From The Times
October 1, 2009
Iceland exposed: How a whole nation went down the toilet
A year ago this month, Iceland went bankrupt. We explain how it went from being the world’s happiest nation to one with a bleak future
Roger Boyes
Along a narrow strip between downtown Reykjavik and the northern coastline lies a jumble of half-built high-rise buildings that was to be the new Manhattan of the north. By Spring this year, the place had become an urban graveyard. Someone has scrawled "CAPITALISM R.I.P." on the side of one of the buildings. Squatters have moved in, converting an abandoned house into a cosy café.
The Reykjavikers cheerfully welcomed the presence of some kind of life to this ghost town. The developers, however, did not approve. So, just after Easter, the riot police were sent in with a chainsaw to hack through barricaded doors and pepper spray to disable the young squatters. The clean-up was nasty, brutal and short: it was the official end of Niceland.
The Icelandic sense of live-and-let-live was the first casualty of the meltdown. For centuries, island society had functioned on family lines. Yes, there were feuds and friction between family members, but there was tolerance too. The financial collapse, though, brought a rawness to everyday life.
While the Nordic rules still applied, no one was hustled out of the office on the day that the banks went under; no one stuffed the clutter of their desks into a cardboard box. But by November, dismissal letters were in the mail. Unemployment rose from under 2 per cent in September 2008 to 10 per cent by the spring of 2009.
Although for a decade or so Iceland had imagined itself to be at the centre of the prosperous world, the crash propelled it back into the remote North Atlantic. Its pride was hurt. Icelanders were conscious that they had been steered incompetently and corruptly into the abyss. Yet the political class showed no remorse. David Oddsson — the head of the central bank, who as prime minister had presided over the privatisation of Iceland’s state-owned banks — was quick to blame the magnate Jon Asgeir and the oligarchs; Jon Asgeir blamed both the US for letting Lehman collapse and Oddsson for not responding intelligently; the Icelandic Government blamed the British Government.
“There is no culture of ministerial responsibility here,” says a senior official. “The prime minister will say, ‘I didn’t order this, I didn’t cause that, so why should I step down?’ And since the prime minister says that, so do the ministers and department chiefs.” As a result, no one has an interest in discovering why mistakes were made. The main threads of Icelandic rule were too intertwined, matted together: remove any one of these components — say, by an ill-judged confession of incompetence — and the whole edifice was likely to collapse.
The smallness of the society increased the risks of mismanagement: the humiliation of national bankruptcy, the speed with which the middle class was impoverished, the heaviness of personal debt, the almost instant flip from being the world’s happiest nation to being a place that could offer no future to its young. So Iceland became not only the first country to go broke, but also the first in this global financial crisis to chase its government out of power.
Soon, as living standards began to fall and people took to the streets, an uprising gathered force. It became known as the kitchen revolution because demonstrators used wooden spoons to bang pots and pans to drown out the proceedings of Parliament.
These protests had plenty of pathos, above all, the singing of the rather dirge-like national anthem. Mainly, though, this was an ironic revolt. Fake banknotes bearing the image of David Oddsson’s head were distributed, free of course, since he was widely seen as having betrayed the krona.
In December, Gurri, one of Iceland’s many self-proclaimed witches. led protesters toward the central bank and entered the building, carrying a life-size effigy of David Oddsson. Repelled by police, the short blonde witch, dressed of course in black, started to spank her effigy —“You’ve been a bad boy!” — pronounced a spell, then stuffed it in a garbage bag.
Until this moment, Iceland’s protest movement was an expression of hurt and an inchoate demand for change. Its ironic undertone was in part because many in the middle class, now being squeezed between higher mortgage debt and lower real wages, were half-aware that they had allowed the political class to get away with their incompetence and bad deals. Now they were demanding that the same class be changed, yet no party was completely untarnished by the years of easy credit.
On October 24 the Government formally asked the IMF for help, both to send a signal to other nations and to stabilise the currency. There was no rush to help: Britain and the Netherlands were adamant that there should be no IMF package until they secured guarantees from Reykjavik to compensate Icesave depositors. Geir Haarde, the Prime Minister, eventually agreed because he had no choice: without the IMF loan of $2.1 billion, Iceland was finished. On November 16, Iceland announced that it would comply with the EU Deposit Guarantee Scheme’s directive guaranteeing compensation for up to €20,877 [£19,000] for each savings account.
The horse-trading showed the Icelanders that their Government had no choices and could not in any rational sense be described as a government any more. More than 50,000 people had their savings wiped out. The Salvation Army hostel began to fill up with families unable to make ends meet.
Car loans became like some obscure punishment from hell. Taken out in foreign currencies, the loan had to be paid back in a krona whose value was shrivelling by the day. The only way out of the squeeze was to take out a newspaper advert offering thousands of dollars to anyone willing to take on the car and its bulging debt. “The Range Rover and other SUVs have gone through an incredible transformation,” a sociologist tells me. “First they were luxuries, then they were necessities — and you can see the point, you really need off-road vehicles in Iceland, it’s a rugged place — and now they have become burdens.” In the two months after the meltdown, Icelanders had been in shock, and the shock had atomised the island. The traditional solidarity of Christmas and the long holiday mutated into political solidarity — and contempt for the seemingly guilty silence of the political class. When the demonstrations began in the new year, the tone was different. The aim was clear: to bring down the Government. Now, for the first time, the politicians began to understand what was at stake. They were not being barracked by communist agitators but were being brought to account by a nation.
Those in power thought they were being confronted by lynch justice and allowed the riot police almost a free hand to defend the institutions of state. Those demonstrating outside began to sniff every hint of weakness. There were many such pointers. Politicians were buckling under ill health. The Foreign Minister Ingibjorg Solrun Gisladottir, head of the Social Democrats, had been absent for most of the crisis because she was being treated for a brain tumour; President Ólafur Grimsson underwent heart surgery; and Haarde announced that he had cancer of the oesophagus. The demonstrators saw weakness politically too, of course. Iceland looked rudderless, with the Parliament coming back from its Christmas holidays on January 22, after what might seem to have been an unusually long break in the middle of a world crisis.
That day Haarde addressed [Parliament] in his first detailed account of what the Government had been doing since the October meltdown. It did not seem like much. Measures had been introduced, he said, to ease the pain of those tumbling into debt. Housing funds were to go easy on loan defaulters, child allowance was to be paid every month instead of every quarter, the unemployed were to be encouraged to study, employers nudged into offering part-time work instead of firing staff. Haarde stretched it out into a catalogue of 15 points, but it amounted to a wish list.
None of this pleased or satisfied the protesters. The rallies grew and grew. The protesters banged tom-toms and lit effigies of politicians until late in the night. There were no more vague demands for apologies. “What do you want to happen next, after they’ve gone?” I asked the people in the crowd that January, and did not get a coherent reply. Some wanted a return to “fairness”; the more radical were so enraged that they went so far as to demand a kind of Nuremberg trial, with Haarde, Oddsson and the oligarchs jailed on charges of defrauding the nation.
“This economic crisis has hit us with the force of a war,” said the novelist Einar Mar Gudmundsson. “It will cost us more than a war, not just in lost wealth, but in people — we will lose a generation, maybe two, to migration.” By January, having just had his cancer diagnosis, Haarde realised that he could no longer convince the nation that he was indispensable to its resurrection.
It was time to go. On January 23, a Friday and the end of a long, noisy week of public protests, Haarde announced early elections and said that, for medical reasons, he would not be running. That was not exactly the triumphant defenestration that the protesters had been hoping for. The announcement of his illness — he left the country within days for treatment in Amsterdam — confused the protest movement and the country.
“The first political casualty of the global crisis!” was the headline in Britain, but in Iceland it did not seem like that. “There was just a kind of emptiness,” recalled Magnus, an economics student. But the crumbling of the establishment had begun.
The interim government, intended to steer Iceland toward the election, was to be a coalition of Social Democrats and the Left Greens, led by the dour Johanna Sigurdardottir. Johanna, nicknamed Saint Johanna by Icelanders, was different. She was from the left of the Social Democrats, and had been pushed aside in the contest for the party leadership in 1996 (leading her to declare: “My time will come”). During election campaigns she would go to the huge dockside warehouse that housed Reykjavik’s flea market. Next to the dried-fish stands, a scruffy café, much favoured by the down-and-out, is warm, cheap, and only three minutes’ walk from the Salvation Army hostel. Johanna would sit there and listen to their complaints and those of anyone else ready to draw up a chair.
Johanna was not only the island’s first female prime minister, but also the first openly gay national leader in the world. Her relationship, in an officially registered union with the journalist and children’s book writer Jonina Leosdottir was well-known to Icelanders but attracted little curiosity. With only one gay bar on the island, Icelanders do not stay in the closet long. But to non-Icelanders Johanna’s sexuality seemed important, a sign of a more fundamental shift in attitudes. Half of her Cabinet were women — not unusual in Nordic societies — and more significant, the heads of new versions of two of the banks were women: Elin Sigfusdottir at New Landsbanki and Birna Einarsdottir at New Glitnir. Their brief was to create domestic-deposit bases, make a go of shaping a conventional, customer-oriented bank and allow the formerly glamorous and now ruined international departments to sit in a kind of toxic-waste disposal unit.
The only Icelandic investment company to emerge from the crisis relatively unscathed was Audur Capital, set up by two women, Halla Tomasdottir and Kristin Petursdottir, to cater to female investors. “Our ground rule was simple,” said Halla Tomasdottir. “We didn’t invest in anything we couldn’t understand.” In a sense the supposedly new orientation toward women echoes the Viking tradition, when the men would disappear out to sea for weeks on end, leaving women to run the households.
The Icelandic approach to dealing with the crisis, essentially to let the women clean up after the party, is part of a broader feeling, though, that the Age of Testosterone may be coming to an end in the financial sector. Blaming the crisis on endocrinology is of course absurdly reductionist.
At the heart of Ms Sigurdardottir’s shift for Iceland was not her feminism but a basic egalitarianism. Iceland had for centuries been a society without large income differences, that treasured literacy, socialised health care and equal access to nature and its resources. Indeed, when David Oddsson took over the prime ministership in the early 1990s, Iceland bore a strong resemblance to a socialist society.
Johanna Sigurdardottir put egalitarianism back on the agenda; her promotion of women was not supposed to right some ancient wrong, a discriminatory imbalance, but rather ease the way back toward a society that treasured solidarity. Women understood Johanna’s aims better than men and confirmed her in power in the general election on April 22. By that time, after only a few months in government, Johanna had convinced society that it had to reach deep into itself and fish out special Icelandic virtues: modesty, hard work, a rugged respect for each other.
That was not enough, however, to dispel the anger, the sense of betrayal. On election day, protesters broke into the villa of Bjorgolfur Thor Bjoergolfsson in Frikirkjuvegur, Free Church Street. Thor had bought the house from the city council years earlier. The villa had belonged to his great-grandfather, who had founded one of the country’s most influential trading dynasties. Since Thor was ensconced in Holland Park, London, the protesters were able to climb on to the front balcony of the house, hang some life-size Viking dolls from the balustrade, and hang a banner declaring: “We were never elected to any office, yet we ruled everything”. The sentiment was shared by the voters, who elected the Social Democrat and the Left Green parties with a huge majority.
Seven months after the meltdown, Iceland was still a seething, frustrated, unhappy nation. A friend of mine encountered a normally mild old woman as she left city hall after casting her vote. “What were these people thinking when they bled their own country dry?” the woman said. “They will never be able to show their faces in this country again, nor will their children, or their children’s children.”
Gurri, the blonde witch, could not have produced a better curse.
Meltdown Iceland by Roger Boyes is published by Bloomsbury on October 10 at £12.99. To order it for £11.69, including p&p, call 0845 2712134 or visit timesonline.co.uk/booksfirst
The way the crash happened
September 2008: Seven months after reports that Kaupthing, Iceland’s biggest bank, is seven times more likely to go into administration than a typical European one, the Icelandic Government introduces emergency legislation allowing it to nationalise Iceland’s third largest bank, Glitnir.
October 2008: Iceland takes control of Kaupthing, after Alistair Darling invokes anti-terrorism laws to freeze its UK assets. British institutions and individuals scramble to recover their savings (local authorities alone had deposited £900 million into Icelandic banks). The BBC business editor Robert Peston writes on his blog that Kaupthing has “the worst case of financial BO I’ve encountered”.
November 2008: The IMF approves a $2.1 billion (£1.4 billion) loan to Iceland. Its inflation soars to 17.1 per cent.
January 2009: Protesters surround Prime Minister Geir Haarde’s car and pelt it with eggs. He resigns.
February 2009: Iceland’s Government tries to sell its embassy residences for a total of £25 million in an attempt to raise capital for the cash-strapped country.
April 2009: A centre-left coalition lead by the interim PM Johanna Sigurdardottir wins a majority of 34 out of 63 seats at the parliamentary elections.
June 2009: A consortium of four Icelandic banks buys West Ham United from Bjorgolfur Gudmundssonm, who lost a fortune when Landbanksi went into administration.
July 2009: Iceland applies for EU membership. Documents released by the Icelandic Government reveal that the British and Dutch authorities held a meeting in 2006 to consider what would happen if the Icelandic bank Landsbanki could not cover the deposits of British and Dutch savers.
August 2009: Iceland annual birth rate experiences a 3.5 per cent hike.
Sarah Haines
http://women.timesonline.co.uk/tol/life_and_style/women/the_way_we_live/article6855928.ece
Sunday 18 October 2009
Ten tips to survive a property downturn
February 25, 2008
Ten tips to survive a property downturn
It’s the news that every homeowner has been fearing – house prices are definitely falling.
Halifax says prices fell 2.4 per cent in May and are now down 3.8 per cent on a year ago. Last week Nationwide also reported that prices fell 2.5 per cent in May. Most experts expect there to be plenty more bad news to come.
But there is no need to panic. Falling house prices bring opportunities for buyers. There is also plenty that sellers can do to ease the pain. Here are ten tips to help you ride out the property downturn
TIPS FOR BUYERS
Falling prices are positive
As house prices have soared, more and more first-time buyers have been priced out of the market. A slowdown could change all that as more homes fall within the range of would-be homeowners.
A downturn is also good news for people who already own a property and would like to move to a bigger home or more expensive area. Trading up gets easier in a downturn because the gap between the cost of smaller and bigger properties narrows. Say your flat is on the market for £250,000 and you are trading up to a £400,000 house. Prices in your area fall 10 per cent meaning you take a £25,000 hit on your flat but the price of the house drops by £40,000 to £360,000. That’s a net gain of £15,000.
Don't count on big discounts
If you’re holding off buying, hoping that prices will plummet, prepare to be disappointed in London and the south east as property experts believe prices will remain resilient. Analysts also expect prices in Scotland to hold up as well.
However, it doesn’t hurt to haggle. There is so much bad news around that sellers are feeling nervous – experts say that you could easily knock 10 per cent or more off the asking price.
Rent to lock in profits
If you’re convinced the market in your area is going to fall further be prepared to move into rented accommodation and wait for the market to drop before buying back in. House prices need to fall by about 4 per cent to make it financially worthwhile to sell to rent, according to property analyst Knight Frank.
Do your homework
Find out how much similar properties have sold for by typing the postcode into the website Hometrack.co.uk or Upmystreet.com. But remember that these are backward looking: they tell you what homes sold for in the past not what they are selling for now. Propertyforecasts.co.uk, which estimates future price movements for the next five years, is also worth a look, although it costs £15 for a full report.
Get your finances in order
As sentiment has soured, fewer vendors are putting their properties on to the market so you must be ready to pounce when your dream home comes along. Talk to a mortgage broker when you start looking to find out how much you can borrow and what the best deals are. You improve your chances of having access to the best deals if you have a deposit of 20 per cent or more, don't need to borrow a high income multiple and have a spotless credit record. Several brokers such as L&C (www.lcplc.co.uk) and Charcol (www.charcol.co.uk) have useful calculators which estimate how much you will be able to borrow.
AND FOR SELLERS...
Price realistically
Putting your home on the market at the right price is key if you want to guarantee a quick sale. Get several valuations from estate agents and also take a look at the websites mentioned above – then set the price somewhere in the middle. As a rule of thumb, estate agents suggest you should ask for about 5 per cent more than you realistically expect to get. However, if you really need to sell fast, set an asking price slightly lower than your ideal from the off – it looks better than desperately slashing the price at a later date.
Flexibility pays
You’ll make yourself more attractive to potential buyers if you can move out fast – it also gives them less chance to back out of the deal. Consider moving into rented accommodation if you are offered a good price but have nowhere to move to.
Don't move, extend
If you’re moving because you need extra space, extending your existing home could be cheaper and less hassle. However, you need to make the right improvements at the right price. A loft conversion is the single most valuable alteration you can make to your home, according to a study by Nationwide. By adding 300 square feet of floor space made up of an extra bedroom and bathroom you can add over 20 per cent to the value of your property. Turn a two-bedroom house into a three-bed and you can increase its value by 12 per cent. But can you bear the builders and the mess?
Don’t be afraid to pull out
Just because you’ve hoisted a “For Sale” sign doesn’t mean that you can’t change your mind if you’re not seeing the interest you hoped. Ignore the hard sell from your estate agent. They’ll probably try to convince you that there are lots of interested buyers waiting in the wings – the chances are it’s the first time you’ve heard their voice in weeks.
If you don’t need to sell, stay calm
It’s a statement of the obvious but one that, in property obsessed Britain, we often forget: if you’re already on the ladder and not planning to sell in the near future it doesn’t matter if house prices drop. The chances are that by the time you need to sell prices will be back up again. Even if they’re not think of all those juicy gains you’ve made over recent years –house prices are up an average 59 per cent over the past five years, according to Halifax. A house that was worth £120,000 at the end of 2002 was worth nearly £200,000 in December. Think about all that “free” money and stop worrying.
http://timesbusiness.typepad.com/money_weblog/2008/02/ten-tips-to-sur.html
Ten tips to survive a property downturn
It’s the news that every homeowner has been fearing – house prices are definitely falling.
Halifax says prices fell 2.4 per cent in May and are now down 3.8 per cent on a year ago. Last week Nationwide also reported that prices fell 2.5 per cent in May. Most experts expect there to be plenty more bad news to come.
But there is no need to panic. Falling house prices bring opportunities for buyers. There is also plenty that sellers can do to ease the pain. Here are ten tips to help you ride out the property downturn
TIPS FOR BUYERS
Falling prices are positive
As house prices have soared, more and more first-time buyers have been priced out of the market. A slowdown could change all that as more homes fall within the range of would-be homeowners.
A downturn is also good news for people who already own a property and would like to move to a bigger home or more expensive area. Trading up gets easier in a downturn because the gap between the cost of smaller and bigger properties narrows. Say your flat is on the market for £250,000 and you are trading up to a £400,000 house. Prices in your area fall 10 per cent meaning you take a £25,000 hit on your flat but the price of the house drops by £40,000 to £360,000. That’s a net gain of £15,000.
Don't count on big discounts
If you’re holding off buying, hoping that prices will plummet, prepare to be disappointed in London and the south east as property experts believe prices will remain resilient. Analysts also expect prices in Scotland to hold up as well.
However, it doesn’t hurt to haggle. There is so much bad news around that sellers are feeling nervous – experts say that you could easily knock 10 per cent or more off the asking price.
Rent to lock in profits
If you’re convinced the market in your area is going to fall further be prepared to move into rented accommodation and wait for the market to drop before buying back in. House prices need to fall by about 4 per cent to make it financially worthwhile to sell to rent, according to property analyst Knight Frank.
Do your homework
Find out how much similar properties have sold for by typing the postcode into the website Hometrack.co.uk or Upmystreet.com. But remember that these are backward looking: they tell you what homes sold for in the past not what they are selling for now. Propertyforecasts.co.uk, which estimates future price movements for the next five years, is also worth a look, although it costs £15 for a full report.
Get your finances in order
As sentiment has soured, fewer vendors are putting their properties on to the market so you must be ready to pounce when your dream home comes along. Talk to a mortgage broker when you start looking to find out how much you can borrow and what the best deals are. You improve your chances of having access to the best deals if you have a deposit of 20 per cent or more, don't need to borrow a high income multiple and have a spotless credit record. Several brokers such as L&C (www.lcplc.co.uk) and Charcol (www.charcol.co.uk) have useful calculators which estimate how much you will be able to borrow.
AND FOR SELLERS...
Price realistically
Putting your home on the market at the right price is key if you want to guarantee a quick sale. Get several valuations from estate agents and also take a look at the websites mentioned above – then set the price somewhere in the middle. As a rule of thumb, estate agents suggest you should ask for about 5 per cent more than you realistically expect to get. However, if you really need to sell fast, set an asking price slightly lower than your ideal from the off – it looks better than desperately slashing the price at a later date.
Flexibility pays
You’ll make yourself more attractive to potential buyers if you can move out fast – it also gives them less chance to back out of the deal. Consider moving into rented accommodation if you are offered a good price but have nowhere to move to.
Don't move, extend
If you’re moving because you need extra space, extending your existing home could be cheaper and less hassle. However, you need to make the right improvements at the right price. A loft conversion is the single most valuable alteration you can make to your home, according to a study by Nationwide. By adding 300 square feet of floor space made up of an extra bedroom and bathroom you can add over 20 per cent to the value of your property. Turn a two-bedroom house into a three-bed and you can increase its value by 12 per cent. But can you bear the builders and the mess?
Don’t be afraid to pull out
Just because you’ve hoisted a “For Sale” sign doesn’t mean that you can’t change your mind if you’re not seeing the interest you hoped. Ignore the hard sell from your estate agent. They’ll probably try to convince you that there are lots of interested buyers waiting in the wings – the chances are it’s the first time you’ve heard their voice in weeks.
If you don’t need to sell, stay calm
It’s a statement of the obvious but one that, in property obsessed Britain, we often forget: if you’re already on the ladder and not planning to sell in the near future it doesn’t matter if house prices drop. The chances are that by the time you need to sell prices will be back up again. Even if they’re not think of all those juicy gains you’ve made over recent years –house prices are up an average 59 per cent over the past five years, according to Halifax. A house that was worth £120,000 at the end of 2002 was worth nearly £200,000 in December. Think about all that “free” money and stop worrying.
http://timesbusiness.typepad.com/money_weblog/2008/02/ten-tips-to-sur.html
Understanding housing property crashes
May 02, 2008
Are house prices heading for a 1990s-style crash?
At moments of crisis we turn to history to provide guidance to what lies ahead. With the housing market taking a turn for the worst, it is unsurprising that parallels are being drawn between the darkening conditions now and the last time price falls blighted the land in the early 1990s. We have taken a look at some of the key crash triggers then and now to assess what lies ahead for homeowners.
How bad was it in the early nineties?
House prices fell by 20 per cent between 1990 and 1993, according to the Nationwide building society, and 12 - 13 per cent on the Halifax and government measures. By 1995, they had dropped 30 per cent to 40 per cent in "real" or inflation adjusted terms.
Over the 1990-95 period 345,000 homes were repossessed and at least 2m households fell into negative equity, where the value of the property was worth less than their mortgage. It took until the late 1990s before the housing crisis came to an end.
How do conditions compare now?
Affordability
Then: In the late 1980s the ratio of house prices relative to income leapt from about 3.5 times to nearly five times in a number of years making it difficult for first time buyers to enter the market.
Now: House prices are at even higher levels relative to incomes. The average home now costs 5.66 times average earnings, according to Halifax, and in the south-east of England the ratio is as high as seven times.
Verdict: A high price-to-earnings ratio is one of the principal reasons why a growing number of economists believe house prices have much further to fall. David Blanchflower, a member of the Monetary Policy Committee(MPC), which sets interest rates, says that house prices may have to drop by as much as one third for house prices-to-earnings ratios to be restored to sustainable levels.
Interest rates
Then: Interest rates were close to 10 per cent for most of the 1980s and at the end of 1989 they jumped to a terrifying 14.875 per cent. Even though the economy went into recession in the early 1990s high inflation means that rates couldn't be cut dramatically. Inflation, as measured by the Retail Prices Index (RPI) reached a high of 10.9 per cent towards the end of 1990.
These high interest rates proved crippling for homeowners.Confidence only began to return after the RPI fell back to less than four per cent and interest rates were cut to just over six per cent in 1995.
Now: Even though inflation is a problem - the RPI is 3.8 per cent, which is higher than the Bank of England would like - prices are rising at a much slower pace giving the authorities much more room for manoeuvre. The MPC has cut rates three times since last December - from 5.75 per cent to five per cent.
Verdict: Interest rates are nowhere near the problem they were at the end of the 1980s which is why some commentators, such as Martin Ellis, chief economist at Halifax, thinks a 1990s-style crash is unlikely.
Mortgage rates
Then: A leap in mortgage rates at the end of the 1980s was one of the principal triggers for the house prices slump. In 1987 the average building society offered homeloans charging a rate of 10.3 per cent. By 1989 the typical rate had jumped to 14.4 per cent, adding about £200 to the monthly bill on a typical £70,000 home. That's the equivalent of about £360 a month, or £4,320 a year, in today's money.
Now: Mortgage rates for new borrowers have jumped significantly over the past year as the credit crisis has struck, creating a payment shock for more than a million people. Homeowners who took out a typical two-year fix of about 4.5 per cent in 2006 face a repayment shock of about £200 a month - £2,400 a year - on a £200,000 loan, assuming they take the average two-year fix of six per cent.
Although this is a smaller jump than in the 1990s many households are hurting, especially as higher mortgage repayments have been coupled with a jump in energy and food bills. People have more debt on credit cards and loans than in the 1990s.
Banks and building socieities have also made it more difficult for borrowers by tightening their lending criteria: for example, reserving their best deals for people with a 25 per cent deposit or the same amount of equity in their home.
Verdict: It's bad, but not for everyone. More than 5m borrowers with mortgages that follow the Bank of England base rate have benefited from a drop in payments since December.
The mortgage hikes have been sparked by the crisis that has hit the financial markets worldwide. The Bank of England, in its latest Financial Stability Review, suggests that the worst of the financial crisis, may be over. If so, homeloan rates could start to fall in the next few months. Borrowers will be praying it is right.
Unemployment
Then: As the UK's economy plunged into recession the unemployment rate leapt to nearly 3m, shattering confidence and meaning hundreds of thousands were suddenly unable to meet their mortgage bills.
Now: Unemployment is at its lowest since the 1970s. Latest figures put the number out of work at 843,000, although there have been some worrying signs that it is beginning to pick up.
Verdict: Fears of an economic downturn, and even a recession, mean that even though the unemployment rate is low there are concerns that the jobs market will deteriorate. A sudden jump in redundancies could shatter already frayed nerves. However, unless there is a big leap in jobless numbers the impact is likely to be only short term.
Housing tax
Then: The seeds of the downturn were sown when Nigel Lawson, chancellor of the exchequer, cut the amount of tax relief allowed on mortgages in his 1988 budget. He made a fatal mistake by announcing a five-month delay before the tax relief cut came into effect. People rushed to take advantage of the relief while it lasted, creating a borrowing frenzy and a house price bubble: prices nationally rose 34 per cent over the course of 1988 and in some parts of the south east they jumped by 50 per cent. When interest rates started to rise the bubble burst.
Now: Stamp duty remains a turnoff for buyers who are nervous about moving up the property ladder but there hasn't been a comparable tax trigger this time round.
Verdict: Chancellors have learnt from Lawson's mistake. Nowadays controversial decisions are introduced immediately
So what is in store?
A lot depends on whether the Bank of England is right and the worst of the credit crisis is over. If it is, mortgage rates start to fall and an economic downturn isn't severe price falls should be in single digits.
It it is wrong, and the crisis continues, confidence will continue to deteriorate and prices could continue to fall for years. Yolanda Barnes, residential research director at Savills, an estate agent, forecasts a 25 per cent decrease by the end of 2009 if the credit crunch continues.
http://timesbusiness.typepad.com/money_weblog/2008/05/are-house-price.html
The Ten Biggest Stock Market Crashes of All Time
April 14, 2008
The Ten Biggest Stock Market Crashes of All Time
Some investors might think they have had a rough ride on the stock market over the past seven or eight months. But the recent share price gyrations pale into insignificance when compared with the biggest stock market falls of all time.
10) Wall Street 1901-03: -46%
The market was spooked by the assassination of President McKinley in 1901, coupled with a severe drought later the same year.
9) Wall Street 1919-21: -46%
There were fears that the new automobile sector was becoming overheated and that car ownership had reached saturation point.
8) Wall Street 1906-07: -48%
Markets took fright after President Theodore Roosevelt had threatened to rein in the monopolies that flourished in various industrial sectors, notably railways.
7) Wall Street 1937-38: -49%
This share price fall was triggerd by an economic recession and doubts about the effectiveness of Franklin D Roosevelt's New Deal policy.
6) London 2000-2003: -52%
The UK took sixth place in the table with a 52 per cent market fall between 2000 and 2003 as investors suffered the consequences of the collapse of the technoogy bubble
5) Hong Kong 1997-98: -64%
The Hong Kong stock market’s heavy fall in 1997-1998 came as investors deserted emerging Asian shares, including a very overheated Hong Kong stock market
4) London 1973-74: -73%
Next came the UK stock market’s 73 per cent drop in 1973 and 1974. set against the backdrop of a dramatic rise in oil prices, the miners’ strike and the downfall of the Heath government.
3) Japan 1990-2003: -79%
In third place, with a 79 per cent decline, was the Japanese stock market, which suffered a protracted slide in price from 1990 to 2003 as a share and property price bubble burst and turned into a deflationary nightmare.
2) US Nasdaq 2000-2002: -82%
The second biggest collapse came from the technology-rich US Nasdaq index, which fell by 82 per cent following the bursting of the dot.com bubble in 2000
1) Wall Street 1929-32: -89%
The Wall Street Crash heads the list, with the US stock market falling by 89 per cent between 1929 and 1932. The bursting of the speculative bubble led to further selling as people who had borrowed money to buy shares had to cash them in in a hurry when their loans wre called in.
David Shwartz, the stock market historian, says: “The very big stock market crashes are invariably triggered by a series of different events which unfold one after the other. For example the biggest UK stock market slump in 1973-74 was started by the fear of stagflation, but was then fuelled by the dramatic rise in oil prices of late 1973, followed by the Miners’ strike and the downfall of the Heath government. One heavy blow is not enough to produce a market crash. It requires several different blows to bring a market to its knees.”
(This list only includes stock market crashes in industrialised economies.)
http://timesbusiness.typepad.com/money_weblog/2008/04/the-ten-biggest.html
The Ten Biggest Stock Market Crashes of All Time
Some investors might think they have had a rough ride on the stock market over the past seven or eight months. But the recent share price gyrations pale into insignificance when compared with the biggest stock market falls of all time.
10) Wall Street 1901-03: -46%
The market was spooked by the assassination of President McKinley in 1901, coupled with a severe drought later the same year.
9) Wall Street 1919-21: -46%
There were fears that the new automobile sector was becoming overheated and that car ownership had reached saturation point.
8) Wall Street 1906-07: -48%
Markets took fright after President Theodore Roosevelt had threatened to rein in the monopolies that flourished in various industrial sectors, notably railways.
7) Wall Street 1937-38: -49%
This share price fall was triggerd by an economic recession and doubts about the effectiveness of Franklin D Roosevelt's New Deal policy.
6) London 2000-2003: -52%
The UK took sixth place in the table with a 52 per cent market fall between 2000 and 2003 as investors suffered the consequences of the collapse of the technoogy bubble
5) Hong Kong 1997-98: -64%
The Hong Kong stock market’s heavy fall in 1997-1998 came as investors deserted emerging Asian shares, including a very overheated Hong Kong stock market
4) London 1973-74: -73%
Next came the UK stock market’s 73 per cent drop in 1973 and 1974. set against the backdrop of a dramatic rise in oil prices, the miners’ strike and the downfall of the Heath government.
3) Japan 1990-2003: -79%
In third place, with a 79 per cent decline, was the Japanese stock market, which suffered a protracted slide in price from 1990 to 2003 as a share and property price bubble burst and turned into a deflationary nightmare.
2) US Nasdaq 2000-2002: -82%
The second biggest collapse came from the technology-rich US Nasdaq index, which fell by 82 per cent following the bursting of the dot.com bubble in 2000
1) Wall Street 1929-32: -89%
The Wall Street Crash heads the list, with the US stock market falling by 89 per cent between 1929 and 1932. The bursting of the speculative bubble led to further selling as people who had borrowed money to buy shares had to cash them in in a hurry when their loans wre called in.
David Shwartz, the stock market historian, says: “The very big stock market crashes are invariably triggered by a series of different events which unfold one after the other. For example the biggest UK stock market slump in 1973-74 was started by the fear of stagflation, but was then fuelled by the dramatic rise in oil prices of late 1973, followed by the Miners’ strike and the downfall of the Heath government. One heavy blow is not enough to produce a market crash. It requires several different blows to bring a market to its knees.”
(This list only includes stock market crashes in industrialised economies.)
http://timesbusiness.typepad.com/money_weblog/2008/04/the-ten-biggest.html
Ten top investment tips from Dr Mark Mobius
June 30, 2009
Ten top investment tips from Dr Mark Mobius
Dr Mark Mobius is one of the most experienced fund managers in the industry.
He has been managing the Templeton Emerging Markets Investment Trust since its launch 20 years ago. In that time the value of an investment in the trust has multiplied more than eleven times.
Here Dr Mobius draws on his years of experience to offer ten investment tips to Money Central readers.
1. Keep an eye on value
Is a share selling for below its book value? What is the relationship between the earnings and the price?
2. Don’t follow the herd
Many of the most successful investors are contrarian investors. Buy when others are selling and sell when others are buying.
3. Be patient
Rome was not built in a day and companies take time to grow to their full potential.
4. Dripfeed your money into the market
No one knows exactly where markets are going so dripfeed your money into the market by making regular investments. That way you will average out the ups and downs of the market.
5. Examine your own situation and your appetite for risk
You should not go into equities if you are the type of person who is nervous every time you read a stock market report.
6. Diversify your portfolio
You must never put all your eggs in one basket unless you have a lot of time to watch that basket - and most of us don’t.
7. Don’t listen to your friends or neighbours when it comes to making investment decisions
Your own situation is different from everyone else’s so you should be making the decisions.
8. Don’t believe everything you read in newspapers, because things tend to be exaggerated
Don’t be swayed by headlines and look at what is going on behind the scenes.
9. Go into emerging markets because that is where the growth is
Emerging markets have consistently grown much faster than the developed countries in virtually every year since 1988.
10. Look at countries where populations are relatively young
Countries with young populations are going to be the most productive in future years.
http://timesbusiness.typepad.com/money_weblog/2009/06/mark-mobius-ten-top-investment-tips.html
Optimism drives markets ahead on crash anniversary
Jeremy Batstone-Carr, an equity strategist at Charles Stanley, said that he thought investors would be wise to bank profits now.
He believes that the recent rally has been built on profit expectations that cannot be met because of the prevailing economic conditions and that the market has also been supported by Government stimulus.
http://business.timesonline.co.uk/tol/business/markets/article6878719.ece
He believes that the recent rally has been built on profit expectations that cannot be met because of the prevailing economic conditions and that the market has also been supported by Government stimulus.
http://business.timesonline.co.uk/tol/business/markets/article6878719.ece
Take a little more risk to boost your returns
From The Sunday Times October 18, 2009
Take a little more risk to boost your returns
Fund managers are targeting those who live off the income from savings and investments with a raft of fund launches, some of which offer yields of up to 7%. However, advisers urged anyone moving from the safety of a deposit account to remember that their capital could be at risk — as a general rule, the higher the income, the greater the risk of losses.
http://www.timesonline.co.uk/tol/money/investment/article6878902.ece
Take a little more risk to boost your returns
Fund managers are targeting those who live off the income from savings and investments with a raft of fund launches, some of which offer yields of up to 7%. However, advisers urged anyone moving from the safety of a deposit account to remember that their capital could be at risk — as a general rule, the higher the income, the greater the risk of losses.
http://www.timesonline.co.uk/tol/money/investment/article6878902.ece
Investors left behind in rally
From The Sunday Times
October 18, 2009
Investors left behind in rally
The market’s stellar rise has eclipsed UK equity funds with fewer than a quarter beating the market since its low in March
Jennifer Hill
The FTSE All-Share has surged 51% from its trough on March 3 while the FTSE 100 is up 48%, after gaining 28 points last week to close at 5,190. But just 101 out of 405 funds (24.9%) have managed to equal or better that, said Morningstar, the data firm.
The average UK equity fund is up 45%, with the worst performer, Manek Growth, managing a mere 15% return.
Some of the biggest names have also lagged the market. Invesco Perpetual High Income, run by Neil Woodford with £8.6 billion invested, has gained 19% since March; the £2.7 billion Newton Income fund managed by Christopher Metcalfe has risen 18%; and Anthony Nutt’s £9 billion Jupiter Income fund is up 35%.
Fund managers have been caught out because they backed the wrong sectors going into the rally. Most had big holdings in “defensive” stocks, such as pharmaceutical firms and utilities, but financials and miners have led the charge, pushing America's Dow Jones through 10,000 on Wednesday.
Michael Hartnett at Merrill Lynch Global Research, said: “Equities remain in a sweet spot. Fears of a double-dip recession have receded, while worries about inflation and rising interest rates are not imminent enough to have prevented an October surge in risk appetite.”
However, advisers say some of the stellar performers, such as commodity stocks, could be in line for a setback. Conversely, the equity income sector — which tends to invest in defensive stocks because they traditionally pay higher than average dividends — could come back into fashion.
Danny Cox at Hargreaves Lansdown, the adviser, said investors should keep faith with popular income funds. He said: “Woodford believes the UK economy is in for a difficult period, so is very focused on defensives. Despite his recent underperformance, if he is right his fund will come good again.” We look at the experts’ tips for the bull market’s next stage:
Take some profits
Most commentators recommend banking some profits from the stocks and sectors that have led the recent rally, ahead of any setback later in the year.
Dirk Wiedmann at Rothschild Private Banking and Trust said: “After an exceptionally strong run, there is a growing danger that risky assets will suffer a setback.”
Kazakhmys, the London-listed metals company, is the market’s top performer since March, soaring 450%, followed by Vedanta, another miner, up 376%. Nick Raynor at The Share Centre said: “The FTSE 350 Mining index plunged 74% from May to December — and the same thing could happen again.” He also recommends selling out of retailers Marks & Spencer and Next, which could struggle amid rising unemployment and a 2.5% increase in Vat to 17.5% on January 1.
Rebalance your portfolio
The rally in miners and financials means many investors will now be taking on more risk than they want to, and they are being urged to review their portfolios.
Say you built a portfolio of 60% equities, 30% bonds and 10% cash. If left for 20 years, that could turn into one with, say, 84% stocks, 13% bonds and 3% cash. If your goals haven’t changed, you need to rebalance it. Doing so every year boosts returns by 16% over a 10-year period, according to Skandia, the investment firm.
As a rule, advisers recommend rebalancing when assets drift 5% or more away from your initial allocation.
Darius McDermott at Chelsea Financial Services, the broker, suggests investors reduce their holdings in some financial stocks — Barclays is the third top-performing share this year, with a 364% surge — and emerging markets, which have powered ahead. The MSCI Emerging Markets index has soared 80% since March 3.
Go for laggards
Defence firm BAE Systems, publisher Reed Elsevier and a string of utilities have grossly underperformed the market since March. Raynor tips National Grid, up only 5.8%, and Scottish & Southern Energy, which has gained only 8.3%.
Diversify overseas
British shares tends to lag other markets in periods of strong growth. Cox likes the Aberdeen Emerging Markets and First State Global Emerging Market Leaders funds, which have big holdings in Brazil, India, Hong Kong and China.
http://www.timesonline.co.uk/tol/money/investment/article6878766.ece
October 18, 2009
Investors left behind in rally
The market’s stellar rise has eclipsed UK equity funds with fewer than a quarter beating the market since its low in March
Jennifer Hill
The FTSE All-Share has surged 51% from its trough on March 3 while the FTSE 100 is up 48%, after gaining 28 points last week to close at 5,190. But just 101 out of 405 funds (24.9%) have managed to equal or better that, said Morningstar, the data firm.
The average UK equity fund is up 45%, with the worst performer, Manek Growth, managing a mere 15% return.
Some of the biggest names have also lagged the market. Invesco Perpetual High Income, run by Neil Woodford with £8.6 billion invested, has gained 19% since March; the £2.7 billion Newton Income fund managed by Christopher Metcalfe has risen 18%; and Anthony Nutt’s £9 billion Jupiter Income fund is up 35%.
Fund managers have been caught out because they backed the wrong sectors going into the rally. Most had big holdings in “defensive” stocks, such as pharmaceutical firms and utilities, but financials and miners have led the charge, pushing America's Dow Jones through 10,000 on Wednesday.
Michael Hartnett at Merrill Lynch Global Research, said: “Equities remain in a sweet spot. Fears of a double-dip recession have receded, while worries about inflation and rising interest rates are not imminent enough to have prevented an October surge in risk appetite.”
However, advisers say some of the stellar performers, such as commodity stocks, could be in line for a setback. Conversely, the equity income sector — which tends to invest in defensive stocks because they traditionally pay higher than average dividends — could come back into fashion.
Danny Cox at Hargreaves Lansdown, the adviser, said investors should keep faith with popular income funds. He said: “Woodford believes the UK economy is in for a difficult period, so is very focused on defensives. Despite his recent underperformance, if he is right his fund will come good again.” We look at the experts’ tips for the bull market’s next stage:
Take some profits
Most commentators recommend banking some profits from the stocks and sectors that have led the recent rally, ahead of any setback later in the year.
Dirk Wiedmann at Rothschild Private Banking and Trust said: “After an exceptionally strong run, there is a growing danger that risky assets will suffer a setback.”
Kazakhmys, the London-listed metals company, is the market’s top performer since March, soaring 450%, followed by Vedanta, another miner, up 376%. Nick Raynor at The Share Centre said: “The FTSE 350 Mining index plunged 74% from May to December — and the same thing could happen again.” He also recommends selling out of retailers Marks & Spencer and Next, which could struggle amid rising unemployment and a 2.5% increase in Vat to 17.5% on January 1.
Rebalance your portfolio
The rally in miners and financials means many investors will now be taking on more risk than they want to, and they are being urged to review their portfolios.
Say you built a portfolio of 60% equities, 30% bonds and 10% cash. If left for 20 years, that could turn into one with, say, 84% stocks, 13% bonds and 3% cash. If your goals haven’t changed, you need to rebalance it. Doing so every year boosts returns by 16% over a 10-year period, according to Skandia, the investment firm.
As a rule, advisers recommend rebalancing when assets drift 5% or more away from your initial allocation.
Darius McDermott at Chelsea Financial Services, the broker, suggests investors reduce their holdings in some financial stocks — Barclays is the third top-performing share this year, with a 364% surge — and emerging markets, which have powered ahead. The MSCI Emerging Markets index has soared 80% since March 3.
Go for laggards
Defence firm BAE Systems, publisher Reed Elsevier and a string of utilities have grossly underperformed the market since March. Raynor tips National Grid, up only 5.8%, and Scottish & Southern Energy, which has gained only 8.3%.
Diversify overseas
British shares tends to lag other markets in periods of strong growth. Cox likes the Aberdeen Emerging Markets and First State Global Emerging Market Leaders funds, which have big holdings in Brazil, India, Hong Kong and China.
http://www.timesonline.co.uk/tol/money/investment/article6878766.ece
Too Perfect Timing
From The Times October 16, 2009
Dentist Neel Uberoi ‘made £150,000 through insider trading with intern son’Michael Herman
A dentist made a “fabulous” profit on shares after his son, who was on a work experience attachment, tipped him off about imminent takeover deals, a court heard yesterday.
Neel Uberoi, 62, bought tens of thousands of shares in three companies based on “precise information” from his son Matthew, 24, who was on a work placement at Hoare Govett, one of the oldest banks in the City, it was alleged.
Leaking information about an upcoming takeover and buying shares based on that information are criminal offences.
Known as insider dealing, and punishable by a maximum of seven years in prison, the offences are possible because a company’s share price usually increases with the news that another business wants to buy it, allowing an insider to buy shares ahead of the crucial announcement.
Mr Uberoi and his son are each accused of 17 counts of insider dealing by the Financial Services Authority (FSA), the City watchdog that is responsible for policing and prosecuting illegal share deals. The pair deny all charges.
John Kelsey-Fry, QC, for the prosecution, told the jury that Mr Uberoi, from Kenley, in Surrey, was able to time his share purchases “exceptionally well” because his son, who lives in Fulham, West London, was part of the team advising on the transactions at Hoare Govett, which is now part of the Royal Bank of Scotland.
Mr Kelsey-Fry told Southwark Crown Court that Mr Uberoi’s most profitable trading was in the shares of NeuTec Pharma, a British pharmaceuticals company taken over by its Swiss rival Novartis in May 2006.
Mr Uberoi, who had never owned NeuTec shares before, began buying them on a Tuesday morning after a Bank Holiday weekend, Mr Kelsey-Fry said. Over the next eight days he spent about £126,000 buying further NeuTec shares at an average price of £5 each.
The previous Friday a crucial meeting had taken place between senior members of Matthew Uberoi’s team at Hoare Govett and their opposite numbers at Lehman Brothers, the bank advising Novartis on the takeover.
Two hours after Mr Uberoi’s final purchase of NeuTec shares the company announced that it was in takeover discussions with Novartis. The share price immediately doubled to more than £10, allowing Mr Uberoi to sell his shares for a £140,411 profit.
Mr Kelsey-Fry told the jury that this pattern was repeated with the shares of two other companies: Transense Technologies, taken over by Balfour Beatty, and Gulf Keystone Petroleum, which announced a significant collaboration with British Gas. The court heard that Mr Uberoi spent more modest amounts on these two companies but that he was “equally fortunate in his timing”.
“On each of these occasions his son was working on the very Hoare Govett team advising on the transactions about to be announced,” Mr Kelsey-Fry said.
The case continues.
http://www.timesonline.co.uk/tol/news/uk/crime/article6876971.ece
Dentist Neel Uberoi ‘made £150,000 through insider trading with intern son’Michael Herman
A dentist made a “fabulous” profit on shares after his son, who was on a work experience attachment, tipped him off about imminent takeover deals, a court heard yesterday.
Neel Uberoi, 62, bought tens of thousands of shares in three companies based on “precise information” from his son Matthew, 24, who was on a work placement at Hoare Govett, one of the oldest banks in the City, it was alleged.
Leaking information about an upcoming takeover and buying shares based on that information are criminal offences.
Known as insider dealing, and punishable by a maximum of seven years in prison, the offences are possible because a company’s share price usually increases with the news that another business wants to buy it, allowing an insider to buy shares ahead of the crucial announcement.
Mr Uberoi and his son are each accused of 17 counts of insider dealing by the Financial Services Authority (FSA), the City watchdog that is responsible for policing and prosecuting illegal share deals. The pair deny all charges.
John Kelsey-Fry, QC, for the prosecution, told the jury that Mr Uberoi, from Kenley, in Surrey, was able to time his share purchases “exceptionally well” because his son, who lives in Fulham, West London, was part of the team advising on the transactions at Hoare Govett, which is now part of the Royal Bank of Scotland.
Mr Kelsey-Fry told Southwark Crown Court that Mr Uberoi’s most profitable trading was in the shares of NeuTec Pharma, a British pharmaceuticals company taken over by its Swiss rival Novartis in May 2006.
Mr Uberoi, who had never owned NeuTec shares before, began buying them on a Tuesday morning after a Bank Holiday weekend, Mr Kelsey-Fry said. Over the next eight days he spent about £126,000 buying further NeuTec shares at an average price of £5 each.
The previous Friday a crucial meeting had taken place between senior members of Matthew Uberoi’s team at Hoare Govett and their opposite numbers at Lehman Brothers, the bank advising Novartis on the takeover.
Two hours after Mr Uberoi’s final purchase of NeuTec shares the company announced that it was in takeover discussions with Novartis. The share price immediately doubled to more than £10, allowing Mr Uberoi to sell his shares for a £140,411 profit.
Mr Kelsey-Fry told the jury that this pattern was repeated with the shares of two other companies: Transense Technologies, taken over by Balfour Beatty, and Gulf Keystone Petroleum, which announced a significant collaboration with British Gas. The court heard that Mr Uberoi spent more modest amounts on these two companies but that he was “equally fortunate in his timing”.
“On each of these occasions his son was working on the very Hoare Govett team advising on the transactions about to be announced,” Mr Kelsey-Fry said.
The case continues.
http://www.timesonline.co.uk/tol/news/uk/crime/article6876971.ece
Is it time to get out … or invest?
FTSE 100: Is it time to get out … or invest?
With the FTSE 100 at its highest for more than a year, is it safe to invest in the stockmarket, or is it just another false dawn? Money writers weigh up the risks
Rupert Jones and Harvey Jones
The Guardian,
Saturday 17 October 2009
The world's stockmarkets have endured a rollercoaster ride over the past two years.
Rupert Jones is cashing in his tracker
Is it time to cash in my chips and walk away from the table, or should I be brave and keep riding the stockmarket rollercoaster in the hope of even greater rewards?
That's the metaphor-mixing question many small investors will be asking themselves after the FTSE 100 index this week surged to its highest level for more than a year.
It's been a white-knuckle ride. In March the Footsie plunged to 3512; this week it sailed back above the 5250 level. That's a 49.5% increase in only seven months.
Perhaps there's more life in this rally, or maybe it's downhill from here ... who knows? I've decided I'm not sticking around to find out. After years of poor performance, my little nest-egg is looking a bit perkier, so I'm cashing it in. The fact that it means I'll no longer have to write humiliating articles about my "hopeless" investment is a bonus.
There are probably lots of people who haven't looked lately to see how their investments are performing. Perhaps this week's little milestone is a good opportunity to review your portfolio and think about any action you should be taking, such as topping up, selling or switching funds.
Some Guardian Money readers will recall I have written a couple of times about the less-than-impressive performance of my £50-a-month stockmarket Isa with Legal & General – and of my dad's Pep.
Our money is in a supposedly relatively low-risk UK index tracker fund: L&G's UK Index Trust, approaching £4bn in size, which tracks the FTSE All Share index and invests our cash in hundreds of different firms, including many household names. Back in July 2007, my Isa was worth £6,605. By July 2008, its value had fallen to £5,814 (even though it had swallowed up another 12 lots of £50 a month).
In March this year, I was in the slough of despond, bitterly wondering whether the stockmarket was all a big swizz. I'd recently received my statement telling me the fund's value was £4,862 at 22 January, which was less than the total I'd paid into it.
"If I bail out, that will be the cue for shares to motor upwards," I wrote at the time. I didn't bail out – I think I rather buried my head in the sand – but shares certainly did motor upwards. On Tuesday this week, I phoned up L&G to get an up-to-date figure for what my Isa was worth, and was told its value had jumped to £6,895, based on Monday's prices.
That compares with the £5,700 I've paid into it since April 2000, and the £6,145 I'd have if I'd put my £50 a month into an average savings account, according to Moneyfacts.
Perhaps I should take back what I said about "the great stockmarket swindle", but it's not exactly a shoot-the-lights-out performance.
I told my wife that our Isa was now looking a lot healthier. She said she thought we should cash it in, and use the money to pay a chunk off the mortgage. That sounded sensible, but I thought I'd speak to someone who knows a lot about these things. Matt Pitcher, senior wealth adviser at IFA firm Towry Law, says he would probably go along with my wife on this one.
"We would always counsel people to get rid of their debt as quickly as they can before they invest. The sole exception to that is that we wouldn't say get rid of your debts before you start a pension," he adds.
This is largely because you will always be paying interest on any debt, and therefore your investment will always need to give you a minimum return straightaway to make it worthwhile investing rather than paying off what you owe.
I'm fortunate enough to be on a tracker mortgage with a low-ish rate, but interest rates will, of course, eventually start climbing.
I've been "drip-feeding" money into my Isa, as is recommended. However, Pitcher says that while a lot of advisers and fund managers bang on about the benefits of "pound-cost averaging" (basically, investing money in equal amounts at regular intervals), the longer you hold a regular savings investment like mine, and the more the current value grows, the more it turns into a riskier lump sum investment.
He adds that people often get greedy when sitting on gains. For someone in my general position, cashing in my investment and using it to reduce the mortgage "is probably quite a prudent thing to do", says Pitcher.
The advice will be different depending on people's circumstances.
Some people won't have a mortgage or other significant debts to worry about, while others will be investing for a specific purpose (my Isa cash was never earmarked for anything in particular). Someone in that position with a fund like mine may want to consider spreading their cash across several funds or sectors.
A UK index tracker may not sound all that risky, but it was only this week that I realised more than 40% of my and my dad's cash is invested in just 10 companies (including HSBC, BP and Vodafone).
Small investors are trading again, says Harvey Jones
This year's dramatic and unexpected stockmarket recovery has encouraged thousands of small investors to start trading again. A seven-month rally has seen the benchmark FTSE 100 soar by almost 50% to more than 5000, from a low of 3512 in early March.
Trading has now hit levels last seen during the dotcom boom, with 4m deals made through execution-only stockbroker sites between April and June, according to analysts Compeer.
With the economy still shaky, it isn't a one-way bet. But if you're tempted, setting up an account and placing your first trade is easier than you think.
Is it for me? Decades ago, buying shares was for the privileged few who could afford a personal stockbroker. The internet changed all that. Now anybody over 18 can go online for £10 or less.
Getting started is straightforward. With your bank details and a debit card, you can start trading in around 10 minutes with just a few hundred pounds. But you must be aware of the risks, says Ian Benning, product development manager at The Share Centre. "Stockmarkets can quickly fall back down again. Only invest money you don't expect to need for the next five to 10 years."
What are the benefits? The investment industry has always boasted that, in the long term, shares will outperform other assets such as cash and property. But this is far harder to sustain these days, with the FTSE 100 well below its 6930 closing high at the turn of the millennium.
But small investors are returning because the alternatives look much less attractive, says Jim Wood-Smith, head of research at stockbrokers Williams de Broë. "With many savings accounts paying 0% and the property market shaky, shares look much better value."
Plenty of blue-chip companies such as BP, Shell, Glaxo, Tesco and Vodafone pay attractive dividends of 4% or 5% a year, far more than most savings accounts. But equally, you might see the shares slide in value.
How do I find the right account? Choose from dozens of online stockbroking sites, including etrade, The Share Centre, Interactive Investor, Hargreaves Lansdown, Selftrade, TD Waterhouse and Motley Fool. Barclays, HSBC, Lloyds TSB, NatWest and Halifax also offer share dealing.
All charge different fees, so check their rates carefully. Note that one of the bigger players, NatWest, will, from November, double the charges for some telephone share dealing services. If you plan to trade larger sums, look for a website that charges a flat fee per trade. Interactive Investor (iii.co.uk) and Motley Fool (fool.co.uk) charge £10 for UK trades. Selftrade (selftrade.co.uk) and TD Waterhouse (tdwaterhouse.co.uk) charge £12.50. Beware sites that charge higher fees if you trade bigger sums. Hargreaves Lansdown's Vantage fee is £9.95 per online trade, but only up to £500. That jumps to £14.95 between £500 and £2,000, and £19.95 up to £4,000. Over £20,000, it is £29.95. There is also 0.5% stamp duty on all share purchases.
What if I only have a small sum? If you plan to invest just a few hundred pounds, you might do better with a site that charges a percentage commission. At The Share Centre, that is 1% on trades, with a minimum of just £7.50 for real-time trades.
Many sites also offer regular trading accounts, which slash your costs to just £1.50 per trade if you agree to invest a regular sum, typically between £20 and £200, on a set date each month. The Share Centre, Interactive Investor, Motley Fool, Halifax Share Dealing, Selftrade and others offer this option. Many sites offer a discount. Barclays Stockbrokers, for example, charges £12.95 per trade, but this falls to £9.95 if you trade between 15 and 24 times a month, and £6.95 for more than 25.
What to buy? Your choice of account will depend on what you want to trade, says Stephen Barber, head of research at Selftrade. "Most sites offer tax- efficient Isa accounts and sell unit trusts, investment trusts, exchange-traded funds (ETFs), corporate bonds, gilts, covered warrants and self-invested personal pension plans (Sipps)."
Online stockbrokers work on an execution-only basis, ie they don't advise which shares to buy or sell. The Share Centre is a rare exception – its brokers give basic advice. Killik & Co offers old-fashioned personal stockbroking, but with a minimum trading fee of £40.
There is also a rich seam of free information on the web. You can also sign up to share sites such as Advfn.com, Motley Fool (Fool.co.uk), Digitallook.com and Morningstar.co.uk.
Day trading There is no precise definition, says James Daly, investor centre representative for stockbrokers TD Waterhouse. "Some say it is an investor who closes all their positions at the end of each day, but I would say it is somebody who trades at least once a day."
Recent turbulent stockmarkets have been a day trader's dream, allowing them to make big money in rising and falling markets. "We have seen a big increase in the number of clients trading regularly to profit from these movements," he says.
But this is a high-risk form of gambling. "If you get it wrong, you can lose far more than your original stake," Daly warns.
Day trading is exciting but can easily become addictive — and costly.
http://www.guardian.co.uk/money/2009/oct/17/investments-ftse-100
With the FTSE 100 at its highest for more than a year, is it safe to invest in the stockmarket, or is it just another false dawn? Money writers weigh up the risks
Rupert Jones and Harvey Jones
The Guardian,
Saturday 17 October 2009
The world's stockmarkets have endured a rollercoaster ride over the past two years.
Rupert Jones is cashing in his tracker
Is it time to cash in my chips and walk away from the table, or should I be brave and keep riding the stockmarket rollercoaster in the hope of even greater rewards?
That's the metaphor-mixing question many small investors will be asking themselves after the FTSE 100 index this week surged to its highest level for more than a year.
It's been a white-knuckle ride. In March the Footsie plunged to 3512; this week it sailed back above the 5250 level. That's a 49.5% increase in only seven months.
Perhaps there's more life in this rally, or maybe it's downhill from here ... who knows? I've decided I'm not sticking around to find out. After years of poor performance, my little nest-egg is looking a bit perkier, so I'm cashing it in. The fact that it means I'll no longer have to write humiliating articles about my "hopeless" investment is a bonus.
There are probably lots of people who haven't looked lately to see how their investments are performing. Perhaps this week's little milestone is a good opportunity to review your portfolio and think about any action you should be taking, such as topping up, selling or switching funds.
Some Guardian Money readers will recall I have written a couple of times about the less-than-impressive performance of my £50-a-month stockmarket Isa with Legal & General – and of my dad's Pep.
Our money is in a supposedly relatively low-risk UK index tracker fund: L&G's UK Index Trust, approaching £4bn in size, which tracks the FTSE All Share index and invests our cash in hundreds of different firms, including many household names. Back in July 2007, my Isa was worth £6,605. By July 2008, its value had fallen to £5,814 (even though it had swallowed up another 12 lots of £50 a month).
In March this year, I was in the slough of despond, bitterly wondering whether the stockmarket was all a big swizz. I'd recently received my statement telling me the fund's value was £4,862 at 22 January, which was less than the total I'd paid into it.
"If I bail out, that will be the cue for shares to motor upwards," I wrote at the time. I didn't bail out – I think I rather buried my head in the sand – but shares certainly did motor upwards. On Tuesday this week, I phoned up L&G to get an up-to-date figure for what my Isa was worth, and was told its value had jumped to £6,895, based on Monday's prices.
That compares with the £5,700 I've paid into it since April 2000, and the £6,145 I'd have if I'd put my £50 a month into an average savings account, according to Moneyfacts.
Perhaps I should take back what I said about "the great stockmarket swindle", but it's not exactly a shoot-the-lights-out performance.
I told my wife that our Isa was now looking a lot healthier. She said she thought we should cash it in, and use the money to pay a chunk off the mortgage. That sounded sensible, but I thought I'd speak to someone who knows a lot about these things. Matt Pitcher, senior wealth adviser at IFA firm Towry Law, says he would probably go along with my wife on this one.
"We would always counsel people to get rid of their debt as quickly as they can before they invest. The sole exception to that is that we wouldn't say get rid of your debts before you start a pension," he adds.
This is largely because you will always be paying interest on any debt, and therefore your investment will always need to give you a minimum return straightaway to make it worthwhile investing rather than paying off what you owe.
I'm fortunate enough to be on a tracker mortgage with a low-ish rate, but interest rates will, of course, eventually start climbing.
I've been "drip-feeding" money into my Isa, as is recommended. However, Pitcher says that while a lot of advisers and fund managers bang on about the benefits of "pound-cost averaging" (basically, investing money in equal amounts at regular intervals), the longer you hold a regular savings investment like mine, and the more the current value grows, the more it turns into a riskier lump sum investment.
He adds that people often get greedy when sitting on gains. For someone in my general position, cashing in my investment and using it to reduce the mortgage "is probably quite a prudent thing to do", says Pitcher.
The advice will be different depending on people's circumstances.
Some people won't have a mortgage or other significant debts to worry about, while others will be investing for a specific purpose (my Isa cash was never earmarked for anything in particular). Someone in that position with a fund like mine may want to consider spreading their cash across several funds or sectors.
A UK index tracker may not sound all that risky, but it was only this week that I realised more than 40% of my and my dad's cash is invested in just 10 companies (including HSBC, BP and Vodafone).
Small investors are trading again, says Harvey Jones
This year's dramatic and unexpected stockmarket recovery has encouraged thousands of small investors to start trading again. A seven-month rally has seen the benchmark FTSE 100 soar by almost 50% to more than 5000, from a low of 3512 in early March.
Trading has now hit levels last seen during the dotcom boom, with 4m deals made through execution-only stockbroker sites between April and June, according to analysts Compeer.
With the economy still shaky, it isn't a one-way bet. But if you're tempted, setting up an account and placing your first trade is easier than you think.
Is it for me? Decades ago, buying shares was for the privileged few who could afford a personal stockbroker. The internet changed all that. Now anybody over 18 can go online for £10 or less.
Getting started is straightforward. With your bank details and a debit card, you can start trading in around 10 minutes with just a few hundred pounds. But you must be aware of the risks, says Ian Benning, product development manager at The Share Centre. "Stockmarkets can quickly fall back down again. Only invest money you don't expect to need for the next five to 10 years."
What are the benefits? The investment industry has always boasted that, in the long term, shares will outperform other assets such as cash and property. But this is far harder to sustain these days, with the FTSE 100 well below its 6930 closing high at the turn of the millennium.
But small investors are returning because the alternatives look much less attractive, says Jim Wood-Smith, head of research at stockbrokers Williams de Broë. "With many savings accounts paying 0% and the property market shaky, shares look much better value."
Plenty of blue-chip companies such as BP, Shell, Glaxo, Tesco and Vodafone pay attractive dividends of 4% or 5% a year, far more than most savings accounts. But equally, you might see the shares slide in value.
How do I find the right account? Choose from dozens of online stockbroking sites, including etrade, The Share Centre, Interactive Investor, Hargreaves Lansdown, Selftrade, TD Waterhouse and Motley Fool. Barclays, HSBC, Lloyds TSB, NatWest and Halifax also offer share dealing.
All charge different fees, so check their rates carefully. Note that one of the bigger players, NatWest, will, from November, double the charges for some telephone share dealing services. If you plan to trade larger sums, look for a website that charges a flat fee per trade. Interactive Investor (iii.co.uk) and Motley Fool (fool.co.uk) charge £10 for UK trades. Selftrade (selftrade.co.uk) and TD Waterhouse (tdwaterhouse.co.uk) charge £12.50. Beware sites that charge higher fees if you trade bigger sums. Hargreaves Lansdown's Vantage fee is £9.95 per online trade, but only up to £500. That jumps to £14.95 between £500 and £2,000, and £19.95 up to £4,000. Over £20,000, it is £29.95. There is also 0.5% stamp duty on all share purchases.
What if I only have a small sum? If you plan to invest just a few hundred pounds, you might do better with a site that charges a percentage commission. At The Share Centre, that is 1% on trades, with a minimum of just £7.50 for real-time trades.
Many sites also offer regular trading accounts, which slash your costs to just £1.50 per trade if you agree to invest a regular sum, typically between £20 and £200, on a set date each month. The Share Centre, Interactive Investor, Motley Fool, Halifax Share Dealing, Selftrade and others offer this option. Many sites offer a discount. Barclays Stockbrokers, for example, charges £12.95 per trade, but this falls to £9.95 if you trade between 15 and 24 times a month, and £6.95 for more than 25.
What to buy? Your choice of account will depend on what you want to trade, says Stephen Barber, head of research at Selftrade. "Most sites offer tax- efficient Isa accounts and sell unit trusts, investment trusts, exchange-traded funds (ETFs), corporate bonds, gilts, covered warrants and self-invested personal pension plans (Sipps)."
Online stockbrokers work on an execution-only basis, ie they don't advise which shares to buy or sell. The Share Centre is a rare exception – its brokers give basic advice. Killik & Co offers old-fashioned personal stockbroking, but with a minimum trading fee of £40.
There is also a rich seam of free information on the web. You can also sign up to share sites such as Advfn.com, Motley Fool (Fool.co.uk), Digitallook.com and Morningstar.co.uk.
Day trading There is no precise definition, says James Daly, investor centre representative for stockbrokers TD Waterhouse. "Some say it is an investor who closes all their positions at the end of each day, but I would say it is somebody who trades at least once a day."
Recent turbulent stockmarkets have been a day trader's dream, allowing them to make big money in rising and falling markets. "We have seen a big increase in the number of clients trading regularly to profit from these movements," he says.
But this is a high-risk form of gambling. "If you get it wrong, you can lose far more than your original stake," Daly warns.
Day trading is exciting but can easily become addictive — and costly.
http://www.guardian.co.uk/money/2009/oct/17/investments-ftse-100
Basic assumption is, over time the domestic and world economy will go up
For Financial Planners, a Year of Tough Questions comments
By RON LIEBER
Published: October 16, 2009
If you think you’ve had a hard time reckoning with your own finances in the last 18 months, try putting yourself in the shoes of the financial planners who’ve been answering to scores of unhappy clients.
The planners, after all, were the ones who were supposed to help their clients avoid trouble in the first place. “I feel like I’m finally able to leave the witness protection program,” said Ross Levin, president of Accredited Investors in Edina, Minn. “There has been a loss of confidence in us and in the world, and a sense of betrayal. They did everything we told them to do, and it seemed like it didn’t work out.”
Though markets have improved, they are still far from where they once were, and that has made for some difficult discussions between financial professionals and their clients.
I wanted to find out more about those conversations. How much were clients pushing back, for example, and what were they saying? That was the main reason I moderated a discussion last Sunday at the Financial Planning Association annual meeting in Anaheim, Calif. (I received no compensation for my role there.)
While the planners were resolved and well rehearsed in front of hundreds of their peers, it was also clear that they had been severely tested in the last year. During the hourlong session, I quizzed five of them about the toughest questions their clients had asked. Here are those questions, along with the planners’ responses.
PREDICTING THE FUTURE So why didn’t most financial planners see all of this coming? Weren’t the signs obvious?
“This question actually presumes that there is something wrong with not having seen this coming,” said Elissa Buie of Yeske Buie, with offices in Vienna, Va., and San Francisco. “We live in a chaotic system, and chaotic systems are not predictable. But we know the range of possibilities, and this was always a possibility.”
Though most clients tend not to remember it years later, good financial planners will generally sit down at the beginning of a relationship, after clients have declared the sort of risk tolerance they think they have, and remind them how bad things can get in a truly outlying year. Well, 2008 into 2009 was one of those years.
Still, Ms. Buie said that even had she known the extent of the stock market carnage, it still might not have helped her clients’ performance much. “We wouldn’t have known when the turnaround was coming, so we wouldn’t have known when to change people’s portfolios.”
DIVIDING THE MONEY One of the most frightening parts of the recent market decline was that there was nowhere to hide. If you divide your assets among stocks, bonds, real estate, commodities and other investments, they are not supposed to all fall in tandem. So is the idea of asset allocation dead?
Tim Kochis, chief executive of Aspiriant, with offices in Los Angeles and San Francisco, rejects the premise of the question. “Asset allocation is not designed to protect against market movements in very short-term time horizons,” he said. “It’s designed to provide optimal performance results over very long periods of time, and there’s nothing to suggest that that expectation will not be fulfilled.”
For clients, it’s easy to blanch at something like this. Must they really wait decades to see whether their financial planner was right? Then again, getting set for retirement and not outliving your money is generally the primary goal for clients who pay for financial advice.
Older investors still had to wonder early this year whether their portfolios would ever recover. The last six months have given them some comfort, though, assuming they remained in the stock market. Mr. Kochis notes that one of the primary tenets of asset allocation is rebalancing every so often. People who did that and picked up, say, cheap stocks in emerging markets earlier this year are probably glad they did.
ESTABLISHING CONTROL Still, given what we’ve learned about the unpredictability of the markets, is there anything related to money that is within one’s control?
This is a question that people ask almost out of desperation, while throwing up their hands in despair and disgust. But there are plenty of ways to answer it. Harold Evensky of Evensky & Katz in Coral Gables, Fla., noted that the expense of investing was controllable, and clients can also often control what they pay in taxes and when.
Michael A. Branham of Cornerstone Wealth Advisors in Edina, Minn., the youngest financial planner on the panel, added an important point for midcareer professionals who are still employed. “They could control their savings rate,” he said. “They could choose how much more they wanted to add, so when we came out of this, they were able to really be ahead of the game.”
Ms. Buie said that after meeting with many clients in the last year, she found that the ones who felt best were the ones who had chosen to rein in their spending the most. “They probably felt more empowered than anyone else because they were doing something to make progress,” she said.
SNIFFING OUT THIEVES The economy was bad enough, but individuals who paid for financial advice also found themselves worrying about whether their adviser was the next Bernard L. Madoff. So how can people know for sure that they are not dealing with crooks?
The short answer is they can’t, and Ms. Buie noted that planners who had appeared at past conferences had themselves stolen client money later on. Still, Mr. Evensky noted that it could help to work with a financial adviser who kept client money with a third party like Charles Schwab or Fidelity.
That won’t protect clients against, say, forged money transfer forms. Ms. Buie said she believed that the brokerage industry needed to do a better job of creating clearer monthly statements that alerted people when money moved out of their account.
“It should say, at the top, this is how much money left your account this month,” she said. That way, people who didn’t move any money out themselves could notice any transfers more easily. She added that people who were sick, old or otherwise distracted should have trusted friends or family members reading the statements each month on their behalf.
CHANGING FOREVER When things are at their worst, the natural response is to lower expectations. As a result, many financial planners have heard some version of this question over the last year: Do I have to change my lifestyle from this point forward, forever?
For clients living close to the edge financially, or those who were older, this analysis was fairly intense, according to Mr. Kochis. “But our conclusion was not to do anything that is irreversible,” he said. Take the decision to retire, for instance. “You can’t simply snap your fingers and get your job back.”
Ms. Buie suggested focusing on what individuals really meant by lifestyle. “Even if you have a little less money, do you really have a little less life?” she said. Her firm’s mailing to clients on meaningful activities that didn’t require a lot of money got far and away the most response of anything it had ever sent out, she said. She and her husband, for instance, have saved money on travel through home exchanges.
These dark moments have provided a good opportunity to remind everyone of the fundamental assumptions that inform financial planning, whether you are working with a professional or not. “We made it very clear to clients that we have a basic, underlying belief that over time, the domestic and world economy will go up,” Mr. Evensky said.
So to those who insisted that stocks would never again be appropriate and were grasping for guaranteed returns, he simply said this to the ones who did not yet have enough cash to live on comfortably forever: “You can be certain if you put your money in C.D.’s and money markets, but you can also certainly be sure that you’ll never be able to accomplish your goals and maintain your lifestyle. There is risk no matter what you’re doing, and our judgment is that the safe thing to do is to stay invested.”
http://www.nytimes.com/2009/10/17/your-money/financial-planners/17money.html?em
By RON LIEBER
Published: October 16, 2009
If you think you’ve had a hard time reckoning with your own finances in the last 18 months, try putting yourself in the shoes of the financial planners who’ve been answering to scores of unhappy clients.
The planners, after all, were the ones who were supposed to help their clients avoid trouble in the first place. “I feel like I’m finally able to leave the witness protection program,” said Ross Levin, president of Accredited Investors in Edina, Minn. “There has been a loss of confidence in us and in the world, and a sense of betrayal. They did everything we told them to do, and it seemed like it didn’t work out.”
Though markets have improved, they are still far from where they once were, and that has made for some difficult discussions between financial professionals and their clients.
I wanted to find out more about those conversations. How much were clients pushing back, for example, and what were they saying? That was the main reason I moderated a discussion last Sunday at the Financial Planning Association annual meeting in Anaheim, Calif. (I received no compensation for my role there.)
While the planners were resolved and well rehearsed in front of hundreds of their peers, it was also clear that they had been severely tested in the last year. During the hourlong session, I quizzed five of them about the toughest questions their clients had asked. Here are those questions, along with the planners’ responses.
PREDICTING THE FUTURE So why didn’t most financial planners see all of this coming? Weren’t the signs obvious?
“This question actually presumes that there is something wrong with not having seen this coming,” said Elissa Buie of Yeske Buie, with offices in Vienna, Va., and San Francisco. “We live in a chaotic system, and chaotic systems are not predictable. But we know the range of possibilities, and this was always a possibility.”
Though most clients tend not to remember it years later, good financial planners will generally sit down at the beginning of a relationship, after clients have declared the sort of risk tolerance they think they have, and remind them how bad things can get in a truly outlying year. Well, 2008 into 2009 was one of those years.
Still, Ms. Buie said that even had she known the extent of the stock market carnage, it still might not have helped her clients’ performance much. “We wouldn’t have known when the turnaround was coming, so we wouldn’t have known when to change people’s portfolios.”
DIVIDING THE MONEY One of the most frightening parts of the recent market decline was that there was nowhere to hide. If you divide your assets among stocks, bonds, real estate, commodities and other investments, they are not supposed to all fall in tandem. So is the idea of asset allocation dead?
Tim Kochis, chief executive of Aspiriant, with offices in Los Angeles and San Francisco, rejects the premise of the question. “Asset allocation is not designed to protect against market movements in very short-term time horizons,” he said. “It’s designed to provide optimal performance results over very long periods of time, and there’s nothing to suggest that that expectation will not be fulfilled.”
For clients, it’s easy to blanch at something like this. Must they really wait decades to see whether their financial planner was right? Then again, getting set for retirement and not outliving your money is generally the primary goal for clients who pay for financial advice.
Older investors still had to wonder early this year whether their portfolios would ever recover. The last six months have given them some comfort, though, assuming they remained in the stock market. Mr. Kochis notes that one of the primary tenets of asset allocation is rebalancing every so often. People who did that and picked up, say, cheap stocks in emerging markets earlier this year are probably glad they did.
ESTABLISHING CONTROL Still, given what we’ve learned about the unpredictability of the markets, is there anything related to money that is within one’s control?
This is a question that people ask almost out of desperation, while throwing up their hands in despair and disgust. But there are plenty of ways to answer it. Harold Evensky of Evensky & Katz in Coral Gables, Fla., noted that the expense of investing was controllable, and clients can also often control what they pay in taxes and when.
Michael A. Branham of Cornerstone Wealth Advisors in Edina, Minn., the youngest financial planner on the panel, added an important point for midcareer professionals who are still employed. “They could control their savings rate,” he said. “They could choose how much more they wanted to add, so when we came out of this, they were able to really be ahead of the game.”
Ms. Buie said that after meeting with many clients in the last year, she found that the ones who felt best were the ones who had chosen to rein in their spending the most. “They probably felt more empowered than anyone else because they were doing something to make progress,” she said.
SNIFFING OUT THIEVES The economy was bad enough, but individuals who paid for financial advice also found themselves worrying about whether their adviser was the next Bernard L. Madoff. So how can people know for sure that they are not dealing with crooks?
The short answer is they can’t, and Ms. Buie noted that planners who had appeared at past conferences had themselves stolen client money later on. Still, Mr. Evensky noted that it could help to work with a financial adviser who kept client money with a third party like Charles Schwab or Fidelity.
That won’t protect clients against, say, forged money transfer forms. Ms. Buie said she believed that the brokerage industry needed to do a better job of creating clearer monthly statements that alerted people when money moved out of their account.
“It should say, at the top, this is how much money left your account this month,” she said. That way, people who didn’t move any money out themselves could notice any transfers more easily. She added that people who were sick, old or otherwise distracted should have trusted friends or family members reading the statements each month on their behalf.
CHANGING FOREVER When things are at their worst, the natural response is to lower expectations. As a result, many financial planners have heard some version of this question over the last year: Do I have to change my lifestyle from this point forward, forever?
For clients living close to the edge financially, or those who were older, this analysis was fairly intense, according to Mr. Kochis. “But our conclusion was not to do anything that is irreversible,” he said. Take the decision to retire, for instance. “You can’t simply snap your fingers and get your job back.”
Ms. Buie suggested focusing on what individuals really meant by lifestyle. “Even if you have a little less money, do you really have a little less life?” she said. Her firm’s mailing to clients on meaningful activities that didn’t require a lot of money got far and away the most response of anything it had ever sent out, she said. She and her husband, for instance, have saved money on travel through home exchanges.
These dark moments have provided a good opportunity to remind everyone of the fundamental assumptions that inform financial planning, whether you are working with a professional or not. “We made it very clear to clients that we have a basic, underlying belief that over time, the domestic and world economy will go up,” Mr. Evensky said.
So to those who insisted that stocks would never again be appropriate and were grasping for guaranteed returns, he simply said this to the ones who did not yet have enough cash to live on comfortably forever: “You can be certain if you put your money in C.D.’s and money markets, but you can also certainly be sure that you’ll never be able to accomplish your goals and maintain your lifestyle. There is risk no matter what you’re doing, and our judgment is that the safe thing to do is to stay invested.”
http://www.nytimes.com/2009/10/17/your-money/financial-planners/17money.html?em
Greed isn't good– it's dangerous
Greed isn't good– it's dangerous
In today's extract from his new book, Roger Bootle looks at the future of capitalism
By Roger Bootle
Published: 3:45PM BST 15 Oct 2009
Comments 6 | Comment on this article
The free-market vigilantes are already rushing to defend the unfettered market system. Their defence is based on one or other of three arguments. First, the market solution is to let failing financial firms fail. If the state intervenes to stop this, the blame for the resulting mess cannot be laid at the door of the market system. Second, banking has been a heavily regulated activity. The regulators have failed in their job. Third, the monetary policy authorities should have paid more attention to the growth of money and credit and the resulting inflation of the property market bubble.
In this way, they try to argue that what seems on the face of it to be a failure of markets is in fact a failure of government. So the solution, they say, is not less freedom for markets but more.
These people are dangerous. The idea of letting the financial system implode and then waiting for the market to bring spontaneous, healthy revival out of the wreckage might read well on the pages of a book, but in the real world it would bring human misery on a gigantic scale. In today's society, people simply will not tolerate it. If that is what the market system is about then they will have none of it; and rightly so.
Certainly there were mistakes made over regulation, but the answer surely involves not lighter regulation but for it to be tougher and tighter (although not more extensive). Similarly, on monetary policy major mistakes were made, but that was because not enough allowance was given for the ability of the markets and private financial institutions to get things horrendously wrong. That redoubles, not reduces, the weakness of unfettered financial markets.
What is needed now is not a rejection of capitalism but rather a radical reform of some of its institutions and practices. In a way, this is nothing new. What we now think of as capitalism did not emerge fully formed in an act of creation, but rather evolved. So why should it have stopped its process of evolution now?
We have been trying to live comfortably in a completely new era with a system of controls fashioned for an age long past. This is not the end of capitalism but the beginning of a new phase of it, a phase in which it is not controlled or suppressed, but channelled and marshalled, rather like a great river whose course is managed.
Such a thought will offend those who tend the flame of the free market ideal. But an effective market system is like democracy: how it operates in practice can be very different from how it works in theory. Effective market systems and effective democracies are fuzzy. In both cases there is a theoretically pure version that appears to embody the essence of the thing, whereas in practice the presence of this thing alone often sees the essence escape.
The essence of democracy, you might think, is free elections. Yet it is comparatively easy to establish elections that are free in a system that is democratic in only the most tenuous sense. For markets, it is a similar story. Paradoxically, markets need the state to keep them on the straight and narrow. They even need the state to keep them competitive.
Capitalism always throws up problems and failings. This is neither surprising nor a fatal criticism. Society has to find a way of either living with them or correcting them. However, as capitalism evolves, so the nature of its failings and problems changes. So too must be the way in which society copes with them.
The Great Implosion has laid bare several different sorts of failing. First, it has revealed just how fragile the financial system is. Second, it has demonstrated the markets' excessive risk-taking. Third, it has shown how bloated the financial sector has become. Fourth, it has exhibited a failure of the market with regard to the setting of executive remuneration in general, and pay in the financial sector in particular. Fifth, it has uncovered a deep-seated failure of the corporate system, arising from the separation between owners and managers and the weakness of institutional shareholders in influencing corporate policy.
It is no wonder that these problems have emerged only recently, since it is only since the early 1970s that the financial markets have grown to such size and importance in the economy, that markets have been given free rein, and that large-scale institutional shareholders have become dominant. Moreover, the serious problems for society that would be unleashed by blatant self-interest only burst forth once the combination of deregulation and the doctrine of "greed is good" released them in the 1980s.
But now we know. Greed is dangerous, and the encouragement of it is stupid. In order for society to work efficiently, never mind fairly and cohesively, there has to be a balance between the competitive and co-operative parts of the system. This balance goes right to the heart of human nature.
In many areas, such as health care, education, pollution control and road usage, we need more of the market, not less. But in finance, although we need the market, it must be restricted.
Moreover, financial markets do not offer a blueprint for the whole of society. Society cannot live by greed alone. Even if it can cope perfectly well if some of its members are motivated in this way, it needs millions of people to be motivated by duty, responsibility, and a sense of public purpose. These are feelings that the triumph of unbridled greed in the financial markets threatens to overwhelm. The market was made for man, not man for the market.
Roger Bootle is managing director of Capital Economics and economic adviser to Deloitte. The Trouble with Markets (Nicholas Brealey £18) is available from Telegraph Books for £16 plus £1.25 p&p. Call 0844 871 1515 or go to books.telegraph.co.uk
http://www.telegraph.co.uk/finance/comment/rogerbootle/6336861/Greed-isnt-good--its-dangerous.html
In today's extract from his new book, Roger Bootle looks at the future of capitalism
By Roger Bootle
Published: 3:45PM BST 15 Oct 2009
Comments 6 | Comment on this article
The free-market vigilantes are already rushing to defend the unfettered market system. Their defence is based on one or other of three arguments. First, the market solution is to let failing financial firms fail. If the state intervenes to stop this, the blame for the resulting mess cannot be laid at the door of the market system. Second, banking has been a heavily regulated activity. The regulators have failed in their job. Third, the monetary policy authorities should have paid more attention to the growth of money and credit and the resulting inflation of the property market bubble.
In this way, they try to argue that what seems on the face of it to be a failure of markets is in fact a failure of government. So the solution, they say, is not less freedom for markets but more.
These people are dangerous. The idea of letting the financial system implode and then waiting for the market to bring spontaneous, healthy revival out of the wreckage might read well on the pages of a book, but in the real world it would bring human misery on a gigantic scale. In today's society, people simply will not tolerate it. If that is what the market system is about then they will have none of it; and rightly so.
Certainly there were mistakes made over regulation, but the answer surely involves not lighter regulation but for it to be tougher and tighter (although not more extensive). Similarly, on monetary policy major mistakes were made, but that was because not enough allowance was given for the ability of the markets and private financial institutions to get things horrendously wrong. That redoubles, not reduces, the weakness of unfettered financial markets.
What is needed now is not a rejection of capitalism but rather a radical reform of some of its institutions and practices. In a way, this is nothing new. What we now think of as capitalism did not emerge fully formed in an act of creation, but rather evolved. So why should it have stopped its process of evolution now?
We have been trying to live comfortably in a completely new era with a system of controls fashioned for an age long past. This is not the end of capitalism but the beginning of a new phase of it, a phase in which it is not controlled or suppressed, but channelled and marshalled, rather like a great river whose course is managed.
Such a thought will offend those who tend the flame of the free market ideal. But an effective market system is like democracy: how it operates in practice can be very different from how it works in theory. Effective market systems and effective democracies are fuzzy. In both cases there is a theoretically pure version that appears to embody the essence of the thing, whereas in practice the presence of this thing alone often sees the essence escape.
The essence of democracy, you might think, is free elections. Yet it is comparatively easy to establish elections that are free in a system that is democratic in only the most tenuous sense. For markets, it is a similar story. Paradoxically, markets need the state to keep them on the straight and narrow. They even need the state to keep them competitive.
Capitalism always throws up problems and failings. This is neither surprising nor a fatal criticism. Society has to find a way of either living with them or correcting them. However, as capitalism evolves, so the nature of its failings and problems changes. So too must be the way in which society copes with them.
The Great Implosion has laid bare several different sorts of failing. First, it has revealed just how fragile the financial system is. Second, it has demonstrated the markets' excessive risk-taking. Third, it has shown how bloated the financial sector has become. Fourth, it has exhibited a failure of the market with regard to the setting of executive remuneration in general, and pay in the financial sector in particular. Fifth, it has uncovered a deep-seated failure of the corporate system, arising from the separation between owners and managers and the weakness of institutional shareholders in influencing corporate policy.
It is no wonder that these problems have emerged only recently, since it is only since the early 1970s that the financial markets have grown to such size and importance in the economy, that markets have been given free rein, and that large-scale institutional shareholders have become dominant. Moreover, the serious problems for society that would be unleashed by blatant self-interest only burst forth once the combination of deregulation and the doctrine of "greed is good" released them in the 1980s.
But now we know. Greed is dangerous, and the encouragement of it is stupid. In order for society to work efficiently, never mind fairly and cohesively, there has to be a balance between the competitive and co-operative parts of the system. This balance goes right to the heart of human nature.
In many areas, such as health care, education, pollution control and road usage, we need more of the market, not less. But in finance, although we need the market, it must be restricted.
Moreover, financial markets do not offer a blueprint for the whole of society. Society cannot live by greed alone. Even if it can cope perfectly well if some of its members are motivated in this way, it needs millions of people to be motivated by duty, responsibility, and a sense of public purpose. These are feelings that the triumph of unbridled greed in the financial markets threatens to overwhelm. The market was made for man, not man for the market.
Roger Bootle is managing director of Capital Economics and economic adviser to Deloitte. The Trouble with Markets (Nicholas Brealey £18) is available from Telegraph Books for £16 plus £1.25 p&p. Call 0844 871 1515 or go to books.telegraph.co.uk
http://www.telegraph.co.uk/finance/comment/rogerbootle/6336861/Greed-isnt-good--its-dangerous.html
When to sell?
One of the great advice given by investment guru, the late Philip Fisher, was that one should exit a stock once the fundamentals of the stock starts to deteriorate.
Or as Warren Buffett says he would hold on to a stock for many years as long as the economics of the business didn't change dramatically for the worse.
Or as Warren Buffett says he would hold on to a stock for many years as long as the economics of the business didn't change dramatically for the worse.
Opportunity costs of our investments
"There is this company in an emerging market that was presented to Warren. His response was, 'I don't feel more comfortable buying that than I do of adding to Wells Fargo.' He was using that as his opportunity cost. No one can tell me why I shouldn't buy more Wells Fargo. Warren is scanning the world trying to get his opportunity cost as high as he can so that his individual decisions are better."
When you are evaluating any investment, you must compare it to every other available investment, including ones you may already own. Instead, many investors collect stocks like baseball cards and the resulting portfolio bloat will likely not increase returns or reduce risk. So when you hear about the new hot stock in the next can't-miss sector, ask yourself two questions:
(1) Do I understand the investment as well or better than one I already own?
(2) Is the risk and reward profile of the investment superior to all other alternatives?
If the answer is "no" to either questions, it is probably best to stay away.
When you are evaluating any investment, you must compare it to every other available investment, including ones you may already own. Instead, many investors collect stocks like baseball cards and the resulting portfolio bloat will likely not increase returns or reduce risk. So when you hear about the new hot stock in the next can't-miss sector, ask yourself two questions:
(1) Do I understand the investment as well or better than one I already own?
(2) Is the risk and reward profile of the investment superior to all other alternatives?
If the answer is "no" to either questions, it is probably best to stay away.
Sit on Your Assets, if You Can
While most investors associate Buffett and Munger with finding good stocks cheap, Munger points out that quality can trump price.
"If you buy something because it's undervalued, you have to think about selling it when it approaches your calculation of its intrinsic value," he says. "That's hard. But if you buy a few great companies, then you can sit on your ass. That's a good thing."
"If you buy something because it's undervalued, you have to think about selling it when it approaches your calculation of its intrinsic value," he says. "That's hard. But if you buy a few great companies, then you can sit on your ass. That's a good thing."
Intelligent Investing
“We think all intelligent investing is value investing,” he says. “What the hell could it be if it wasn’t value?”
Charlie Munger
Berkshire Hathaway
While Mr Buffett’s mentor, the economist Benjamin Graham, is considered the father of value investing, it is Mr Munger who is credited with helping Mr Buffett evolve beyond buying stocks for no other reason than that they were cheap.
“That worked fine in the period after the 1930s,” Mr Munger says. “I don’t think it works nearly as well now. Too many people are doing it.”
Many of Berkshire’s holdings, from longtime investments such as Coca-Cola and Wells Fargo to last year’s purchase of General Electric’s preferred shares, are blue-chip companies considered the best at what they do.
The strategy sounds simple enough, but Mr Munger says few investors practise it.
“You can’t believe the way that conventional wisdom invests money,” he explains. “They tend to rush into whatever fad has worked lately. In my opinion, a lot of them are going to get creamed.”
17th May 2009: Today he's negative about the economy, but positive about stocks -- a bullish sign. In the late 1990s, Munger complained that he didn't see much to buy. The market quickly proved him right. But, at current market prices, Munger sees many long-term investment opportunities.
"I am willing to buy common stocks with long-term money at these prices," Munger said. "Is Coca-Cola worth what it's selling for? Yes. Is Wells Fargo? Yes." He owns both.
"If you wait until the economy is working properly to buy stocks, it's almost certainly too late," he said. "I have no feeling that just because there's more agony ahead for the economy you should wait to invest."
But you need to be selective.
Charlie Munger
Berkshire Hathaway
While Mr Buffett’s mentor, the economist Benjamin Graham, is considered the father of value investing, it is Mr Munger who is credited with helping Mr Buffett evolve beyond buying stocks for no other reason than that they were cheap.
“That worked fine in the period after the 1930s,” Mr Munger says. “I don’t think it works nearly as well now. Too many people are doing it.”
Many of Berkshire’s holdings, from longtime investments such as Coca-Cola and Wells Fargo to last year’s purchase of General Electric’s preferred shares, are blue-chip companies considered the best at what they do.
The strategy sounds simple enough, but Mr Munger says few investors practise it.
“You can’t believe the way that conventional wisdom invests money,” he explains. “They tend to rush into whatever fad has worked lately. In my opinion, a lot of them are going to get creamed.”
17th May 2009: Today he's negative about the economy, but positive about stocks -- a bullish sign. In the late 1990s, Munger complained that he didn't see much to buy. The market quickly proved him right. But, at current market prices, Munger sees many long-term investment opportunities.
"I am willing to buy common stocks with long-term money at these prices," Munger said. "Is Coca-Cola worth what it's selling for? Yes. Is Wells Fargo? Yes." He owns both.
"If you wait until the economy is working properly to buy stocks, it's almost certainly too late," he said. "I have no feeling that just because there's more agony ahead for the economy you should wait to invest."
But you need to be selective.
RHB maintains outperform call on LPI
RHB maintains outperform call on LPI
Tags: LPI | RHB
Written by The Edge Financial Daily
Monday, 12 October 2009 15:30
RHB Research has maintained its outperform call on LPI CAPITAL BHD [] with a higher fair value to RM14.95 following an upwards revision in its earnings forecast.
LPI recorded 3Q09 net profit of RM32.9 million, an increase of 44.7% quarter-on-quarter (q-o-q), which took its 9M09 earnings to RM91.1 million, up 27.3% year-on-year (y-o-y).
“This accounts for 80.2% and 82.7% of our and consensus expectations respectively. The deviation was mainly due to higher insurance gross premium and investment income at holding level,” RHB said. No dividend was declared in the quarter.
LPI’s 9M09 revenue grew by 11.9% y-o-y on the back of higher premium underwritten by Lonpac, which RHB believed was closely related to its expanding agency force and loan growth from PUBLIC BANK BHD [].
However, it said underwriting surplus was slightly below its expectation due to lower retained ratio against its assumption as a result of its fire-skewed portfolio, which the research house said has a lower retention rate versus motor, and higher management expenses due to increase in manpower.
RHB cut retention ratio to 35% from 34.5% and increased management expense to 19.8% from 19.5% previously. However, it noted that LPI’s 3Q09 underwriting surplus increased by 59.6% y-o-y, resulting in its 9M09 underwriting surplus to increase by 57.1% y-o-y.
“We believe this was caused by lower claims ratio, as economy has gradually improved, as well as its ability to obtain more retail business which is more profitable against lumpy underwriting,” RHB said.
It also increased the rate of return for investment at the holding level to 5.5% from 5% previously. Hence, earnings forecasts were increased by 2.3% to 10.1% per annum in FY09-11.
It added that LPI’s investment income in the quarter has expanded ten-fold q-o-q and 25.8% y-o-y. Going forward, it expected investment income from interest and dividend to remain a consistent contributor to overall earnings.
The fair value revision to RM14.95 from 13.58 previously is based on unchanged 15 times FY12/10 earnings per share.
http://www.theedgemalaysia.com/business-news/151122-rhb-maintains-outperform-call-on-lpi.html
Tags: LPI | RHB
Written by The Edge Financial Daily
Monday, 12 October 2009 15:30
RHB Research has maintained its outperform call on LPI CAPITAL BHD [] with a higher fair value to RM14.95 following an upwards revision in its earnings forecast.
LPI recorded 3Q09 net profit of RM32.9 million, an increase of 44.7% quarter-on-quarter (q-o-q), which took its 9M09 earnings to RM91.1 million, up 27.3% year-on-year (y-o-y).
“This accounts for 80.2% and 82.7% of our and consensus expectations respectively. The deviation was mainly due to higher insurance gross premium and investment income at holding level,” RHB said. No dividend was declared in the quarter.
LPI’s 9M09 revenue grew by 11.9% y-o-y on the back of higher premium underwritten by Lonpac, which RHB believed was closely related to its expanding agency force and loan growth from PUBLIC BANK BHD [].
However, it said underwriting surplus was slightly below its expectation due to lower retained ratio against its assumption as a result of its fire-skewed portfolio, which the research house said has a lower retention rate versus motor, and higher management expenses due to increase in manpower.
RHB cut retention ratio to 35% from 34.5% and increased management expense to 19.8% from 19.5% previously. However, it noted that LPI’s 3Q09 underwriting surplus increased by 59.6% y-o-y, resulting in its 9M09 underwriting surplus to increase by 57.1% y-o-y.
“We believe this was caused by lower claims ratio, as economy has gradually improved, as well as its ability to obtain more retail business which is more profitable against lumpy underwriting,” RHB said.
It also increased the rate of return for investment at the holding level to 5.5% from 5% previously. Hence, earnings forecasts were increased by 2.3% to 10.1% per annum in FY09-11.
It added that LPI’s investment income in the quarter has expanded ten-fold q-o-q and 25.8% y-o-y. Going forward, it expected investment income from interest and dividend to remain a consistent contributor to overall earnings.
The fair value revision to RM14.95 from 13.58 previously is based on unchanged 15 times FY12/10 earnings per share.
http://www.theedgemalaysia.com/business-news/151122-rhb-maintains-outperform-call-on-lpi.html
CEOs need to stick with vision for growth
CEOs need to stick with vision for growth
Tags: CEOs | Chief executives | David Frigstad | Frost and Sullivan | growth
Written by Fong Min Hun
Wednesday, 14 October 2009 11:11
KUALA LUMPUR: Chief executives may be saying the right things during this crisis, but their actions may not necessarily reflect what they are saying, David Frigstad, the chairman of Frost and Sullivan, said yesterday.
“Now more than ever, investments in company’s growth strategy and execution capabilities can set businesses apart from their competitors,” he said.
He was speaking to the media at the Growth, Innovation and Leadership Congress 2009 held here to discuss how CEOs can sustain growth in the current operating environment.
Frigstad said growth opportunities were emerging, but CEOs needed to position their companies to best exploit them. This meant sticking with a growth vision while taking advantage of opportunities that arise, he added.
This meant picking up depressed assets, hiring talent that may be out on the streets, and sticking to a vision. While many CEOs say they do that, Frigstad said their actions belie what they say.
“When we surveyed CEOs, 80%-90% say they don’t change their long-term growth strategies,” he said. “You look at what they’ve actually done and it’s just the opposite.”
Frigstad added that there were also contrasting views between how CEOs thought of themselves and how their staff thought of them. Frost and Sullivan’s survey showed that CEOs appraisals of themselves and their leadership qualities generally differed quite vastly from their staff’s appraisal of them.
This article appeared in The Edge Financial Daily, October 14, 2009.
Tags: CEOs | Chief executives | David Frigstad | Frost and Sullivan | growth
Written by Fong Min Hun
Wednesday, 14 October 2009 11:11
KUALA LUMPUR: Chief executives may be saying the right things during this crisis, but their actions may not necessarily reflect what they are saying, David Frigstad, the chairman of Frost and Sullivan, said yesterday.
“Now more than ever, investments in company’s growth strategy and execution capabilities can set businesses apart from their competitors,” he said.
He was speaking to the media at the Growth, Innovation and Leadership Congress 2009 held here to discuss how CEOs can sustain growth in the current operating environment.
Frigstad said growth opportunities were emerging, but CEOs needed to position their companies to best exploit them. This meant sticking with a growth vision while taking advantage of opportunities that arise, he added.
This meant picking up depressed assets, hiring talent that may be out on the streets, and sticking to a vision. While many CEOs say they do that, Frigstad said their actions belie what they say.
“When we surveyed CEOs, 80%-90% say they don’t change their long-term growth strategies,” he said. “You look at what they’ve actually done and it’s just the opposite.”
Frigstad added that there were also contrasting views between how CEOs thought of themselves and how their staff thought of them. Frost and Sullivan’s survey showed that CEOs appraisals of themselves and their leadership qualities generally differed quite vastly from their staff’s appraisal of them.
This article appeared in The Edge Financial Daily, October 14, 2009.
Subscribe to:
Posts (Atom)