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This column has now been alive for exactly one orbit of the sun. I’m marking the occasion as my three-year-old daughter did at her birthday party last weekend. By screaming a lot and ignoring everyone who speaks to me.
That’s because Skin in the Game was not supposed to be just about showing that my financial interests are aligned with what I was saying — as important as this is when it comes to being completely honest.
I was also hoping that putting my money where my mouth is would mean better returns — for me and readers alike. Plenty of research shows that funds with a higher proportion of a manager’s own capital outperform those with less.
Hence my funk. Although my portfolio is up a respectable 6.2 per cent over the past 12 months, that’s nada after inflation. Let’s not kid ourselves. I could have achieved almost the same return by putting cash in any number of deposit accounts.
That would have made these columns a little repetitive, sure. But we could have run with a blank page each week and you could have saved yourself five minutes. Over a year, that’s the time back you wasted watching Oppenheimer.
Not only did cash make me look bad in front of my friends, so did the MSCI World Index, which did twice as well over the same period. All that fannying around and I should have had a basket of global stocks and be done with it.
But the biggest reason I just want to sit on my potty with a lollipop is because US equities are up 13 per cent since November last year. And that’s after a lifetime of me advising clients that the S&P always wins.
Warren Buffett has said the same thing for years. And a weekly commentary on the amazingness of the US would still have allowed me to write about nine out of the 10 biggest companies in the world by market cap.
Actually I’m being unfair. My portfolio didn’t have a pure S&P 500 fund in it a year ago, nor was I allowed to make any changes during the interminable period it took to transition my two legacy pensions into a self-invested plan.
In fact, until recently I was pleased with how I played US equities. In early March I wrote that I would be buying lots given how bearish everyone had become about rising interesting rates. A month later when prices took a dive, I pounced.
By the time I sold them again on September 7, a nice 12 per cent gain was sitting in my account. Less than two months after that, Wall Street was 8 per cent lower. Who said market timing is impossible?
Roll forward and the S&P is now a smidgen above my selling price again, so I’m looking a tad less clever. I lazily held on to the cash for too long and then, due to having to wait 30 days to invest after publishing, missed most of the rally since.
Equities are buoyant, as most people reckon the US (and therefore global) interest rate cycle has peaked. Just this week the latest American inflation numbers for October were benign across the board, while the annual growth in consumer prices dropped to 4.6 per cent in the UK.
Does this mean I’m going to repurchase my favourite S&P 500 funds? No chance. Jittery investors dance to moves in rates. As I’ve written ad infinitum, interest rates make no difference to equity valuations in the long run.
Let’s remember the reason rates are now supposedly heading down. It’s because US growth is expected to slow next year — although most “nowcast” models are showing some resilience.
Any contraction in growth is bad for companies that sell goods and services. But the main reason I jettisoned my US equities two months ago was their expensive valuation. So if prices are back to the same level, I can hardly be bullish now.
Especially as whatever denominator I choose to use when assessing valuation ratios has declined. For example, estimates for fourth-quarter earnings growth for the S&P 500 have dropped almost 5 percentage points since September, according to FactSet data.
No, I’m staying short — even if the $100bn that has fled US equity funds since I began the column makes me nervous. And I’m more or less happy with all my other ETFs, as I wrote last week. Even those dreadful Asian stocks are nearly back to flat over 12 months.
So what’s on the agenda now, and have I learned anything from managing this portfolio for one year? First up is buying an oil and gas ETF, as discussed, using the proceeds from selling my inflation-protected treasury fund.
Next, I want to begin to explore the world of short ETFs — that is, funds which go up when markets go down. I’ve bought these in the past but they suffer from two massive problems: they are expensive and how they work is incomprehensible.
Long ago I swore never to invest in something I didn’t fully understand. And it has taken me a decade working for asset managers who construct ETFs to appreciate the innards of even the simplest ones. Maybe there’s another column on this.
As for lessons learned, I wish I’d moved to a self-managed pension a long time ago. More readers with a modicum of investment nous should do the same. The fees I pay are cheaper and the platform easier to navigate.
Another is not to obsess too much on percentages. My 6.2 is middling, but it’s still a £28,000 gain — tax free. I’d need another job earning £40,000 to make the same amount. No thanks.
The author is a former portfolio manager. Email: stuart.kirk@ft.com; Twitter: @stuartkirk__
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