Alan’s Blog March 2013

“We are nothing without respect”

I saw those words daubed on wall when walking along the United Nations demilitarised zone in Nicosia (Lefkosia) Cyprus a year or so back – I wish I had taken a photo but like so many things the real impact did not hit me until later. The more I think about it that simple piece of graffiti in one foot high black paint says most of what we need to know. If we live our lives with respect for all things, people, nature, ideas, and so on, then we are truly something, and our lives are sadly diminished otherwise.

I am writing this in the shade while in Hurghada by The Red Sea in Egypt and I’m trying to get used to the Egyptian handshake. In England we are told to give a firm handshake, that a firm grip shows character, and that a limp handshake gives the wrong impression. In contrast the Egyptian hand shake is gentle and respectful, it is given with a meeting of the eyes and a warmth sadly missing from many greetings. If I was to take the dominant approach and insist on my firm handshake what message would I be giving?  My grandmother always said “when in Rome …” (do as the Romans do) and I am often amazed by the wisdom of someone that, in her eighty or so years, hardly left the Welsh valleys and I’m not even sure that she knew where Rome was – for her it had just as well have been on another planet. What I have found immediately is that as soon as I return the handshake with the same grip as the one giving it I am immediately into a wonderful exchange with broken English and my almost non-existent Arabic. Showing respect for each other’s customs is all that it takes and I am the one that is a visitor in their country.

The ‘Mobile-Business’

I’ve just glanced over to the mirror opposite and I noticed my smile: I am smiling because the way that the business is structured is that it is truly portable and I can work from anywhere. I have access to the same information and facilities that I have when I am in Birmingham. My support staff are just as available and with Skype I am able to make contact at little or no charge. I think that I am probably unique and I have been asked to give some talks on how to construct  “A Virtual Business” – that is certainly something that would be worth doing and it may be worked into my calendar later in the year.

The old style office needed a physical presence to store paperwork (this is now stored electronically in ‘the Cloud’); to host the telephone system (our telephone system has been hosted in the cloud for over 3 years);  to have somewhere for the staff to work (my half a dozen staff work remotely and log each day from their own locations); to receive the post (95% of the paper communication has disappeared because almost everything is delivered electronically – what is left has been outsourced and is scanned and delivered to me electronically); and last but of course the most important: to meet clients. While many clients are using Skype and screen sharing from their homes I am the first to admit that you cannot replace a good face to face meeting: however the mobility has given flexibility and I am now able to meet clients in my office at Regus in  Victoria Square or anywhere else by mutual convenience – even Hurghada if you like!

Wi-Fi

The Internet access in Hurghada is good but next Wednesday 13^th March I will be on The Nile sailing from Luxor to Aswan and I cannot imagine that I will have Internet so I am likely to be out of communication until I get back to the office on Thursday 21^st March. My Personal Assistant (I call her my Virtual Assistant) Leanne will be available to help you and will be able to answer most of your queries. And in case any of you are thinking about it,  this time I won’t be taking a balloon ride when I am in Luxor – three years ago when we were last in Luxor we took a balloon ride with the same company that tragically crashed a couple of weeks ago. Would the crash stop us taking a balloon ride again? Probably not; Understanding investment risk is what I teach my clients about a lot of the time. You intelligently identify all of the known risks, build in an allowance for any potential unknown risk and then make your choice. As one of my Muslim clients said to me several years ago “you tether your camel and then trust in Allah” – and there we are back to ‘respect’.

I look forward to seeing you soon.

Ric Edelman’s “Rescue Your Money”

Last month I mentioned that there were two crucial elements to succeed with your investment strategy – so what are they?

1. You must maintain a long-term focus for one simple reason: it’s the only way that you can be certain that you’ll capture the profits that investments offer
2. The second crucial stop to diversification is to engage in strategic rebalancing

So why is a long term focus so important? Basically, because growth in the stock market is almost never a linear month by month growth. Every year the stock market plods along the same base line and then growth takes place over a period of weeks – sometimes the growth period is over 20 weeks but at other times the whole growth for the year occurs over a period of six weeks. If you are out of the market waiting for the growth to occur by the time you get in much or most of the growth has already happened. Even worse you miss that year’s “six week growth” period entirely.

Remember that it is common for the stock market to jump in short spurts that are followed by long periods of stagnation. No one can foretell when those short spurts are going to occur so that is why it is important to remain invested for the entire time so that you can catch the profits when they come.

Retaining your long term focus may be difficult when markets are down but learn from history – “every recession has been followed by a tremendous bull market”. It is also usual for stock prices to begin rising an average of 4 months before the recession has ended. Thus investors who sell during a decline, thinking they’ll wait for the economy to recover before investing again, are almost certain to miss much of the stock market’s recovery.

“Anyone who says it will take decades for the stock market to reach new highs simply doesn’t know what he or she is talking about.”

The key to successful investing is to build your diversified portfolio and then do nothing. Too many people confuse inaction as inappropriate but this is born out of a lack of understanding. With your diversified investment portfolio the correct answer is almost always to do nothing.

The second crucial stop to successful investing is to ‘buy low and sell high’.

Here we are not contradicting ourselves and guessing the market, selling high and buying low is achieved by strategic rebalancing. This sounds complicated but it is easy to understand and even easier to do.

At the outset you decide what asset allocation is appropriate for you personally after assessing your risk profile, capacity for loss, your income and capital needs and so on. Then over time one asset class will inevitably outperform the others and your portfolio will no longer be set up in the way that you intended i.e. it will no longer be balanced.

In order to rebalance we sell the asset that made the most money and buy the asset that made the least (or maybe even lost) money. In other words we sell the winner and buy the loser. This may be counterintuitive but it’s the smartest action you can take – it’s the key to successful investing.

If you think this strange ask yourself why when you buy yourself a TV and you go to the store and find that it’s on sale – would you go home and tell your partner “we can’t buy the TV now because it’s on sale – we have to wait for the sale to be over so that we can buy it when the price is higher.” Many investors don’t apply the same common sense and they only want to buy investments that have made a lot of money lately – if the price is low they don’t want it – and then they can’t understand why their investment portfolio isn’t successful.

“The truth is simple: if you want to make money from investments, you must sell high / buy low. By strategically rebalancing (which is what this concept is called), you will spend your investment career selling assets that are higher in price than others and buying assets that are lower in price.”

Normally, a properly designed portfolio will need to be rebalanced only one to four times a year. You can do it yourself but monitoring your portfolio requires your time and focus which is why our clients like to outsource this to us.

I am delighted that our investment strategy is endorsed by Ric Edelman. We ensure that you maintain your long term focus and that your portfolios are regularly rebalanced. This way you are never out of the market and you do not miss out on profits and your portfolio is regularly rebalanced to ensure that you sell high and buy low.

Next month I am going to focus on diversification and costs – both are vital and yet are not often clearly understood.

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