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Saturday, 4 September 2021

Doubters, Doomsters, Gloomsters

In 2019, in his first speech as Prime Minister, Boris Johnson said:

“The doubters, the doomsters, the gloomsters, they are going to get it wrong again. The people who bet against Britain are going to lose their shirts.”

What a masterful statement! The first six words are rather good, but I am especially impressed by the subtle insertion of the word “again”. 

In the late nineteen-eighties, I moved from the public to the private sector. The salary seemed generous but the pension provision not so good. As I could no longer add to my so-called “gold plated” public sector scheme, I needed to make my own provision. I joined a private pension scheme and started to take an interest in stock markets.

In those days the global share indices were not dissimilar. In Britain the FTSE100 was at 2144, in America the Dow Jones Industrial was at 2679, and in Germany the DAX30 was 1366.

As I write this, the FTSE is 7138, the Dow 35,369 and the DAX 15,781.

In other words, since 1990, the value of the FTSE is now 3.3 times what it was in 1990, while the Dow has multiplied 13.2 times and the DAX 11.5 times.

So £5,000 invested in 1990 would now be worth about £16,500 in the FTSE, £65,000 in the Dow and £55,000 in the DAX.

In fact, the Dow Jones and DAX have done as well over the last ten years as the FTSE100 over the last thirty.

Here it is as a graph showing how they multiplied over the years: 

This doesn’t tell the whole story. In 1990 the pound was worth 1.7 dollars. Today it is around 1.4, so the £65,000 would be worth more like £79,000 taking into account the exchange rate. Similar factors apply to the German stock market. When the Euro was introduced in 1999 it was worth £1.40 compared with £1.17 today.

You can argue about this until the cows come home – for example that it doesn’t take into account rip-off fund management fees, that the constituent companies in the indices have changed, that FTSE companies pay higher dividends and that the Dow Jones contains more technology stocks and fewer traditional industries – but the numbers must surely be indicative of the economic wealth, health and confidence of the three countries.

So much for “get it wrong again.” Does it look as if those who waged bets against Britain lost their shirts?

Should we now be switching funds to Britain in readiness for the great catch up? I don’t think so.  

Fortunately, I put a good chunk of pension into international funds. And as I later re-joined the public sector, I’ve had the best, and worst, of both worlds.

26 comments:

  1. The graph is interesting. Elect a megalomaniac in the US, the Dow Jones does well. Elect a megalomaniac in the US, Germany found an advantage. I can't imagine why the Footsie has performed so poorly.

    An anecdote you may appreciate, as a government worker in the 1990s we offered thirty pieces of silver, like about AU$3,000 to transfer from the government superannuation scheme to a private scheme. If the conservative government is offering such largess, there must be a catch, and of course there was. Workmates lost money big time when economies crashed. I stuck with the old scheme with its promised payout which joyfully enabled me to retire at 61 years old after 40+ years at a crap shift work job. It is not the case for those who transferred to private super schemes, in spite of the $3000 bonus payment. I am not financially skilled but I am so pleased I had the courage of my convictions.

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    1. Some fell for the same trick in the UK. I think they received compensation, but it hardly touched what they'd lost. Changing to private was always a poor bet because you lost the index linking. I wish I had a full public sector pension rather than a fraction.

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  2. This is a hugely over simplification if one is reading this to make a judgement on investing in the stock market.

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    1. I'm just observing comparative performance and thinking that it does not reflect well on Britain. It is indeed a complex area. I hope no one sees it as advice and should mention the standard phrase about past performance not being an indicator of the future.

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    2. The important issue to look at is the sector composition of the different indexes. This accounts for many of the differences in performance. The weightings of the different indexes is vastly different, notably for instance the FTSE 100 has only a measly something like 1% in technology stocks whereas the S&P is a whopping 25%. I could go on. Investors go for easy pickings and are lazy.

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    3. Which means Britain can't compete in terms of technology companies.

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    4. No. The tech giants are in the US but Britain has a lot of smaller tech companies that are not in the FTSE 100.

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    5. The FTSE250 has gone up by 10 times since 1990 and the FTSE techmark 100 5.6 times since 2003 (the earliest data I've found) so yes, the indices are influenced by what's in them. Behind my point, though, is that most people will choose something like balanced UK, European or American funds based on the main market indices for those countries, rather than focus upon technology or any other sector, and will do it through funds because it's difficult to hold overseas stocks directly. It's easier with UK stocks, of course, I've done that, but it's arduous to have to keep on top of one's holdings all the time. And surely the performance of a country's largest shares indicates confidence in that country.

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    6. I do see where you are coming from and I only made my comment because you were comparing the indexes and I disagreed with that because it is not so simple as just numbers. My point is still that the FTSE is a victim of its own composition. Yes, Brexit will have made international investors avoid the UK market, no investors like uncertainty. The wider picture at the moment is that China is the most likely to cause world stock market turmoil with $5trillion of debt in its property sector which accounts for one quarter of its economy. China is a place to avoid. Coming out of Covid is going to be difficult all around the globe and a potential mess.

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    7. One other point you've made me recall is that, in the eighties, investing was not as deregulated as now. The pension scheme I joined was considered innovative in that it allowed you to choose where you invested, out of around 10 sub-funds. I think I mixed 4. I guess the US fund was mostly in Dow companies. It was only later one could transfer to SIPPs with the flexibility that gives.

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    8. ... and the investments in those funds would be changed over time to keep them in line with the constituents of the indices.

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    9. What I have really been trying to say is that it is all about stock picking, it is not about indexes. The FTSE index will not tell you anything about the state of the British economy. Stockbrokers do not take one bit of notice of the index figures. They stock pick.

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  3. I don't know enough about stocks to comment on this in detail, but I was going to say something like Rachel (who said it much better) -- that the composition of the indexes makes a big difference. The tech boom in the USA has transformed the stock market there -- not just the Dow but the NYSE and NASDAQ as a whole.

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    1. I think that gives reasons but I don't think it negates the main point that one would have done better investing in the biggest companies the US or Germany than the biggest companies in Britain.

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  4. Well, what remains of my savings are tucked safely away under my mattress.

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  5. Some of you have commented on the composition of the indexes. Just last night, on our main news on TV there was a feature about how the DAX composition has been changed to allow for "younger" companies and less heavy industry, in order to have the DAX representing a more realistic picture of the country's economy.

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    1. The FTSE changes all the time. It's incredible to look at what has disappeared from it over the years as some company values have declined and others overtaken them.

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  6. F sort of studied this stuff in her B.Com way back in the 80's and scared herself enough to make her pension fund by growing a forest instead. The idea that its all about clever algorithms really made her realize that the average small time investor of savings is just taking the same sort of punt as someone betting on a racehorse.

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    1. Even professionals mess it up, e.g. Neil Woodford. I guess it's more important not to lose a load of money than it is to make a load of money.

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    2. The freezing of Woodfords investment funds was madness. Shareholders will lose out because of this.

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  7. Hummmm I wish I understood things like this more

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  8. I loved your post, Tasker. Since about seven years I do a bit in the stock-market, with good luck (and always keeping in mind that "profit" is, when you have sold it - not the always changing numbers on the chart). In Germany we had the change from DM (Deutsche Mark) to Euro - and I find your description of "worth" interesting. Interesting is too, that we suddenly had almost only half of the sum of money before - but sadly prices did not change to "half" - and that is a fact, not an impression.

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    1. Thank you. I suppose that even in tracker funds you would be lucky to have equalled any of these indices. And yes, you can't spend it until you sell it. People here would say every time there has been a change - decimalisation, joining the EC, Brexit - money somehow seems to be worth less. But with pensions, I sometimes think it was better when the government looked after it all for us and the financial sharks weren't getting such big cuts.

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    2. I agree. In Germany it is still the government looking after it, thus I get my pension from them. To counteract the inflation (and for the fun of it) I just dally a bit on the stock market, thus I have have learned a lot, (my first insight was forgoing the advice&sales of my bank and inform & think on my own :-)
      I also found out where my personal limit of enjoying the risk is: when four years ago I woke up at night and thought about some shares, I decided to shrink the portfolio a bit. Although, sometimes, as everybody, I regret to have bought "only" a few shares from a special company and then seeing it sky-rocketing (had I be daring I would have been rich now - but:
      I am content to keep my equilibrium and to be able to astonish a lot of my friends by the ability to discuss the stock market (though Rachel is much better informed)

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