What to Do When Fire Rages?

At this time of economic uncertainty and stockmarket turmoil, I thought about the following. It may not be immediately obvious why I am writing about a SATs paper from years ago but I hope it will become apparent.

Years ago there was a reading SATs paper entitled ‘Fire: Friend or Foe’.

In my opinion, it was one of the more interesting SATs papers. I base this on no more than its contents stuck in my head and inspired me to learn more.

One of the sections of the paper was about how certain forests and bush areas rely on fire to keep them regenerating – burning off the dead wood and allowing new seeds to grow, if you like.

Since reading the paper for the first time, I sort of think of it as a metaphor for major investing cycles. Yeah, I know that’s arty farty but it helps me understand things.

The idea is that certain habitats occasionally get destroyed by fire. Devastating you would think, but actually, not necessarily so.

High Street Slashers: The Real Time Observations of a Shop-a-holic (GUEST POST)

Numbers and graphs are great. I love them. But I do concede that they have their limits. That's why I like to keep it real by walking the floors and talking to knowledgeable people that love the products they are buying.

Company reports have their place and I like to look in the rear view mirror as much as the next person but when I want to hear a real time report from the bad lands of the fashion retailers, I like to hear my friend Tara's take on things - she's got her finger firmly on the pulse.

I'll hand over now.

 

7th Day Growing Pain - Prove I'm wrong. (Funds and Bundlers)

I invest monthly via a very large UK discount broker. I invest in a variety of unit trust and OEIC funds.

Some of the funds I invest in are specialist and some are not. The money goes out of our bank accounts on the 7th of every month and the new units appear in my account between one and four days later.

There is something I think I have noticed and it has been a source of bemusement for a while.

I'm looking to be proved WRONG on this because I sincerely hope I am.

Come and Ride the Bubblecoaster: Riders at the Back Will Get Wettest! (Part 1 of 2)

Stories of investment 'booms and busts' abound. Sometimes they're called 'bubbles' and the word 'bust' is changed to 'burst' because......... that's what bubbles do. I use the words 'bust' and 'burst' interchangably. 

The word 'mania' can used instead of 'bubble'. They mean the same thing: the price of an asset (or asset class) gathers such upward momentum that people trade the asset for increasingly ridiculous prices relative to the how the asset was previously valued. The price is chased upwards until it reaches a peak and then plunges like a lead balloon.

At the peak of big bubbles, although humans are unaware, spacecraft are rumoured to have been spotted in the sky as alien news reporters are dispatched from outerspace to report on the bizarre behaviour of those involved in the bubble. ;-)

In part one, I would like to take a closer look at the common features of bubbles and, in part 2, I will see how human behaviour contributes, and is affected, by them.

Is the stock market 'just gambling'?

I've often heard the phrase, 'playing the stock market is just gambling', or versions thereof.

Is it true that buying shares on the stockmarket has similar monetary risks to activities such as a night at the bingo, visiting a bookie, a casino or playing online poker?

Considering that many of us have money invested in the stockmarket through personal investments, windfall shares and other financial instruments, direct and indirect, it would be incredibly disingenius if playing gambling games and investing in the stockmarket were in the same risk class.

There is much information widely available on the internet that shows that the stockmarket offers a better rate of return than other asset classes, never mind gambling, especially over extended periods of time. I'm not going to rehash the statistics here because they vary according to time period taken and are the results of a simulated model. If you want the numbers/ graphs, Google is your friend.

Taking the 10 year view is, for most people - me included, a bit too far into the future to be meaningful. I am therefore going to talk in terms of my experience as a private but reasonably confident investor who believes that, over time, the stockmarket will offer me the best rate of return I can get.

In this post, I am going to explore the case of buying shares on the stockmarket rather than short term trading, dealing in derivatives or shorting stock. Also when I say gambling games, I mean where a company is involved rather than an evening of beer and poker in your mate's back room.

First, lets see how Wikipedia defines gambling:

Investing is a picnic: the difference between shares and investment funds.

I like visualisations and analogies. You've probably gathered that from my other posts. So here is another one.

Imagine you are going on a gourmet picnic with your friends. You have agreed to limit your food budget to £5 each.

Come lunchtime, you have two options:

1) everyone brings and eats their own thing.

2) everyone sticks their £5 in the kitty. Someone who claims to be a culinary genius goes and shops for picnic food, shares out the goodies and plates it up. You get one plate.

***

Option 1 is similar to investing in individual shares.

PROS:

• You choose the items - you get to enjoy all the nutrious and delicious goodness if your item is particularly tasty.

CONS:

• You may have picked up a mouldy pork pie. In that case, you get to nibble on the un-mouldy bits, or, at worst, miss out.
• The number of items you can buy with your £5 is limited - you have to buy the whole box of your favourite Super Nutty Choco-Crunch chocolate biscuits, even though you may only be able to eat three before nausea sets in.

Option 2 is more like investing in investment funds.

PROS:

• Convenience: you don't have to spend hours at the market.
• Your culinary genius may produce a whizz bang gourmet delight.
• You get a wide exposure to lots of different foods, some which you wouldn't have thought of for yourself.
• It doesn't matter if your piece of pork pie is mouldy - there is plenty of other stuff on your plate.

CONS:

• Your culinary genius may turn out to be more greasy caff than posh nosh.
• If you like a particular item on your plate, you can't get seconds - you get what you're given on your plate.

I know that this is not an exact analogy but I think it's a decent start.

Bon appetit!

Growing My Own's Investment Strategy

When people ask "What should I invest in?", it's akin to asking "How long is a piece of string?"

It depends on a multitude of things including age, disposable income, lifestyle, time scale, attitude to risk, knowledge, confidence. The list goes on.

With this in mind, I can only talk about myself. So lets consider me:

Do you back the horse, the jockey or the racecourse?

When investing in a new investment, one of the first questions that I ask myself is the above question:
Am I backing the horse, the jockey or the racecourse?

If I choose to back the racecourse, I think of it as picking a sector (geographical, like China, or sector, like mining). I do this particularly when investing in tracker funds and ETFs.

If I choose the jockey, I'm backing the competencies of a fund manager (of an investment trust, unit trust or OEIC).

If I choose the horse, then I'm basically picking individual shares myself.

Which is best?

Joshua Kennon - One of My Favourite Investment Authors

Joshua Kennon is one of a handful of investment authors that I really enjoy reading.

What I really like about his style is his ability to take quite complex principles and explain them very clearly and simply. When I read his stuff, I can almost hear him speaking although I have never actually spoken to him.

Another reason I like his writings is because he sometimes takes a commonly discussed issue and discusses it from a different angle.

Check out this article as an example of one of many:

http://www.joshuakennon.com/a-perfect-example-of-why-most-investors-have-terrible-returns-on-their-money/

Dot.Doom Fever - A historical story.

One long hot summer, when the internet was still in its infancy, an epidemic swept through Planet Wonga, where I once lived. This is the story of that time.

During the outbreak, previously rational people, myself included, caught a debilitating illness called Dot.Doom fever. Even though the fever was contagious, there were no physical symptoms and the fever could only be diagnosed by observing the symptoms of irrational behaviour and delusions that infected people displayed. Although not everyone caught the illness, every sector of society was affected: from doctors to cab drivers, hair dressers to solicitors, office workers to architects.

Prior to the epidemic, people used to go about their usual business of building houses in a slow and controlled manner: first the foundations, then the walls, followed by the roof and, finally, the additional luxuries like roof gardens and hot tubs.

One of the most pernicious effects of the Dot.Doom fever was that, in the early days, it made people feel like Masters of the Universe and every house they touched seemed to turn to gold. As you can guess, people started building more and more houses. Some of the afflicted even borrowed Wongatons, the currency of Planet Wonga, to build or buy more houses.

The Widget Maker - A story.

Gerry made widgets. He loved making widgets and so did his team of widget makers. He loved widgets so much, he even called his business 'WidgetsRUs'. The only thing Gerry loved more than widgets, his wife and kids excluded, was cold hard cash.

Being a smart man, Gerry charged £X each per widget and then slapped a trailing charge of between 1% and 2% a year on each widget he sold, depending on the widget. (Gerry sold a whole range of different widgets - each type designed to do something slightly different).

The only thing that cast a cloud over Gerry's happy world was having to deal with the people who bought small amounts of his widgets. He didn't mind the people that placed massive orders so much, it was more the little buyers that used to ring him up for only 50 widgets at a time that annoyed him.

Indeed, he had once been known to yell down the phone at a startled little buyer, "What do you think this is? A 10p pick and mix store!"

If you pay your utility bill, pay yourself!

Every month most of us watch our wages slip out of our current accounts by direct debit and standing order. It's gone! Never to be seen again.

Would you ever NOT pay your utilities, mobile phone, insurance bills etc? No?

PAY YOURSELF too. Every month. Automate it.

A small start is better than not starting.

The Chessboard: A story

Once upon a time, in a far a way kingdom, lived a king who was very greedy and taxed his people until they were almost broke and starving. The king was not a totally bad bloke - just very greedy, foolish and far too removed from his people.

Early one morning, the king decided to go for a swim in the sea. Slipping out of the palace, the king headed to the beach leaving his guards and servants unaware of his whereabouts.

What is an ISA? Who knew wrappers could be so much fun?

An ISA (Individual Savings Account) is a tax shelter - like the polytunnel

over your crops or the wrapper around your sweet, the box around your chocolates etc.

So a cash ISA means that you don't pay tax on your interest, like you would have to in a normal savings account. It's still cash in your ISA, its just that the cash is sheltered from any taxes that may be due.

You can have one if you reside in the UK for tax purposes (for most of us that means having a National Insurance number) and are over 16.

Why I think too much cash is not good for growing your own.

My mate has £10,000 in a safe. It's been there since 2004.

He told me about it a few days ago. I was pleased he'd managed to amass this amount but I was very surprised that he'd chosen to stick it in a safe.