“You just make success happen”

I have mentioned the publication, Money Week, previously as a magazine that likes to think of itself as sophisticated, but in reality it’s just one of many tip sheets out there. One or two of its features are more interesting than others, however, including “My First Million”, in which a successful business person is invited to share with us their story.

Generally speaking these are entrepreneurs who have acquired some knowledge of a particular area and spotted an opportunity to do things better. This week’s contributor, Oliver Brendan started his business, Attraction Tickets Direct in 2002; as the name suggests he started off selling cut-price tickets for theme parks in Florida and has developed the business by adding Las Vegas and New York to his website, as well as establishing offices in Ireland and Germany, with plans to take the idea to Brazil.

The most interesting point he makes is that at the time he started his business the dot-com bubble had just burst and the 911 terrorist attacks were putting people off travelling. Currently his plan to open an office in Brazil is being undertaken against a backdrop of rumours of a slowdown in South America’s largest economy. His response?

“If you read the headlines you would never do anything. You just have to make success happen.”

Analyse this – who really knows?

There was a song some years ago by the Kursaal Flyers (a name inspired by a Southend fairground) entitled “Little does she know” and the lyrics of the chorus go something like this:–

“She knows that I know that she knows that I know ………” It’s a sad story of betrayal, because what he knows is, “she’s two timin’ me”. It was very catchy and enjoyed great chart success and it got me thinking about the work of financial analysts, employed in the investment industry.

They are paid to analyse company results, economic trends, future cash flows, ratios, balance sheets, the effects of mergers and acquisitions, share prices, dividends, in fact you name it, if it’s financial and to do with business they’ll be analysing it. Many, many, thousands of them are employed worldwide and the decisions of investment managers are hugely influenced by them.

On a regular basis the findings of these analysts are fed through to fund managers to help them decide which companies to buy and which companies to sell. Now, we all know that for every buyer there must be a seller and for every seller there must be a buyer; so whilst the analysts of one firm are recommending Acme Widgets as a buy, there will often be another set of analysts recommending Acme Widgets as a sell. Wouldn’t you wonder, if you are a fund manager, why somebody is prepared to sell on the word of their highly qualified analyst, when your highly qualified analyst is recommending you buy. Wouldn’t you wonder if they know something your analyst doesn’t?

We shouldn’t confuse this process with the commercial process of buying goods and materials and selling them on; the commercial process seeks to add value at every stage, but what value can a fund manager add to a stock – none whatsoever is the answer.

So now the Kursaal Flyers might well ask, “Does he know that I know that he knows what I know?” – or some variation on that theme. I doubt very much whether fund managers hesitate for long, if at all, because, after all, they are not spending their own money; they are trading with their clients’ money in the happy knowledge that only the client can pay for all this buying and selling.

Who’s two timing whom?

Reasons to be cheerful……

“The birth of a baby is God’s opinion that life should go on”, is a quote from the American historian and poet, Carl Sandburg. I was reminded of it this weekend when reading of the birth a few days ago of Caius Walter, son of Mark and Hitomi Walter, in the Sunday Times of 1^st April 2012.

The article discusses the baby’s future in light of the current instability and general doom and gloom that appears to surround us, quoting extensively from a new book, Megachange written by a number of specialists under the umbrella of the Economist magazine. And, do you know what, Caius and his parents can look forward to a better world!

Falling global fertility rates should mean a stable global population, with improving agricultural technology providing enough to feed everyone; a largely urban society with healthier and wealthier citizens living longer; falling levels of violent crime; a shrinking of the gap between rich and poor and far more educational opportunities worldwide.

We would be the first to acknowledge that predicting the future is fraught with danger and it is likely that the usual array of challenges will be thrown up, but given the ingenuity, resourcefulness and inventiveness of the human race we would line up with the general tone of the book. Coincidentally, Matt Ridley, author of The Rational Optimist a book which argues more or less the same future for us, has an article published on the Reader’s Digest website entitled, Cheer up! 17 reasons why it’s a great time to be alive Click here

His reason number 17 is “Optimists Are Right”. We agree and we think they’re happier as well; we are optimistic about Cai’s future, believe there are good reasons to believe the world’s glass is half full and believe that life should and will go on improving.

Top of the toxic pops, it’s our old friend the structured product.

The Financial Services Authority has drawn up a chart, for the benefit of consumers, called “Retail Conduct Risk Outlook”, which is, unfortunately, 96 pages long and available on their website Click here

In the spirit of Alan “Fluff” Freeman we will save you the task of ploughing through the 96 pages and give you a summary similar to the one Fluff rattled off just before he revealed this week’s number one on Top of the Pops. Sadly, there are no “movers”, new entries nor, indeed, a new number one, as the chart is full of the usual suspects all of whom fully deserve their place.

Top of the toxic pops is our old friend, The Structured Product; increasingly popular with banks and even some financial planners the FSA is increasingly concerned with how these products are sold to consumers. Promoted often with a “moneyback” guarantee and exposure to stock market returns they are complex, opaque and larded with charges and commissions. We have warned clients against these often before Click here and will continue to do so; it is nice to see that the FSA has caught up.

Hard on the heels of our number one are Absolute Return Funds; unbelievably another 61 of these undefinable beasts has appeared over the past two years. This despite the fact that the vast majority do not achieve their objective, each fund has a different “strategy”, often involving derivatives and many of them have a charging structure designed to enrich the provider rather than the client. More than half of these funds over the past 12 months have lost money – it is an absolute return all right but probably not what investors are expecting.

At number three we have Unregulated Products Or Unregulated Collective Investment Schemes. Promoting property in Eastern Europe or the Middle East or possibly the Caribbean some of these are out and out scams but all of them carry very heavy risk. They are usually totally unsuitable for private investors but unscrupulous advisors, heavily influenced by high commissions, are selling them to individuals anyway.

Lack of space denies us the opportunity to give you the entire list, but we can tell you that products from banks loom large. The common denominator appears to be complexity; if the product is difficult to analyse avoid it. If your adviser is pushing any of the above, avoid them.

Seen a black swan? So what?

Nassim Nicholas Taleb has written two popular books, “Fooled by Randomness” and “The Black Swan; The Impact of Highly Improbable Events”. This has made his reputation as an author, philosopher and all-round sage and, inevitably, gullible journalists have endowed him with the gift of second sight. Having read both books and, to some extent, enjoyed them, we believe the first is superior to the second.

One of the problems with The Black Swan is the tone in which it is written; you should imagine an irascible teacher from the 60s or early 70s, armed with a blackboard rubber, lecturing his class in a “keep up at the back”, hectoring, “why am I bothering with these idiots?” style. Indeed, his blog never hesitates to use the word “imbecile” when describing members of his audience. He is clearly angry about something and wants his readers to know that we are part of the problem. He has a trading background and this leads us to the second problem with the book and his ubiquity now as the Mystic Meg of the financial world.

The thrust of his argument is that classical economics does not explain events that he believes are cataclysmic, nor the fact that they are pretty common. He particularly focuses on stock markets and points out that there have been many cases where markets are moved fast and far in a very short period of time, usually one day; his theory is that these moves are so violent they are off the scale and should only occur once every thousand years, or even longer, if they are to be explained by normal distribution models.

As advisers who focus on the long-term we are not too impressed with this argument and feel that these “rare” events are part of the noise of the market; investors and professionals in the market do get spooked by these events, usually resulting in increased volatility. However, when we analyse market movements over the longer term they can usually be explained by classical economic models, leading us to believe that the appearance of black swans is all too fleeting. Michael Kitces, a well-respected North American commentator has come to the same conclusion and backs it up with some impressive research – click here to read his blog article

“Be young, be foolish, but be happy”

Surveys appear from time to time asking those with little time left what they would have done more of and less of if they had their time again. Sex and ice cream always seem to figure highly in the “more of” lists, and a new book written by a palliative carer (“The Top Five Regrets of the Dying: a Life Transformed by the Dearly Departing.” By Bronnie Ware) whilst not a scientific study, gives a very clear indication of what we all believe to be important, but, for various reasons, may not give priority, particularly when we are young. The book is reviewed in the Sunday Times News Review section of February 2012 and can be found here The Sunday Times

Number 2 on the list and, according to the author, mentioned by every male she nursed was, “I wish I hadn’t worked so hard.” The regret here was that children’s younger years had been missed to one extent or another and they missed their partner’s companionship. Probably more a result of long hours than hard work per se. What becomes apparent, reading the article, is that fear and its twin, worry, can prevent us from living a life true to ourselves (1), expressing our true feelings (2), laughing properly and having silliness in our lives (5) and staying in touch with friends (4). As the author says, “It all comes down to love and relationships in the end.”

Other studies have indicated that we all value experiences, particularly with loved ones and friends, above material possessions; these experiences can include holidays, short trips, celebrations, parties, in fact any kind of gathering that includes the people important to us. Where does financial planning fit into all this? Financial modelling, to include reasonable assumptions and lifetime cash flows should be used to reassure you that you can live the life you want to live; that you can take the breaks and holidays you want to take, with those you wish to spend time; that you can make gifts that make a difference during your lifetime; that you have both the time and the cash to make your dreams possible. Any other approach is simply about the money, the driest subject there is, in the absence of an appreciation of what it can do for you.

One of our mottos, “Spend More, Worry Less“, can sound facetious in the wrong hands; what it means in fact is that once you have established, on reasonable assumptions, that you can live the life you would like to live, doing the things you would really love to do you are less likely to suffer these regrets – a truly worthwhile goal.

 

You live and learn

University education is constantly in the news these days, particularly regarding cost and quality of degrees. It is not difficult, however, to detect the beginnings of what may be a revolution in the dissemination of content, information and wisdom, via digital means. Our belief is that universities, as institutions, will be hard to replace as collective repositories of knowledge and skill and the opportunity to spend three or more years exposed to discipline, debate, networking and general education will continue to be valued, particularly if these institutions continue their welcome raising of standards and maintain their reputation for first-class research.

Some recent initiatives, however, are making the work of professors at top US and European universities available to a very wide audience and often delivering content, completely free of charge. For example, Apple, through iTunes carries a wide variety of subjects from the likes of Yale, Stanford, Oxford and Cambridge; Coursera (link here http://www.cs101-class.org/hub.php) also provides courses from the top universities in the world and we have already signed up for “Model Thinking”, which will allow us to watch lectures by video at our leisure (approximately 12 hours of them) and incorporates test questions as you progress through the course, the opportunity to put questions to fellow students and professors, as well as a final exam.

“The Great Courses” has been doing something similar for many years and provides content by CD and DVD. The range of courses is breathtaking, ranging from cosmology to classic mythology via mathematics, philosophy and world history; all are taught by top US professors and the depth of the courses is highly impressive. They now have a UK presence (www.thegreatcourses.co.uk) and although there is a charge it is reasonable beyond belief.

This trend can only continue and puts high-level education in your hands, in your own home at minimal cost – we can’t think of many things modern communications has improved more.

First class service and we want to get better

Our mission is to help clients solve problems, create and preserve capital and achieve their desired lifestyle. Critical to that process is providing a consistently high level of service that meets the needs of our clients. We recently conducted a survey to gain a better understanding of your needs and interests and to ensure that the service that we provide meets or exceeds your expectations.

We are pleased and honoured that our clients gave us an overall rating of 5 out of a possible 5 on service! We have worked very hard to deliver that service and those results are extremely gratifying. We can, of course, always find room for improvement and we believe that a continual review of the processes and systems allows us to ensure that the service we provide is first class.

We are very pleased to say that the results were overwhelmingly positive.

Summary of Results (All scores are out of five.)

• Overall satisfaction with relationship with Index                 5.0 
• Calls are returned promptly                                                    5.0
• Clients would introduce friends, family and colleagues      4.9

You might also be interested to know that our clients say that the two things that are most important to them in any relationship with a financial advisor are:

• Having a clear plan in place to meet goals
• Having an advisor that is trustworthy

Thank you to all who took the time to complete the survey.

The world is changing – “Sony” to be expected

There is a You Tube video doing the rounds on the Internet presently (link below), which it is claimed was shown at the 2009 Sony shareholders meeting, which might well be true, but we have no way of checking. The video gives us a number of interesting facts, some of which we have selected and added our own comments – what do you think?

 

“Today’s children will have 10 to 14 jobs by age 38″ (United States Department of Labor).

Our comment

Sounds plausible to us, but as parents or grandparents, we may have been conditioned to the expectation that company loyalty will be repaid in the form of first-class benefits (such as top-quality pension schemes) and is highly desirable. These benefits are largely disappearing and given increasing job mobility perhaps we should look on calmly as our children/grandchildren move around regularly. The other side of this coin is that they will largely be responsible for their own financial security, later in life, whatever form it takes, which is the subject of an article in itself.

 

“One in four workers has been with their current employer for less than one year. One in two workers has less than five years service with their current employer.” (United States Department of Labor).

Our comment

If you or somebody dear to you is an employer you can either live with this or gain a reputation as a first class developer of talent, which may encourage staff to remain with you longer; there will be swings and roundabouts, of course, but in the long run both parties should benefit immensely. If you or somebody dear to you is an employee, seek out these enlightened employers.

 

“There are over 200 million registered users of MySpace.”

Our comment

Technology moves fast! Even at the time of the AGM, MySpace was in trouble. It has changed hands twice, the first time to Fox for $580 million in 2005 and then in July 2011 to Specific Media (controlled by Justin Timberlake) for a reported $35 million – ouch! This website has been almost totally eclipsed by the rise of Facebook and who knows where Facebook itself will be in 10 years time? Always remember Dan Sullivan’s adage, “the level of technology you are using at any time is sufficient for you.” The likes of Skype and Facebook can be invaluable in keeping in touch with far-flung relatives and friends and increasingly, social media is seen to have a business application, but stay flexible and don’t be seduced by sexy new applications.

 

“There are 540,000 words in the English language, five times as many as in Shakespeare’s time.”

Our comment

The average English speaker has an active vocabulary of 10 to 20,000 words. We suspect that many of our readers will not be regular users of a number of new words, such as “chillax”, but all the same, there are lots of words out there to be learned and applied and it might be fun to look up one or two a day and add them to our own active vocabulary.

 

“One week of the New York Times contains more information than one individual would have come across in a lifetime in the 18th century.”

Our comment

The New York Times is a fine newspaper, similar in many ways to our own Times or Telegraph; the question here of course is how much useful information do they contain and how much of it do we apply to our day-to-day lives? Our answer is, “very little” as, almost by definition, most of the information is necessarily superficial. Take your own area of expertise, reflect upon articles you have read in the newspapers in this area and then you have a clear idea of how even the most informed journalist is only able to skim the surface of any subject. Our view is that they provide a starting point but you must supply your own depth and keep plenty of salt available.

 

Finally, we are indebted to Index client, Alistair Cochrane, for an interesting fact from the book “Funky Business” by Kjell Nordstrom and Jonas Ridderstrale. Apparently, men’s public toilets have become much cleaner over the past 10 years; a highly desirable outcome and we will all have our pet theories as to how this has come about, from higher standards to better cleaning. The authors’ theory, however, is that the rise of smart phones has led to more men sitting down, enabling them to check e-mails or play games whilst using the facilities.

Our comment

The Lord moves in mysterious ways!

 

http://www.innovationamerica.us/index.php/innovation-daily/2024-what-sony-played-at-its-annual-shareholder-meeting-this-year 

With a little help from our friends…

“When people ask me why I think the Beatles’ stuff has lasted, I’ve had to try to figure out my answer to that, and over the years I’ve realised. I now answer, “Structure”. They’re well structured, those songs – there is nothing that doesn’t need to be there. That sounds a bit immodest, but it’s a body of work now, so I can talk like that.”

Paul McCartney, Sunday Times, 29 January 2012

He certainly can talk like that, Sir Paul. As one half of possibly the finest songwriting duo of the last century he can probably say whatever he likes about songwriting and be right. You might well consider he is right about this aspect of their songwriting, “Structure”; many, many Beatles songs have been covered by huge numbers of other artists and I would suggest you will be hard pushed to name those who have improved the songs. Unlike Bob Dylan, any of whose songs are invariably improved, whoever sings them, as long as it isn’t him!

Structure is important in so many fields; without it ideas have no form and often make no sense. Structure suggests solid foundations and robust constructs, underpinned by logic and good sense; in the absence of structure we, as human beings, lack guidance and direction.

Great lyricism and musicality may seem a long way from the mundanities of financial portfolio construction, but it is the similarities, particularly of structure that guarantee longevity and quality in both fields. Apply great structure to your portfolio and you will be happy with it long beyond the point when you “… get older, losing your hair, many years from now.”