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.

-------------------------------------------
Additional edit after the above was posted:
-------------------------------------------
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

Should bad bankers be executed?

Apparently they execute bankers caught doing bad things in China.

Continuing my "buy gold" theme, here's another video which I think is interesting.  Once you've got your head around the presenter and his suit, there is much in here worth remembering.  After that, start saving some gold, even if you haven't yet.  As the interviewee says, later on you'll be able to swap it for more of another asset than you currently can - a house, maybe?  A few cars?  Or play it safe, and swap it for whatever new currency is coming along, and that includes the replacement for the Pound Sterling.

Fast-forward the video to 12 minutes 30 seconds to see the bit which interested me:

• Debt-a-holic Zombies

Optimism is an investor's enemy

Optimism is probably one of humanity's greatest traits, but an investor needs to be wary of it.  If you think something is worth investing in, think again before you do so.  I thought this video from TED summed up the issue.  Click this link to watch it:

• The optimism bias

Crash alert flag waving

I'm going to stick my neck out a bit, but I don't feel too worried!  I'm going to make a prediction, and describe a hunch:

Hunch:

• The Facebook IPO will mark a market top.  From here the only way is down before eventual bottoming out in the markets.  A major bear market, in other words.

Prediction:

• In 10 years Facebook will be gone, and a $100 billion "worth" of company will have disappeared, together with a lot of peoples' cash and hopes.  The only winners the original share holders who got theirs out.

I thought I was an OK investor, now I know I'm not

I thought I was an OK investor, now I know I'm not; I just got lucky.

Pete Comley's book is free and excellent.  Even if you are not new to investing, there is much that will surprise you.  In any event, I feel sure you will want change something about how you invest.

The book is written with the UK investor in mind, but in fact has lessons for all.

I may have further thoughts after digesting this book.  For now,  follow this link to download his book:

Monkey with a pin

We are all dreaming...fiat "money" will come to an end

This is a British gold Sovereign.  First introduced in 1816, it became the world's most widely used gold coin.  Today it is still legal tender in the UK.  That makes it the most portable tax-exempt method of defending your money.

Again I'm grateful for the following educative interview recorded on YouTube (link below).  Do have a listen to it.  And don't think for one second that just because they are discussing events across the Atlantic it isn't relevant here; it is.  For me the most outstanding comment is that we are all "dreaming".  Fiat "money" isn't going to be here for ever.  Some form of default will occur.  That could just be by inflation, probably our government's preferred route.  For Greece, it might be different.

At today's date, you can pick one of these up for about £240.  Buy one every month for the foreseeable future and put it somewhere safe.

http://www.youtube.com/watch?feature=player_embedded&v=MuS6_M4cQOM

One cheer for executive pay revolt

Aviva, Citigroup, Barclays, easyJet, Trinity Mirror, Credit Suisse...

They all have one thing in common; shareholder revolt against executive pay.  Hooray!  About time.  I just worry that the momentum won't be sustained.

But what is to be hoped is that shareholders have finally woken up, and become fed up by poor performance being rewarded by exorbitant and damaging executive pay.  The startling fact is that the FTSE is worth less than it was a decade ago, and yet over the same period executives of the 350 biggest quoted companies have enjoyed a 108% pay increase (recent study by IDS, and reported in MoneyWeek 4 May 2012).  Over the same period the value of these firms increased by a measly 8%.  Hardly inflation-busting.

Let's just remind ourselves what these people are.  They are not entrepreneurs, and they take no business risk.  True entrepreneurs should be well rewarded, but these people are not entrepreneurs.  They are competent individuals, certainly, but - importantly - who could be fairly easily replaced.

The truth is that shareholders - the owners of these companies - have been fleeced.  Matthew Lynn (MoneyWeek 4 May 2012) suggests some ways to stop this rot:

1. Pension funds (private and public sector), Unit Trusts, etc., who control the bulk of the UK stockmarket should consult their policyholders on pay.  As it stands, most fund managers vote as they please, and because they are part of the same racket, they don't rock the boat.
2. How many shareholders go to, let alone vote in a company AGM?  Lets face it, these are usually truly dull events.  So, separate the vote on executive pay from the AGM, and make it an on-line affair.  This would soon increase shareholder participation - and revolts!
3. Raise the bar for approval.  Change the rules so that an executive pay policy needs 60% shareholder approval.

As Lynn says, "Apart from a few people who are lucky enough to have their fingers in the pie, the massive escalation in executive pay hasn't helped anyone."  Here, here.

In order for my one cheer to become two, at least one of the above changes should occur.  To become three, all of them.

Eric Sprott Discusses Europe, Gold, Silver and the World Economy

Even though this is a truly huge subject, this short interview video packs a great deal of insight.  Another one worth watching.  Just ignore the marketing...

Click this link:

• Eric Sprott Discusses Europe, Gold, Silver and the World Economy

Gold standard inevitable, $10k/oz looms

"April 26 - A return to the gold standard is inevitable, perhaps as early as next year. And gold prices could hit $10,000/oz, says a new book by Amphora CIO John Butler."

Undoubtedly everyone has their own agenda, but this short video from Reuters (April 26, 2012) is thought provoking.  I think its worth hedging one's bets, and holding some gold now.  Don't wait.



Click this link:

• Gold standard inevitable, $10k/oz looms

"What utter, utter rubbish."

"Don't listen to the government telling you not to invest in your own portfolio, says Tom Bulford. They've got their own secret agenda."

Yes. Agreed. Doing your own research is invariably the best bet. And there is plenty of help - free, gratis and for nothing - on the internet...

Click here to read the article:

• Nanny is watching you

"Gold functions like the sun, with all currencies as planets orbiting around it, with only the sun in fixed position..."

When you have a spare bit of currency, invest it in real money - gold. Then keep it for a while and watch the currency diminish in value.

Spend a few minutes reading this article:

• Dutch central banker's memoirs confirm gold price suppression

Scottish Independence - an open letter to Alex Salmond

I've posted a letter to the First Minister of Scotland regarding the plans for independence from England.

Click on the link on the blog, above this called "Scottish Independence - an open letter to Alex Salmond".

Hello investors

thocht n. Thought. Anxiety, care, trouble, a cause of concern or anxiety, a burden, worry.
dim. thochtie A thought, an idea. A very small amount, a very little, of a substance, time or distance etc.
twa n. Two.
Source: My head, confirmed by http://www.scots-online.org/dictionary

Twa Thouchties is my take on the global scene of investing, seen from a parochial Scottish viewpoint.  It isn't much, but its mine.  I offer no personal advice or explanation; I just say what I've done.  Occasionally I might voice an opinion, concern or other, or even a response to something or someone.  Time will tell.  That's all.

Why the name?  "Twa" as I don't have too many; "Thochtie" as invariably they are small ones.

Regards,

James.