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Jonathan Gibson

Operating in a Noisy Environment

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In most industrial settings, health-and-safety rules demand that appropriate protective gear be worn, including putting on ear defenders in high decibel environments.  Yet, when it comes to our investing health and safety, we have little by the way of regulatory guidance.  All we have to protect ourselves from the noise of market outcomes, is the familiar phrase ‘Past performance is no guide to future performance’, particularly when investing without the guidance of a financial/wealth planner.

Investing in markets is a very noisy business and some form of ear defenders are required.  Given that markets do a pretty good job incorporating information into prices, they tend to move randomly on the release of new information.  Many investors are probably wondering today what returns will be like from equities in the final months of 2020 and perhaps next year too.  Nobody knows (and do not believe anyone who claims to know).

One only needs to look at the monthly returns in any given year to see, there is a lot of noise in the markets.  Essentially, the only ear defenders that we have are behavioural.  We must keep our true investment horizons at the forefront of our minds, accept that investing is a, two steps forward and one step back process and not look at our investment portfolios too frequently.

Even the returns of global equities on a yearly basis and of decades are noisy.  Patience and fortitude are prerequisites for a successful investment experience.  Yet, between 1970 and 2020, global developed equity markets have delivered a return of 10.9% on an annualised basis before inflation and 6.5% after inflation (albeit before costs).  Put another way, investors who stayed the course doubled their purchasing power every 12 years.

With those sorts of longer-term returns, try not to let the noise of the markets keep you awake.  Remember, market declines are always temporary, yet the advance is permanent.

Header photo by Felix Mittermeier on Unsplash
Risk warnings
This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 
Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Career Aspirations and Salary Estimates from Today’s Children

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What did you want to be when you grew up?

The aspirations of children today are likely very different from those of our childhoods.

According to the latest Pocket Money survey from Halifax, 19% of children today want to be a doctor or nurse when they grow up.

Jobs in the health service were a popular choice, with the incredible work of the NHS during the Covid-19 pandemic likely putting this career front of mind.

13% of children want to be a doctor, only slightly behind the aspiration of 14% of children to become a professional footballer.

6% dream of becoming a nurse and 5% want to become a paramedic.

Unsurprisingly, social media stardom was also a popular choice, with becoming an online influencer selected by 12% of children – the same number who said they want to become a teacher!

For boys, social media stardom was the second most desirable job, behind becoming a Premier League footballer.

Girls chose becoming an online influencer as their joint third most popular choice, alongside training to become a nurse.

The most popular career choice for girls was becoming a doctor, with becoming a teacher in second place.

Becoming a police officer was the preferred career choice for 9% of children, with 6% wanting to fight fires and only 3% dreaming of becoming the Prime Minister.

Nearly a third of children list the amount of money you can earn as one of the top reasons to pick a career. For boys, that figure rises to 39%, compared to 26% for girls.

Interestingly, girls are more likely than boys to select their dream job if doing so gives them the opportunity to help other people.

Making sure you have fun in your job, and providing for a future family, were popular choices for both genders.

21% of children said they are yet to think of their future job.

When asked to estimate their future earnings, the children wanting to become Premier League football players set their sights the highest. They estimated an annual wage of £4.7 million, up £1.3 million on the estimates given a year ago.

The next highest estimate salary came from children wanting to become Prime Minister, thinking they would earn £2.4 million a year – around 16 times the actual pay for the role.

Becoming a social media influencer comes with an estimated salary of £1.3 million a year, which might be pushing it a little – a recent survey found that most UK-based bloggers charge between £100 and £250 per post.

While kids’ estimates of salaries may seem over-inflated they seem to have an understanding of where money comes from.

When asked to think generally about the origins of people’s cash, two thirds understand that it is earned through work, and 42% think it’s provided by the banks.

The myth of the money tree is alive for just 2% of children who believe an arboreal bounty is out there somewhere.

Emma Abrahams, Head of Savings, Halifax, said:

“In a year that has seen the nation truly appreciate the heroic efforts of the NHS, it’s no wonder we are seeing many kids aspire to be a doctor or a nurse when they grow up

“And while others dream of social media stardom or being a football star it’s good to start conversations about money early, so little ones really appreciate the importance of earning the pound in your pocket.”

Brussels, Belgium, Header photo by Piron Guillaume on Unsplash

What Really is Risk?

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One of the hardest concepts in investing is trying to understand what ‘risk’ really is and deciding how to deal with it.  If you asked a fund manager to explain it to you, they would probably provide a lesson on credit, liquidity, and concentration risk (amongst many others) and the volatility of returns!

Viewing risk through that lens – and assuming you still had the will to live – you would probably come away thinking that cash is ‘low’ risk and equites / shares are ‘high’ risk.  Yet when you sit down with your financial planner or wealth planner, they ought to be talking to you about higher level goals, such as living without worrying about money and having the freedom to do what you want, when you want.

Risk, when looked at through this lens, should mean anything that makes attaining this goal less certain.  In this context, cash may well become the ‘risky’ asset and equities the ‘safe’ asset.

Here’s why: in a great little book titled Deep Risk by William Bernstein, a neurologist, a pilot and financial author, he separates risk into two key types: ‘shallow’ risk, which relates to the non-permanent, although sometimes extended, fall in asset value; and ‘deep’ risk which is the permanent loss of capital, through inflation, deflation, confiscation or destruction.

If we avoid assets with uncertain short-term outcomes (diversified shares) in favour of those with more certain outcomes (cash deposits), we risk trading ‘shallow’ risk for ‘deep’ risk.  One only needs to consider the likely permanent erosion of purchasing power of cash deposits, as a consequence of moderate inflation but low interest rates that we have experienced since the Global Financial Crisis in 2007-9.

Unfortunately, many people with long-term horizons hold far too much cash e.g. around 45% of all money in ISA tax wrappers is in cash ISAs[1].  This phenomenon is often referred to as ‘reckless conservatism’.

When investing, being patient and being brave pays great dividends for the long-term investor.

[1] FT.com Popularity of ISAs drops to 18-year UK low Aug 31, 2018
[2] Header photo by Arnaud Mariat on Unsplash
Old scottish castle on small island on a lake at dusk, Eilean Donan Castle, Royaume-Uni.
Risk warnings
This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 
Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Not All US Shares have Gone Up in 2020

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“If the history of bubbles teaches us anything, it’s to be humble… Fama doesn’t think we can predict bubbles. Shiller thinks we can but doesn’t think we can ever know when they’ll collapse. What we need, but I know we’ll never get, is more of this type of thinking. I’m holding out for a humility bubble.”

[Fama and Shiller both received Nobel Prizes for economics for their diametrically opposed views on markets! – Ed.]
Morgan Housel – Author[1]

Well, 2020 has been a strange year so far for equity investors; the early gains of global equity markets in the first couple of months turned into material – and rapid falls – in all equity markets.  Yet, as we sit here in the early days of Autumn, global markets are more or less back where they were at the start of the year, although the UK is a laggard.  Thank goodness for diversification.  Across the pond, the US market has rebounded strongly and the tech shares such as Apple, Google, Amazon, and the electric vehicle firm Tesla have appeared to defy gravity.  Hands up all who wishes they owned more US tech shares.

Sometimes the disconnect between what is happening in the economy and what is happening on Wall Street is hard to reconcile in one’s mind.  However, we need to remember that the market looks beyond well beyond our current challenges and discounts all future earnings into prices.  To those who believe markets work, this represents the best guess of the value of a company today, given the information we have available to us.  To others it may feel like bubble territory and a big momentum play into a few companies getting lots of media attention and investor dollars.

We also need to remember that trading in the markets – buying Apple – is not as simple as saying that Apple is a good company, so the price should go up – but a process of estimating whether the market has over – or underpriced just how good Apple is.  Did Apple’s market value double from US $1 trillion in August 2018 to $2 trillion in August 2020 because the discounted earnings were expected to be far larger than the market thought, or are we in bubble territory?  If you are hoping for an answer, then you will be disappointed; no-one really knows.

If we look beyond these gravity-defying shares, we see that the returns from the vast majority of US companies is less than stellar, perhaps reflecting more closely how many feel about the current economic environment; in fact 335 shares in the S&P 500 sit below the market average for the year of around 12%.  Half of all shares have actually lost money, yet maybe some of them will be future winners. 

Fortunately, as systematic, long-term investors, clients of Wells Gibson have avoided the full brunt of the UK’s woes and picked up some of the benefits of owning US tech shares.  Could we have predicted this outcome?  Do we know what happens next with any certainty?  Let’s be honest, we don’t know, you don’t know and nor do any professional fund managers.

All we can really do is to remain well diversified, try to avoid the feelings of wishing we had more in the US tech shares, and be patient. Investing using the rear-view mirror is never advisable. If history tells us anything, it is that today’s winners are rarely tomorrow’s winners.

With a longer-term perspective and a disciplined approach, we can sit back confident in the fact that we will participate in tomorrow’s winners as we own them today, somewhere in our richly diversified portfolios.

[1] The Psychology of Money (to be published on 9th September 2020). Review: ‘Morgan Housel’s new book clarifies – with razor sharp and accessible insight – that building wealth is a mindset problem, not an investment problem. This is the first book any investor should read; in conjunction with a good index fund, becoming wealthy lies within everyone’s grasp.’ Tim Hale, MD at Albion Strategic Consulting, and author of Smarter Investing: Simpler Decisions for Better Results
Risk warnings
This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
Header image by Dan Smedley on Unsplash

Dylan Joins the Team

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Wells Gibson is delighted to announce, Dylan Gibson has joined our team as an apprentice.

Although we don’t believe in market timing when it comes to investing, the timing of Dylan’s appointment was rather poignant. Dylan joined the team on 1st September, and this would have been the 75th birthday of Jonathan’s late father and Dylan’s grandfather, Terry Wells Gibson who died in 2006.

Dylan enjoyed work experience with Wells Gibson in 2019 and we asked him what he was most looking forward to at Wells Gibson, “Coming back to the office, I was most looking forward to seeing the team again and starting my training to be a financial planner.”

Having recently completed his school education at Perth High, Dylan previously worked part-time in McDonalds. In his spare time, he enjoys playing the piano and reading, watching films and spending time with his friends.

We welcome Dylan to the Wells Gibson team and look forward to seeing him thrive in this new role.