A true Saltydog performance

Ken Turner a subscriber and Saltydog enthusiast wrote an article for the May newsletter. He described his delight at achieving a 47% increase on his ISA portfolio. This was a total return spread over the four years he had been managing his own investment using the Saltydog fund numbers. This performance has left his other IFA industry investments in the shade, just eating his dust.

At first glance reading the article one just thinks that it is one hell of a good performance and well done him. Ponder a while on the numbers though and you realise that it is better even than that; he has produced an 11% annualised return which is far far from shabby and more to the point, if he continues in the same vein when he reaches seven years he will have doubled his original investment. Now that is something to shout about and he has done this in troubled times frequently using cash as his secure bolthole. Ken is not alone amongst our subscribers in achieving this sort of gain.

This really begs the question as to why in this country we have (according to IMA statistics) accumulated £220 billion of cash ISAs. At the moment they do not even give a return to match inflation. They were created to be a tax free investment but if there is no gain there will not be tax to pay anyway, so why is there not more noise about this crazy situation? Perhaps it is in the interest of the financial industry for this to be the status quo. They take your money for cash ISAs and give you little or nothing back in the form of interest whilst investing it for gain to line their own pockets. Now there is a thought.

Update from Ken Turner (a Saltydog Subscriber)

At a recent social event, I happened across some other Saltydog subscribers. After some banter about what was a socially acceptable plural term for ourselves as a group, the conversation turned to our various experiences as investors.

Risk was a leading topic. All of us erred on the side of caution, mostly using the Tugboat example portfolio for guidance. We also talked about the amount of time each of us spent on the administration of our Saltydog portfolios. Most of us had a regular routine, sometimes on a daily basis. None of us mentioned that the activity was onerous, but avoided according it hobby status.

The method of dealing appeared to be mainly on line using discount dealing only platforms. We generally regarded this method as efficient and reliable.
I was pleased to be having this discussion at this time because at the beginning of April I had just completed a four year review of my own efforts.

How time flies. I have been investing using the Saltydog data and principles since its inception in early 2010. In the four years to March 2014 my original portfolio of ISAs has grown by 47%.

My attitude to risk has led me to operate in my own category somewhere between Tugboat and Ocean Liner, which I will call, unsurprisingly, Ocean Tugboat. Looking back over my weekly records, and to continue the nautical metaphor, I have over the years reduced the number of times I have swum off the boat while it is still under way. As all seafarers know, this is not a smart thing to do. I have and still am learning lessons. Probably the biggest test has been to stick with the data. This act alone takes away so much uncertainty, which leads me to my second learning point.

There are an infinite number of factors which effect stock market performance. There are a huge number of people earning good livings trying to second guess the system. Why should I try and join them?

As for tactics, being out of the market in times of difficulty is one of the most effective lessons I have learnt. I’ve tried to stop asking myself impossible questions about things like gold, North America, China and Japan. I’m now of the view that learning, or rather adapting to conditions, is a never ending process. This is why the seafaring analogy is so appropriate.

Those of us who are fortunate enough to visit the sea regularly are in a position to observe its infinite range of appearance and behaviour. And all the time, it’s still there and still wet!

After four years I feel that I can now justify promoting myself from deckhand on my Ocean Tugboat. I think perhaps I could hold down the job of third mate. For the time being that will do. I will have more time to stand and admire the view without getting too wet.

What to believe

The last few months have seen U.K. stock markets rising and falling on the basis of the news coming in from the reporters in the Ukraine. Putin moves his troops to the borders of the Ukraine and down go the markets. The Western diplomats organise a peace meeting and back up they go. Pro-Russian demonstrators seize Ukrainian government buildings and they go down again. Western economic sanctions are imposed on Russia and wealthy Russians and back up the markets go. All of this is broadcast in Hollywood style by the media and as a viewer I can only believe that the next steps must lead towards another Syrian situation.

Yesterday I met up for breakfast with an old English acquaintance who has recently built up a manufacturing business in the Western part of the Ukraine. Naturally I opened up by saying how sorry I was for him with all the troubles in the country and did he feel safe working and living there? Well, he didn`t quite say what troubles, he just said that what he views on the BBC television bears no resemblance to what is happening on the ground. Yes, in the eastern part of the Ukraine there are problems but that is a long way away from the bulk of Ukraine and did I realise that the Ukraine is bigger than France? No, I did not. Apparently the people in the East are ethnic Russians and have never liked the people in the West and vice- versa. In his view the people on both sides will be very happy for the country to be annexed. As far as he is concerned it is business as usual and the Western part of the country is working on uninterrupted and looking forward to playing a full role in Europe.

That leaves me with lots of questions. Is this all just politics? What does the USA have to gain by getting involved? Just how much pressure is applied by the “Arms Industry” to cause further disruption to maintain their sales? Is Putin trying to put the old Soviet Union back together by starting with Crimea and Eastern Ukraine? Why is the media allowed to create the news rather than reporting on the news.

I guess I am not going to get any of these questions answered anytime soon. The markets will continue to cycle up and down so in true Saltydog investment tradition I am going to continue to keep the bulk of my money safe in cash and bonds until this is all settles down.

There is nothing new under the Sun.

Life is full of coincidences. Yesterday I was reading about the car manufacturer Honda who have come up with a new paint for their future cars. Apparently it will help the car stay cleaner as it reduces the ability of water and dirt to adhere to the surface. Now who is not going to like that, except perhaps the multitudes of Eastern European people who work like demons in “hand car wash” establishments.

Today I had my monthly visit from the local Jehovah`s Witness who is fighting a losing campaign to convert me into a believer. I rather like this gentleman and we have some interesting discussions but it is rather like an irresistible force running into an immovable object, but no damage gets done. He departed leaving me with their “Awake” pamphlet. On the back page was the following article.

butterflyResearchers at Ohio State University studying the Giant Blue Morpho butterfly found that although the insect`s wings look smooth to naked eye, through a microscope the surfaces are actually covered with minute overlapping scales that resemble tiles on a roof. Even tinier parallel grooves on the surface of these scales cause drops of water and dirt to roll off with ease. Engineers are seeking to copy the wings` texture to make high-tech coatings for industry and medical equipment that are resistant to dirt and water. Is that not absolutely wonderful? Nature is full of engineering marvels and yet again gets there first.

“There is nothing new under the Sun” Ecclesiastes 1: 4-11 (I get reassurance from reading this when I consider my life and my investing and the mistakes that I make.) This was written thousands of years ago and is still just as relevant today.

A generation goes and a generation comes, but the earth remains forever.

The sun rises and the sun goes down and hastens to the place where it rises.

The wind blows to the south and goes around to the north; around and around goes the wind and on it circuits.

All streams run to the sea but the sea is not full; to the place where the stream flows it will flow again.

All things are full of weariness; a man cannot utter it; the eye is not satisfied with seeing, nor the ear filled with hearing.

What has been is what will be, and what has been done, is what will be done, and there is nothing new under the sun.

Is there a thing of which it is said “See, this is new”? It has been already in the ages before us.

There is no remembrance of former things, nor is there any remembrance of later things, yet to be among those who come after.

The new BRICK Economies

They are the very same old BRIC Economies of Brazil, Russia, India and China. In the years gone by a reasonable amount of money could have been made by investing into these countries individual stock markets as they supplied the goods being consumed by the booming developed nations of the West. Then in 2008 with the demise of the Developed Western economies it had a knock on effect and it was no longer happy days to be invested in the BRIC economies. This is all well known and those investors that were there on a buy and hold strategy saw their profits disappear. These people hopefully will have learned the lesson that a rising market is like sex and it feels best just before the end.

Bricks
So why have these countries acquired the new but similar mnemonic “BRICK”. It`s simply because they have now added bricks to their list of exports to the developed world and in particular to Britain. It is common knowledge that there is a shortage of new- build homes, but not so well known is that there is also a shortage of bricks. That astounds me. Surely it cannot be so hard to turn up the volume at the UK brick kilns. It turns out however that this is not the problem; it is simply one of price. Even with the cost of shipping these imported bricks are still cheaper. Cheap labour and materials I can understand, but shipping; how does that work? Again it has a simple explanation. Ships were built to carry all of those exports from the BRIC economies in the boom times and then recession struck in the West and then these same ships were travelling light. So down comes the cost of shipping as the shippers compete for the remaining trade, and now they will carry bricks and so compete with home produced products.

I know this, as I have just had to buy 3500 bricks for a garden development. “Old style look” home produced bricks cost around two pounds each and the equivalent from China and India are half this price. It`s a continually changing funny old world and this simple example demonstrates the necessity to continually review where you are invested and if necessary move with the times.