Friday, 23 April 2021

Wayward Comments

While the FTSE 100 is once again above its price at the start of this millennium (£100 is now worth £100.12), in the US "stocks turned lower following reports that US president Joe Biden planned to raise capital gains tax for wealthy individuals. The S&P 500 index gave up morning increases and closed the trading day down 0.9 per cent following a Bloomberg report stating that people earning more than $1m would pay a capital gains rate of 39.6 per cent, up from 20 per cent."

The above lede in the Financial Times is a little misleading as the 39.6% mentioned would be the marginal rate for gains in excess of a million dollars, not something that would be a concern to most people. The thing with news like this is that for the media, it's a far bigger story if they say the rate is almost doubling, than if they say that hardly anyone will be impacted by it.

I suspect the resulting drop in the markets was an overreaction, but reading comments on Twitter about it are quite revealing about how people don't understand the basics of how the taxes work. Some outlets compounded the confusion or misinformation by adding in the Federal Tax Rate on incomes over $1m resulting in this kind of nonsense:
Well there's a reason why it doesn't make sense, which is that it is nonsense. The announcement also shouldn't have come as a surprise, but as we all know, markets aren't always efficient as illustrated by the story of the Bombay Oxygen company in India, where there is currently a shortage of oxygen for the treatment of COVID-19 victims. 
It appears that the company were once involved in manufacturing industrial gases but stopped in August 2019. Someone hasn't been reading the small, but important, print.
A few weeks ago, thanks to @BeigeMartin, I realised that the reason no one was commenting any more wasn't because they weren't commenting any more, but because I was no longer getting emails telling me that there was a comment to approve. This misunderstanding has resulted in many missed comments, but now I know I shall try to keep on top of them.

Unfortunately many comments were time sensitive and there's no point commenting on them now, but some of them look interesting and as I've said in the past, comments are a good source of inspiration for future posts.

BeigeMartin's comment was on my March Wrap post a few days ago and he said:
You might consider adjusting your S&P return to GBP, or at least ensuring they are in the same currency, for comparability.

I'm not actually sure what he means by this, since the returns of the S&P 500 versus FTSE 100 were compared to a 100 unit starting amount, and no currency was mentioned. The point was that the US index has grown that 100 units to 280 units while 100 units invested in the UK index hasn't grown at all.

Wayward Lad, whose blog I have mentioned in the past, commented a while ago:

Great to read your blog today. I must confess that I'm not a regular visitor, but being a blogger myself, I know the time and effort to keep it going year-in-year-out is tremendous. Good luck in 2021, and I promise the visit and read more often.
More recently, i.e. just this month, Wayward Lad commented on my Worse Than Marxism post:
An interesting post Cassini, and one that's close to me. After decades (I'm giving my age away now) of indifferent pension performance, I took control of my pension in 2012 and opened a SIPP. Thirty years of pension contribution amounted to just £51,684 in the pension pot - not much to write home about. I've bought individual stocks, and Investment Trusts, dabbled in AIM companies and had some success, some failure and (worst) sold out of big winners when they were only just starting to climb the mountain of success (why-oh-why did I sell out of Ashtead at 675 in 2013 after doubling my money?). Recently, I've been drawn into the ETF web on the advice of my banker son-in-law and my eldest son (works at Goldman Sachs), but I still enjoy the euphoria of the individual company purchase. It's the euphoria that we chase: be it in sport, sex, gambling or the stock markets - euphoria proves that you are alive!

I can confirm that being alive is indeed a very good feeling! Wayward Lad sums up in that comment just how difficult trading is. Whatever you do is almost certainly not going to turn out to be perfect, but when it comes to investing, whether it be in sports or more traditional markets, the aphorism that perfect is the enemy of good, or more literally the best is the enemy of the good, is never truer. 

@IanCassel tweeted recently that:
One of the hardest parts of being a full time investor is over complicating things because you have time to over complicate things.
We make decisions to buy and sell based on our knowledge and influences at the time. It's all too easy to second guess why we sold a stock after it doubled, but there could have been many reasons and looking back and saying "if only" isn't helpful.
"Until you can manage your emotions, don't expect to manage money."-Warren Buffett
We tend to remember the bad decisions and forget the good ones. Probably an evolutionary strategy to reduce the chances of us making poor decisions in future, but who remembers cutting a losing trade short before it went on to tank even further, or selling at a profit shortly before a bad earning call negatively impacted the share price?

ETFs are great as I have written before - there's no second guessing yourself with these, and most of my money is tied up in tracking indexes, but as Wayward Lad says, there's a thrill to picking an individual stock that goes on to do well, (have I mentioned Tesla?), and there's a thrill to making money on sports that far exceeds that of a gain from the stock market which, in real terms, dwarfs the sports bet winner but is rather boring.

It's a bit like being married. Chasing individual stocks is the bachelor in us looking for a little excitement outside the routine and security of marriage / index funds. My best single day in total was one where I "made" just over six figures, and while that might sound impressive, it's simply the result of old age and compounding and a rebounding stock market. (If you invest just 
£200 a month from when you turn 21, and increase that amount by 5% a year, you'll almost certainly be worth a million by the time you turn 60). 

The point is though that I enjoy sports betting wins, even if they are much smaller in sum, far more than I should and similarly I get more upset about losing £500 on a sports bet than I do dropping ten times that amount in stock market losses. Perhaps part of the reason is that those stock "losses" aren't actually losses, nor "wins" gains until the underlying security is sold but it's also a factor that I feel a personal satisfaction in identifying a value bet in sports.

The table on the left shows the number of all-time highs hit for the S&P 500 since 2005, courtesy of 

Making money in a bull market isn't very satisfying, and it's easy to get carried away and we've been running with the bulls for a few years now. In Wayward Lad's most recent post, he writes:
The SIPP is looking tremendous. The value is at a record high and I think there's a long way to go this year. My target for the year-end is £300,000 and at one stage this year (early March) I was getting a bit worried that I was likely to fall well short of that target - but my, what a rally in recent weeks!

Since my "birthday blog" on 8th November 2020 (long-term plan is to "retire" on the day before my 67th birthday in 2026) the SIPP has gained £29,500 of which £6,000 is contributions; so that's £23,500 gain, equivalent to just under 10% - if this keeps up the £300,000 for 31st December could be hit a bit earlier.

While a rising tide lifts all boats, I'd caution that there's a hurricane somewhere in the future. Batten down the hatches. These "if this keeps up" thoughts can be dangerous. 

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