Fifth pin stuck in the newspaper

 Fifth pin stuck in the newspaper & Nanny state rant

There is nothing like a good old fashioned rant. For once it is easy to agree with Andrew Bailey, the governor of the Bank of England, when he said recently that people who invest in cryptocurrencies should be “prepared to lose all (their) money”.

Of course that goes for any investment or asset you are buying and not just for cryptocurrencies.

 There are all these regulations and risk PDF’s (KID and KIID) that investors do not read and just tick the box. Some UK investment trusts are even deemed to be “complex” and retail investors are barred from investing in them. The same retail investors are allowed to buy GameStop shares, Tesla shares, Bitcoin or Dogecoin with only a couple of mouse clicks. It makes absolutely no sense. UK regulators have banned retail clients from trading derivatives on cryptocurrencies as they see that activity as “gambling”. There are plenty of activities in life that are a gamble. Derivatives can be used to gamble, but also to hedge risk.

Let’s have a closer look at what Andrew Bailey said;

 “Cryptocurrencies have no intrinsic value. That doesn’t mean to say people don’t put value on them, because they can have extrinsic value. But they have no intrinsic value,” Bailey said. “I’m going to say this very bluntly again,” he continued, “buy them only if you’re prepared to lose all your money.”

Some cryptocurrencies fanatics could easily rephrase that risk warning with their counterargument;

“Fiat money like the £ does not have intrinsic value. That doesn’t mean to say people don’t put value on the £, because the £ can have extrinsic value. But the £ has no intrinsic value. I am going to say this very bluntly again, buy £ only if you’re prepared to lose all your money.”

 

The FCA (the UK regulator) has a discussion paper out (as per below picture) at the moment seeking views on how to protect investors from harm in high risk investments and the responsibilities of firms offering investments and financial promotions.

Well dear FCA how about getting rid of all regulation in that area and just replace it with an obligation for any firm offering any investment to let the investor read and agree to the following;

“I am prepared to lose all my money in this investment. If I lose all my money in this investment I am not going to whine or complain about it to anyone”.

This is simple to regulate and it is easy to check if the firms offering investments have done the above. Reducing investment choice for investors also harms investors by reducing their returns. This is not talked about enough.

Why are UK retail investors not allowed to buy ETF’s for example that are listed on the US stock exchanges? Because those US listed ETF’s have not written KID and KIID documents (that do not improve anything and do not make any sense) for European investors? Seriously...

In February and March 2020 the stock markets had the biggest crash since 1987. How useful were all these EU Mifid II risk documents (KID and KIID) in capturing the risk for say the Scottish Mortgage Investment Trust PLC (SMT) for example at that point in time? Completely useless indeed...

Money flows to the places that are most welcoming to it. The FCA would do well to keep that in mind.

Risk is in the eye of the beholder. Risk judgements really depend on the childhood, background, personal situation and more factors of the individual investor. The above even applies to financial advisors.

A recent study of Oxford Risk found that in one instance an advisor said a set imaginary client was very low risk, when another advisor judged the client as very high risk. For another, advisors were evenly split between recommending low, medium or high risk levels to a customer. Oxford Risk said advisors gave “remarkable different judgements” on how much investment risk was suitable for clients with the same hypothetical information and asset allocation was a “scattershot”. Even in cases where advisors agree on the suitable risk levels, they disagreed on what kind of portfolio to recommend to clients. All in all, Oxford Risk said advisors’ recommendations “were closer to totally random than totally consistent”. The report of Oxford Risk is called ‘Under the Microscope: Noise and Investment Advice’. The outcome of risk assessments even depended on the current mood of advisors, the weather or how hungry the advisors were. Financial advisors sound like human beings after all don’t you think?

Sam Barker from Interactive Investor wrote a good article on the 25^th of May 2021 on the Oxford Risk study for anyone wanting more information on this.

 

Age is seen as a big risk factor in “how you should invest according to regulations and financial advisors”. The rule of thumb is that the older you are the less the regulators and financial advisors allow you to invest into equities and the bigger percentage of your wealth they will shift into “so called safe” bonds. Bond yield have never been this low on record and even a small reversion to the mean implying higher yields will really hurt this so called “safe” asset class. How much harm have financial advisors’ done by keeping clients too much into bonds and not enough into equities over the last 10 years? How much harm will financial advisers’ do by keeping clients too much into bonds and not enough into equities over the next 10 years?

 

Jenny Harrington quotes a client Betty (in the book ‘How I Invest My Money’ by Joshua Brown and Brian Portnoy) saying;

“I’ve owned stocks since I was a kid when my father bought them for me, then my husband and I bought stocks, and since he died (decades earlier) I have bought stocks for myself. They have always provided me all the income that I need to live on. Bonds don’t grow and neither does their income. Why would I ever want to own anything but stocks?”

Wow. Powerful stuff Betty. Clearly it depends on how well you sleep at night, the value and composition of your stock portfolio and your spending needs and more. Basically it depends on your personal story.....

Maybe the FCA can start by disallowing unlisted investments into mutual funds. Some UK clients are still waiting to get their money back from mutual property funds and of course the winding up of one of the old Woodford mutual funds. There is nothing wrong with unlisted investments, but please put unlisted investments in a closed end fund/investment trust rather than a mutual fund....

 

That is enough ranting on harm and investor protection. Just allow investors the freedom to make their own investment decisions, but make sure the investors also own their own mistakes. No ifs, no buts, no coconuts! No nanny state regulation please. When investors go to the casino and gamble all their money away, investors are also not going to get a refund from the casino either....

 

And on that note it is time for an update in the crayon versus monkey experiment run on the back of the book ‘Beat the Stock Market Casino’. This experiment is run in order to support the thesis of the book that do it yourself (DIY) investors with a good investment plan are more than capable of making money in the stock market. It is about time to stick the fifth pin into the quotation page of a financial newspaper and pick some none $ listed and none Euro listed stock.

First though let’s have a look at how the monkey and crayon portfolio have done so far.

The monkey portfolio is finally making money as well now. The monkey portfolio had been under water for two years. Basically the first monkey investment pick Cisco Systems went south immediately after buying the stock and the second monkey investment pick Lloyds Banking did exactly the same. Only with the third monkey investment pick Deutsche Telekom did the tide start to turn for the monkey portfolio.

The crayon portfolio was luckier as the first crayon investment pick MSCI immediately started to go up after buying the stock. The crayon portfolio never looked back and has consistently been making money since the start. It is better to be lucky than smart.

Because the monkey portfolio now makes money the fifth position will have a new position value of about $5000 according to the “no capital gain taxes growth investment plan” in the book ‘Beat the Stock Market Casino’.

Have you bought the book yet on Amazon?

The crayon portfolio follows where the monkey portfolio leads to keep things simple and comparable. 

The Sigfig website has the monkey paper portfolio as up by 12.7% now since the purchase of the holdings. The crayon paper portfolio is up by 92.1% according to that same website. The crayon paper portfolio has 3 out of 4 positions that have doubled by now; Ashtead, ASML and MSCI. Not bad. According to the plan the doubled positions should be halved now and the proceeds of those sales could be put into something completely different like the Nasdaq ETF or an S&P 500 ETF. Sadly the plan cannot be followed on this “take profits” part as the portfolio tracking websites would not be able to calculate accurate returns since purchase anymore after any sales.

Talking about accuracy the Stockrover website has the monkey portfolio as up $3464 now versus $3491 for the SigFig website. So that is pretty accurate and consistent. However the Stockrover Portfolio Charting calculates the dividend adjusted return as -11.1% for the monkey portfolio. The SigFig website has the return since purchase as plus 12.4% for the monkey portfolio. As a positive $ value return can never be a negative return, that makes the Stockrover Portfolio tracking return calculation in this case suspect. The Stockrover return calculation is probably inaccurate, because it is difficult to track accurate returns on new money coming in and a new position being bought every 6 months...

Clearly a portfolio with only four holdings is still way off starting to be a diversified portfolio... So both the monkey and crayon portfolio are still extremely risky, but the plan is to add another holding to both portfolios every 6 months so both paper portfolios will get diversified eventually... Plus both portfolios are being “time diversified” as well and at least that is reducing risk.

Time in the stock market is the most important friend of the investor. Everyone can make money slowly. Clearly we are humans and we prefer to make money fast so making money slowly is not very sexy. It works though... The book “The Millionaire Fastlane” is about making money fast for those of you that prefer that solution.

A friend recently asked; my pension portfolio is up 15% in 1 year. Should I take profit now?

The monkey and the crayon paper portfolio do not have this problem. The investment plan already has determined these are investment experiments for the long term so profit taking outside of the rules of the plan is not an option. Sometimes it is nice to keep things simple.

People just do not understand why the stock market can keep going higher and higher every decade.

Surely when the S&P 500 index has doubled we should sell right?

Surely it is overvalued then?

This is completely wrong of course. Negative news sells much better, but in the stock markets it is the optimists that make most of the money. Listed companies on the stock markets make (hopefully) a profit every year. Part of that profit is kept in the companies and part of that profit is paid out as dividends. Some companies have high capital intensity and some companies have low capital intensity.

High capital intensity companies tend to have to re-invest the profit in the business just to stand still. If high capital intensity companies don’t re-invest the profit then in a couple of years the competitors have better machines etc and the profits will disappear.

Low capital intensity companies do not have to re-invest the profit. The profit 5 years from now will still be fine. Low capital companies can re-invest the profit in the business (for the same return on investment hopefully) and the profits in the years ahead will grow because of natural compounding. This clearly does not work for every low capital company, but for big enough groups of listed low capital businesses it does. Enter the S&P 500 index; in 1990 the index earnings per share in $ were 42.59, in 2000 the S&P 500 index earnings were 76.74, in 2010 the earnings were 94.25 and in 2019 the earnings were 144.94. In 2020 the S&P 500 earnings dropped because of the lockdowns to 96.51, but the earnings potential of the S&P 500 is undamaged. The long term earnings of the S&P 500 are clearly in an uptrend. If we agree that stock prices follow earnings long term then the S&P 500 should also be in a clear long term uptrend and stay like that for very long term optimistic investors.

Some people say;

“We do NOT need opinions. Opinions are like s***. Everyone has one. We need technical knowledge to make money”.

In fact we need no knowledge whatsoever to make money. The monkey has no knowledge whatsoever and is making money.

Some say you should not invest in what you do not understand. Why not?

The monkey has no opinion and no knowledge. Just sticking to an investment plan and throwing darts at the quotation page of the FT or Wall Street Journal will do the trick of making money. Holland Park Capital London would bet that the monkey portfolio after another 8 years will consistently make money. Time in the market and a diversified portfolio are hard to beat.

The Stockrover website has the $ value of the monkey paper portfolio now as $30.984 and the Sigfig website has the $ value of the monkey paper portfolio now as $31.004. Up is up. The total gain for the monkey paper portfolio is now around $3.439.

The total gain for the crayon paper portfolio is now around $25.073. The $ value of the crayon paper portfolio is now around $52.340. Stock selection and luck seems to have mattered so far....

The yellow highlighter landed on the UK listed stock Lancashire Holdings Ltd of the quotations page of the FT newspaper. For the monkey portfolio a paper transaction was added to the paper portfolio of 551 shares of the Lancashire OTC listing LCSHF at $9.07. That transaction had a value of about $5000.

For the crayon portfolio a paper transaction was added to the crayon paper portfolio of 30 shares of the Games Workshop Group Plc OTC listing GMWKF at $165. That transaction value was about $5000 as well.

Both paper portfolios have 5 holdings now. Slowly but surely the portfolios start looking a little like diversified portfolios. May the force be with both paper portfolios. Thanks for reading this blog.

Holland Park Capital London hopes you enjoyed the information in the blog. Holland Park Capital London Ltd is not receiving any compensation from anyone to write this blog. Holland Park Capital London is long the stocks in the crayon portfolio (ASML, Ashtead, Games Workshop, MSCI and UnitedHealth). Holland Park Capital London has no business relationship with any company whose stock is mentioned in this blog. Holland Park Capital London expressed its own opinions. This is not advice. Make your own decisions please. Do your own research. Please go and see an authorized financial advisor before making any investment decisions. What works for Holland Park Capital London may well not work for you and your personal situation is unknown to Holland Park Capital London. Stocks go up as well as down and you may get back less than you invest. Any information in this blog should be considered general information and not relied on as a formal investment recommendation. This blog is for information purposes only and helps Holland Park Capital London expand on the book “Beat the Stock Market Casino” and brings extra discipline in the investment process. Holland Park Capital London is not liable for any mistakes in this blog. This blog cannot be a substitute for comprehensive investment analysis. Any analysis presented in this blog is illustrative in nature, limited in scope, based on an incomplete set of information and has limitations to its accuracy. The information upon which this blog is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore the accuracy cannot be guaranteed. Any opinions are as of the date of publication and are subject to change without notice.

 

 

 

 

Fourth pin stuck in the newspaper

 

Always be bullish on America

“Any man who is a bear on the future of this country will go broke.” ~ J. P. Morgan Sr.

 

The S&P500 index made new all time highs in November 2020. As J.P. Morgan Senior said a long time ago; “always be bullish on America.”

 

It is time to pick another stock for the model crayon and monkey portfolios in the monkey versus crayon project. This is the fourth time the "blindfolded monkey sticks a pin" in the quotation page of the newspaper. According to the rules set out in the book “Beat the stock market casino” (available on Amazon) an US stock can be picked again in this round. In the book there are also rules to follow when to take profit in positions or in other words when it is allowed to sell. This year it would have been tempting to add another rule for when one is allowed to sell a stock. That would be when management uses the stock listing as an ATM machine with free money for mainly the management itself.

 

Shareholders have been treated with contempt by the managements of a lot of companies this year.

Ideally a listed share consists of a partnership between shareholders, employees (this includes management) and clients. Stakeholder capitalism was launched already in 1932 (see there is nothing new under the sun). Clients should get products and services they are happy about. Employees should get good quality of life jobs with a risk free salary every month on their bank account. Shareholders should get a good absolute long term return (dividends plus capital gains after tax and other costs) for the risk they are taking.

 

The most important job of management is to allocate capital long term in the best way so that the stock can compound at the highest annual growth rate.

Warren Buffett has said that each dollar of retained earnings should deliver at least a dollar of market value for a good business.

If that is the case it is best for the long term investor to have no dividend at all so the quality company can really let the retained earnings compound and grow the company over say a 30 year period. For a bad business that is not the case. Ideally a bad business spends the earnings in the form of dividends or maybe share buybacks.

 

A dividend is part of the capital allocation process. If the company can re-invest the profits profitably enough a zero dividend is optimal. When companies cannot find ways to re-invest profits profitably enough, dividends are one of the ways companies have to return money back to the owners of the company the shareholders.

 

So the assumption is the dividend paying company is not a growing quality company, but rather a cash cow. The dividend paying company would piss the money away if the earnings would be retained or if management tried to make acquisitions. When a company starts to pay dividends, shareholders like a stable to rising dividend, but shareholders absolutely hate dividend cuts. In fact there are plenty of shareholders that just sell all their shares in a dividend paying company on any dividend cut announcement of a dividend paying company. Managements should be conservative with raising dividends. Managements should only pay a regular dividend they feel confident they would never ever have to cut. Managements should pay regular dividends they can afford to pay out in good and in bad times. Special dividends and share buybacks offer enough ways of returning excess money to shareholders outside of the regular dividends.

The first thing a lot of chicken managements did in 2020 was to cut the dividends. Why? Let's face it a recession was long overdue in most developed markets and should not have been a surprise to anyone after 10 good years. The second thing a lot of those chicken managements did was raising cash by selling new shares on the stock market. The dilution of earnings per share by selling new shares is devastating for the long term annual growth rate the stock can compound at. The first and the second point can be proof the management of the stock is misusing their power and using the stock listing as an ATM machine. When managements use the stock listing as an ATM machine they are basically just running the company to fill their own pockets. It might be good for shareholders to then just do the “Wall Street Walk” and just sell out and exit the position. The position is likely not in a strong quality compounding company anyway if the first or the second action has been taken by management.

 

Some European regulators forbid bank and insurance companies to pay out dividends this year. Regulators did that despite knowing the fact that a lot of retired people rely on exactly those dividends to deliver the income to live on in retirement. In America banks need to get permission for their dividend payments from the FED every year. This brings much more stability and it clearly a one of the reasons why American bank stocks are far superior compared to European bank stocks.

 

For some stocks the only reason to invest in them from a shareholders perspective has been their dividend yield.

 

Take away or cut the dividend and guess what happens?

The reason to hold those stocks has now disappeared and the stocks in question goes down a lot. Just look at the 2020 charts of Lloyds Banking Group PLC, Royal Dutch Shell PLC, WFD Unibail Rodamco NV or Lucas Bols Amsterdam BV for an example of that.

Unibail’s CFO’s and CEO’s compensation increased over 45% since the acquisition of Westfield while the share price tumbled over 85%. Oyat has a good article on the shambles of Unibail’s management on the SeekingAlpha website. Overly indebted companies together with incompetent management can easily implode. Some things never change.

Another example of clueless management is the 2016 acquisition of BG Group by Royal Dutch Shell for a cool $70 billion, only for Royal Dutch Shell management deciding in 2020 it wanted to run a net-zero emissions energy business by 2050 or sooner. You can’t make it up.....

 

According to the source “S&P Dow Jones Indices by the 14^th of July 2020 in the S&P 500 index 63 companies had reduced or suspended their dividends. In Europe the dividends cutting/suspending situation was much worse in 2020. The FT, Citywire and Telegraph all have articles out this year on the internet that dividends in North America and Asia were more resilient than in the UK and Europe. The FT also had an article on the 8 of September 2020 that businesses in Spain, Italy, the Netherlands and the UK were more likely to cut dividends than executive pay this year. Even worse the management bastards in Europe gave themselves nice bonuses over the 2019 performance, but had no shame cancelling the final dividends based on the profits of 2019 in the spring of 2020. Not exactly a partnership right?

Hence the title of this blog; “Always be bullish on America”!! In the UK and Europe you are simply more likely to invest in companies with failing business models, terrible regulators and companies where management runs the companies only for themselves. Good luck with that. In the United States (US) the dividend yield are lower than in Europe, but the dividend payments are more consistent and more reliable. The lower dividend yield is also an indication the US has higher quality better compounding listed companies than Europe for the long term investor.

Luckily it is time to select an US investment in the newspaper for our strategy.

In 2020 a new record was set for how much money has been taken to save a human life year in terms of the cost of the medicine. The costs were much higher for the Corona virus than even the most expansive cancer medicine you can think of...

“Don’t talk to me about appealing to the public. I am done with the public, for the present anyway. The public reads the headlines and that is all. The story itself is fair and shows the facts. That would be all right if the public read the facts. But it does not. It reads the headline and listens to the demagogues and that’s the stuff public opinion is made of.” ~ J. P. Morgan Sr.

Either those costs for the Corona virus will come down or the costs for other medicines can go up as societies seem to have valued a human quality of life year much higher than historically been the case. At a minimum this new found pricing power should mean medicine costs and healthcare costs will not go down. So for the Crayon portfolio the choice goes to UnitedHealth Group Inc. (UNH) for this stock pick round.

Don’t ask why. Just know this is the company that has been bought by Holland Park Capital London Ltd. Talk is cheap. Holland Park Capital London Ltd is putting its money where its mouth is. The skin in the game as per Mr. Taleb has bet on UNH.

 

The Monkey portfolio got itself a new newspaper on the 5th of December 2020 and the marker was dropped on the quotation page of the US stock listings in the FT newspaper. The monkey choice went to Philip Morris International Inc (PM).

Time in the market, stock selection and diversification are more important than timing the market. Both portfolios are not diversified yet, but with now four holdings each are slowly getting somewhere. Let’s have a quick look at the performance. Clearly performance is not statistically meaningfully after only a 1.5 year investment period. After about 5 years that should have changed.....

The Crayon portfolio is trucking on nicely. Performance versus the S&P 500 is good and all three stocks (MSCI, ASML and Ashtead) are contributing nicely. The Crayon portfolio is heavier invested in $ earners in America than the Monkey portfolio. The Crayon portfolio is also a higher growth and a lower dividend portfolio than the Monkey portfolio. That is probably part of the reason the Crayon portfolio is performing better.

The Monkey portfolio is still unhappy. Deutsche Telekom is in the plus, but Cisco and Lloyds are still in the red. Performance versus the S&P 500 is bad for the Monkey portfolio. Hopefully with four positions the Monkey portfolio can start to dig itself out of the hole.

Let’s see if the new stock picks for the paper portfolios can make a positive difference the next time we follow the plan as described in the book “Beat the stock market casino”. Both paper portfolios follow the “no capital gain taxes growth investment plan” out of the above book.

As the Monkey portfolio is still under water about $7500 will be invested in the new stock picks for both the Monkey and Crayon paper portfolios this round.

For the Monkey portfolio 92 shares of PM have been added at the close on Friday the 4^th of December. The close was $80.75. The 92 shares of PM have been added at $81 to be fair with transaction costs.

 

For the Crayon portfolio 21 shares of UNH have been added at the close on Friday the 4^th of December. The close was $349.89. The 21 shares of UNH have been added at $351 to be fair with transaction costs.

 

Good luck to both portfolios. The more positions are added over time the closer the performance over time can be expected to get closer to the S&P 500 performance. Stay classy dear reader. Thanks for reading this blog.

 

This blog of Holland Park Capital London Ltd is published in order to promote the book Beat the Stock Market Casino. Clearly no recommendation is made here on what you should do. This blog is for information purposes only. The value of shares and the income from them can go down and you may get back less than the amount invested. If you want to make an investment decision, please seek contact with an authorized financial advisor first and see if the investment fits in your personal situation. Holland Park Capital London Ltd is long all the names in the Crayon portfolio. Holland Park Capital London Ltd expressed its own opinions in this blog. Holland Park Capital London Ltd is not receiving compensation for this blog. Holland Park Capital London Ltd has no business relationship with any company whose stock is mentioned in this article.

 

 

 

 

 

Third pin stuck in the newspaper

The purpose of this blog is to show how easy it is to start your own stock portfolio based on a proper investment plan. 

An investment plan was picked from the little book “Beat the stock market casino”. 

The investment plan was called; "No Capital Gain Taxes growth investment plan". 

Once every six months a new holding is added to the monkey paper portfolio and a new holding is added to the crayon paper portfolio. Approximately the same dollar amount is invested in both portfolios to keep them more easily comparable. The $ amount invested each round is dependent on positive or negative performance on portfolio level for the monkey portfolio.

As announced in the previous blog it was time to put another pin in the newspaper in order to select another holding for the monkey portfolio. A blue colour pen was used instead of a pin and here is where the pen landed on The Telegraph newspaper…

The blue colour pen landed on the stock Deutsche Telecom.

According to the rules of the investment plan a holding with the main listing outside of US and UK was needed in order to diversify globally and Deutsche Telecom ticked that box. Hopefully this third holding will perform better than the disastrous performing second holding Lloyds Banking Group Plc.

At least the wisdom of not investing with a lump sum method has become clear. If the monkey portfolio had invested $125,000 in one shot this time last year, the damage by now could have been permanent for a long time. Since only $12,500 is so far theoretically invested in the monkey paper portfolio, the monkey portfolio still has plenty of fire power left... In the current market that looks like a good thing....

The monkey portfolio is still under water/down (by a mile). That means a new position value of about $7500 or 6% of the intended start portfolio according to the “no capital gain taxes growth investment plan” in the book “Beat the stock market casino”. 

Have you bought the book yet on Amazon? 

The portfolios are diversified over time as well as over multiple holdings.

So the crayon portfolio follows where the monkey portfolio leads, to keep things comparable. The crayon portfolio needed a third holding with the main listing in the Euro zone therefore as well.  This third holding for the crayon portfolio had a target of about $7500 position value just like the monkey portfolio. The Stockrover website knew both stocks (Deutsche Telekom and ASML) so that meant tracking the performance would not be an issue.

ASML's ADR (ASML code) had a close on Friday the 22^nd of May 2020 of $ 319.36 according to the stockrover website. Deutsche Telekom ADR (DTEGY code) had a close on Friday the 22^nd of May 2020 of $ 14.89 according to the stockrover website. Take $7,500 and divide it by the share price and round down to get the full number of shares that could be bought per position.  So the paper crayon portfolio added 23 shares of ASML at $319.36 on the close yesterday for a value of $7346. The paper monkey portfolio added 503 shares of DTEGY at $14.89 at the close yesterday for a value of $7490.

May the force be with ASML and Deutsche Telekom! Stay classy dear reader. Thanks for reading this blog. 

This blog is not a tip sheer or advice or a recommendation to buy, sell or hold any investment. 

The purpose of this blog is to sell the book “Beat the stock market casino” and expand on the book. This blog is for information and marketing purposes only. 

The blog does not in any way constitute investment advice. 

Investors should form their own view and do their own research and ideally talk about their view with an independent licensed financial adviser before doing anything. Holland Park Capital London has a long position in ASML. Holland Park Capital London wrote this article and is receiving no compensation for it and has no business relationship with any company mentioned in this blog. The value of your stock investments including income may go down as well as up. You may not get back all the money that you invest. 

The stocks referred to in this blog may not be suitable for all investors.

The Tortoise and the Hare

“The Tortoise and the Hare” is one of Aesop’s fables. It tells the story of a race between unequal partners. After about one year now of running the experiment, it looks like the Monkey Portfolio wants to play the role of the tortoise. It is early days yet, but so far the performance of the Monkey Portfolio is shockingly bad. Have a look at below chart courtesy of the Stockrover website;

It is clear the first two darts on the newspaper portfolio picks of the Monkey Portfolio have nothing going for themselves at the moment. European banks like Lloyds Banking Group continue to do what they do best; go south. On top of that suspending/cancelling the dividend took the one reason some investors had, to hold onto their Lloyds shares, away. Here are the details;

Both Cisco Systems and Lloyds Banking Group are solidly in the red versus a flattish S&P 500 index since the inception of the Monkey Portfolio. The Monkey Portfolio will need better dart throwing skills going forward that much is clear.

If the Monkey Portfolio is the tortoise, then the Cray On Portfolio is keen to take the role of the hare in this story. It is better to be lucky than smart. A time horizon of only one year clearly says absolutely nothing about skill. It is all luck for now. A time horizon for this experiment of between three to ten years will change the equation as the years go by from luck to skill. Here is how the hare has been racing out of the block in the first year. All charts in this blog are courtesy of the Stockrover website. The S&P 500 briefly caught up with the Cray On Portfolio in March 2020, but the Cray On Portfolio is now outperforming the S&P 500 index nicely again.

Corona or no Corona virus, it is clear the MSCI stock is the winning stock pick for the Cray On Portfolio so far. Ashtead Group is in the red since inception, but at least is keeping the damage under control as investors seem to agree for now the company will not go bust this year unlike some other companies. 

 Later this month it will be time for two new stock picks for both portfolios. To be continued….

Lockdown

Lockdown

Well what a difference a couple of weeks make. In January 2020 investors were scrambling to buy more stocks especially in the US tech sector. In March 2020, when it became clear the Corona virus had spread to the developed world, investors could not dump their stocks fast enough. Stop losses, margin calls, redemption's and all out panic led stock markets to some of the biggest down days since the crash in 1987. 

I hope you and your friends and family are healthy and safe throughout this strange period. 

Western governments have for the most part been caught out by the fast spread of this deadly virus among their populations. The popular response at the end of the day for most governments was to place their societies under lockdown. 

When businesses are no longer allowed to serve their customers, governments cut the “invisible hand of Adam Smith” off their bodies. We are back at centrally planned economies now where governments insist they know what is best for their populations. Essentially economically that means we are trying out Soviet communist style economics again. Economically those communist policies have never worked and never will work. If people cannot work, they will not make any money. No money or income for people at the end of the line means food shortages and hunger. Obviously the Corona virus kills people, but the longer the lockdowns go on for and the smaller the safety net of governments the more people lockdowns will kill as well. We are witnessing the biggest economic experiment since WW2 in western societies.

This blog’s purpose is to dive deeper into the necessity of the lockdown, because the lockdown sucks the oxygen out of the economy and the lockdown has the most severe consequences for the stock markets around the world. 

The data we are being shown in the media is of appalling quality. Every country measures infection rates and death rates caused by the Corona virus in a different way. So it is very hard to compare countries with each other that way since what data gets included varies.

Sweden got crucified in the media for refusing to lockdown their society. The Corona virus death rate in Sweden, looks higher than in neighbouring countries like Finland, Norway and Denmark. As previously stated we cannot that easily compare Corona virus deaths between countries since measurements vary wildly. 

Should the UK be pounding itself on the chest, that at least the Corona virus response hasn’t been as bad as in Sweden? Let’s have a look.

Holland Park Capital London looked at the 2019 total death rate in Sweden, the Netherlands and the UK. For the UK only the England and Wales data from the ons.gov.uk website was easily found. The England and Wales data was therefore used as a proxy for the whole of the UK. In the Netherlands the data can be found on the cbs.nl website and the Swedish data can be found on the scb.se website. 

For all three countries the weekly death rate compared to the average normal for this time of the year weekly death rate only really starts jumping up, because of the Corona virus, in week 13, week 14 and week 15. Week 13 should include the 27^th of March 2020. Week 14 should include the 3^rd of April 2020 and week 15 should include the 10^th of April 2020. Clearly only three weeks is still a limited data set. That is one of the biggest problems that we know so little about this Corona virus and the data we have is of such bad quality. Governments hide behind scientific advice, but it is hard for scientist to model the unknown. How deathly is the Corona virus? How contagious is the Corona virus? How do temperature and humidity in a country affect the Corona virus? Can an infected person without any symptoms still spread the Corona virus? Can an infected child of 5 years old spread the Corona virus?

 If only we knew...

Anyway in those three weeks in Sweden sadly 6614 passed away. On average in 2019 in Sweden 1712 people passed away per week. That average times three makes 5135 people. The difference was 1479 more people that passed away in Sweden in the mentioned 3 weeks compared to the 2019 average. That difference is not all due to the Corona virus as it is normal that more people pass away in winter than summer. 

Here is a table to compare the numbers for the three countries;

	England and Wales	Netherlands	Sweden
Deaths in the 3 weeks in 2020	46044	14505	6614
Average deaths in 3 weeks in 2019	30417	8757	5135
Difference	15627	5748	1479
% difference	51%	66%	29%

So there is no evidence in the above table that a lockdown works. Sweden so far despite having no lockdown is doing much better than England and Wales and the Netherlands on above metric. Social distancing and doing a lot of virus tests seem to work, but the above lockdown data suggest so far a lockdown does not make a difference for the Corona virus. 

It is still early days of course. Every week that goes by we will get more and better data as people are focusing on the Corona virus so much now. Sweden, the UK and the Netherlands have different climates and the people have a different culture. There is also some evidence that the Corona virus first started to spread in the Netherlands, then in the UK and only now in Sweden. The first wave of the Corona virus in the Netherlands may have “peaked”, the virus in the UK may be “peaking” now and the virus may only "peak" end of May in Sweden. That would change the % difference numbers in the weeks to come if true in favour of the lockdown argument.

So far though; the conclusion for the stock market is that the lockdowns may not have been necessary. If true that would be great news for the stock markets. Time will tell. Stay classy and safe out there. Good luck!

Second pin stuck in the newspaper

As announced in the previous blog it was time to put another pin in the newspaper in order to select another holding for the monkey portfolio. We used a blue colour pen instead of a pin and here is where the pen landed in the FT (Financial Times) newspaper…

We needed a holding with the main listing outside of US in order to diversify globally and Lloyds Bank ticked that box. In the first holding in the monkey portfolio we added a position value of about $5000 or about 4% of the intended start portfolio. Since the first holding Cisco is under water/down we are allowed to select a position value of about $7500 or 6% of the intended start portfolio according to the “no capital gain taxes growth investment plan” in the book “beat the stock market casino”. Have you bought the book yet on Amazon? So we do not market time, but portfolio time if that makes sense. It is a good thing we do not market time. The S&P 500 is at a record high as the FED is basically conducting QE4 (quantitative easing round 4). The FED got scared after the overnight repo rate spiked to as high as 10% in September 2019. The FED has also lowered interest rates in 2019. With their actions in 2019 the FED basically admitted that Mr. Trump was right on this one and that the FED had killed the global economy by hiking rates faster than the US economy could handle in 2017 and in 2018. Anyway we do not market time, so we do not need to worry about any of that nonsense. 

So since the cray on portfolio follows where the monkey portfolio leads, we added a holding with the main listing in the UK for the cray on portfolio as well. This second holding for the cray on portfolio had a target of about $7500 position value. The first choice to add to the cray on portfolio was Greggs (the UK’s favourite “restaurant”). Sadly the Stockrover website does not know the stock Greggs and we needed a stock that could be tracked on a portfolio tracking website and the best portfolio tracking websites are (still) in the US. So the cray on portfolio added the stock Ashtead Group instead. To keep the tracking easy in $ we added the US ADR line of both Lloyds (LYG) and Ashtead (ASHTY). In round 1 we could not invest the entire $5000 into the stock MSCI, because it was trading at a high price and we rounded down the full number of shares we could buy and put the balance of the $5000 into cash. Cash skewed the results in the stockrover website a little so we will forget about cash from now on and just round down the full number of shares we can buy per position.  In round two in the cray on portfolio we emptied cash and added it to the $7500 so we could buy 60 shares of Ashtead. So the paper cray on portfolio added 60 shares of ASHTY at $126.20 yesterday for a value of $7572. The paper monkey portfolio added 2403 shares of LYG at $3.12 yesterday for a value of $7497. May the force be with Lloyds and Ashtead! Stay classy dear reader. Thanks for reading this blog. 

This blog is not a tip sheer or advice or a recommendation to buy, sell or hold any investment. The purpose of this blog is to sell the book “Beat the stock market casino” and expand on the book and is a marketing communication. Investors should form their own view and ideally talk about their view with an independent financial adviser before doing anything.

Update after 6 months of running the experiment....

First of all let’s be very clear about the purpose of these blogs. Clearly the aim is to promote and sell more of the book “Beat the stock market casino”. The tiny book is now available on Amazon. These blogs are not a tip sheet. The blogs are intended to dig deeper into the core of the book and show how one can build a retirement stock portfolio along the guidelines mentioned in the book without much difficulty and hopefully perfectly acceptable returns. As mentioned in the book evaluating performance takes a long time so only after about 7 years we can start drawing some conclusions on which of the paper trade portfolio’s has held its own versus the good old S&P 500 index. We are about 6 months after we started the experiment. 

What has happened in the last 6 months? 

The race to zero for commission rates when trading stocks continues. In the US Charles Schwab was the first big retail broker to copy paste Robin Hoods zero commission policy. In the UK Revolut entered the wonderful world of equities as well with a zero commission product. Another topic apparently is no FOMO (Fear of Missing out). Recession fears of no recession fears the recent new all time high by the S&P 500 has punished professional investors that were short or holding too much cash. FOMO only means your plan was stupid to start with so we have no interest in this concept. Much more interesting in our opinion is the FIRE (Financially Independent, Retire Early) concept.  Financial independence is having enough wealth such that you no longer have to work for money. Sign me up! One can get an income from labour, but in most places creating an income from capital is less hard work and the income can be subject to lower taxes on top of that. That is not to be sniffed at. 

Enough side tracking for now, let’s get back to the status of our experiment. One rule was; “One position will be added to both portfolios every 6 months on the basis of the "No Capital Gain Taxes growth investment plan" as described in the book.” So it is time to buy a newspaper tomorrow and put a pin in the stock prices page of the paper again and select an addition to the monkey portfolio. How has the monkey portfolio done in the last 6 months? Not great to be honest. Early days as mentioned to evaluate, but the dangers of a 1 stock portfolio have become clear in the monkey portfolio. Cisco has lost about 14.6% since the Monkey portfolio added the stock in May. Luckily Cisco pays dividends so the damage at portfolio level is less as the portfolio lost about 13.3%. Meanwhile the good old S&P 500 index is on fire and up 10.1% since May. So far the monkey is left behind in the dust. The tracking of the portfolio and the pictures below are courtesy of the StockRover website. 

How about the Cray On portfolio?

The Cray On portfolio has only one holding so far and the paper holding MSCI has done much better than Cisco. MSCI is up 16.8% since May. Inclusive of the tiny dividend MSCI is up about 17.4% since May. The Cray On portfolio also had $116 of un-invested cash so that will drag the performance down a little. Still the Cray On portfolio is nicely ahead of the S&P 500 index so far. Long may that continue….

The individual shares mentioned are just part of the experiment to dig deeper into how to implement the book “Beat the stock market casino” in the real world. Those stocks are not investment recommendations and these blogs are not a tip-sheet. If you want to play in the stock market, please talk to an investment adviser to find out what suits your personal situation.