Monthly Archives: March 2020

Comfort Reading For Uncomfortable Times

We are currently living through some interesting and unprecedented times and it can be difficult to gain perspective when we are in the middle of a crisis.

We have curated some articles and resources below that should allow for a more rational view of current events and this content will hopefully provide some reassurance for those of us who are struggling with the daily news feed at the moment.

Curated Resources

1. S&P 500 Crash Recovery Timings

This document shows the performance of the S&P 500 since 1926 and, most importantly, the relative length of ‘bull’ (positive) and ‘bear’ (negative) markets. The good news is that bull markets tend to last much longer and generate much greater returns when compared to the relatively short-lived bear markets. To support this, you can also download our very own ‘How The Market Works’ document here.

2. FTSE All Share Crash Recovery Timings

The theme here is the same as above. The key thing to note here is the shaded areas, which show the times of crisis or recession. Note how the stock market recovery often starts while the crisis is in full swing. For example, the 2nd World War lasted from 1939 to 1945, but the stock market recovery began in the middle of 1940 – almost 5 years before the end of the war. This same pattern can also be observed during the financial crisis in 2008/09.

3. Fidelity document on missing the best days in the market.

We have shared this document many times before, but the message holds true. If you miss the best few days in the market, even over a long period, you significantly damage your total returns. If we look back 15 years from now, it’s not hard to imagine many of the best days being in 2020 given the volatility of the market.

In fact, yesterday (24th March 2020) is now on record as the 2nd best day in the history of the FTSE 100. This just goes to show that the best days often come on the back of the worst.

Curated Articles

We have summarised some of the best new (and old) articles about investing in times of crisis.

Stock Market performance in previous outbreaks

50 Previous ‘Crash’ Events that the market has ignored

We Will Get Through This

The Market Always Goes Up

Recommended Reading

If you are looking for something more substantial to fill a day at home, we would strongly recommend the following book:

Factfulness – By Hans Rosling

We have suggested this before, but this has to be our number one recommendation for those wanting to gain perspective on seemingly extreme events and the way that the media report on them. An essential read for every human being on the planet.

The Financial Conduct Authority does not regulate Estate Planning, Tax Planning, Will Writing, Trust Advice, or some elements of Automatic Enrolment.
This communication is for general information only and is not intended to be individual advice. It represents our understanding of Law and HM Revenue & Customs’ practice. You are recommended to seek competent professional advice before taking any action.

Please note that investments can fall as well as rise and any income generated by an investment can fluctuate over time.

Matthew Smith’s Thoughts on The Pandemic – 20th March 2020

As we begin to come to terms with our new way of life, many clients have been asking me for my personal views and opinions on the current situation and where I think things will go from here. As such, this is a collection of personal thoughts on all sorts of issues which I hope you will find comforting and reassuring at what is clearly a difficult time for everyone.

The Current Situation

As I write, the markets are in turmoil, most people are working from home and we are panic buying and stockpiling loo rolls. I do appreciate the severity of the situation, however some of these moves (I saw a chap at Tesco a few days ago purchasing at least 200 loo rolls) are being overdone and overblown, in some cases to epic proportions. I have the same feelings about the market reaction which I will come onto in a moment.

I believe we are fast approaching the point of ‘peak panic’ (although we are not quite there yet). In the coming day or two the schools will close and I strongly suspect that we will enter a period of enforced lockdown, much like we have across Europe. Once these measures have been announced I suspect the panic and irrationality will have one last hurrah and then, slowly, gradually, we can begin to rationalise and come to terms with our ‘new normal’.

It is said that stock markets climb the stairs and take the lift down and I feel the same will be true of our feelings and reactions to this current crisis. At the moment, things feel very new and the change is unnerving. But, over time, we will get used to the new way of working for a time and gradually things will return to normal (it is just that we don’t know exactly when that will be).

The gradual return to normality will receive little media attention and we won’t feel it nearly as strongly as the painful changes we are making to everyday life now, but, slowly and surely, it will happen.

Human emotion is strong. We are not always rational creatures, especially when faced with a threat to our health and the desire to feel like we are ‘doing something’ is great. We have to remember that the people who trade billions of dollars on the global markets are human beings too and will suffer from all of the same fears as the rest of us and this will no doubt impact on their decision making (whether they realise it or not).

The Virus

As as starter for 10, I am not an epidemiologist and I do not have any scientific qualifications of any kind, so my views on the issue of the virus are very much from a layman’s perspective.

The health issues caused by the virus are heart breaking and there have been some harrowing scenes playing out on the evening news. We have to remember that these are a minority of cases, however that does not make it any easier to watch. My thoughts are with anyone personally impacted by this situation.

In order to see ‘light at the end of the tunnel’, in my view, one of two things will need to happen:

A – We develop and deploy a vaccine.

B – We develop so called ‘herd immunity’.

In reality, I suspect that it will be a combination of both of these factors that sees the end to this crisis and both will probably happen sooner than we expect (disasters always feel like they will take a lifetime looking forward, but usually seem to pass more quickly in retrospect). There is news today in the papers that the progress of the vaccine is gathering pace and that it could be ready in months and not years. Early days yet, but a green shoot of hope and I certainly have my fingers crossed.

As an eternal optimist and as an entrepreneur, I have every faith that we will get through this crisis and return our lives to ‘normal’ before long. I suspect that ‘normal’ might look a little different at the end of all this, but not that different.

The Market

By now we are all aware that the markets have had a rough few weeks. To think that we were sitting at record highs barely 3 weeks ago is almost unbelievable. The speed with which markets have fallen is unprecedented and, I believe, is more to do with human emotion around the health crisis than anything fundamental.

There will no doubt be an economic impact of this crisis and there will be a hangover, just like in the financial crisis of 2008. This will be one of those watershed events that will be remembered and spoken about for years to come.

Despite the panic, I do personally believe that the sell off has been overdone (based on the facts and data we have available now). A great example of market irrationality is the Amazon share price. Arguably one of the companies who are best placed to do well in this brave new world, Amazon are in the process of hiring 100,000 new workers globally to meet never-before-seen demand. Why then is their share price down circa 12% over the past few days? Because of panic and irrationality is my theory – certainly not because of company fundamentals. I could give many more examples of companies whose share price should be rising, but is not – a tell tale sign that markets have gotten carried away with themselves.

My own view is that we are approaching the bottom (although perhaps we are not quite there yet), although I would not like to predict when this period will end.

What I do have confidence in however is that markets will recover. Markets have always recovered. They have recovered from a great depression, two world wars, numerous more localised conflicts, black Monday (the 1987 one), the dot-com bust, 9/11 and the financial crisis. Why should this be any different?

The other reason that I have confidence that markets will recover is because of cash. One of the main reasons for the markets rapid rise over the past decade or so has been the paltry rates on cash savings since the financial crisis – say about 1% on average. In this environment, for anyone who wanted a sensible return, money has had no place to go but into the equity markets.

This factor, I believe, will be even stronger in this recovery. As of a few moments ago, the Bank of England has just cut rates to 0.1% – the lowest level ever. Given the current situation, I imagine they will be close to that level for a decade or so to come. At the same time the FTSE All Share currently offers a forward looking yield of over 6% (there will be some dividend cuts no doubt, but still). Economically this difference can’t be sustained and when we all emerge from our homes at the end of this, we will want our money to work hard for us – the only place it can go will be equities.

Finally, I am buoyed by the spirit of the entrepreneurial community. I belong to several business coaching groups and the ingenuity being displayed by businesses in finding new ways of working is very impressive. I stayed at a small hotel at a pub on Tuesday and the owner was just preparing to launch a food delivery service in the village to keep his kitchen running if the pub has to close – this type of creative thinking will be happening up and down the country.

In our own business, the reaction to the use of video calls has been incredible, with some clients commenting that they actually prefer this as a communication medium given the significant cost and time savings it affords. While we will always offer face-to-face meetings (nothing will replace that), I suspect we will all continue to use video conferencing more once this crisis is over.

We have also seen a rise in new client enquiries over the past few days as people use periods of self-isolation as an opportunity to get their affairs in order and attend to financial planning tasks that may well have been put off for many years.

Other businesses are also taking similar measures to make themselves more efficient and accessible. For example our legal partners have just introduced a completely paperless instruction taking and drafting service, meaning that we can create new wills, trusts and estate planning solutions for those who need them completely over video or phone call during this time.

Is This ‘Different’?

This is perhaps the most common question people have asked me over the past few weeks. Is this situation different? Do the normal rules apply?

The answer is yes … and no.

Yes – this is different. But only in the sense that every market downturn is different to the ones before it. The 2008 financial crisis was very different from 9/11, which in turn was very different from the dot-com bust and so on.

No – this is not different in the sense that I am sure we will recover from this. It might take 6 months, it might take a few years, but if the markets can recover from everything the world has thrown at them over the past 130 odd years (including many serious pandemics) then they can certainly recover from this.

If you would like some reading to help reassure you (and keep you entertained during lockdown) I would strongly suggest Factfulness and The Righteous Mind. I guarantee you will see the world differently after reading these books.

How We Can Help

Although clients thank us most when portfolios are rising, it is at times like this where we add most value and really earn our keep. The team and I are working harder than ever before and will continue to do so to support our clients through this time. I am proud and humbled by the effort and in some cases sacrifices that the team have made in providing an outstanding service to our clients.

We are in constant contact with our investment partners at Square Mile and other financial analysts and are monitoring and managing portfolios to limit the damage and make the most of the opportunities that exist in this market (and there are always opportunities somewhere).

Our new Zoom video conferencing system is now fully operational and there is something more comforting about seeing someone’s face versus just speaking on the phone. If you would like to schedule a video call to discuss your own situation or just wish to have a friendly conversation while self-isolating, just ask Kayleigh who would be more than happy to make the arrangements.

Comfort Reading For Uncomfortable Times

Next week, we will be sending out a whole host of curated articles and content to help you see through the market and media noise and make calm and sensible decisions in what is clearly an unusual and unsettling time.

We hope that this content provides some comfort (and entertainment) in the weeks and months ahead.

If there is anything more I can do to help you – please just ask.

Yours Sincerely
Matt

Coronavirus – how we are dealing with things

Like many companies across the UK, we are heeding the governments advice and implementing various changes to the way we do business with immediate effect and until further notice.

We are doing everything we can to maintain our usual service to clients and to that end we are implementing many of our well rehearsed business continuity procedures.

Video Meetings
In line with government advice, we will be conducting the majority of client meetings via video call or telephone where possible and minimising face-to-face contact.
If you have a face-to-face meeting booked at the current time, we will be in touch very soon to make alternative arrangements.

Home Working
As of 5pm Tuesday 17th March, we have taken the difficult but necessary decision to close the office and all staff will now be working from home.
We have robust home working policies and procedures in place and all staff have remote access to our telephone system and software packages.
Therefore all of your inquiries will be handled in the usual manner.

Post
Post will be collected less frequently than usual from the office so where at all possible we would encourage clients to communicate with us via email or telephone.

Documents
Along the same vein, we will be minimising our use of paper during this time and will send all communications using digital means where possible.

Protecting our Quality of Service
We appreciate that this is a concerning time for everyone and it seems clear that the impact of the Coronavirus will be felt for many months to come. During this time we will be doing all in our power to support, reassure and advise our clients and their families. We will be using this time as an opportunity to improve and expand on the service that we provide to clients and we will continue to keep you updated on any further developments.

Coronavirus Update – 13th March 2020

It is refreshing to open an update with at least a paragraph or two not on Coronavirus (but more on that in a moment). We are pleased to report that we have completed our analysis of the Spring 2020 Budget document and the impact on personal financial planning is incredibly minimal. Except for some increases to National Insurance thresholds and some tweaks to fringe tax benefits such as Entrepreneurs Relief, there is little in the budget that will have any effect on current planning.

Perhaps if there is one good thing to come from the present situation, it is that we have yet another fairly benign budget from a personal financial planning point of view and this means that the current fairly generous personal tax regime will be maintained.

Back to the virus now and it is fair to say that the market is searching for direction. Headlines from yesterday reported some of the worst stock market falls since 1987. It is interesting to observe that at the time of writing this (which I will quote as 12:28pm on Friday 13th March given the minute-by-minute changes we are seeing) the FTSE 100 is up around 8.7%, effectively re-gaining much of yesterday’s loss.

Assuming it closes at this level (and there is a whole 4 hours for things to change before then!), don’t be surprised if this barely gets a mention in the media, despite the huge reports on falls of a similar magnitude yesterday. This only goes to show just how volatile things are at the moment and how rash decisions can have an impact on your wealth over the long term. The current volatility is almost entirely driven by emotion and not logic. There is almost no conceivable way that the long-term intrinsic value (over the next 30 years) of all of the worlds great companies (think Apple, Unilever, HSBC, General Motors etc) fell by 10% yesterday only to grow by 10% today!

Having consulted with our partners at Square Mile again, the view is now that most markets are starting to offer very good value and there are some real opportunities to purchase the worlds great companies at a significant discount versus where we were just 3 short weeks ago.

Coronavirus Update – 5th March 2020

We wanted to provide a further update on the Coronavirus and how this is impacting on portfolios.

The global stock markets have been incredibly volatile over the past few weeks as investors digest the minute-by-minute updates on the virus and how it is impacting on companies.

In the past 5 working days, we have seen some of the largest ever falls on some stock markets, followed almost immediately by some record breaking gains – volatility reins supreme.

At times like these it is important to remind ourselves of two of the timeless lessons of stock-market investing.

1. You can’t predict the market – trying to do so in the current climate seems even more futile than usual. The virus presents a new and uncharted challenge and it’s path is near impossible to predict. Markets are moving strongly in reaction to each new data point released.

2. If you miss the best few days in the markets, you often permanently damage your long-term returns. Fidelity wrote last year about the impact of missing just the best 10 days in the market out of the past 15 years. You can download and read their previous article on this here.

Given the extreme moves we have seen over the past week, there is a very high chance that at least one (perhaps two or three) day(s) will feature in the ‘best days’ table when we look back 10 years from now and thus, despite the media storm, this period could be one of the most important for your long-term financial success.

We took the opportunity on Monday to re balance portfolios given the significant divergence we have seen between bond and equity markets. Although an over-simplification, in essence this means that we sold bonds which had increased in price (and thus were making up a larger than desired part of the portfolio) and bought equities which had fallen in price.

Given the fairly sizeable recovery in equity markets over the past few days, this move seems to have been well timed and has assisted in the recovery of the portfolios this week.

We will of course continue to monitor the situation carefully over the coming weeks and months and we will write again with any significant updates to the portfolios.

As always, if you have any questions, please do not hesitate to contact a member of the Buckingham Gate team.

 

Coronavirus Update – 28th February 2020

We write again following our update on Wednesday. You will no doubt have seen in the media reports of further stock market falls over the past few days and many markets are now in so called ‘correction’ territory (usually defined as a fall of 10% from a recent high point).

To say that we are delighted with how the portfolios have been coping in this environment would be an understatement. We have been very conservatively positioned for some time now in readiness for just this kind of event and our cautious stance is now proving to be well placed. As of the close of play yesterday, the FTSE 100 was down around 7.8% for the week with the S&P 500 down around 10%. By contrast, the Buckingham Gate Balanced Active Portfolio was down by around 3.6%, demonstrating the benefits of diversification.

It is worth mentioning that the media attention will focus almost exclusively on the stock market and tends not to cover the bond markets. In the past week while stock markets have been falling, many bond markets have seen record low yields, which means record high capital values in many cases. As this process has unfolded, the fixed interest portion of our portfolios have been seeing healthy gains.

Although periods like these are unsettling, they are an inevitable part of investing. Although we can’t say when the Coronavirus threat will subside, when markets recover they tend to do so quite quickly.

Jason Broome, the Investment Director at Square Mile has also provided the below update to give some context on events:


The expansion of the coronavirus outbreak is frightening but needs to be placed into perspective. So far, there have been 3,000 cases out of a population of 6,000,000,000 if we exclude China. There will be further cases, but the disease appears to be containable.  Some nations, including poor ones, have been quick to isolate those infected and nip their outbreak in the bud. Even China, with nearly 80,000 recorded cases, appears to be winning its battle as the number of new infections fall. For the moment, we have confidence that other nations such as South Korea and Italy will take the steps necessary to isolate the disease. Sadly, we are less sure about Iran where the authorities have been in denial. The country’s links to Afghanistan and Syria seem to leave a high probability that the virus will find a base in the Middle East (though the arrival of summer could stem the rate of infection). If established in the Middle East, outbreaks will continue to pop up around the world as a consequence.
 
The human tragedy aside, the economic implications of controlling the outbreak are severe. Supply chains will be disrupted as factories close, popular events are being cancelled and health services will come under increasing strain. Markets are falling and approaching a level that we believe provide a reasonable reflection of the economic costs of the outbreak. We have been running a cautious positioning in portfolios for some time and last year we took steps to add positions that should act as insurance policies if markets fell as they have now done. Our portfolios are suffering as the market falls, but our earlier action has helped moderate the damage.
 
Today, we formally convened to discuss whether we should take further action to protect the portfolios. Sadly, we lack a crystal ball to tell us exactly what will occur. We considered various options and concluded that markets will remain volatile but broadly reflect the economic costs of the outbreak as it now stands. The situation is very fluid. We agreed to make changes to some portfolios, but these are minor in impact and we will advise clients as normal once the details are worked out. We also need to be very alert to the possibility that markets will panic and overreact to the outbreak. This may present opportunities for us to redeploy some safe assets into higher yielding opportunities.

As always, we continue to monitor the situation constantly and will look to act in your best financial interests.


The Financial Conduct Authority does not regulate Estate Planning, Tax Planning, Will Writing, Trust Advice, or some elements of Automatic Enrolment.
This communication is for general information only and is not intended to be individual advice. It represents our understanding of Law and HM Revenue & Customs’ practice. You are recommended to seek competent professional advice before taking any action.

Please note that investments can fall as well as rise and any income generated by an investment can fluctuate over time.

Market Update – 26th February 2020

You may have seen in the news that the stock market has suffered some fairly notable falls over the course of Monday and Tuesday. This is mainly in response to the increase in the number of Coronavirus cases across the world and in several new countries over the past week or so.

First and foremost, it is important to put things into perspective. Although the major stock market indices have fallen over the past couple of days, they have fallen from near record highs and so some element of correction is understandable in this kind of situation.

The second thing to bear in mind is the cause of the markets concern – mainly that consumers will be spending less in economies that are impacted by the virus and this is broadly true. However, the kind of spending that gets impacted tends to be consumer discretionary spending (new cars, holidays etc). Typically, this kind of expenditure gets deferred and not cancelled in situations like these, so most economists agree that the markets should get a boost later in the year when the virus has passed and people then make some of these deferred purchases.

Finally, we can look to history for some guidance in these situations (although keeping in mind the old adage that the past is not always a useful guide to the future). The graph below shows how markets have reacted to several previous epidemics. As you can see, the impact tends to be felt only in the short term, often with strong recovery only a few months later.


We are pleased to report that the Buckingham Gate Portfolios have held up very well in this environment. Over the course of Monday and Tuesday, the FTSE 100 fell by around 5.2% and the S&P 500 fell by nearly 6.7%. In contrast, the Buckingham Gate Balanced Active Portfolio fell by only 2.2%. This is as a result of the diverse nature of the portfolios, but is also a reflection of the fact that we have been very conservatively positioned for some time now in readiness for just this type of event.

We will continue to keep portfolios under review and may even use this period as an opportunity to take advantage of falling prices if valuations look attractive.

 

The Financial Conduct Authority does not regulate Estate Planning, Tax Planning, Will Writing, Trust Advice, or some elements of Automatic Enrolment.
This communication is for general information only and is not intended to be individual advice. It represents our understanding of Law and HM Revenue & Customs’ practice. You are recommended to seek competent professional advice before taking any action.

Please note that investments can fall as well as rise and any income generated by an investment can fluctuate over time.