January 2022 Investment Review

On the 4th of January I was ready to write this review. Unfortunately as I was preparing and double checking the portfolio performance figures I noticed an anomaly with the valuations on Nucleus. When I informed them the fix was swift, but unfortunately all portfolios had been overvalued between Christmas Eve and the 5th of January. Since then we have experienced a period of volatility that is reminiscent of October 2018. So today I finally get around to writing the review.

A week is a long time in politics.

Harold Wilson c.1964

No, this wasn’t written about Boris Johnson today, but it has been re-quoted many times as MP after MP spectacularly fall from grace. This has been a particularly long week for me.

Had I published this review on the 4th of January as planned, there would have been an element of boasting about another above average years performance in our main portfolios. A week is a long time as an investment manager. Never, never, gloat about the past performance as it is likely to blow up in your face. The markets will do what the markets will do, irrespective of how you feel about it.

Hoist by his own petard

William Shakespeare – Hamlet 1603

A petard is essentially an explosive device that “hoists” blows-up the user. If you are interested in the origins of the phrase, you can read about here on Wikipedia

So how have we done

Medium to long-term term performance always reflects the level of investment risk you are willing and able to take. If it were that easy we would all be very aggressive investors. However in the short-term the risker you go, the bumpier the ride. It can get so bumpy that you can’t stay the course. When volatility approaches you need to be comfortable with the short term snaps.

It is now possible to see how each portfolio is performing against our chosen benchmarks anytime on our website. Simply visit the page which details how your managed portfolio has performed.

Cautious – A managed portfolio that seeks to better long-term inflation

Moderate – A managed portfolio that looks to double capital over a decade

Adventurous – A managed portfolio that looks to treble capital over a decade

AIM Portfolio – A managed portfolio that also looks to mitigate Inheritance Tax

Go For Growth – A managed portfolio that looks to quadruple capital over a decade

We haven’t chosen benchmarks that are meaningless, nor have we chosen benchmarks that are easy to beat all of the time. We simply are trying to give meaning to the level of investment risk you have chosen to take and to set expectations for the corresponding level of investment return.

Managed Portfolio	1 Year Performance
Cautious	15.02%
Moderate	16.30%
Adventurous	19.96%
AIM	-11.76%
Go For Growth	9.75%

What am I thinking?

The wind has certainly changed direction since the start of the year. The shine has been taken off the performance achieved last year. We have to look back to October 2018 and subsequently February 2019 to find parallels. History doesn’t repeat itself but it certainly chimes.

October 2018

Back then the Chairman of the Federal Reserve was a new boy, Jay Powell. He spectacularly worried the markets with talk of withdrawing financial stimulus and aggressively increasing interest rates at the same time. Stimulus and low interest rates had been in place for a decade since the collapse of Lehman Bros Bank. He later backed off somewhat and the US market recovered within 3 months. We are back at the same point, with the same Chairman and again investors have been spooked. This time it is obvious that interest rates are finally going to rise to try to reign in inflation (the UK has increased already), but it is the number of interest rate rises and the speed of those rises that is a cause for worry. Too far, too fast and the US enters recession. But to a large extent hands are tied. The largest borrowers in the world are now governments that simply cannot afford a significant rise in rates.

February 2019

Obviously this was the start of Covid-19 when nobody knew what to expect. Why do I mention this now when Covid-19 has been with us ever since? Wall Street is in Manhattan and New York was badly affected by Covid-19 the first time around. The city came to a standstill. Investment decisions are currently being made by individuals in the thick of rising Omicron infections. The US trails us by 2-3 weeks and have not yet experienced the breaking of the link between new cases, increased hospitalisations and subsequent increased deaths. I believe that the sell button has been hit by many worried individuals which has led to this rapid Tsunami.

October 2020

Now a third date. The reason I mention this date is because we have all lost some of our gains and that means we are back to valuations that we last saw only last October. I believe this puts the recent rapid falls into perspective. We started the new year with a collective £107 million, we now sit at a collective £103 million. And that smarts!

What am I going to do?

Last week was always going to be a heavy week of data. Many US businesses were reporting how they had performed over the last quarter of the year. The expectation was that it wouldn’t be good, due to supply chain issues. Also growing man-power shortages due to Covid-19 positive tests growing exponentially throughout the period. Next was due Jay Powell testifying before the Senate Banking Committee, with their latest inflation figures published a day later. With the price of oil rising and second hand vehicles also rapidly rising off the scale, inflation was only due to get higher.

Higher inflation and lower sales were baked in already, but still the markets reacted badly.

Now I have digested the market reaction to the events last week I am evaluating whether higher inflation means a complete reshuffle of the investment pack. The last time I made a wholesale change to where we invested was in 2009, so I will not be rushing into that decision. On Friday the US market ended broadly flat on the day and down about 3% year to date so certainly not a precipitous fall.

But we do own a few shares in businesses that have borrowed in order to grow and they certainly will face headwinds if interest rates do rise aggressively. If interest rates don’t rise aggressively these shares are now cheaper and will recover swiftly. All portfolios are due a weeding out and freshening up with some new additions anyway. Expect to see some changes over the next two weeks.

Obviously when the tide seems to turn it can be a worrying time for investors. If anyone needs a face to face meeting don’t be afraid to ask. You can switch between portfolios at anytime, don’t just look to see how your current portfolio has performed, but look at the others too.

The Usual

This blog does not offer financial advice.

Past performance isn’t necessarily a guide to the future.

The value of all investments can fall as well as rise.

Please tell me what you think.