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Money for nothing (and your cheques for free)

Alan SteelNext week I’m off to “celebrate” (not sure that’s the right word) a special birthday . You can easily work it out given I was born in the middle of the coldest winter since records began.  Yes… February 1947. According to family legend, my dad, being a brickie, couldn’t work for sixteen weeks.

It wasn’t until 21 years later when studying climatology in fourth year at Edinburgh Uni that I learned what really happened to cause this aberration of weather.  Apparently, a double depression hung over the UK all that time.  It was so cold that brass monkeys were out searching for welders.

So it took 21 years for me to discover the true facts.  Remember that the next time you see “experts” on telly giving instant explanations on why stock markets went up or down that day.

Last year at this time a different type of depression hung over us all.  It started with a nasty hangover right after New Year and lasted well into February.  Like the weather crisis of 1947 the 2016 winter stock market crisis was the worst ever start to a year.  And true to form all available pessimists were wheeled out to say why it was just the beginning of the end, yet again. 

What was it that caused it, though?  One theory was that 2015 had been such a disappointment investors piled out of shares and into “safe” stuff like Gilts, Cash and other boring funds with plausible names. 

But how come so many investors came to the same conclusion simultaneously now that pubs and golf courses are so empty?  Could it be something to do with Bad Noise At Ten, and social media blogs ?

Never in the history of the human race is so much tosh written about investment by so many with their instant analysis.  So much fear was stirred up 12 months ago that it was hard to resist and keep calm.  But what was it that spooked pessimists at the time?

Well, for starters, there was that old chestnut …a “possible” hard landing in China, whatever that means.  Double that up with deflation fears in the West, not to mention a “definite” banking crisis in the Mediterranean, and you have a perfect formula for panic.

London Stock ExchangeNot that this was a sudden reversal of investor confidence.  For the previous two years or so billions were pouring into “safe” funds like absolute return and multi asset thingies.  They sound good, of course, but have led investors into a dead end.  Go peek at your one and three year performance numbers,  preferably after a stiff drink.

Down south, a “service” calling itself “Spot the Dog” is printed every year “naming and shaming” investment active funds with “persistently bad performance” figures. The report makes great headline reading and is covered by various websites and money pages desperate for content. 

I am well aware of a few such “dogs” that I personally held (and still do).  I also know the managers of said “dogs”. The reason I invested in them, and why you should too, is because of their hard analysis and detailed work uncovering businesses in which to invest where the current share price is far cheaper than it should be.  Warren Buffett calls this approach common sense.  And he should know.

Think of it as ponds of businesses where you’d want to fish for future gains.  Would you fish in a pond where overvalued and undervalued companies are mixed up (Index), or where undervalued companies are swimming?

The best fund managers over history, whether here or overseas, fish for bargains and are patient enough to hold on until the herd recognises that value and creates demand, pushing up share prices sometimes to overvalue. When that happens they want to pocket their substantial profits. But who’s daft enough to buy them then? Go think about it .

Following the combination 12 months ago of “experts””convinced another Armageddon was around the corner and criticism of “dog” funds thanks to short term weakness, billions left such funds.  Guess what happened over the last 12 months?

I can think of five funds I hold that were described last year as “dogs”.  In 12 months they’re up between 40% and 60%, after charges that we’re told consistently are too high by folks obsessed by costs instead of benefits.  Meanwhile, the biggest recipient of scardey custard alternatives is up under 3%, net of costs. Mmm.

As March approaches maybe we should do what my mum’s generation used to do …spring clean. Go take a long hard look at what you believe to be true that’s actually false. Then do something about it.  While you’re at it go take some serious advice about your pension plans if you have any. If there’s one area of investment that’s much misunderstood it’s pensions. 

The right pension plan really can be money for nothing (and cheques for free).  And if you really don’t want to end up in retirement in dire straits, like a growing percentage of Scots, then make March the time to clean up your savings act.  And don’t let your invaluable pension or ISA allowances pass you by. 

Alan Steel is chairman of Alan Steel Asset Management

Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.

This is a regular column submitted via the DBdirect service. For details click here. 

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