New Year Share Tips – Are They Worth Following?

It’s that time of year when financial magazines and newsletters analyse their past share tip performance and give their New Year tips. Are the tips worth picking up or even reviewing?

One approach you might think would be effective would be to simply back those publications who had the best historic performance. One review I picked up on Twitter (I am not sure of the original source) gives the Investors Chronicle (IC) as the winner in 2019 with a 37% return with The Independent bottom of the table. However, the performance varies from year to year – for example the IC had a negative year in both 2017 and 2018, while the Guardian had negative returns in all three of the previous years. Perhaps not many investors read the Guardian but that may be to the good.

One problem of course is that the tip writers may vary even within a publication from year to year and few put their names to the articles. In essence backing the share tips based on the “form” of the publications or the writers is not going to work. Even if the writers stay the same, and their “styles” of investment such as a focus on growth or value, what works one year might not work in another.

Another failing is that some writers rely on advice from well known fund managers who tend to “talk their own book”. So the Questor column in the Daily Telegraph, written by Richard Evans, tipped Bioventix (BVXP) as “AIM stock of the year” on Friday (10/1/2020). That was after talking to Keith Ashworth-Lord of Sanford DeLand Asset Management who has a big holding in the company. The share price rose 9% on the day this tip was published which as a holder of the stock I am quite pleased with, but I would not previously have rated it as other than a “hold” personally.

Many share tips in the national media and reputable investment newsletters will rise in price on the day the tip is issued – indeed even before you have got up for breakfast. Investors then pile in further over the next few days and if you follow that herd you are going to lose money. After a few weeks, when the company’s performance does not instantly shoot up or there is little news, the speculators lose interest and the share price falls back again.

It’s worth pointing out that it does of course depend on whether you are a long-term investor or a short-term speculator. Such share price movements may be great for speculators , most of whom I suspect lose money, but for long-term holders like me share tips can be positively dangerous. My approach is therefore as follows:

I use share tips as ideas for research. Only one in ten is worth more analysis and if I consider it worthy after that I would buy a few shares and see how the company and its share price develops. Most companies fail on the “due diligence” phase. I am not a “plunger” who bets a lot on any new holding. I am looking to find companies that I can hold for the long term and in which I wish to take an opening position. Apart from anything else, moving a lot of cash out of existing holdings to invest in new ones is often a mistake, I have learned from past experience. It’s the syndrome of looking for the pot of gold at the end of the rainbow, i.e. picking new investments you don’t know much about but which someone else thinks are a great proposition, and abandoning ones that you do know.

What are the kinds of tips that I avoid?

Firstly I hate the “recovery story” kind. These are where a company with a pretty dismal historic performance has improved analyst forecasts (which is what most tipsters focus on). For example, Investors Chronicle has Burberry (BRBY) as one of their 2020 tips. The supporting article has lots of positive comments about the changes taking place in the company and its “transformation”, but a quick look at the financials gives me doubts. Revenue in the last 3 years, which is a key metric for any retailer, was static or falling and the forecasts for the next two years are only slightly higher. Earnings per share follow a similar pattern. Even under new management, is this a growth business or a just another rather mature company in a crowded sector (revenue about £3bn) flogging expensive clothes to suckers? Is there any real innovation or growth above inflation taking place is the key question?

Another example of a recovery story is Momentum Investor tipping Marks & Spencer (MKS) based on their move into on-line groceries via the joint venture with Ocado. But the wisdom of this tip was soon disproved after the company issued a trading statement on the 9th of January with dismal figures for clothing sales. The share price is down 12% since then. Too many “skinny” fit men’s trousers was one problem as the company tried to be more fashionable so that’s just another management failure partly arising from the sclerotic supply chain at the company. Tipping shares can be a quick lesson in humility of course which is one reason why this writer does not do it. Let those who get paid for their alleged wisdom continue to do so though so we can have the occasional laugh at their folly.

Window supplier Safestyle (SFE) was tipped as a recovery story by ShareWatch but is likely to still make a small loss in 2019. Are profits really going to come back in 2020 and will investors regain confidence in the business and its management? I do not know the answer to those questions so I am unlikely to invest in it.

Secondly, I ignore sudden enthusiasm for boring companies. Another of IC’s tips was Johnson Service (JSG) which provides textile rental and cleaning services – hardly a new business and one that I doubt has barriers to entry. The company is growing, but on a forward p/e of 19 and relatively high debt, I cannot get enthusiastic.

Apart from drain-pipe trousers, something else I used to favour in the 1960s that is back in fashion is ten pin bowling. Two companies that were tipped by Momentum Investor and mentioned in Investors Chronicle – Ten Entertainment (TEG) and Hollywood Bowl (BOWL) may be worth looking at. TEG (which I hold) was also tipped by ShareWatch. These companies are changing from not just being bowling alleys but indoor family entertainment centres with other games available and good food/drink offerings. Some also stay open long after the pubs have shut. You can see why they are experiencing a revival in demand with more centres opening. The key with share tips is to follow the new trends, not the old ones.

Thirdly I ignore tips that back racy stocks already on high valuations. For example Shares Magazine tipped Hotel Chocolat (HOTC). This is a chocolate retailer that seems to have a good marketing operation and decent revenue and profits growth but on a prospective p/e of 45 it seems too expensive to me. The slightest hiccup would likely cause a sharp drop in the share price so there looks to be as much downside risk as upside possibility to me.

Lastly, I ignore tips in sectors I don’t like or businesses I do not understand – the former includes oil/gas and mine exploration, airlines and banks. Shares magazine tipped Wizz Air (WIZZ) and Lloyds Banking (LLOY) for example but they are not for me. Businesses I do not understand might include some high tech companies with good stories of future potential but no current profits.

To reiterate, share tips are useful for providing ideas for research but blindly following them is not the way to achieve superior investment performance.

Preferably share tips should confirm your views on shares you already hold – such as Bioventix, Ten Entertainment and several others I hold which have been tipped in the last couple of weeks. That may be a reason to buy more, but not in any rush.

As regards other tips like the best countries, or the best sectors, or whether to invest at all based on economic forecasts or Brexit prognostications here’s a good quotation from John Redwood in the FT this week: “The safest thing to forecast at the beginning of the 2020s is more of the same”. An economist with real wisdom for a change.

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

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Speedy Hire and Burford Capital

There are a couple of interesting articles in this week’s Investors Chronicle. One of their share tips for 2020 is Speedy Hire (SDY) which I own some shares in after attending a presentation by the company at a ShareSoc meeting in October. I was somewhat impressed by the apparent turnaround in the business that the management has achieved. You can read a write-up of the presentation here: https://roliscon.blog/2019/10/04/speedy-hire-presentation-burford-analysis-and-treatt-trading-statement/

Another very good article in Investors Chronicle was on the subject of fair-value accounting. It should be essential reading for all Burford Capital (BUR) investors. It explains how Enron used mark-to-market accounting to value long-term contracts. Their reported profits surged as they recognised future profits but the cash did not appear so the management then went from creative accounting to downright fraud by the use of off-balance sheet vehicles.

In reality it was using “mark-to-estimate” accounting as there were no public markets for the assets that could provide a sound valuation. How is this relevant to Burford? That company is in the same position in that the majority of its profits come from fair value gains on the value of the legal cases it is pursuing. As in Enron, the cash flows are very different to the reported profits. In 2018 the reported operating profit was $344 million but the cash outflow was $198 million.

As I said in my blog article mentioned above, I have always been doubtful about the merits of the company and one reason is the answer to the question “Do profits turn into cash?” The answer is “Not in the short term at Burford”. They are effectively recognising what they consider to be the likely chance of success in current profits. But winning legal claims is always in essence uncertain. I have been involved in several big cases and your lawyer always tells you that you have a very good chance of winning as they wish to collect their fees, but even if you win collecting any award can be uncertain”. In essence the accounts of Burford rely to a large extent on management’s estimates of the chance of winning cases and hence the future profits.

Incidentally a few respondents to my mention of my portfolio performance last year in a previous blog post and tweet requested details of my portfolio holdings and investment strategy. My response was that I don’t like disclosing the details mainly because listing all my holdings and providing reasons for them would be tedious but clearly one reason for success is avoiding companies such as Burford where profits do not turn into cash. As regards my investment strategy this is well covered in my book Business Perspective Investing https://www.roliscon.com/business-perspective-investing.html.

As I point out in the book, attending presentations by management or attending Annual General Meetings can give you useful information and the ShareSoc events are very relevant to that objective so I recommend them.

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

Winning The Loser’s Game – It’s Like Tennis

Tennis Player

It’s that time of year when we review our investment performance over the last year and some of us realise that it would have been lot better if it was not for the few disasters in our share holdings. For example, this is what well known investor David Stredder tweeted before Xmas: “End of 2018 and most of this year has been pretty awful investing wise for me…ACSO, CRAW, BUR, SOM, OPM & JLH were all top 15 holdings and lost 50% or more. CRAW actually went bust. First signs of recovery in two of those and thankfully my top three holdings GAW, JDG & INL have all doubled and covered most my losses but shows investing cannot be fab returns every year. Often a roller coaster ride and must prepare yourself…Sell half on first bad news, slice profits, make friends, share bad and good times as happen to all of us. Enjoy the festive break”.

For those like me that cannot remember all the TIDMs of the several thousand listed companies, the failings were in Accesso, Crawshaw, Burford Capital, Somero, 1PM and John Lewis of Hungerford. The positives were Games Workshop, Judges Scientific and Inland Homes. As an aside I do wish investors would put the company name not just the TIDM (EPIC) code when referencing companies in tweets. A lot of the time I have no idea what they are talking about.

As in most years, I have also had failures. Patisserie was a wipe-out. It went bust after a massive fraud. Thankfully not one of my bigger holdings but I ignored two of the rules I gave in my book “Business Perspective Investing” – namely avoid Executive Chairmen, and directors who have too many roles. I lost money on a number of other newish holdings but not much because I did not hold on to the duds for long.

One of the keys to successful long-term investing is to simply minimise the number of failures while letting the rest of your investments prosper. It is important to realise that investment is a “loser’s game”. It is not the number of sound investments one makes that is important, but the number of mistakes that one avoids that affects the overall performance of your portfolio.

A good book on this subject which I first read some years ago is “Investment Policy – How to Win the Loser’s Game by Charles D. Ellis”. It covers investment strategy in essence but it also contains some simple lessons that are worth learning. He points out that investing is a loser’s game so far as even professional investors are concerned, let alone private investors. Most active fund managers underperform their benchmarks. A lot of the activity of investors in churning their portfolios actually reduces their performance. The more they change horses with the objective of picking a winning steed, the worse their performance gets as their new bets tend to be riskier than the previous holdings, i.e. newer holdings are just more speculative, not intrinsically better. That is why value investing as followed by many experienced investors can outperform.

But Charles Ellis supplied a very good analogy obtained from Dr. Simon Ramo who studied tennis players. He found that professional tennis players seemed to play a different game to amateurs. Professionals seldom make mistakes. Their games have long rallies until one player forces an error by placing a ball just out of reach. But amateurs tend to lose games by hitting the ball into the net or out of play, i.e. they make a lot of unforced errors. The amateur seldom beats his opponent, but more often beats himself. Professional tennis is a winner’s game while amateur tennis is a loser’s game.

In a recent review of my book by Roy Colbran in the UKSA newsletter he says “the book takes a somewhat unusual line in telling you more about things to avoid than things to look for”. Perhaps that is because I have learned from experience that avoiding failures is more important to achieve good overall returns. That means not just avoiding investing in duds to begin with, but cutting losses quickly when the share price goes the wrong way, and getting out at the first significant profit warning.

However, the contrary to many negative qualities in companies are positive qualities. If they are unexceptional in many regards, they can continue to churn out profits without a hiccup if the basic financial structure and business model are good ones. Compounding of returns does the rest. If they avoid risky new business ventures, unwise acquisitions or foreign adventures, that can be to the good.

The companies most to avoid are those where there might be massive returns but where the risks are high. Such companies as oil/gas exploration businesses or mine developers are often of that nature. Or new technology companies with good “stories” about the golden future.

There were a couple of good articles on this year’s investment failures in the Lex column of the FT on Christmas Eve. This is what Lex said about Aston Martin (AML): “Decrying ambitious ventures is relatively safe. Many flop. We gave Aston Martin the benefit of the doubt, instead”. But Lex concedes that the mistake was to be insufficiently cynical.

Lex also commented on Sirius Minerals (SXX) a favourite of many private investors but where Lex says equity holders are likely to be wiped out. Well at least I avoided those two and also avoided investing in any of the Woodford vehicles last year.

To return to the loser’s game theme, many private investors might do better to invest in an index tracker which will give consistent if not brilliant returns than in speculative stocks. At least they will avoid big losses that way. Otherwise the key is to minimise the risks by research and by having a diverse portfolio with holdings sized to match the riskiness of the company. As a result I only lost 0.7% of my portfolio value on Patisserie which has been well offset by the positive movements on my other holdings last year. It of course does emphasise the fact that if you are going to dabble in AIM stocks then you need to hold more than just a few while trying to avoid “diworsification”.

Not churning your portfolio is another way to avoid playing the loser’s game. And as Warren Buffett said “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.” – in other words, he emphasised the importance of not losing rather than simply making wonderful investment decisions.

Those are enough good New Year resolutions for now.

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

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Year End Review and Xmas Greetings

Xmas card

As the final blog post before Xmas, I thought it would be useful to do a quick review of the past year. I have not yet done a detailed review of my investment portfolio performance over the year as I do that after the 31st December, but on a quick look at my net worth, I think it’s been a good year. With the bounce in the stock market after the Conservative General Election victory, most investors should be well ahead this year. The FTSE All-Share is up 13% at the time of writing, with the FTSE-250 up 25%. AIM stocks had a relatively poor year, rising only 8% but ones I hold generally jumped up at the end of the year as UK small cap stocks were suddenly seen to be relatively cheap.

The focus this year though was certainly on technology stocks – internet and software companies, both small and large which continues the recent trend. Will that continue for the coming year?  I never like to predict market or economic trends, but there was an interesting article by Megan Boxall in the Investors Chronicle this week. It pointed out how the tech sector has outperformed the US market in 2019. Is this another dot.com bubble? She suggests not as companies such as Alphabet, Amazon, Netflix, Adobe, Apple and Microsoft are all highly profitable.

But she does warn that regulators are getting twitchy about the dominance of these companies. For example Google (Alphabet) is now so dominant in web advertising that the competitors are nowhere. They have become the gorilla in the marketplace as companies are bound to want to advertise with search engines that have the most users. Could some of these companies be broken up by US regulators or attacked by the EU as is already happening? Microsoft was of course the subject of an antitrust law suit alleging a monopoly and anti-competitive practices back in 2000, but escaped from any severe penalties or break-up and the case also took years to resolve so I doubt that other tech companies are likely to be badly damaged by any such law suits. But the settlement and some mis-steps by Microsoft did enable newer companies to grow into the size they now are.

Two areas that I am positive about are fintech and biotech, although the latter seems to have had rather a flat year as valuations became too optimistic and concerns grew about drug pricing regulation. Fintech, i.e. the enabling of innovative payment and banking systems, still looks a field where a lot of growth is likely and where there are a myriad of new or early-stage companies bidding to conquer the world. There is though a great danger in following such trends and accepting the hype that is given out by promoters of such companies – a lot of them will prove unsuccessful or never develop a profitable business model, and many of the shares in the good companies are wildly over-priced.

Housebuilding companies and estate agents have jumped up on hopes that the Conservative victory will lead to a recovery in confidence by house buyers. Even ULS Technology (ULS), one of my worse investments during the year and focused on property conveyancing, has risen by 50% since the low at the start of December. Does this mark a revival in the housing market and another golden era for housebuilders? I doubt it. The Government is undoubtedly keen to ensure more houses are built but house prices and the ability of buyers to afford them are driven by many other factors. With interest rates remaining at record lows, if the economy does pick up then interest rates might also rise. Readers need to be reminded that such low real interest rates are an exceptional phenomenon in historical terms. This anomaly surely cannot continue much longer.

Bearing that in mind, I won’t be investing in bonds or gilts in the near future as interest rates can surely only go one way and when rates rise, their prices fall.

Will the Conservative election victory and associated euphoria lead to a resurgence in business confidence, in more investment and hence in the growth in the UK economy? Perhaps, but there is still the potentially tricky issue of negotiating a free trade agreement with the EU over the coming year. That will likely mean the short-term euphoria will fade, as do most Santa Claus market bounces, in the New Year. But as with all market and economic forecasts, I could be wrong. So I will continue just to buy and hold well managed companies in growth sectors. That tends to mean small to mid-cap companies rather than mega-cap companies, although I do hold some investment trusts and funds that cover the latter. The managers of such funds are often closer to the market trends and the views of other investors than any private investor can hope to be.

It just remains for me to wish you a happy Christmas and a prosperous New Year.

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

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NMC Health Attacked and Open-Ended Funds Holding Illiquid Assets

Yesterday Muddy Waters, the same organisation who recently attacked Burford Capital, published a highly negative report on NMC Health (NMC). The share price fell 33% on the day. Muddy Waters, and owner Carson Black, are effectively saying the accounts of NMC are fraudulent. A quick review of their report suggests the key issues are undisclosed related-party transactions, the purchase of assets at wildly inflated prices and the under-reporting of debt.

As with other similar “shorting attacks”, the dossier is long and complex enough to make any quick analysis of whether it is all true, or whether some of it is true, or whether the whole thing is a fiction, impossible to resolve. NMC published a fairly brief statement this morning saying the company had already responded in the past 12 months to many of the allegations but they suggest the claims are “unfounded, baseless and misleading, containing many errors of fact, and will respond in detail in due course”.

NMC run hospitals and other healthcare services in the United Arab Emirates (UAE) and elsewhere. It is registered in England and holds its AGMs in London.

This is what I had to say about such shorting attacks in a previous article: “One of the problems in most shorting attacks is the mixture of possibly true and false allegations, which the shorter has not even checked with the target company, along with unverifiable claims and innuendo. The shorter can make a lot of money by such tactics while it can take months for the truth or otherwise of the allegations to be researched and revealed. By which time the shorter has long moved on to other targets. Shorting is not wrong in essence, but combining it with questionable public announcements is surely market manipulation which is covered by the law on market abuse”.

I still think those who publish allegations that are likely to move share prices should at least give the company the opportunity to comment on the accuracy of the allegations before they publish. A few days grace should suffice with possible suspension of the shares until the allegations are investigated by the company and the FCA.

Readers will no doubt be aware of the problem of open-ended investment funds holding illiquid assets such as property or private equity shares. Investors of funds can sell their shares on a daily basis, but the fund manager who has to meet such redemptions cannot sell the assets of the fund to do so in any sensible time frame. They may hold some cash but if a stampede for the exit occurs then they cannot hope to meet the demand and hence have to close the fund to redemptions.

The Bank of England have published a Financial Stability Report that suggests such funds are creating a systemic risk and unfair outcomes for investors. They make various suggestions to solve the problem which includes making redemption notice periods reflect the time need to sell the required portion of a fund’s assets. For property funds this might mean many months delay. They also suggest a pricing mechanism to impose discounts on those investors who want a quick exit, but that might simply encourage investors to dump their holdings sooner rather than later, thus exacerbating a “run” on the fund.

Are these suggestions workable? I doubt it and they would certainly be confusing for retail investors. Why introduce such complexity when the answer is simply to ban open-ended funds from holding more than a very limited proportion of illiquid assets. Investors have a good alternative in investment trusts which have no such problems.

The Bank of England’s Report is present here: https://www.bankofengland.co.uk/-/media/boe/files/financial-stability-report/2019/december-2019.pdf (see page 75 for the coverage of open-ended funds).

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

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Serco Charges, Unilever Trading and DotDigital AGM

I like to report on the latest evidence of fraudulent accounting just to remind folks how little one can trust the accounts of companies. I have not mentioned Serco (SRP) previously but it is now reported that two executives of the company have been charged with fraud and false accounting by the Serious Fraud Office (SFO).

The charges related to false reporting of tagging of offenders to the Ministry of Justice and the company has previously entered into a deferred prosecution agreement over the allegations which date back to 2010-2013. They agreed to pay over £20 million in fines and costs.

The two defendants deny the allegations but is it not good to see the SFO pursue such cases, even if they could do so a lot quicker! Justice has to be swift if it is to an effective deterrent.

Unilever (ULVR) provided a “Sales Update” this morning. It said business was challenging in South Asia and West Africa and as a result underlying sales growth would be “slightly below its guidance” for 2019. However it also said “earnings, margin and cash are not expected to be impacted”. There were also some negative comments about growth in 2020 which is probably what really spooked the market. Regardless the share price has been falling for most of the day and is now down 7% at the time of writing which is a pretty major shift.

I recently purchased some shares in Unilever so this is another case where I misjudged a big company probably due to relying on analysts’ forecasts. However, I did not buy many shares as it was a new holding and had already sold some of them as the share price drifted down of late. Clearly the bad news had been leaking out! I’ll wait to see where it settles and for revised analyst forecasts before deciding whether to sell the remainder or buy more.

This morning I attended the DotDigital (DOTD) Annual General Meeting. I have held shares in the company for some years and it has made steady progress. Sales last year were up 15% (including discontinued operations) at £42 million and adjusted earnings up 33% with positive cash flow. The company originally focused on an email service for use in marketing, newsletter distribution, etc, but is now a multi-channel communication service. They acquired a company called Comapi to add functionality in that area last year but decided to close down part of that business which was non-core, and a large write down of goodwill was the result.

I’ll cover some the questions from attending shareholders, which were generally good ones.

One question was about how the company plans to expand, e.g geographically. The answer is that this is generally done by dipping a toe into the water before developing the market and making significant investment. Some 30% of revenue now comes from international markets and they have appointed a General Manager in North America who starts in January.

I questioned the high losses of non-exec directors in the last year and were they looking for new ones? The answer was yes they are, and hope to appoint someone soon. Founder Tink Taylor who has been acting as interim Chairman will be stepping down although he will continue to do some consultancy work for the business.

There was a question on the use of cash on the balance sheet which is now substantial, but only 10% of market cap according to the CEO, Milan Patel. They do not intend to use it for market share purchases, other than to satisfy share options. They would prefer to invest in the business or use on acquisitions, but it does not sound like there are any short-term prospects of the latter.

A question on competition was asked and Emarsys was mentioned as a competitor in the mid-range market which is a name new to me I must admit. But there is probably a very diverse competitive landscape. I use a competitor product but only because it used to be a lot cheaper and it is always a hassle to change software as one has to learn a new user interface. These kind of products are remarkably “sticky” with customers and it was mentioned that 50% of their end-users are now “integrated” in some way which would make it even more difficult for them to change supplier.

Another question was on the large amount of capitalised development cost (£5.5 million last year, with £2.5 million of previous cost amortised which is done over 5 years). You can understand why the figure is so large if you know that they have 78 development staff which was the answer to one of my questions! Some of these are ex rocket scientists based in Byelorussia and there are some in South Africa also.

There were a couple of Brexit related questions but the answers were of no great concern. I did not pick up any issues that worried me about this business and it was generally a useful AGM.

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

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Euphoria All Around, But Platforms Not Keeping Up

The Conservative General Election Victory has generated large movements in stock prices with utility companies and banks some of the major beneficiaries. National Grid (NG.) rose 4% on Friday as the threat of nationalisation disappeared and Telecom Plus (TEP), which I hold, rose 11%. I sold the former some time ago as the business seemed challenged on a number of fronts and regulation of utilities in general in the UK and hence their likely return on capital seemed to becoming tougher. My view has not changed so although foreign investors might be mightily relieved, I am not rushing into buying utility companies today.

The euphoria seems to have spread to a very broad range of stocks. Even those you would think would be negatively affected by the rise in the pound, which will depress the value of dollar earnings, have risen. This may be because US markets have risen on the prospect of a US/China trade deal which was announced on December 13th.  This might roll back some of the imposed and proposed tariffs on Chinese products to the USA, and cause cancellation of retaliatory Chinese tariffs, but the details are yet to be settled. This may not be a long-term solution though as it will likely still leave the USA with a very large trade deficit with China.

One noticeable aspect of the euphoria infecting markets on Friday morning was the inability of some investment platforms to keep up. According to a report on Citywire, two of the largest operators were affected with AJ Bell suffering intermittent problems due to a four-fold rise in volumes and Hargreaves Lansdown also experiencing problems. Some of the issues apparently related to electronic prices not being quoted by market makers which was reported as a problem by Interactive Investor. This meant that trades had to be put through manually via dealers who became overloaded.

It is very disappointing to see that yet again a moderate rise in volumes caused an effective market meltdown. The Financial Conduct Authority (FCA) should surely be looking into this as it is their responsibility to ensure the markets and operators therein have robust systems in place. If there is a real market crash, as has happened in the past, retail investors could be severely prejudiced if platforms fail or market makers fail to quote prices.

Eurphoria also seems to have become prevalent in the market for VCT shares in the last couple of years with figures from HMRC showing that the number of new VCT investors claiming income tax relief reached a ten-year high in 2017-18, up 24% over the previous year. The amount invested increased by 33% and in 2018-19 the amount invested increased again by 1.6% to £716 million. The pension changes such as the reduction in the lifetime allowance and new pension freedoms are attributed as the causes. High earners have been flocking to VCTs to mitigate their tax bills it appears.

But the investment rules for VCTs have got a lot tougher so whether they will continue to achieve the high returns seen in the past remains to be seen.

The recently published HMRC report on VCT activity is present here: https://tinyurl.com/vuro5p8

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

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