Big Government = Big Cost

Lest we forget, history shows this equation to be true:

Big Government = big cost and usually poor decisions

The "poor decisions" bit is subjective, and I won't deal with it.

However, "big cost" is easy to quantify.  Luckily for me Ross Clark writing in "The Spectator" has done the job brilliantly - see here.

He says that over the past year (2012) he spent £36,048 on his family, and £47,582 in tax (direct and indirect).

He summarises succinctly:

"I just happen to have looked through my bank statements and started to wonder why the government can’t do what I, and an awful lot of other people, have managed to do over the past few years: trim a little here and there, do without the foreign holiday, shop around for bargains and generally get my spending down without sleeping in a tent and ceasing to eat."

Here, here.

Nearly all investment is coloured by tax implications.  Is this truly a way to make an economy competitive?  History doesn't support this notion.

And please don't think that an independent Scotland would be immune from such mismanagement - by any party!

Infinitely stupid

Reading a recent issue of "MoneyWeek", I was struck by a comment in the editorial, which was entitled "Infinitely stupid".  In the editorial the following comments were made regarding the decision by the US Federal Reserve (the US' central bank) to allow quantitative easing (QE), or money printing, ad infinitum :

"...Dylan Grice of Société Générale ...is ...unimpressed.  QE Infinity isn't just debasing global currencies ...it is debasing our society.  At its most fundamental level, "economic activity is no more than an exchange between strangers".  It depends on trust between those strangers.  And as money is the agent of exchange it must also be the agent of trust.  Debase it and you debase trust.  Let's not forget that "history is replete with Great Disorders in which social cohesion has been undermined by currency debasements".  Might we be headed in the same direction?"

5th October 2012,  Merryn Somerset Webb, Editor, MoneyWeek

The funny / spooky / worrying thing is that when dropping my daughter off at the school bus this morning, the driver told me Obama had been re-elected President of the US.  I hadn't heard, not being an avid news follower.  The brief conversation wound on about the global financial mess, then he said, "I think it will come to war.  Looking back on history there always is one when capitalism is in crisis."

He's noticed.  I've noticed.  Who else has?

Save your gold, silver, jewellery...

All you need to know about making money trading

Ed Seykota is arguably the greatest trader alive.  I couldn't resist posting his formula for making money trading:

http://www.youtube.com/watch?v=O0yZG6eoahU

After that, Google for him.

3% is all you need to get filthy rich!

I do a great deal of reading and research.  I have recently been reading Michael Covel's, "The Little Book of Trading", and the following really struck home:

"Above average returns really start with compounding.

You want to know the difference between being rich and poor..?  Three percentage points - that's it.  If you take a 12 percent annual return compounded monthly over the course of 30 years, basically the working career of the average person, every dollar* that you invested will be worth $35.94.

If you compound a 15 percent annual return compounded monthly over 30 years, can you take a guess of the return difference?  Is it 10 percent better or 50 percent?  No.  Every dollar invested would be worth $87.54 a difference of 143 percent...

It is only three percentage points, but over 30 years that makes a tremendous difference.  That is why you have to shoot for the higher return.  Even if it is two percentage points more - it is a huge difference."

 * Or pound, or euro, or..!

The message from the book is:

• Construct your strategy, but basically have a "winners stay, losers go" core.
• Make sure it is built around the one and only thing you have control of; your risk.
• Back test it to breaking point to build your confidence in it.
• When tested, follow it without deviation.

Stock screening and picking - “Monkey with a pin” style

A little time ago I read Pete Comley’s excellent -and free! - ebook, “Monkey with a pin”.  You can get it here (http://monkeywithapin.com/), and in addition he has released it in audio form, again free.  He deserves thanks and praise for this effort.

I think every investor should read it (see my post on here, “I thought I was an OK investor, now I know I'm not”, 17th May 2012).

Now that I’ve had a little time to think about it, I think a way forward might be this:
 

• Choose an amount you wish to put into the market (say £1m over 10 years), and then how much you will invest every month to achieve this (in this case, £8,340 per month).

• From the world’s stock markets find companies that match the following screener:

Zero debt.

At or near a 52 week price low.

Yield 3.5% or greater - consistently (i.e. over, say, 10 years or more).

Consistently generates free cash flow, every year (i.e. the company has money left over after meeting all its obligations - its defined here: http://www.moneyweek.com/investment-advice/glossary/f/free-cash-flow). (See video here: http://www.moneyweek.com/freecashflow).

Isn’t a “small cap” (i.e. with a market capitalisation of less than $1bn US or around £700 million).

 

• Then do a randomised pick of the resultant list of the above.

I suppose one would use the stock exchanges of London, Japan, US, Europe (Berlin, Paris, etc.), and far east (Singapore).  Choose a broker with a good global spread.

As long as you don’t breach the 3% rule, you can invest in an individual stock as often and as regularly as the randomised picking system instructs you to.

 

• Benefits:

Pound cost averaging - i.e., smooths out the highs and lows in the markets.

Market top or bottom agnostic (ignore the news!).

Takes little time, probably just an evening a month, after you’ve set up your screening and spreadsheets.

Entirely “mechanical”.  Your emotions won’t get in the way of making stock picks, and emotions are a big problem for stock pickers.

Simplicity.

 

• Rules:

Don’t trade (i.e. buy or sell on news).

Keep holdings for the long term (more than 3 years).

Be disciplined, and don’t fall to temptation.

Ignore “gurus” and tipsters.

No stock holding to exceed 3% of your overall initial pot (in this case £30k, or 3% of £1m).

If the screen of the above brings up nothing, or just ones you are fully invested in, then don’t invest this month, and hold your cash pot over till something comes along.  In other words, be patient!

Stick to the rules!

I have not tested this method, it is just a theory, and I have no results to show for it.  However, I have read extensively elsewhere regarding making stock picks, and this one seems to me to be as good as any.

How to help people out of poverty

In a recent editorial for "MoneyWeek" magazine (27 April 2012), Merryn Somerset Webb makes the point that "one of the best ways to help the poor is not to be one of them".  Under the heading, "Don't knock capitalism", she says that companies "almost by definition" help people as they provide jobs.  She goes on to quote Robert Shiller in his book, "Finance and the Good Society" as saying that what capitalism needs is "expanded, democratised and humanised."

I completely agree.  I find myself thinking that this is a common-sense approach to all charity.  After all, if you haven't got it, you can't give any of it away.

But, surely, better than giving it away is to buy goods from the poor person, and invest in his business, allowing him to expand, and on the way improving one's own investment portfolio.  In this way he will be lifted from poverty, and encouraged to produce more, and improve upon what he does.  It is surely not a co-incidence that where there are massive grants of international aid, so there is widespread corruption and continual poverty.

I cannot imagine how dispiriting it must be to be caught in poverty, with no market for one's labour, ruled by corrupt people sponging off international aid whose sole interest is to keep you there thus ensuring the continuation of that aid, and then - to cap it all! - have hoards of "gappies" descend on you to "teach" you stuff, or "help" dig a well, when all you really need is a proper job for income, and a decent JCB digger to hire!

Glad I got that off my chest!

...and lest we forget, poverty isn't confined to where the international aid flows.  The photo above looks like Edinburgh to me.  Its from a website called "TheBluMile".  On this link there is a video put together by actors and producers which aims to get people thinking about its title: "Poverty Is EVERYWHERE".

It's close to the bone, and there is a lot of strong language.  This is the link: Poverty Is EVERYWHERE.

My message is that proper capitalism empowers people to improve their lot.  What we have now isn't capitalism, because its "crony capitalism".

Don't knock capitalism; bring it back to health.

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Additional edit after the above was posted:
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As is often the case, one falls upon something else related to the thing one had just done!  Giving Evidence (on this link: Giving Evidence) is a web site that I think will interest anyone giving to charity.  Its aim is to help "people to give well to charities".

How Money Dies

"We can guarantee cash benefits as far out and whatever size you like, but we cannot guarantee the purchasing power."

So said former Chairman of the Federal Reserve, Alan Greenspan, 1 minute 50 seconds into this video.

Give this a moment's thought, and you'll realise he is talking about inflation, or even hyper-inflation.  What have we had for the last goodness knows how long?  Inflation.

Here's an example.  Over the weekend my wife and I replaced a rose that had died.  At the base of the old rose was it's name tag, with a price of £3.30.  The cost of the replacement?  £16.00.  The difference in time? About 20 years.

The video talks mainly about the US Dollar, but it applies to the Pound Sterling, Euro, and all other debt based fiat currencies.

• How Money Dies