Milestones
This month saw a couple of milestones for our clients and for our business.
- Our clients have entrusted us with the day to day management of their life savings. Between us, our savings have steadily grown to a quite astonishing figure. Collectively we just crossed the £80 million mark!
- Our newest portfolio which invests exclusively in AIM shares has now doubled since it’s inception on 1st October 2014. Doubled in less than 4 years!
What just happened?
We have just performed a major re-balance.
Yesterday I decided that it was time to sell all of our U.S. holdings. In doing so I needed to sell our other global holdings too. Just over £25 million of L&G Global Technology and Global Health and Pharmaceuticals funds was disposed off. Here’s why.
First The Positives
- The Dollar has recently strengthened against most global currencies, Sterling included. It has increased the value of our predominantly U.S. based L&G funds. It’s been a good short term result for us, creating a sell opportunity.
- Our global holdings have done very well since 2008, as they contained purely those sectors that have been “hot” in the US. As a consequence we were due to once again trim down to take our profit. “Hot” sectors don’t stay hot forever.
- History tells us that it’s usually a good time to hold a little more cash through the Northern Hemisphere summer months, as generally our investment returns are concentrated from October to May.
Now The Negatives
- The inevitable fallout coming from Trump’s Trade Wars. No individual country wins a tit for tat war, it’s just that some countries have less losses than others. That disruption is likely to stunt companies profit growth going forward.
- US interest rates are rising, making less risky assets more attractive. Rising interest rates will inevitably kill this bull market eventually and lead towards the next recession.
- The recent increase in the velocity of the swings up and down in all markets usually leads to a sharp drop rather, than a sudden rise.
- My assumption that many investors will come to a similar conclusion as ours sooner rather than later. “We have done well – let’s take this profit and ride the uncertainty out for a while”.
- A short term set-back is well overdue. Media commentators seem to be trying to will a setback to happen. This is always true.
- Further discontent in Europe. But this time it isn’t just an outlier like Greece. There are political and economic problems in Germany and Italy. The populist uprising in Germany just won’t go away. This year Italy has as much debt to refinance as the USA does! I know which one I would choose to lend money to. Italy has a populist government intent on distributing cash to the mass discontent. More cash it doesn’t have. Either the EU turn a blind eye or they challenge. That turmoil could spread.
- I’ve got to add the outside chance that there will be no Brexit deal, although I don’t think that is very likely. All parties need a deal. All parties are good at concluding deals at the last moment. German car manufacturers in particular won’t want increased tariffs on their exports to the UK along with those they are currently facing from the US.
What now?
He who fights and runs away will live to fight another day.
– Demosthenes 338BC
Let’s describe this as a tactical retreat. Now is not the time to plough on regardless, flattered by our past investment triumphs. It’s always the next decision that counts.
As a consequence we will all be holding more cash for now. I feel the risk of making a loss versus the opportunity of reaping a profit are just skewed to the downside right now.
No one could possibly know when the next market setback will occur, trying to time the market is commonly agreed to be a fools errand. But I’m never one for not taking action.
What are we left with?
The majority of our investible capital will remain invested, predominantly in UK shares. In fact I’m taking the opportunity to add a few new names into the mix. If a market fall occurs we will not be exempt merely because we don’t hold overseas shares. Our UK shares will fall in value too, we as investors have to accept that. But with much more cash we will be able to swiftly bag a few bargains after any fall-out.
What Next?
For how long we shall remain in retreat I can’t say. It could be months of acting like a chicken and keeping our head low to dodge the bullets. Hostilities have not broken out so far and perhaps they won’t follow at all, but I don’t expect that we will be missing out on too much growth.
Seven years out of ten, thinning out over the Summer months makes sense. After the recent gains, it looks like this strategy should work this year.
As always I review our investments constantly, as global events can change quickly. If the picture changes I will take more action and report to you what I have done.