Reflecting On Brexit

The past few weeks have certainly been interesting not just from an investment perspective, but also politically as well.

As I pen this note, the Brexit deal would seem to be getting ever closer to a conclusion, however, Theresa May still has one almighty hurdle to jump in the form of getting the deal agreed by parliament back in the UK.

Ironically, this could well be the toughest part of the whole process for our embattled Prime Minister. Regardless of your opinions on Theresa May in general, I think we can all agree that her job at the moment is near impossible. I certainly don’t envy her!

As I have spoken about before, I believe that the next few years could be punctuated by things which are good news in the long term causing short term market volatility.

If this does come to pass, it will be the opposite of the rather strange environment we have found ourselves in over the past couple of years since the Brexit vote, where things that have been perceived as ‘bad news’ have been very positive for the markets.

The Brexit vote itself is one such example.

Of course, before the event, there were prophecies of doom and destruction in the event of a leave vote and indeed we did get some serious market sell offs … for all of 2 days.

After this, something unexpected happened. The de-valuation of sterling actually turned out to be positive for markets and indeed, this factor has probably been the biggest contributor to UK market performance over the past few years.

This is one example of bad news being good news for markets. The election of Trump could well be another.

As we move into 2019, I expect this trend to reverse.

If we do (ever) agree a Brexit deal, I would imagine that we might see sterling strengthen somewhat. This is good news in general for UK PLC, but could be bad for UK markets in the short term.

In a similar vein, increasing interest rates and the unwinding of quantitative easing (both good things in the long term – signalling that we are finally getting back to ‘normal’ economic health), could drag on markets in the short term.

These things, despite the short term pain they might cause, are totally necessary for the economy to build a solid foundation on which to grow into the future.

The past decade of growth has been partially fuelled by artificial stimulus and this process has to come to an end at some point.

The ending of the artificial stimulus programmes around the world could well be the best thing to happen to markets in a long time, creating a solid and stable base for the next period of growth which will inevitably be to follow.

While unsettling, the volatility we have seen over the past few weeks does not concern the Buckingham Gate Investment Committee greatly. This type of market ‘wobble’ is fairly usual as we start to approach the end of the market cycle.

That’s not to say that the cycle is over at this point, but we should be prepared for a slightly more volatile ride ahead.

The main predictor of a significant market correction or a ‘bear market‘ is a recession and although global economic indicators (job numbers, GDP growth etc) are not the best we have ever seen, they are not bad either.

There is certainly nothing in the figures to indicate a recession at the moment, although things can and do change quickly.

As usual, we must insert that caveat that the past is no guide to the future and things can be unpredictable in the wonderful world of investments.

I shall keep the blog updated with my views. All eyes now are on the 11th December and the deciding vote.

The Generational Divide

I have been speaking recently to clients about the so called ‘generational divide’ – the seemingly vast wealth of the baby boomer generation with their burgeoning property and investment portfolios when contrasted with the apparently hopeless state of the millennials finances.

I have long argued that these types of generalisations are very unhelpful and don’t really serve to achieve anything.

In fact, I think media narratives like this have the potential to become self fulfilling prophecies if we are not careful.

If millennials are bought into the fact that they are ‘doomed’ to rent for their entire lives and they they will never retire, then this is probably what will happen.

I have a bit of a bee in my bonnet about this issue and, in our own small way, we are committed to doing something about it.

Next year we will be launching the first Buckingham Gate ‘next generation’ workshop to hopefully teach our client’s children some of the lessons that have made them so wealthy.

This is the subject matter that really should be being taught in schools but definitely isn’t (and if anyone thinks a 30 minute ‘general studies’ session on personal finance qualifies as sufficient financial education to prepare young people for a lifetime of financial decisions they are sorely mistaken).

We will also be covering some of the slightly more advanced wealth building strategies that have served our clients so well.

I will keep the blog updated as we finalise the plans for the workshop next year and we will be announcing the date early in 2019.

We hope to see as many of your children there as possible.

Keep Calm & Carry On

Keep Calm & Carry On. Sage advice in times of market stress.

Countless research has shown that missing just the best few days of returns in the market is enough to significantly dent your total investment return.

Research by Fidelity has shown that if you had your money invested in the FTSE All-Share from the end of June 2003 to the end of June 2018 (15 years or approximately 5500 days), you would have earned a very nice 8.9% annualised return. Not too bad by any standards.

If you miss just the best 10 days of performance (out of those 5500) then your total return falls to just 4.6% per annum.

Miss the best 20 days and it falls further still to only 2% per annum.

If you miss the best 40 days of returns (again to stress, out of a total of 5500) then you actually get a negative return of -2% per annum.

The same research has been replicated across many different markets all over the world and the results are very similar.

This shows the importance of remaining invested, even when markets get turbulent.

In this world where investment decisions are made by computers in milliseconds and the distance from the stock exchange determines which trading house wins, anyone who thinks that they can time the markets is either lying, deluded or both.

Research has also shown that so called ‘investment experts’ and analysts have a pretty much exactly 50% chance of success when trying to predict when markets will go up or down. You might as well flip a coin to predict the direction of tomorrows markets, it has as much chance of being right as anyone else out there.

Im pretty sure on Monday of this week no one predicted the falls we have seen on Wednesday and Thursday. If they did I am yet to hear about it.

The point is that markets move very quickly.

If you attempt to time the market, the chance of missing those best 10 days is very high indeed. Markets can and do recover quickly and the biggest gains (i.e. those best 10 or 20 days), tend to follow significant market falls.

We only have to look back as far as February to see a similar phenomenon in action. In the early days of the month, the S&P 500 dropped around 8-9% over just a couple of days. Of course this was widely reported in the media with the usual collection of colourful language such as ‘turmoil’, ‘chaos’, ‘panic’ and, my personal favourite, ‘bloodbath’.

What received almost zero mainstream media coverage was the subsequent recovery. Only weeks later the S&P 500 has recovered the 8-9% it lost and it then went on to break new record highs only a few weeks after that.

Calm seems to have returned this morning on the markets. Could this be the start of the next recovery, or just the eye of the storm?

The truth is that no-one knows, but the time-tested investing adage of ‘time in the market, not timing the markets’ is as valid today as it ever has been.

Keep Calm and Carry On. It’s the only way to invest.



Is This The New Way Of Working?

In recent years, we have definitely seen a trend towards people who are supposedly ‘retiring’ not actually retiring.

Instead, many people who choose to ‘retire’ from their traditional 9-5 job (and this ‘retirement’ may or may not include drawing on some sort of pension) are choosing to do some sort of contract work, write a book, do some consulting, start a business and many other things that you might describe as flexible employment / self employment.

This ‘flexible working’ environment is one that is traditionally reported to be favoured by millennials. The reason this is on my mind is that PWC has just announced a ‘flexible talent network’, which is basically a bank of people who can register to perform contracts with the accountancy giant.

As a worker in this new flexible talent network you can work a 100 day contract, take a month off to travel, return to a 50 day contract, have 3 weeks off over Christmas and then pick up a longer term 200 day piece of work. All of this without the perceived ties of formal employment.

It seems however, that boomers, Gen X and everyone in-between is finding this idea of a more flexible working life attractive. Indeed, I would suggest that of the clients we have helped to ‘retire’ over the past few years, going into some other sort of ‘work’ is the norm.

This got me to thinking – could we soon enter a world where very few people are actually ’employed’?

Instead, we could find ourselves with a whole army of freelance workers, performing contracts and services for other companies on their own account, rather than by virtue of a contract of employment.

This is arguably great for some industries and professions. Accountants need extra support around tax return time. Some businesses have very seasonal demands on their output. In these cases, this new flexible workforce will be great. An on-tap resource available at short notice on a pay-as-you-go basis.

There are some professions however, where flexible working (and when I say flexible, I mean not being employed in this context) might not be a good thing. I think Financial Planning is a case in point.

How would you feel if the adviser you were going to trust with your life savings was just working on a 50 day contract?

How about if every time you walked into the office you had a different group of staff welcome you?

Financial Planning is all about stability. People like to know that their financial future is in safe hands both now, but also for the next few decades and I believe long-term relationships are the best way to make that happen.

While I am all for this new flexible working world that seems to be emerging, in the financial planning business at least, I think the permanent position is here to stay.

Reflecting on the $1 Trillion Company

Lots has been said about the rise of Apple to become the worlds first company to achieve a $1 trillion market capitalisation.

I have 2 interesting observations on this milestone:


1 – Is Apple Really The First?

In the strictest sense, this is true, although as with many things, when you dig a little deeper, there is more to the story than meets the eye.

Although Apple, is the first company to reach a $1 trillion valuation in nominal terms, this fascinating article from Time, suggests that there are at least 5 companies in history that would today be worth over $1 trillion if you adjusted for inflation.

In fact, Time suggests that on an inflation-adjusted basis, the largest company that has ever been is the Dutch East India Company, which dates back to the 1600’s, with an inflation adjusted market cap of $8.2 trillion in todays money.

Also of note is the reason for this gargantuan valuation – the Dutch tulip bubble. Many people will be familiar with the Dutch tulip craze, which is the first widely recorded ‘financial bubble’ in history. For some (still unknown reason) people went mad for Dutch tulips in the 1600’s, pushing their prices to completely insane levels.

Until very recently, the Dutch tulip bubble remained the biggest financial bubble in history (when measured by the sharp increase and then even sharper fall in value), although this crown has now been taken by Bitcoin.

Some could draw comparisons with the tech bubble of the early 2000’s, although as I think the world has now realised, technology really is worth a lot and has the power to change the world, unlike Dutch tulips, pretty as they may be.

This is confirmed by the fact that all 5 of the worlds largest companies are now tech giants in the form of Apple, Microsoft, Alphabet (Google), Amazon and Facebook.


2 – Do Record Breakers Always Suffer A Fall?

A lot will now be said about the ‘inevitable’ fall of Apple. When a record is broken, we assume that this must be the end of the road.

The same has been said about the stock market over the past 2 years or so. “Now that we have reached a record high, we MUST be due for a crash”.

This is complete nonsense. Records are made to be broken and if the British Olympic teams of recent years have taught us anything, it is that records can be broken again and again by the very same person (read company).

As such, I suggest you also read this article on how Apple could now be on the way to achieve a $2 trillion market cap, before you rush off and sell those shares!

As always, just because a record has been broken, there is nothing to say how long that new record will stand for. In Apple’s case, it only lasted a day or two, as Apple now has a market cap of $1.030 trillion.

The final point of note here, is that $1 trillion is simply a ’round number’ that has significance for us human beings only. Other than being a 1 and 12 zeros, it doesn’t really mean much else in the context of Apple’s rise and rise.

Who knows, perhaps the first $2 trillion company will be here sooner than we think?


How Quickly Things Blow Over

I was reminded this week of how quickly time (and news) passes while reading through a data pack that we received from a provider on behalf of a client.

In the data pack, the provider included their most recent ‘investment commentary’ letter, which was dated December 2017.

A significant portion of this letter was dedicated to looking at the potential impact of the vote by Catalonia to become independent from Spain (yes – I just about remember that news story as well).

This was headline news for a good few weeks at the back of 2017 and everyone was considering how it would impact on the markets with some fairly disastrous predictions being made about ‘crashes’ and ‘turmoil’.

Now I can’t recall when, but obviously this story has dropped out of the news cycle now. I think it probably did so after a few weeks in fact.

What’s more, I also can’t recall any noticeable impact on the stock market or anything else for that matter. Perhaps there was, but it was so insignificant in the grander context of things that I have simply forgotten.

Either way, when we look back in retrospect at these events, they really do seem rather insignificant.

This is yet another reminder (as if we needed any more) that when thinking about our long term investments, looking at the daily news cycle does not serve us awfully well.

In fact, I would argue it does quite the opposite. These panic inducing headlines do nothing but increase our blood pressure, reduce our rational decision making ability and lead us to make worse (or even downright stupid) investment decisions.

So when we are thinking about Brexit, US trade wars or whatever tomorrows big news story is, just remember this – in 6 months time, it could well have all been forgotten.

2016 – A Year in Review

As 2016 draws to a close, I always take the opportunity to review what has happened in both my business and personal life, but also to consider what has happened in the wider world around me. In this latter category, 2016 has been eventful to say the least.

The year started typically enough, we had an oil price scare and fears over growth in China, however none of that is unexpected across the course of a typical year ‘in the markets’.

What came as more of a surprise, was the Brexit vote in June. I don’t think I will ever forget that morning, turning on the TV to see that what no one thought could happen, had happened. That day was also memorable for me on the basis that I was stuck in London that night searching for a hotel at short notice because of issues with the trains (another item that has made headlines far too often in 2016).

What I found even more surprising however, was how the markets reacted with relative calm to the events unfolding. Yes, there was a few days of volatility (which is only to be expected after any major event like Brexit, especially when no one really expected it), however the markets soon recovered and went on to set record highs in many places.

As if Brexit wasn’t enough, we then had the unexpected election of Donald Trump. Again, the markets seemed to react positively and many market have continued to set new highs in December.

The million dollar question is ‘what happens next?’. I think if 2016 has shown us anything, it is that no one really knows. ‘The markets’ had predicted doom and gloom of epic proportions if Brexit OR Trump happened, let alone both of them, yet 2016 has been one of the more positive years for some time now.

My other often cited bug bear of 2016 has been the increasing intensity of panic inducing headlines in the media for increasingly small events. ‘Billions wiped off the UK stock market’ was a recent news headline, on a day when the FTSE 100 fell by less than 0.5%!

While 0.5% of the FTSE does happen to total billions of pounds, a rise or fall of 0.5% each day is so commonplace on the FTSE 100, that this is not really news at all. As such, my advice remains to take what you read, watch and listen to with at least a small pinch of salt.

As 2016 draws to a close, I also reflect on how lucky I am to do the work I love each and every day. I would like to take this opportunity to thank all of our clients, contacts, professional connections and suppliers for working with us in 2016 and beyond. I would like to wish you all seasons greetings and a happy and prosperous 2017, whatever the year has to offer us!

The Folly Of Predicting The Markets

I think it is fair to say that the market reaction to Brexit took most people by surprise. While there were the inevitable few days of falls following the announcement of the result, the following stock market recovery across the globe was beyond the predictions of even the most respected market analysts and experts.

This single event is a good example of how completely futile it is to try to predict or guess the direction of stock market movements, now matter how sophisticated the models or assumptions being used.

In fact, when we look back in retrospect at predictions that have been made by analysts and financial experts, it turns out that you might just as well flip a coin to determine the future direction of travel, because these people are correct almost exactly 50% of the time.

These issues are particularly dangerous when thinking about investment planning for retirement.

I wrote last time about the significant shift in thinking required when investing during retirement. In the ‘new world’ of retirement planning, many people will choose a drawdown pension and keep their fund invested for life.

The danger here is that people get tempted to ‘trade’, rather than invest their retirement fund. I am aware of more than one case where people sold down all of the investments within their pension fund the day after the Brexit vote on the basis that the market was ‘definitely’ going to plummet.

Of course this did not transpire and these people have now missed out on the significant recovery, in which many global markets have grown by 10% or more. If we assume that many of us would be happy with an average growth rate of 5-6% per annum on our pension funds, this could mean that 2 years worth of growth has been foregone, just by being out of the market for a matter of weeks.

The irony here is that had we remained in the EU, I strongly suspect that the markets would have risen as well – a theoretical win-win situation. Of course, no-one knows what the markets might have done in the event of a remain vote, nor will we ever know.

Another good example of people trying to predict markets has been in the corporate and government bond space. Since 2009, I have heard countless people say that bonds are ‘definitely’ going to plummet or that they are ‘overpriced’. What has happened since 2009? Probably one of the strongest bond markets we have ever known, helped further still by the recent decision by the Bank of England to reduce interest rates.

The moral of the story here is that even when during retirement, investing should be seen as a long-term game. Given the inability of most people in retirement to top up their funds with earnings (once retired, for many people, what they have is what they have), it is easy to see the temptation to take rash actions to try to ‘protect’ the fund value.

If recent events are anything to go by however, quite the opposite can happen and much needed growth is missed due to being out of the market for just a few short weeks.

The Impact Of The EU Referendum – Some Personal Thoughts

With just two days to go until the big EU vote, many clients have asked what my own views are on the potential for the UK to leave the European Union. I suspect what they are probably most concerned with is ‘what will the impact on the markets be?’.

I should stress that these are my own personal views on the possible outcomes following the vote. I shall try not to get too political here and keep this focused on the financials.

What is already clear, is that ‘the market’ most certainly favours the UK remaining in the EU. Just yesterday, we saw the FTSE 100 gain over 3%, just on news that momentum seemed to be shifting back in the direction of the remain camp. Despite the leave side seeming to gain an advantage in recent weeks, my view is that ‘the market’ still expects a remain vote to a certain extent.

So, what does this all mean? Well, in the event that we remain in the EU, I would not be surprised to see major stock markets jump by 3-4% on Friday. What follows is largely unknown, however one can assume that it will be more of the same status quo for the time being.

In the event of a leave vote, I suspect that the markets will fall by a similar margin, if not more severely. What is less certain is what the weeks, months and years that follow will hold for us. You see the market, just like the human brain, really hates uncertainty. Once an outcome is known however, the market (just like the brain) can adapt to this new set of circumstances and start formulating solutions to any problems.

I certainly know that this is true when facing an issue in my own business or life. When the outcome is unknown, the uncertainly can tie you up in knots, however once I know what the future holds, even if the outcome is negative, the brain goes to work on formulating solutions.

With this said, I don’t think anyone really knows what the longer term future will hold in the event of a vote to leave (the same of course could be said about remain). While various think tanks and economic commentators have created countless models and predictions, in reality, I think it is all guess work.

The EU is such a colossal ‘thing’, that I don’t think any one person or body can fully appreciate the implications of leaving the EU over the next 10 days, let alone the next 10 years.

My own view is that the UK will survive and thrive in the longer term, whatever the outcome, however in the short term, the safest bet, especially where the markets are concerned, would be remain.

The Impact of the EU Referendum – Part 1

The Buckingham Gate blog is back after a short hiatus over the busy tax year end period. Thank you to all of our clients both old and new for making 2016 our best year yet.

Many clients have enquired about the possible impact of a UK exit from the EU (or Brexit) and in this series of blog posts, we will explore some of the issues and the potential impacts on the UK economy and the markets.

Please note that while we have tried to take views from the most unbiased sources possible, it does seem that almost everyone has some ‘skin in the game’ when it comes to the EU Referendum, so it is important to filter out facts from opinions.

Given the sheer size and scale of the issues surrounding the UK’s membership of the EU, I’m not convinced that anyone really knows all the answers, however this next few weeks of blog posts will be dedicated to some of the key questions.

We start with Financial Services and the City…

We all know that London is one of the world’s financial centres and many have made the argument that this is because we offer a ‘gateway’ into Europe. Some have pointed out that London on it’s own as a financial centre may not be as strong as London within the larger EU.

In the event of an EU exit, if the latter argument is to be believed, then this could cause a lower level of investment into financial services in the UK economy and whether you like them or loathe them, banks and financial services businesses do make up a large part of the UK economy (and the UK stock market).

As I suggested earlier, most commentators on the EU referendum have something to lose or gain based on the outcome, so I am keeping my ear to the ground for independent views. The Governor of the Bank of England, Mark Carney, has, in my view, one of the most relevant opinions on the debate and he has cautioned against a UK exit from an economic perspective.

On the other side of the coin, some have argued that if we were able to break free from some of the bureaucracy and red tape that come with the EU, the City could become even more competitive on the global stage.

With regard to stock markets, there is no doubt that the lead up to the referendum and the outcome itself will move markets. It is fair to say that ‘the markets’ would prefer if we remained in the EU as this is a known quantity, so I would suggest that the risk is on the downside if we do decide to leave. There could well be a ‘relief rally’ if we do remain in the EU, however this may not be quite so pronounced as the falls if we leave.

The issue is, with recent polls at precisely 50/50 (Source:, it really is too close to call. As such, we will not be making any extreme movements in our portfolios on the basis of the EU referendum. Whatever the outcome, we remain confident that any impact on the markets will be relatively short term when considering investment time horizons of 5 – 10 years or longer.