Category: Education

Financial Advice – Does it Help? 

To follow on from my previous blog post, simplifying financial advice may help some people but one key question is: “Does financial advice actually improve wealth?”

The FCA attempted to answer that question in a Research Note – see https://www.fca.org.uk/publication/research-notes/bridging-advice-gap-estimating-relationship-between-financial-advice-wealth.pdf .

Here’s a key paragraph from the report: “Our findings suggest that financial advice positively supports wealth accumulation, especially in the initial years after advice is received. Our empirical findings reflect the qualitative insights from the literature which suggest financial advice helps consumers to avoid costly mistakes. Examples of these costly mistakes include inefficient tax planning, excessive cash holdings, or a non-diversified wealth portfolio. The short-term benefits of receiving advice could reflect consumers taking informed decisions that avoid these issues, providing an initial boost to wealth”.

One key message is that taking some financial advice is particularly worthwhile if you suddenly become richer.

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

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Biggest Financial Advice Shake-up in More Than a Decade 

 I have just been reading an FT article with the above title. The FCA is to change the regulations about financial advice so that companies can give “targeted advice” but without getting into the costly need to give personalised advice by doing a full customer review. At least that is what I understand it to mean.

What’s wrong with the system at present? Those who most need such advice as they are financially ignorant tend not to get it because it is too expensive. The feeling is that many people are keeping too much cash in savings accounts rather than investing in stocks or bonds that would give better long-term returns.

Will this be a solution? Perhaps but it is not yet clear (to me at least) how this will work in practice and what exactly is “targeted advice”. The details of how this will work have yet to be disclosed.

I would suggest this is a poor solution to the problem. The better answer is to get folks more educated so they make the right choices when investing or saving. Education of the young in schools and colleges is not good enough so they fail to learn how to manage their own money well and how the financial world works.

Did the FCA actually consult those folks knowledgeable about financial matters rather than just those making money from retail investors? I do not recall any such consultations. This looks like an idea thought up by financial institutions to avoid giving personalised advice and will just be a cheap way around the problems that currently exist. It may protect those who currently provide advice from their responsibility to give appropriate advice but that is not what we need.

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

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Summer Reading – Trump Style

With Donald Trump having such an influence on international events, I thought I had best get up to speed on his background and experience. So I have been reading the Art of the Deal first published in 2016 at 384 pages. Don’t let the length put you off as it’s quite an easy read.

It’s really the story of his life up until the date of him writing the book and covers how he achieved some success in property development in New York. His father was a businessman in the development of housing but Donald moved more up-market and into larger developments, particularly in Manhattan.

It’s interesting in how he got people to back him when he had little experience and few financial resources. He was clearly always keen to impress people by putting on a glossy front.

How much the book might tell you about his personality is not clear but in his second term as President he does seem to be acting mainly rationally and is attempting to solve some of the world’s problems – albeit with mixed success. It can do no harm to read this book and get some impression of Trump’s management style.

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

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The Origin of Covid-19? Matt Ridley suggests he knows.

Writer on scientific matters, Matt Ridley, has published an article in the Telegraph which tries to explain the likely origin. The virus is rapidly fading from the public’s minds but it did kill 20 million people and some are still dying from it with persistent symptoms in other cases.

It is important to identify the source of the virus because it could well happen again with even more devastating impacts. When scientists start manipulating genetic material, it is exceedingly dangerous.  His article is present here:  https://www.telegraph.co.uk/news/0/covid-19-lab-leak-origin-most-likely-matt-ridley/ .

He starts the article by saying: “While attempts to identify a seafood market in Wuhan as the source of Covid-19 have failed to find proof, there is growing realization that the source might be the Wuhan Institute of Virology (WIV). In the period up to 2019, the WIV, in collaboration with EcoHealth Alliance (EHA) and other institutions, brought to Wuhan numerous bat viruses from the distant regions where viruses most similar to SARS-CoV-2 have been identified. They created genetically modified versions of viruses and tested them by infecting human cells and humanised mice, causing significant gains in infectivity and lethality in one known case. They did some of these experiments at inappropriately low safety levels”.

But it’s worth reading the whole article.

Genetic engineering can be a useful tool – there is even a GCSE on the subject. And there is a good recent example of curing a rare disease using CRISPR gene editing technology – see https://www.nih.gov/news-events/news-releases/infant-rare-incurable-disease-first-successfully-receive-personalized-gene-therapy-treatment

But it could clearly be misused with very deadly and dangerous consequences. It does need to be heavily regulated.

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

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Andrew Carnegie Biography

If you want some easy summer reading, here is a book I have been reading and can recommend. It’s the Autobiography of Andrew Carnegie. He was born in Scotland but emigrated to the USA at the age of 12. Starting at the bottom as a poor immigrant he became one of the richest men in the world – emulating John D. Rockefeller in the same era.  

He developed the US steel industry but effectively retired at a young age and devoted himself to philanthropic works. In particular the establishment of libraries of which there are several thousand in the USA and UK. He also endowed many educational institutions.

His management style is particularly interesting and he believed in giving way to the demands of workers for higher pay. Better to have well-paid and well-motivated employees than disgruntled ones he believed. By this approach he avoided union disputes and strikes that disrupted production – an essential aspect of running blast furnaces and steel rolling mills at the time.

The only negative episode that affected his reputation was the Homestead Strike where 10 men were killed after the State Militia were called out to break a strike at a Carnegie owned plant. Carnegie was out of the country at the critical time so can hardly be blamed for what happened.

The book is an easy read and very enlightening on how to manage employees.  

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

You can obtain notifications of new posts in future by following me on Twitter (now “X”) – see https://x.com/RogerWLawson where new blog posts are usually mentioned.

Book Reviews – J.D.Rockefeller and Ed Conway

I am currently reading a couple of books. The first is “Letters from J.D. Rockefeller to His Son”. These were written in the years around 1900 when Rockefeller was probably the richest person in the world.

He built Standard Oil into a virtual monopoly in oil production, refining and storage and also owned major parts of the US rail transportation industry. If you wish to learn how to build an industrial monopoly this is a good book to read. Taking over weaker competitors is one tactic to follow.

There are a couple of good letters on the benefit of borrowing money to finance expansion (so long as you never default on the loans), and what you can gain from business failures. As one letter says “Failure is a good thing as long as it does not become a habit”. But you can gain much from failures. He says “Once avoiding failure becomes your motivation to do things, you have embarked on a path of laziness and powerlessness”.

This is a good paragraph: “If you are afraid of failure, you will not dare to take risks and then lose the opportunities that are placed right in front of you. Therefore, my son, in order to avoid losing opportunities and retain your qualifications for competition, it is worthwhile to pay for our failures and setbacks!”

There is a lot of business wisdom in this book which is as relevant today as it was over 100 years ago. I therefore recommend this book to all budding entrepreneurs.

The books cover photo is of Rockefeller probably wearing a wig. He suffered from alopecia totalis like me so I have always felt some sympathy for him.

The other book I have been reading is “The Summit” by Ed Conway. It is a history of the Bretton Woods conference attended by all the major powers in 1944 which set out the economic framework we have been living in since then. It established a new monetary system and subsequently helped form the United Nations organisation.

A big influence on the outcome was John Maynard Keynes and the book covers his background at some length. You can understand how he came to influence economic policy in many countries.

At 454 pages the book is rather long for my liking but it certainly helps one to understand the influences that have formed the economic and monetary policies of the current world.

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

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Educating the Young on Finance and Another Petition Rejected

Did you get a basic education in finance at school? Most people do not. As a result, as soon as they have any spare cash, those new to investing put their money into get rich schemes, crypto coins, gold derivatives or other high-risk ventures. Finance and how the world works needs to be taught in schools, when the young are more likely to imbibe and hold on to their lessons.

There is a worthwhile Parliamentary petition you can sign on this subject which would make it a compulsory subject for schools. See https://petition.parliament.uk/petitions/701663  

Climate Change Act

The Government has rejected another Parliamentary petition calling for repeal of the Climate Change Act. See https://petition.parliament.uk/petitions/701600 . The Government has rejected this petition with this summary comment: “There is no ‘two-sided’ debate on anthropogenic climate change. The Government’s policy to support ambitious action on climate change reflects the overwhelming scientific consensus”. Meanwhile most of the rest of the world, including the biggest emitters of CO2 continue to ignore it while the UK incurs very substantial costs in trying to meet an impossible target.

The UK population have never had the opportunity to vote on this subject. Why not?

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

You can obtain notifications of new posts in future by following me on Twitter (now “X”) – see https://x.com/RogerWLawson where new blog posts are usually mentioned.

Tariff Wars and Book Review

We woke up this morning to the news that President Trump is getting tough on trade tariffs to reduce US imports. With up to 25% on imports from China, Mexico and Canada this could be seriously damaging to their economies and raise the cost of living in the USA. Although it is not clear what the impact will be on the UK or the rest of Europe we cannot expect to get off completely free.

Trump is aiming to reinvigorate US industry by ensuring it can compete with economies where labour costs are lower. That is not an unreasonable proposition but the method chosen is a very blunt instrument. It has already had an impact on worldwide stock markets (my own stock market portfolio is down 1.6% today at the time of writing and it was down also on Friday).

Some of the damage done is from the aggressive rhetoric that Trump has chosen which may fade over time as countries affected retaliate but clearly some sectors of the economy could be badly affected.

The world is now a very complex economy with industries and countries very dependent on each other. A recently published book that explains some of this is the book “Material World”.

Book Review: Material World by Ed Conway (subtitled: A Substantial Story of Our Past and Future).  

This is an educational tome which explains what the sources and uses of common products such as sand are – in that case in the semiconductor industry in the form of silicon.

It’s certainly a very good analysis of some industries but at 501 pages it is yet another book that is too long for my liking. However it helps to explain why countries are so interdependent. Although interfering in the free economies can often be worked around at pace (as happened in World War II when Germany had to invent substitutes for some products as it lost access to oil and rubber) it is economically damaging in the short-term.

Free trade is important to maintain if you want a vibrant economy.

The UK has just decided to damage its own economy by a decision in a Scottish court that permits for oil and gas exploration should take into account end-user emissions. This is judges taking decisions that should be reserved for politicians and the electorate. This could be very damaging for companies such as Shell who planned to develop the Jackdaw gas field. Let us hope that this decision is overturned but with Ed Millibrain as Secretary of State for Energy and Climate Change I am not hopeful that the UK Government will see sense.

Meanwhile China and the USA are expanding energy production (hundreds of more coal mines in China for example) while the UK simply reduces its own energy sources and becomes more reliant on foreign imports. We cannot replace electricity production by wind and solar farms alone and expanding the electricity grid is not a short-term fix.

Politicians need to read the Conway book for enlightenment.

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

You can obtain notifications of new posts in future by following me on Twitter (now “X”) – see https://x.com/RogerWLawson where new blog posts are usually mentioned.

John Plender and John Rosier Articles and Technology Update

John Plender published a good article in the FT on Friday. He covered what he had learned from five decades in the investment world. This was a period when the “cult of the equity” took over from investment in fixed income bonds. With inflation racing ahead of interest available, bonds such as Government gilts were a big loss-making investment. They may have been nominally “safe” but only equities offer some protection against inflation caused by Government policies. This cycle has been repeated more recently.

There is much to learn from this article and he concludes with this wise comment: “After a lifetime spent watching the markets, I am struck how, with each new cycle in which central banks act as lenders of last resort, debt mounts inexorably. We continue to muddle through. But a great debt denouement is inevitable because debt cannot rise faster than incomes for ever”.

See https://www.ft.com/content/52f06fb9-ef15-498f-9a98-39673c960de4 for the full article.

Another good article was published on Friday in the Investors Chronicle by John Rosier, who managed to achieve an even worse portfolio performance than mine in 2023. He had this to say:

“Lessons from 2023. It was a poor year for me and while it is tempting to beat myself up, 12-year record of 12.4 per cent per year is good. However, as a matter of good housekeeping, I should examine what lessons I should learn from 2023. In last month’s outlook, I pondered whether I had been guilty of focusing too much on macro factors and not enough on bottom-up stockpicking. The conclusion must be yes. My exposure to commodity stocks, although helpful in 2022, was hugely detrimental in 2023. I had too much exposure to this theme. I allowed my belief in the positive drivers to influence my portfolio construction. I was also too obstinate to change course – perhaps because I had invested too much emotional capital in such a significant exposure. I intend to shift the balance back towards bottom-up stockpicking – in truth, I already have with purchases of stocks such as PayPoint, highlighted earlier……In what is a perennial problem for me and many, if not most, investors, I must get better at cutting losses earlier”.

His comments could just as well apply to my own portfolio management although not to such an extreme. I may from experience have avoided the worst mistakes but am still not cutting losses early enough.

One thing I have done this week is update my technology usage. My 10 year-old Lenovo Thinkpad Carbon X1 was a great business laptop PC running Windows with a touchscreen but battery life had dropped to about 2 hours so it was time to replace it. I have purchased a Samsung Galaxy Tab S8+ tablet to replace it. With more than 8 hours battery life it can last for a dialysis session where I like to watch old movies. These are readily available from YouTube so I watched a film called Greenwich Village last week. It included a memorable dance routine from William Bendix who usually played “heavies” in the 1940s. To quote from one biography: “character actor William Bendix’s burly physique and New York accent were equally suited to playing genial lugs and vicious thugs”.

I am still running a Windows 10 desktop PC for my main business applications which should last another couple of years.

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

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