Airbag

Two weeks on, my cold is now a distant memory. The almost 10% drop that the FTSE 100 suffered has also begun to slowly recover, but it is still well off it’s previous highs.

How have the H.J.Scott & Co. Main Portfolios performed?

Each of our Portfolios performed as we expected. They all fell when the markets fell, the more Cautious Portfolio fell the least, whilst our most Aggressive Portfolio (AIM) fell the most. All have since mostly recovered.

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Airbag Anyone?

We drive around everyday without thinking of the protection offered by our airbags. Airbags are not perfect and vehicle recalls of late have occurred due to faulty airbags. But the airbag is still the best option to protect our looks post crash.

Some clients have questioned why I don’t fully invest savings. A couple of weeks ago it became clear to all, that our losses didn’t equal those described by the attention grabbing media.

I see the cash we hold in our portfolios as our airbags. The Cautious clients have the largest airbags, hence when markets retreat, our Cautious Portfolios fall the least.

But an airbag works in two ways. It quickly inflates to cushion against an impact, but also quickly deflates to ensure our necks are not broken on impact.

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In investment terms it’s the cash we carry every day as insurance which protects us initially. But I can deploy that cash immediately if markets fall too far, too fast. The spare cash allows us to buy the same assets much more cheaply.

So did you buy anything on the cheap recently?

No I didn’t. This was a normal everyday fall, blown out of all proportion by the media. I also believe, that although a strong recovery has already occurred, we are not clear yet. We should have gone through two or three of these healthy corrections over the last two years. Short term setbacks have been conspicuous by their absence recently. It leads to complacency.

So our airbags remain. I have not used our spare cash to buy assets on the cheap yet. But we remain vigilant and ready to act if this recent setback turns into a full 20% correction. I can’t see that happening as company profits on the whole are coming in ahead of expectations. But it’s never over till the fat lady sings.

Well Done

A measure of my success in educating my clients to expect short term setbacks, only happens when the chips are down. I would like to thank every one of you for your exemplary behaviour during this last short term setback. There was no hysteria, everyone remained absolutely calm. It’s great that you all understand that the media has a very different agenda to the rest of us.