Firstly, we wish you all a very happy and healthy 2016.

Portfolio Performance 2015

Portfolio Benchmark
Defensive Portfolio 3.29% 0.12%
Cautious Income Portfolio 3.52% -1.50%
Cautious Growth Portfolio 3.52% -0.05%
Balanced Portfolio 6.24% 0.27%
Moderately Adventurous Portfolio 4.66% -1.04%
Adventurous Portfolio 4.69% -1.34%
Ethical Portfolio 6.63% 0.01%

Old man river

This is my 50th year and I certainly don’t entirely feel like I imagined 50 year olds would feel. I simply don’t think I’m that old (in my head) but my body sure disagrees; it tells me every morning that in car terms I’m now in the classic category (the girls would label me a clunker).

One of the things that ages someone I think, is having children in their twenties (actually at all, they’re exhausting ungrateful monsters) or in this particular instance realising I’m writing the sixth annual review of the LWM portfolios when it seems only a short time ago we were busy setting everything up. Time sure does speed up as you go along, if only one could combine the experience now with the energy I once had! Youth is indeed wasted on the young.

What’s new, what’s not

Rereading (as I always do) the previous reviews before writing the new one I’m struck by the similarity of some concerns coupled with the complete switch around in others.

As an example Europe was struggling in 2010 and still is, whilst commodities and China were flying and are now very much grounded.


I watched the film Lucy over Christmas (a wise friend told me to see it) it’s the story of a woman whose brain is enhanced to use its full capacity and without spoiling it for anyone yet to watch the key to her enhanced abilities is the element of time. We as humans are tethered to our concept of the world by our perception of time, if it alters then everything changes.

Perhaps the single biggest factor in successful investing is the acceptance of time as a friend.

We believe firmly in the practice of buying high quality assets at good prices and then simply allowing time to do its work to increase their value. I’m reminded now of my father who used to respond to my accusations of him being lazy on the sofa (because I wanted him to be entertaining) by telling me that he was practicing the art of “masterly inactivity”. I tried that same line recently with the girls to similar snorts of derision but like so many things, I now understand more of what he meant. Just because when we were young we had the energy to charge about, or as investors we can furiously trade positions does not mean activity is productivity.

I heard a story years ago of an army platoon in the deep jungle who were unsure where they were.

The commander finally said, “OK lads, get your machetes out we’re going this way”.

After hours of hard toil, they came to a ridge and the commander instructed someone to climb a tree to see where they were.

The fellow climbed as the platoon kept hacking and once at the top he started shouting.

“Stop, stop we’re going the wrong way”

The commander ignored him and told them to keep going the same way.

When he was asked later why he hadn’t reversed course he replied.

“I was very pleased with the progress we were making”

The point of the story as related to me was that the key element to any decision was to first know which direction you needed to go, otherwise all subsequent effort would be wasted.

This relates to investing perhaps even more than other aspects of life because the majority of any decision on future investment direction is a guess. It is influenced by emotion, expert analysis and opinion but actually nobody really knows and these factors tend to change frequently.

The resultant regular switching of strategies and holdings racks up significant costs; (20-28% of profits are paid in tax on any sale), these funds if left alone work in the investors favour by giving a gross roll-up of gains so why liquidate them in most cases. It makes little sense in the longer term.

Hawking our theory of everything

We have often written and spoken about our theory of investment (it’s in truth not ours but shamelessly robbed from the cleverest practitioners in the field) which is to admit and accept the things we don’t know (the future) and to concentrate on the elements we can analyse such as finding the best investors in each market, maximising tax advantages, investing in all markets systematically and avoiding own goals like over-trading.

The portfolios have all registered positive growth for 2015 and the main fund “Balanced” has grown 6.24% (before fees) which is very pleasing given how the major markets have performed.

What’s up Doc

If you asked most people to name the most troubled countries they would likely say:

Russia – Public Joint-Stock Company Moscow Exchange MICEX-RTS up over 50% in 2015

Italy or France – up 10%

China – up nearly 10%

What about the best economies?

The US is plainly the strongest currently, but:

Market down 1%

The U.K. is doing quite well – down 5%

Singapore – down 15%

A big nothing

The strangeness of the markets overall was compounded in 2015 by the performance of the other two main asset classes.

Cash – overall still yielding around 1%

Global bonds’ total performance last year was around ZERO.

If you consider that the average industry portfolio is recommended to have a total holding of around 55% in cash and bonds, over half of the fund would have produced less than a 1% return.

So to produce 7% on the fund would have required the remaining 45% in equities to grow by an average of 16% which obviously didn’t happen.

In essence that’s why we are pleased this year with the performance of the funds.

As a final note the only significant bond holding we have left that we chose to hold (we have been reducing the M&G Optimal income over the last few years but CGT considerations have limited how quickly we could do this) was in US dollar denominated Emerging Market debt, which (because of the strength of the $) was up nicely but we will in all likelihood not hold this position beyond the July rebalance as the dollar has strengthened significantly.

The conclusion protocol

2015 was undoubtedly a tough year for markets in general.

Oil was trounced, Greece was painful, China became a perceived problem, immigration and the ISIS issue grew, the US started to raise interest rates and Global growth slowed.

History teaches that the world is an uncertain place and that investors get paid for suffering the volatility of asset prices. The excess returns over cash grow to be very significant in time but cash doesn’t crash.

We look forward to 2016 not because it will be a standout year, it almost certainly won’t but these are the times where we can make most difference for our clients, where lots of graft and research and a bit of intelligent analysis can help and we’re good to go (the intelligent bit will come courtesy of George and Nic, in truth so will the hard graft, I do a bit of research though which is absolutely vital!)

Quarterly Market Update

Quarterly Portfolio Update

Note: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.