Today’s offer is $20 worth of Groupon stock for $17.20. We can’t guarantee a better price tomorrow, but we’ll do our best. FT commentary here and here. Chart from ZeroHedge, a new addition to my RSS feed.
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Author Archives: Ross
Hoping for another Barnier backflip
The FT is reporting that Michel Barnier, the EU’s internal market commissioner, is setting up a sixth-month review to consider the case for breaking up Europe’s largest banks. As they point out, this is surprising, since he wasn’t exactly keen on the similar (but better!) ring-fencing recommendation that the ICB came up with back in September.
It must be said that given my work on the ICB, I am not unbiased on the benefits of bank reform, but there are a number of reasons why ringfencing is a better structural solution that break-ups. First, it allows some cross-selling and marketing synergies to remain. Second, it leaves open the possibility of a broader banking group coming to the rescue of a failing retail bank subsidiary. Both of these benefits would be lost under a full split, with no corresponding social gain.
I don’t want to restrict the bank reform debate to structural issues. As the ICB’s commissioners (and one in particular!) were keen to point out, there are also strong reasons to also increase banks’ loss absorbing capacity, and the merit of the ICB recommendations is to knit these structural and non-structural measures together in a mutually reinforcing package.
So for once I hope that the Barnier strategy of aiming high and then backtracking pays off, and all of Europe’s citizens benefit from a new Vickers equilibrium in bank regulation.
Katzenjammers
Via The Real Ale Girl I learn the location of a German bar in London where Dunkel (and Heffeweise, and Blond) is available on draught. I must have walked within 50m of the place 100 times. Where is a weekend when you need one?
The options for getting into gold
Notwithstanding the Bank’s lowering of inflation predictions last month, I know many have been bitten by the gold bug. I won’t post a graph because you know the story – it goes up on the right-hand side. Those who got in early have clearly seen the greatest gains, but there’s a case for portfolio diversity even now, especially if you’re sceptical about the UK’s ability to grow (rather than inflate) its way out of its current economic doldrums. A bet on gold would be unusual for me, given that I normally prefer owning productive assets, and as pretty as gold looks, nobody can argue that it’s productive. However, as a hedge, or a protection measure against the falling real value of other assets, such as sovereign debt, bank debt and cash, I can see the attraction. To me, gold is definitely a defensive play.
How best to get into gold as a retail investor, short of scouring the junk shop for overlooked trinkets? I suppose you could get into gold exploration by buying some of the specialist miners on the UK main market or AIM, although the exploration parts of these businesses is clearly complex, technical and exceptionally volatile. I don’t mind admitting that I would have no idea where to begin in analysing these companies’ prospects. The benefit of this route I suppose is that it does at least meet my desire to own a (potentially!) productive asset. The downside is that it confuses the objectives: I’m considering gold as a defensive tactic, not an offensive strategy.
Nor am I keen to plump for a specialist gold fund, such as Blackrock Gold & General Fund. I’m no fan of intermediation for the sake of it: I have seen what cumulative effect a small management fee can have on multi-year returns. This leaves me with two options. The first is a gold ETF (physical, not synthetic) which have lower fees than most funds. The more direct route would be to buy gold bullion direct. There are numerous sites that offer this in the US, but I’ve also recently discovered BullionVault, which is not only open to UK investors, but a UK-registered company, and a winner of the Queen’s Award for Enterprise. According to their site, the bullion is stored in high-security vaults in Zurich, London or New York. You can sell at any time. You can even withdraw the bars, although my understanding is that it’s rarely advantageous to do this, as it leaves you with the burden of proving that your gold has not been adulterated if and when you want to sell. Which, if the global economy doesn’t pick up soon, may be a little way off.
Home-bias not harmful for UK equity investors
I don’t have access to Wiley Online Library, which is a shame, as this paper from 2009 looks very interesting. Abstract:
In spite of the popularity of international portfolio diversification theory, extant empirical literature shows that investors prefer domestic assets and as a result, many studies argue that investors’ portfolios are largely suboptimal. This paper examines whether British investors need to diversify their portfolios internationally to gain performance benefits from international markets or can they obtain these benefits by mimicking the portfolios with domestically traded assets. The results confirm that it is possible to mimic the performance of foreign equity with domestic equity. Indeed, the pay-offs from homemade portfolios outperform those from international portfolios regardless of the periodic variation in the overall performance of the UK market vis-à-vis foreign markets. The superiority of homemade portfolio is more prominent in recent years and is enhanced by the increased internationalisation of developed capital markets. Therefore, investors’ home bias is not suboptimal.
This is good news for UK investors with the smarts to compile their own portfolio, because commissions and tax breaks are much more favourable for UK trades.
The Death of Alpha
Felix Salmon has written an excellent post on correlation between hedge fund strategies and the S&P 500. Most striking to me is the chart above, which if painted by a renaissance artist, would certainly be called The Death of Alpha.
Going up
I realised today that I hang out with the wrong crowd. Either my friends didn’t know about the @gselevator Twitter feed, which posts witticisms from the Goldman Sachs elevators to the world, or they knew and didn’t tell me. I need new friends. The concept is is beyond awesome, even if my credulity is straining.
Back away
On his value investing site, Mark Carter reports some great advice from an investment board post by ‘F958B’. It’s worth repeating:
Investors are not required to have a buy/hold/sell opinion for every share in the market. If in doubt – leave it alone: take no action: do not short it: do not buy it. It can’t go wrong then. Nowadays, we see periodic opportunities to invest in good businesses at sensible prices. There is no need to get involved with falling knives.
Sure, you have a strong, decisive mind. That’s why you’re a value investor. Choosing to leave something alone is a strong decision. If you’re not sure, back away.
The ISA AIM ban
David O’Hara of Blackthorn Focus, has posted the following e-petition on the Government’s website:
The ban on AIM-listed shares being held within a self-select ISA deprives Britain’s small and medium enterprises of a substantial source of capital – the private investor. The ban complicates the management of investments (e.g. when companies move from the Main Market to AIM) and denies the public a tax efficient wrapper for smallcap investments – a vital part of a diversified portfolio. The ban is also an unwelcome complication the ISA investment rules. Private investors are a considerable source of capital and liquidity to the UK’s smaller listed companies. The ISA ban on AIM shares forces private investors to direct their money elsewhere at a time when the UK’s small and medium-sized companies have been identified as key players in the economic recovery. End the ban.
You can add your name here.
When I grow up
It’s amazing what you can find on the internet. I was very surprised to find this, from a 1991 issue of the Essex Police magazine, The Law. Hint: the top of page three.