Every investment decision is a simple yes or no
by Doug Brodie
/1. Bessent – the world’s biggest bond salesman.
Meanwhile back at the ranch, Scott Bessent (Scott from accounts?), is trying to wrangle with ways to finagle some more cash from the banking system.
What’s actually happening is that the new US government is relaxing some of the rules that were created to prevent 2008 happening again.
What is being discussed is the relaxation of the SLR – the Supplementary Leverage Ratio. This limits how big the banks’ balance sheets can grow, and by unwinding part of the rules Mr Bessent is hoping that the banks will be able to buy more US treasuries – i.e. lend the President more money.
That, of course, is only necessary if the President is spending more money than he has (he is), and if the banks are already full of government debt (they are).
The learned US analyst David Dredge makes the case that risk is endogenous – it just naturally occurs and sits within the financial system, it’s always there. He then states that it is the manipulations of the financial sector by man (Rational Accounting Man to be accurate) that causes the boom & bust cycles.
/2. Get married – the biggest possible IHT saving wheeze.
We are frequently asked by clients about the construction of their wills, and recently we’ve just seen a great example by the late, great Jeff Beck.
His estate was valued at £28 million, it was all left to his wife with a one page will. Pourquoi pas?
“How to avoid paying any inheritance tax when you die:
1) get married, 2) leave it to your spouse”.
/3. The relationship between investments and charges.
Blimey they do go on, don’t they, the puritanical charge misers. In cycling they call them ‘weight weenies’, people who fanatically measure the weight of every component on their bike, ensuring that they only ever, everywhere, have the lightest possible components from frame to tyres to chains to seat posts.
They deliberately avoid the obvious fallacy of their argument in that the weight advantage is so small it will be negated by the wind on your side of the road, what you had to eat for breakfast, how efficient your bladder is, whether or not you can draft behind a quicker person, whether you carry a banana or gel in your pocket…
So it is in investing - we have the ‘weight weenies’ who invest lots of their time ensuring they incur only the tiniest of possible costs. Let’s say the cost saving achieved by Mr Weeny (for it is always a man) is 0.5% per year. Across 252 trading days that is 0.0019% saving per day. Having the wrong time of the day to buy your investment wipes that out, having the wrong sector, diversification, currency, manager wipes that out, and comprehensively so.
“Investments are not commodities so you cannot evaluate the benefit of one over the other simply on price.
Apples do not cost the same as kumquats for a reason.”
The UK market moved on average, up or down, 1.5% per week through 2024 so shaving .0019% per day when the markets moving 0.3% per day is somewhat disingenuous, and compounding the daily/weekly/monthly cost saving is simply self-deception, and demonstrative of a lack of understanding of arithmetic.
Look at the chart below showing the daily dispersion of daily movements in the S&P – people think it’s possible to manage a daily .0019% cost saving??
/4. Sometimes you come across a very, very bright person.
I once was asked to provide some technical pension advice to the civil service head of one of the government’s main departments; within around five minutes I was very aware that the person I was explaining the technicalities to, had both mastered what I was explaining and had then extrapolated where I was going in the discussion and what his options were.
George Aliferis has a finance background and now runs a video/podcast/media firm that includes podcasts with people who he thinks have an interesting slant or expertise on matters financial. One such person he interviewed was Dr. Richard Saldanha, a lecturer in machine learning who has studied the development of that field for over twenty years, culminating in his expertise in the current froth that is AI.
“I teach statistical machine learning as part of the MSc programmes in economics and finance at Queen Mary University of London. I also supervise MSc students for their operations research and analytics industrial projects in the Department of Mathematics at the London School of Economics.
I have worked in quantitative finance for over two decades and been successful in senior roles in both asset management and investment banking at major institutions in the City of London. My experience includes risk management at the most senior levels of the firm and the direct management of investments. I have led highly effective teams in both areas.
I am a Fellow and Chartered Statistician of the Royal Statistical Society; a Science Council Chartered Scientist; and a Fellow and Advanced Practitioner in Artificial Intelligence of the Institute of Science and Technology. I attended Oriel College, University of Oxford, and hold a doctorate (DPhil) in statistics. I also hold a first-class honours degree in mathematics.”
If you have interest in AI, what it actually means and what it can actually do now, then you should watch George’s video of Dr Saldanha here.
His mastery is very evident in the sheer conciseness and simplicity of his explanations and examples.