Collecting Your Personal Health Data – Should You Object?

There seems to be quite a furore developing over the plans by the NHS to make your personal medical data available for research to a wide range of organisations, including commercial companies. It is no doubt true that the NHS has an enormous amount of medical data on the UK population which is unrivalled anywhere else in the world except possibly in China.

That data which might be as simple as weight and blood pressure, through to blood tests and even DNA samples, could be exceedingly useful by using “big data” analysis techniques to identify possible causes of disease. It would of course include past diagnoses and treatments including medication.

But there have been a number of protests raised about the risk of loss of confidentiality and the fact that it might not be completely depersonalised (i.e. the data released might enable people to be identified). Even some of my neighbours on the App Nextdoor have been advising people to opt-out.

This is a complex area and I remember discussing it with my GP some years ago when it was first contemplated. He had concerns but I do not while I think such data could be enormously useful in diagnosis and the development of new treatments. The Investors Chronicle ran an informative article on the subject last week and covered some of the companies active in this area.

For example it mentioned Alphabet (parent of Google) partnering with hospital chain HCA Healthcare to develop algorithms using patient records. As I have recently been treated in an HCA facility (they own London Bridge Hospital) that might include me. The article pointed out that even your Apple Smartwatch will be recording some medical data such as heart rate exercise data.

A number of companies are developing partnerships with hospital groups to collect and analyse the data they have on patients. For example, AIM listed Sensyne Health (SENS) is doing so. They recently announced an agreement with the Colorado Center for Personalized Medicine which will extend their database by 7.3 million patients to over 18 million. They obviously plan to “monetise” that data by supplying it to other companies for research purposes. I do hold a few shares in Sensyne.

What are the concerns? Insurance companies would certainly like to know who might be bad risks by looking at patient data. They are unlikely to be able to do that, particularly as any data released will be depersonalised. But will it be impossible to identify people as some might enable linkages to be made? Perhaps not totally impossible but the risks seem low to me and personally I could not care less who knows my medical history. Others might disagree on that point but the benefits of having a good database of medical data to help with research, much of which is done by commercial companies, is surely invaluable.

There are opt-out provisions for those who have any concerns.

See https://digital.nhs.uk/data-and-information/data-collections-and-data-sets/data-collections/general-practice-data-for-planning-and-research for more information.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Scottish Investment Trust Reviewing Management Arrangements

I wrote about the Scottish Investment Trust (SCIN) back in February and commented negatively on its underperformance in recent years. Their investment style has been based on a contrarian approach, i.e. picking cheap stocks that look undervalued but which might recover. The article included this comment: “It would appear that they adopted the new investment style five years ago which might be identified as when under-performance took off. If an investment strategy does not work, how long should you persist with it? Not many years in my experience. It’s too easy to hold the dogs longer than you should”.

Since I wrote the article the company has been running advertisements on an “ugly duckling” theme suggesting that the undervalued investments it holds will turn into beautiful swans given some patience. I found these advertisements quite amusing.

But it seems the directors have finally lost patience because they have announced a “Review of Investment Management Arrangements”. They are inviting proposals from fund management groups who might take over managing the fund.

The board is to be congratulated on finally taking action. Better late than never.

Note: The company should not be confused with the Scottish Mortgage Investment Trust which is an unrelated company.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Capital Gains Tax Review – Is It Simplification?

The Office of Tax Simplification (OTS) have published a second report on Capital Gains Tax covering practical, administrative and technical issues. They give a number of recommendations to the Government and I cover those that may affect individual investors below (at least the few who actually pay capital gains tax) and add a few comments:

  • HMRC should integrate the different ways of reporting and paying Capital Gains Tax into the Single Customer Account, making it a central hub for reporting and storing Capital Gains Tax data (recommendation 1).
  • The government should consider whether Capital Gains Tax should be paid at the time the cash is received in situations where proceeds are deferred, such as on the sale of a business or land, while preserving eligibility to existing reliefs (recommendation 8). This is a sensible change.
  • The government should consider whether individuals holding the same share or unit in more than one portfolio should be treated as holding them in separate pools (recommendation 4). They say “This will relieve the relatively small number of individuals with more than one investment manager from having to perform calculations based on the interpretation of a complex range of financial statements and help to facilitate better use of third-party data”. But it could mean that losses in one portfolio could not be used to offset profits in another. This writer would not be in favour of such a change (I have multiple portfolios with different brokers for good reasons). Any such change should be made optional, although it might not make a lot of difference for most people in practice. However, with other recommendations included it might enable tax to be collected much sooner than at present. Is there a hidden agenda here? One can envisage that Pay as You Earn might become Pay as You Trade.
  • There are currently several different ways UK resident individuals report Capital Gains Tax transactions to HMRC. In some cases, this involves disposals being reported more than once. The most common way to report a disposal is through Self Assessment. The next most common way to report a gain is via the UK Property tax return. A very small minority of people choose to report gains early through the ‘real time’ Capital Gains Tax service. The proposed change is that the government should formalise the administrative arrangements for the ‘real time’ Capital Gains Tax service, effectively making it into a standalone Capital Gains Tax return that is usable by agents (recommendation 2).
  • The government should review the rules for enterprise investment schemes, with a view to ensuring that procedural or administrative issues do not prevent their practical operation (recommendation 10).
  • The government should consider whether gains or losses on foreign assets should be calculated in the relevant foreign currency and then converted into sterling (recommendation 11).
  • HMRC should improve their guidance in the following specific areas (recommendation 14) – A persistent theme running through many of the responses the OTS has received to the Call for Evidence is that many people have limited awareness or understanding of Capital Gains Tax, of when it may arise, or of their reporting and paying obligations where it does.

The report is 121 pages long, but simplification is complex is it not? There are some proposed changes that are certainly advantageous (such as the extension of time for divorcing couples to transfer assets), and no doubt there are others that are rational, but this is not a wholesale simplification of the system of Capital Gains Tax that is preferably required. It’s just tinkering with the complexity to removal a few anomalies.

The OTS report is available from here: https://www.gov.uk/government/publications/ots-capital-gains-tax-review-simplifying-practical-technical-and-administrative-issues . If you think you might be affected by these proposals it’s best to read the whole report.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Scottish Mortgage Trust Report and Shell Climate Change Votes

The Scottish Mortgage Investment Trust (SMT) recently published their Annual Report and it’s well worth reading bearing in mind the exceptional performance they achieved last year. NAV total return was up 111% and that was way ahead of the global sector average. It was the best ever performance of the trust since it was founded in 1909 and it’s now one of the largest investment trusts.

How did they achieve such a remarkable result? You might think it was because of a strong focus on technology stocks – but that is only 23% of their portfolio. Perhaps you think it was because they made big bets on a few well-known names such as Tencent, Illumina, Amazon and Tesla? But that is not the case.

It is true that Amazon represented 9.3% of the portfolio at the start of the year and Tesla 8.6% but the 30 largest holdings only represented 80% of the portfolio. In other words, it was in essence a large and diversified portfolio. But a few stocks made a large contribution to overall performance with Tesla contributing 36% despite the trust selling 80% of their holding during the year so as to maintain diversification.

In his closing words, fund manager James Anderson suggests that he should have been more adventurous. He says “we have to be willing to embrace unreasonable propositions and unreasonable people in order to make extraordinary findings….”. He discounts the value of near-term price/earnings ratios – understanding how the world is changing seems to be his main focus.

Another share that many private investors hold is oil company Shell (RDSB) who recently held their Annual General Meeting. If you don’t hold it directly you might hold it indirectly as it’s usually a big holding in global generalist funds and trusts.

There were two resolutions on the agenda related to climate change one by the company asking for support for their “Energy transition strategy” and one requisition from campaign group Follow This. The latter demanded more specific targets to achieve reduction in long-term greenhouse gas emissions. The company’s resolution received 89% votes FOR, but the latter achieved 30% FOR. Even so that was higher than previous votes, or similar resolutions at other oil companies with support from proxy advisory services and big institutions.

Even the company’s resolution, supported by a 36-page document and which was only “advisory” includes reference to Scope 3 emissions (i.e. those emitted by their customers using their products). They say “That means offering them the low-carbon products and services they need such as renewable electricity, biofuels, hydrogen, carbon capture and storage and nature-based offsets”.

Are these proposals likely to be effective or substantially contribute to climate change? I think not when China and other countries continue to build coal-fired power stations and many people question whether it’s possible to change the climate by restricting CO2 emissions. These resolutions look like virtue signalling by major investors and may be financially damaging to Shell. It is particularly unreasonable to expect Shell’s customers to swap to other energy sources – they may simply switch to other suppliers if they can’t buy them from Shell. As the Shell report says: “If we moved too far ahead of society, it is likely that we would be making products that our customers are unable or unwilling to buy”.

Shell says that “Eventually, low-carbon products will replace the higher carbon products that we sell today”, but their report is remarkably short on the financial impact. In fact their report reads more like a PR document than a business plan and it also makes clear that projecting 30 years ahead is downright impossible with any accuracy.

Note: I hold Scottish Mortgage but not Shell. I do not hold any oil companies partly because they are exploiting a limited resource making exploration and production costs more expensive as time passes and partly because I see a witch-hunt by the environmental lobbyists against such businesses. I also dislike companies dependent on the price of commodities and vulnerable to Government regulation which Shell certainly is on both counts.

One interesting question is who owns and runs the Follow This campaign and how is it financed? Their web site is remarkably opaque on those questions. Even if they have been remarkably effective in getting media coverage for their activities, I would want a lot more information on them before supporting the resolutions they advocate.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Great British Railways Plan – But Will It Be Great?

The Government has published the Williams Review of proposals for how Britain’s railways should be reformed. The existing franchise system for the train operating companies with a separate company managing the tracks which was introduced in the 1990s has proved to be a dismal failure.

Network Rail went bust and although the franchise services have been improved in some regards, the recent collapse in ridership due to the Covid epidemic has meant the Government had to step in to keep franchises afloat. The franchise system was also exceedingly complicated with horrendously complicated contracts to supposedly provide the right incentives to train operators. It did not stop arguments over who was to blame for delays to services. But the Government (i.e. you and me via taxation) ended up providing even bigger subsidies and in ways that were not that obvious.

Train delays are common. The report says that one third of trains were late in 2019/20 and this has barely improved in the past five years.

Now the Williams-Shapps Plan is now proposing a brave new world of Government control. Grant Shapps, the Transport Secretary, said: “Great British Railways marks a new era in the history of our railways. It will become a single familiar brand with a bold new vision for passengers – of punctual services, simpler tickets, and a modern and green railway that meets the needs of the nation.”

That sounds remarkably like the ambitions of the old British Rail does it not?

New flexible season tickets are promised that will help those who are now only commuting into offices a few days per week and simpler and less confusing tickets are foretold. Paper tickets will disappear and there will be a new app to enable easy booking. This will compete with companies such as Trainline (TRN) on the web whose share price has dropped by 25% since the announcement. There were lots of people shorting the stock even before the news broke, probably because the company has never made a profit and looks financially to be somewhat unstable. Trainline issued some soothing comments including: “The Company believes the proposals will provide Trainline with new opportunities to innovate for the benefit of customers and further grow its business” but it’s clearly a major threat.

The Williams report says that train operating franchises will be replaced by “Passenger Service Contacts”. It is not clear how that is different though. More fine words from the report are: “Under single national leadership, our railways will be more agile: able to react quicker, spot opportunities, make common-sense choices, and use the kind of operational flexibilities normal in most organisations, but difficult or impossible in the current contractual spider’s web”. One claim is that Great British Railways will make the railways more efficient, long the complaint of those who have looked at the finances of the system.

Comment: There is certainly a desire for change as the existing franchise system and separate rail track maintenance system was clearly inefficient. Rail passengers still do not pay for the real costs of running the trains and building/maintaining the tracks except on heavily used commuter lines in the London area. But the essential problem is that the cost of operating trains is high when passenger usage is concentrated into a few hours per day while the public expects a service 18 hours per day or longer. Another problem is that the cost of building and maintaining the tracks and signalling is enormously expensive in comparison with roads.

For example, according to articles in the Guardian (a keen supporter of railways), the cost per mile of building a motorway is £30 million per mile. Does that sound high? But the cost of a new railway such as HS2 is £307 million per mile!

Railways are old technology that intrinsically require expensive track and expensive signalling systems to maintain safety. If a train breaks down or signals fail the whole network is disrupted while this rarely causes a problem on roads. The breakdown of one vehicle on a road makes little impact and traffic actually flows through broken traffic lights quite easily while they are easier to repair.

There is a very amusing section in the report on the “blame culture” that operates at present, and how arguments thus generated are resolved. That’s very worth reading alone.

Changing a rail timetable normally takes 9 months apparently and there have been some big problems as a result in the past. For example in 2019 Northern Rail missed more than a quarter of million stops allegedly after a botched timetable change and generated thousands of customer complaints. You don’t hear of such problems with bus services which are intrinsically more flexible.

How will Great British Railways affect services in London, where commuter surface rail lines are operated by separate companies at present. This is what the Williams report says: “In London and the South East, a new strategic partnership will be established to support housing, economic growth and the environment across the highly interconnected transport network in that part of the country. This will bring together Great British Railways, TfL and local authorities and businesses to coordinate timetabling and investments and to provide a consistent passenger experience in areas such as accessibility, ticketing and communications”. Sounds wonderful does it not, but the devil is surely in the detail.

Ultimately the Government will still be in control of the railways under this plan, so it’s effectively a renationalisation under a different name. That may please some but no nationalised industry has ever been an economic success or pleased their customers. I foretell disappointment.

You can read the full Williams report, which is a panegyric to the future of rail travel in the country here: https://tinyurl.com/3rhcd8e5

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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EKF Diagnostics AGM, Verici DX, Eleco Issues and Boku AGM

I attended the Annual General Meeting of EKF Diagnostics (EKF) today via Zoom. This was one of the better organised electronic format AGMs I have attended. To quote from the company’s web site: “EKF Diagnostics is a global medical manufacturer of point-of-care and central lab devices and chemistry reagents including hemoglobin tests, HbA1c tests, glucose and lactate tests. EKF also manufactures and distributes products associated with COVID-19 pandemic”.  The latter has enabled the company to generate very high revenue growth recently and the AGM statement said this also: “Strong trading continues into the second quarter 2021 and the Board is now confident that trading for the full year will be comfortably ahead of already upgraded management expectations”.

There were a few questions posed by the approximately 50 attendees to the AGM and as they gave the proxy vote figures I asked why they got 11% of votes against the approval of the accounts. Such a level of opposition is unusually high. The answer given was that this was because of a recommendation from a major proxy advisor with the added comment “It’s just stupidity”. This is not a very helpful kind of answer. Why exactly was there a recommendation to vote against? And why was it stupid?

Note that EKF holds interests in companies RenalytixAI (RENX) and Verici DX (VRCI) who are focused on renal disease, the latter on diagnosis of kidney transplant rejection. Both companies listed on AIM last year and have zero or minimal revenue. I recently read the prospectus (admission document) for VRCI. As a transplant patient myself, I have a strong interest in this subject but the company seems to be some way from developing a saleable product or service, i.e. fund raising seems to be for financing research. I won’t be investing in either company until the prospects are clearer. It is very clear that it is possible to list new companies on AIM at present that are not just early-stage ones but pure speculations, but that has probably always been the case. These companies might meet a strong demand for new diagnostic and treatment options for renal patients if they are successful but success is far from assured and large amounts of capital have been raised and expenditure incurred with no certainty of profitable revenue resulting. At least that’s my opinion but anyone who thinks otherwise is welcome to try and convince me.  

Another unhelpful response to a question I received today was from Eleco (ELCO). I have been a shareholder for some time in this construction software company. The company announced on the 26th of April that it had received a requisition notice that covered resolutions to reappoint two directors, that all directors stand for re-election at future AGMs and that the remuneration committee report be approved.

It was certainly unusual that such resolutions were not on the AGM agenda on the 6th of May and the above requisition was ignored (probably too late anyway). It is of course standard practice now for all directors of listed companies to stand for re-election, and a remuneration resolution is also normal at most AIM companies even if not legally required. The AGM was held in a format that discouraged questions also so I did not attend.

On the 14th May the company announced that the requisition notice had been rejected as it did not comply with the Companies Act and the company’s Articles, but gave no further information.

So I sent a question addressed to the Chairman, asking what was the reason for the requisition and exactly why was it rejected. The answer I received from advisor SECNewgate (not from the Chairman) was: “Thank you for your email regarding Eleco. It has been discussed with the Company’s NOMAD and lawyers and we do not believe we need to add any further detail other than that the requisition notice does not comply with the requirements of the Companies Act 2006 and is also contrary to the provisions of the Company’s Articles of Association”.

Hardly a helpful response. Why should the company avoid answering such simple questions? Will they continue to evade answering, which legally could be difficult at the next AGM? If they have one or more disgruntled shareholders who chose to submit the requisition why should not other shareholders know about their concerns? This is just bad corporate governance.

I also attended the Boku (BOKU) Annual General Meeting today. This was another Zoom event with about 10 attendees. The CEO gave a short presentation and the Chairman covered the issue that proxy advisor ISS had recommended voting against the remuneration resolution (there were some votes against). The ISS complaint was apparently that the LTIP was not solely performance based. The Chairman said they needed to match the more normal US remuneration structure, i.e. options based on length of service.

Several questions were posed by attendees after the end of the formal meeting and the CEO gave his usual fluent responses. I questioned the new focus on e-wallets. Surely there were lots of companies offering such wallets? How were they to compete? The answer apparently is by focusing.

Both of the on-line AGMs I attended today were useful events if rather brief and not nearly as good as a physical meeting. It’s also difficult to put in follow-up questions after initial responses. Let us hope we can revert to physical or hybrid meetings soon (hybrid ones will at least make it easier for those with travel difficulties to attend so I hope the electronic attendance option is retained).

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Voting Against Directors at Greggs and MAV4

Greggs (GRG) held their Annual General Meeting today. This was a “closed” meeting but with no electronic access provided. Bearing in mind the size of the company, it seems unreasonable that they could not have provided shareholder access.

But I note that the votes reported show that several directors received substantial votes against. For example Ian Durant at 4.8% and Sandra Turner at 7.7%. I wonder why? There were also substantial numbers of votes withheld but no explanation has been given.

One advantage of a physical meeting is that if you see a lot of proxy votes being cast against resolutions you can ask why before the directors close the meeting and depart. Even electronic meetings do not give you that opportunity.

Another company where the directors received substantial votes against recently was Maven Income and Growth VCT 4 (MAV4). But I think I know why in this case. I complained in a previous blog post about the length of service of the directors and suggested shareholders vote against their re-election. At their AGM there were a large number of votes “withheld” on the reappointment of the directors – over 800,000 for all 4 which is usually a sign of disapproval. Perhaps my comments had some impact on shareholders’ votes. They also recorded over 1 million votes against reappointment of the auditors, against disapplication of pre-emption rights and against share purchases, even though voting against share buybacks is usually not a good idea in VCTs. That’s because if the company does not buy-back shares then nobody else may do, with the result there is no share trading in the company’s shares and the discount to NAV widens to a very high figure.

Clearly some shareholders in MAV4 are unhappy. Again there has been no published explanation by the company or commitment to do anything about it.

However you look at it, this is not good corporate governance and the Chairmen of these companies should comment I suggest.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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A Correction or the Start of a Bear Market?

This week saw sharp declines in stock markets. My portfolios headed downhill consistently this week. It’s not just technology stocks that have declined but big miners also despite the fact that there have been several press articles suggesting that commodities are in a “super-cycle” and that the price of products such as copper will rise due to the inadequate supply to meet the needs of electrification required for a low carbon world. At the same time there are concerns about inflation rising with April’s consumer prices index in the USA surging by 0.8pc equivalent to an annual rate of over 4%. That may be a short-term blip but with Governments pumping cash into their economies to offset pandemic impacts, there are certainly worries that sooner or later interest rates will have to rise. If they do then the stock market may become less attractive than bonds despite an otherwise booming economy.

Is this a market “correction”, i.e. a short-term response to excessive exuberance, or the start of a bear market? Or perhaps it’s the normal “sell in May” syndrome as markets enter a quieter period during the summer as has historically been the case?

I doubt we are entering a bear market. Bear markets arise from a combination of economic circumstances and where stock market investors suffer from a deep depression about the future and head for safer havens. But there are certainly sectors of the stock market that appear to be in bubble territory and need calming down.

How this will play out is ultimately unknowable though. Predicting overall stock market trends is rather like predicting overall economic trends. Something that only fools will try to do. One can only follow the trends to see if there is a bear market developing or not. Reacting to short-term trends by selling stocks because the major indices have fallen is not likely to be a wise policy in my experience. But selling individual stocks, or a proportion of your holding, when they appear to be overpriced or in bubble territory is something worth considering.

However, moving in or out of stocks based on the vagaries of the stock market is surely the wrong approach. The prices of individual stocks are driven as much by emotion as fundamentals. Hot stocks and hot sectors can rise disproportionately because sometimes there are only buyers and no sellers as enthusiasm for their future prospects overcomes any doubts about the future risks.

The answer is surely to invest in stocks that are fundamentally sound and show all the qualities of good long-term investments, i.e. forget the short-term and look at the long-term prospects. So I won’t be selling in May because that does not match my investing style. And I will need convincing to sell at all unless I am clear that overall sentiment to a company or to the economy has changed.  

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Restoring Trust in Audit and Corporate Governance

As it’s Friday afternoon with not much happening, and I have completed my latest complaint about the time it’s taking to complete a SIPP platform transfer, I decided to have a look at the public consultation on “Restoring Trust in Audit and Corporate Governance” from the BEIS Department.

This is a quite horrendous consultation on the Government’s proposals to improve audit standards and director behaviour as foretold in the Kingman and Brydon reviews, with proposals for a new regulatory body (ARGA). That’s after a growing lack of confidence in the accounts of companies by investors after numerous failures of companies, and not just smaller ones. I call the consultation horrendous because it consists of over 100 questions, many of them technical in nature, which is why BEIS have given us until the 8th of July to respond presumably.

I won’t even attempt to cover all the questions and my views on them in this brief note. But I would encourage all those who invest in the stock market, or have an interest in improving standards in corporate reporting, to wade through the questions and respond to the on-line consultation (see link below). Otherwise I fear that only those with a professional interest as accountants or as directors of public companies will be responding. The result might be a biased view of what is needed to improve the quality of financial information provided to investors.

The general thrust of the proposals do make sense and it would be unfortunate if the proposals were watered down due to opposition from professional accounting bodies and company directors.

But there is one aspect worth commenting upon. Some parts of the proposals appear to believe that standards can be improved by imposing more bureaucracy on auditors and company directors. This might add substantial costs for companies in terms of higher audit fees and more management time consumed, with probably little practical benefit.

We need simple rules, but tougher enforcement.

The audit profession appears to be already seeking to water down some of the proposals according to a recent article in the FT which reported that accountants were seeking leniency on “high risk audits”. That’s where they take on auditing a company for the first time which may prove difficult, particularly where corporate governance is poor. This looks like yet another attempt by auditors to duck liability for not spotting problems which has been one of the key problems for many years.

BEIS Consultation: https://www.gov.uk/government/publications/restoring-trust-in-audit-and-corporate-governance

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Rampant Speculation, Cryptocurrencies, Buffett Meeting and Ridley Blog

With a long weekend for the May bank holiday, I took the opportunity to prepare the information required by my accountants to submit my and my wife’s tax returns (it’s many years since I completed my own Self Assessment tax returns – my financial affairs got too complicated).

After reading a good article in this weeks Investors Chronicle on Inheritance Tax (IHT), entitled “Eight things executors need to know”, I think I should have simplified my financial affairs long ago! My executors are going to have quite a job on their hands. But IHT is just ridiculously complicated. It looks like a “make work” scheme for accountants.

I have of course tried to simplify matters recently by consolidating two SIPPs on different platforms into one. The process was started on the12th January and is still not complete although most of the assets have now been transferred. As I have said before, the time and effort required to move platforms is disgraceful so I will be preparing a complaint to go to the Financial Ombudsman this week.

Having reviewed my income and expenditure figures for last year, it’s also a good time to review the state of the market. Should I “Sell in May and Go Away” as the old adage goes? Not that one can go far these days without a lot of inconvenience and expense.  

My portfolios contain a mix of individual shares and investment trusts, with a strong focus on technology stocks and small cap stocks. I certainly have some concerns about small cap technology stocks which seem to be fully priced at present, even if their futures look rosy. There are a large number of new IPOs of late where the valuations seem very optimistic. Meanwhile there is rampant speculation being pursued by inexperienced investors, particularly in cryptocurrencies and NFTs.

This is what Warren Buffett’s partner Charlie Munger said at the recent Berkshire Hathaway Meeting: “Of course, I hate the Bitcoin success and I don’t welcome a currency that’s useful to kidnappers and extortionists, and so forth…Nor do I like just shuffling out billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. So, I think I should say modestly that I think the whole damn development is disgusting and contrary to the interests of civilization. And I’ll leave the criticism to others”. That’s very much my opinion also.

Government debt has been ramped up to meet the Covid epidemic and interest rates are at historic lows. The concern of many is that inflation will increase as a result requiring Governments to clamp down on the economy to stop it overheating. This was a useful comment recently from the editor of Small Company Sharewatch: “The solution to the problem of lower interest rates is self-evidently higher interest rates. But the US Federal Reserve is having none of it. In the 1970s. inflation of around 15% was the problem. This was cured by higher interest rates, which got inflation down, and allowed interest rates to fall – for the next 40 years! The problem has now flipped. Low interest rates are the problem. Debt is encouraged: complacency grows; savers take on more risk; and investor mania grows. These are all likely to persist until the Fed acts”.

The economy is certainly buoyant. I learned today from attending a webinar of Up Global Sourcing (UPGS) that even pallets are in short supply. Commodities are also increasing in price as a result. I have not lost faith in technology stocks but perhaps it is best to look for new investments in other sectors of the economy – and certainly UPGS is a very different business which I now hold.

For another topical quote, here’s one from Matt Ridley in an article in the Telegraph (he always has something intelligent to say):

“The whole aim of practical politics, said HL Mencken, ‘is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.’

It is hard to avoid the impression that officials are alarmed rather than pleased by the fading of the pandemic in Britain. They had a real hobgoblin to hand, and boy did they make the most of it, but it’s now turning into a pussy cat. So they are back to casting around for imaginary ones to justify their draconian – and deliciously popular – command and control over every detail of our lives. Look, variants!

And yes, the pandemic is fading fast. The vaccine is working ‘better than we could possibly have imagined’, according to Calum Semple, of the University of Liverpool, based on a study which found that it reduced hospitalisation by 98 per cent……”.

If the pandemic and the associated fear of the population is over, no doubt the Government will ramp up the concern about global warming despite the fact that we had the coldest April for almost 100 years. Government actions in this area are already having a significant effect on some sections of the economy and I have been putting a toe into that pool. No I am not buying electric car stocks but the power generation area is certainly of interest. How to avoid the speculations and just buy good businesses that are not totally reliant on Government funding is surely the key.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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