Value Investing – an update

In June this year, Warren Buffett made a deal to provide financing to Canada’s Home Capital Group (HCG) and also purchased a stake in the company. While other investors were selling out of Home Capital because of a run on deposits in Canada’s number one lender of residential mortgages to borrowers with poor credit ratings, Buffett was buying in. He secured generous terms on his loan and purchased his stake at a steep discount of 33% on the stock’s previous closing share price. Time will tell if Buffett’s investment will be successful, for now, this appears to be a good example of Buffett buying cheaply or in other words, a good “value” investment.

Trump Tax Tinkering

Evidence based investment approach.

POTUS Donald Trump wants to over haul the current US tax system. Today US tax is a curate’s egg – partly good and partly bad. You have a mixture of high rates and generous exemptions which arguably can offset one another.

Mayday for the dollar?

Two weeks ago Theresa May’s call for a snap election in the UK may have stunned Westminster but it also caught currency markets on the hop. The pound enjoyed one of its best days in a decade rallying to a six month high against the dollar. It has certainly been noticeable for US taxpayers in the UK with an interest in “Cable” – foreign exchange market jargon for the sterling: dollar exchange rate (GBPUSD). Ahead of the election announcement the market was trading round 1.25 and since then GBPUSD has been as high as c. 1.2950 and is still just above 1.29 at the time of writing. Back in the middle of March it was just above 1.21.

Michael Lewis and Daniel Kahneman

The Sunday Times magazine carried an article this week about two people whose work I enjoy hugely – Daniel Kahneman and Michael Lewis. More specifically it was an interview with Michael Lewis, author of Liar’s Poker, Moneyball and the Big Short amongst others, who has written his latest book about Kahneman and his former co-author Amos Tversky and how the two men came together as friends and then radically changed the way we think about the human mind and why we make the decisions we do. Before their work, economists mostly thought of people as generally rational beings who would analyse all the necessary information before coming to the best decision.

Expect volatility and tax cuts: three advisers on Trump’s victory

Trump-lite or triple strength Republicans? Expect pro-business, tax cuts and slashed spending.

We expect there to be more volatility in light of the fact that people have changed their view of the world in light of this new unexpected event. But is it terrible news for the stock markets or asset prices? No, they are not correlated at all.

There is little correlation between what happens right after a presidential election and when you have a new president compared with when you have an incumbent party coming in.

I actually do not think it is all bad news. Trump is pretty pro-business. He is looking to lower taxes and looking to repatriate American profits abroad and based on these things there will be more investment in the US. That is if he can push through everything he says he is going to do.

Taxes expected to rise under a Clinton Administration

Evidence based investment approach.

It is widely expected that should Hillary Clinton enter the White House in January that taxes for the wealthy will rise.  Clinton suggests that taxes will be higher for those Americans who earn more than $250,000.  For those who are earning more than $5mm per year Clinton moots that there will an additional 4% tax levied.

For US residents this is an immediate hit to the bottom line.  It is unknown as to which tax year Clinton might impose these tax rises and, as such, attention should be given as to whether one wants to crystallise tax liabilities this tax year rather than next.

For those Americans living in the UK the tax rises will probably mean that the highest US marginal tax rates will become more in line with the UK marginal tax rates and as such should not result in additional taxation. The key is ensuring that all US income taxation is off-settable against UK income tax under the US/UK Double Tax Treaty.  Care should be taken as to crystallising tax liabilities in an attempt to shelter against US taxes if UK taxes are due on any investment portfolio.  As a result of Brexit the UK tax liability on US portfolios is likely to have ballooned given sterling’s depreciation.

If these tax rises are passed the UK will become more attractive than the likes of New York and California as a tax destination as US Citizens living in the UK generally do not pay State or Local taxation.

For more details please click here to read a recent Bloomberg article on this topic.

Investing: It’s an on-going process, not a point in time

At any gathering around the world, I’m invariably approached by someone who wants to know when and where they should enter the market. For the past couple of years, those of my friends and family in the States have been pleased with how their portfolios have been performing.  I generally agree with them knowing that there is significant home country bias in their portfolios.  However, the rest of the world hasn’t fared as well.  In our market, primarily the US expat market, we hear something opposite from those in the States.  Presently, 22 August 2016, the US is all but fully valued (some may say over-valued) according to Research Affiliates . It’s impossible to pick and choose markets in advance to garner the benefits that appear to be easy to select in the rear view mirror.  Times are challenging now.  In fact, times are generally challenging.  Below are some of some of the key indices around the world to provide some insight as to how things really are and have been over the past few years.  It’s very easy to take a snippet from an article or listen to the talking heads on television and believe that markets are doing something they’re actually not.  As Wealth Managers, our job is to provide a solid portfolio structure that will give the best chance of a positive result based on risk appetite.  We diversify broadly, both from a geographical and industry perspective.  The easiest way to keep this in mind is to think about the late 1990’s.  Tech was the rage and if you weren’t in it, you would receive paltry high single to low double digit returns.  That was great while it lasted, but, like all other fads, that fizzled and many people and institutions were burned.  Don’t give in to the hype of greener pastures.  You’ve heard it before, this time, make sure you don’t go searching.

Drown out the Noise – You Are Smarter than You Think

I spent a couple days earlier this week at an investment conference. Whilst there, I was reminded of the volumes of empirical evidence supporting our investment philosophy. It was reassuring and affirming.  Even though I’m “in the business,” I’m not immune to the noise that is everywhere.  Talking heads on TV telling us which stocks are winners; newspapers telling us the sky is falling; co-workers telling us how great their investments are the greatest thing since sliced bread. These distractions are ever-present, and it takes true resolve to not be swayed by these externalities. Clients will often ask what we think of a particular event (How will Brexit impact me?) or security (Should I buy some Apple?) or perceived future risk (But what if Trump is elected?).  These questions are relevant and valid, but they shouldn’t cause you to deviate from your long-term strategy.