment was taking place as exports rose and unemployment continued to fall. So moving your money back into U.K. funds as sterling started to strengthen was not a difficult decision, and those who did have enjoyed further substantial gains. This is not alchemy, but just common-sense if you have the knowledge from up-to-date Saltydog performance numbers, and the desire and ability to trade cheaply on fund supermarket platforms.

Another area of the market that continues to show the opportunity to make gains is of course the technology sector. This is being borne out by the numbers and by logic. Four out of five of the largest companies on the US stock market are technology companies. There are three main things that over millenniums have restricted the progress of human life and these are Energy, Life-span and Intelligence. All three are now under attack as science moves forward at an exponential rate.

At this point it is worth demonstrating what exponential growth means.

sdiblogOne common textbook example is that of folding a piece of paper that is 0.1mm thick.  Fold it five times and it is 3.2mm thick, ten times and it is 10cm thick and at 25 times you are at several kilometres. At 42 times you are past the moon, and at 50 it’s toast time as you approach the sun! As you can see growth starts slowly and then it goes crazy, and that is what is happening with science at the moment.

We all know about gene editing technology and its potential for re-writing the rules of life, the removal of disease and the possibility of redesigning the human body to prolong life. Again, we have also read about the supercomputer named “Watson” which played and beat two human champions at the game of Jeopardy. What we may not know is that afterwards Watson was uploaded onto the cloud, and its knowledge and logic became available for other computers to use. Artificial Intelligence made yet another step forward; it is not of the future, it is already here.

The arrival of virtually free solar energy is only decades away and the modern lithium battery is going to transform solar into a genuine power option. The battery is to solar what the tanker and pipeline are to oil and gas. The world economies have invested more than £350billion into acquiring renewable energy. Companies like Amazon, Google, Apple and Microsoft are also leading investors. This spells the eventual death of carbon fossils as an energy source. No wonder that the Saudis are starting to dispose of Aracom, their oil company, and are also investing into solar technology. Imagine a world with free electricity, cheap fertilisers and abundant potable water. This is all on the near horizon.

A statistic that I read recently is that we humans consume around 400×10 to the power of 18 joules per annum. The earth however receives this amount of energy every HOUR. We just currently cannot capture it, but in the future who knows?

Three months ago, I discussed the progress of six technology funds all of which had made twelve month gains of between 40% and 50%. They have continued to make good progress in the last three months, although in sterling terms they have been battling with the dollar exchange rate as sterling has strengthened. This is due to the fact that so many technology companies are dollar earners.

 

AXA Framlington Global Technology fund   …12%

L&G Global Technology fund                        …9%

Pictet Robotic fund                                       …12%

Scottish Mortgage Trust fund                      …18%

Polar Capital Technology Trust fund           …16%

Ishares IV plc Automation                           …13%

These funds are of course normally described as high risk and volatile. A question today however might be how true is this description in tomorrow’s world? You must come to your own conclusion, but remember that a conclusion is a place where you get tired of thinking!

 

Investing isn`t about waiting for the storm to pass. It`s about moving to a place with fewer storms.

A Saltydog subscriber has recently asked whether there is potential for investment into Myanmar. I have done some investigation and my conclusion is that it is not there at the present.

Myanmar (formerly Burma) along with Thailand, Vietnam, Cambodia and Laos form the Greater Mekong region and they are all members of the ASEAN Free Trade Area. It has a population of around 50 million. In 2011, the Military Junta relinquished power and President Htin Kyaw was democratically elected – although the Nobel prize winning Aung San Suu Kyi (recently released from house arrest), is said to be the person that rules the country from behind the scenes.

Inward investment has taken place since democracy was re-established, and Singapore and China account for approximately 70% of this inflow. The country is also aided by the Asian Development Bank. Nevertheless, two corporations would seem to influence and dominate most investments and they are the Myanmar Economic Corporation (MEC) and Myanmar Economic Holdings Limited (MEHL). Both of these corporations are linked to the military and would appear to be steeped in corruption. This said, it would appear that health, education and the country`s superstructure are actually improving, as the new government drags the country into the 21st century. In 2016 the USA lifted sanctions, despite there being little evidence of any reduction in the inheritant corruption linking business to the military. In my book, this is not yet a place to risk my money and anyway I could not find a fund representing Myanmar. However, that is not a problem as I feel that there are less stormy places in the Greater Mekong region – Vietnam is one such place.

The population of Vietnam is around 93 million with an average age of thirty-two. Half now live in the cities and have aspirations to live a western life-style including the use of phones and the internet. The country is self-sufficient in oil and rice and supplies their surplice to the rest of the Asian community. China, America and Japan have off-shored manufacturing here for a number of years due to the low wages and the “can do” attitude of a young well-educated people. So when the Chinese and American economies are doing well, then so is the Vietnamese. You can see this from the five year graph of the VinaCapital Vietnam opportunities Investment Trust fund.

sdi2

It is evident that although it’s done well, it hasn’t gone up in a straight line. If you invested in 2012 then there are a couple of periods when the performance levelled off and even dropped back. If you had been watching the numbers and enjoying the rise, then this would have been the time to move out, whilst the storm passed over, and put your money to better use. Since the end of 2015 it’s been back on track, and in the last 12 months has gone up by over 40%.

Hopefully in the future, the ASEAN Free trade area will become self-sufficient in its own right.  Should this happen, then Vietnam could be a really good place to be invested on a more permanent basis.

Money Movement Report

On page 8 of the April 2017 newsletter, there’s a piece about some work we’ve started on looking at the movement of money into and out of funds.

Here’s a copy of the article, some further commentary, and links to a couple of other reports.

For some time, we’ve been trying to get a feel for the amount of money flowing into and out of the various Investment Association sectors.

One of the problems with doing any Unit Trust and OEIC analysis is getting hold of the raw data. The funds are not traded on an exchange, in the way that stocks and shares are, and the only way to find out fund details is to ask the fund managers. There are a couple of companies that collate this information, but they are still reliant on the fund managers to update them. Some are better at this than others.

When we started looking at fund flows we thought we could just add up the portfolio values of all the funds in each sector. We soon found out that a lot of data was missing, and so we have tried to concentrate on a ‘representative’ sample.

We have taken the funds that we usually include in our weekly analysis, removed the ones without reliable portfolio size data, sorted them by fund size, and then used the top half.

We have then used the same funds each week and monitored how the values have varied.

There are various factors that affect the overall fund value. These are the change in value of the assets held within the fund, and the amount of money being added to, or taken out of, the fund. The next step is to see how we can split the overall movement into these two different components.

In the newsletter we have shown a summary of the last three months. Here are links to a couple more reports showing the movements over recent weeks.

Money Movement by value

Money Movement by percentage

Investors cannot time the market…..WRONG

During the last year we have seen Brexit, Donald Trump as President of the U.S.A. and far right parties in Europe making headway in the polls. All of this can be described as Populism. This move if carried to a conclusion is intended to shift wealth away from today`s elite back down to the hands of the lower and middle classes. If anything like this was to happen, then it will mean that corporate profits will fall, and this will be accompanied by falls in the value of  already over-priced multi-nationals on the world`s stock markets. This has already taken place with large oil companies who are seeing renewable energies eat their breakfast. It is simply a question of watch this space.

Now, none of the above is breaking news, yet financial institutions are still advocating that private investors should not be active in the market to protect their investments. Instead they should take a passive approach and let their money be eroded during a market collapse in the hope that in the years to come it will recover.

We at “The Saltydog Investor” know that this way of investing makes no sense and is simply WRONG. The financial press will tell you that it is too expensive to trade your funds. Again they are simply WRONG. If you use a fund supermarket platform then the charges for trading your OEICs are virtually negligible. These same people will tell you that you cannot get the information to time the market. WRONG again.

At Saltydog we produce performance numbers for OEICS, Unit Trusts, ITs and ETFs on a weekly basis presented in an understandable fashion. We have been running a real demonstration portfolio for the last six years funded with our own money. It has avoided the market drops and has gained 59%. What is not to like about that?

As a D.I.Y. investor in the U.K. with the Brexit negotiations coming up close and personal; with The Donald making hay whilst the dollar swings one way and the other. You will need to be active not passive. Good luck.

Don’t believe me? Just read here then