Friends with benefits
by Doug Brodie
/1. “At any moment, you are one good choice away from a meaningful better life”.
We like Alf Tupper, and you may have seen his posters in our office. Simple, uncomplicated, reliable endurance. The simple things in our lives often bring the clearest joy because they tie to our emotions, not our logical thoughts. Alf Tupper will take many of our readers back to the simpler time of life, back in the 60s and 70s when we were kids then nascent teenagers.
What is argued to be the most successful UK ad ever, was three times the length of a normal ad and didn’t show the product or brand until the closing seconds. In 2007 an ad of a gorilla playing drums, along with a Phil Collins song, wrote the book on viral advertising:
It was a fast-moving consumer product, the ad worked by ignoring the product entirely and focusing on the watchers’ emotions, using the song to take them to a warm comfortable mindset, and only once there they introduced the product.
Emotions are very important for our happiness, money is a facilitator but no more. If you look back over the past twenty years and pick the single best day you wished you could repeat it’s likely to be a day with a friend, family or lover, perhaps a mix. It’s never when spending money, so for planning the financial future the goal is to provide yourself with fret-free time, that being the one irreplaceable commodity that has no relationship with money. Our message is you should treat your SIPP & ISA income as a final salary pension – set it once and walk away.
/2. Why the valuation extremes are not as bad as 2000 (yet).
The US valuations are driven by the 7 tech stars: Nvidia, Microsoft, Apple, Meta, Alphabet, Amazon and Tesla. 7 of the 7 are in the chart above and their collective profits are $356.8 billion. That’s a very, very different scenario from the dotcom frenzy when companies were pumped even without revenue, never mind profits. The dotcom stupidity caused the CEO of Sun Microsystems to write to his shareholders when its value peaked at $200 billion:
At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes which is very hard. And that assumes you pay no taxes on your dividends which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?
Don’t misunderstand our view, we think the US market is dangerously overvalued today, however, we suspect the valuations have the ability to last somewhat longer. What we cannot predict is geopolitical shocks – if something goes wrong on that global stage today then that Jenga pile will have crashed down before you read this with your porridge. Geopolitical risks are the key triggers to market collapses, they rarely have anything to do with the fundamental stability and profitability of the companies – and that is precisely why the markets in 1974, 2002, 2008, 2011, 2020 and 2022 simply turned round and came right back to sane, justifiable levels.
/3. 2024 dividend increases, listed trust by trust.
Chancery Lane Research Ltd is a wholly owned subsidiary of Chancery Lane, that way we know our research output is both relevant and independent.
The team are prepping the data from 2024 to update our statistics however I thought readers might want to see this snapshot. (No, it’s not cherry-picked).
The long term trend of dividend increases from trusts is to grow annually roughly by twice the rate of inflation, so the comparison above is as expected. What the team have done here is to tabulate the income received between 1 January and 31 December…which is why there is a ‘-‘ figure for Murray Income.
Trusts are companies and pay their dividends according to their trading year – Murray Income’s year-end is 30th June, not 31st December, and its dividend paid out rose by 2.66% between financial year 2023 and 2024.
All the data produced is necessarily historical, whereas what we want to know is what the income will be next year, and over the coming years. That’s what we do, all day every day, and the answers are partly in the engine that drives the trusts (the investments) and partly in the handling of the accounts and financial structure. If you’re not a client you will probably think that dividends paid by Murray Income in 2024 came from the underlying holdings it has – that’s not actually correct. That income is certainly a source of fuel but it is not where the trust’s own dividends are paid from, and that is where we focus a good part of our work, buried in the accounts.
Lastly, the final say on the dividend is from the board – they are separate from the investment manager (in 98% of cases), they lead the company not the operations (the investing). As the bulk (all?) of the work is done by the investment manager, we have ended up, over time, with some pretty disconnected directors sitting on boards, and the sector – because it is highly visible being listed on the market – has succumbed to two maladies: the old boy’s network, and the ‘diversity, equality and inclusion’ extremes. This is why the US hedge fund SABA is attempting a takeover of seven trusts – it’s not just that they have been poorly managed with low returns but also that the boards have no real ideas on how to fix them. For reassurance to you, we have no money in any trust under attack from SABA.
The coming shake up is decades overdue and beneficial to our investors.
/4. The single item needed to be a client of Chancery Lane (it’s not what you think).
It’s the ability to take advice. It’s irrelevant what wealth a person has or the complexity of a position that has to be clarified, if a person is unable to take advice from us then he/she cannot be a client.
Chancery Lane is a service proposition – that means clients retain us as their learned researcher, adviser, administrator, behaviour guide and technical support all rolled into one. We sit on the same side of the desk as you, the client.
Hargreaves Lansdown and Interactive Investor are supermarkets – they line their online shelves with products and want you to buy one. They don’t care what you buy, which is how the Woodford saga happened. You can’t turn up at your GP for a diagnosis and then tell him you actually think your ailment is something different – if so, heal thyself. The reason one doesn’t do that is because we have an ingrained recognition of expertise and medics fall precisely into that category; it’s just that some people think they have to be in control of every decision.
It tends to be a male issue. Women have a very different outlook for many reasons including a much earlier and more frequent relationship with the medical fraternity, culminating in many cases with childbirth – a blessed activity where in the majority of cases all control by the key player (the mother) is lost completely. (And of course attendance by the father at such events is the embodiment of ‘gooseberry’).
It’s horses for courses, on this track, however, we are the jockeys. You can’t turn up at Ascot and ask Willie Carson to move over.
/5. RPI, CPI, US and TV’s.
An interesting snapshot of US RPI by the learned fold at Visual Capitalist and Charttr:
It’s still the economy stupid
By now, we’ve all heard, said, or read one of several versions of the exact same hypothesis: President-elect Donald Trump romped to victory in the election because America had grown sick of feeling the painful pinch of inflation.
Whether the tariff-heavy policies of the incoming administration will keep a lid on higher prices is unknown, but one thing that is inevitable is that inflation will be a hot-button issue for years to come.
What we talk about when we talk about inflation
The most commonly cited measure of inflation in the media, and indeed in economics, is the Consumer Price Index. A gargantuan theoretical basket that contains over 80,000 goods and items from milk and pizzas to rent and energy bills, the CPI is pretty much always the figure that Americans refer to when they discuss whether “inflation is up (or down).”
Keeping track of some items in the BLS’s massive haul, however, takes a little more consideration and calculation — like TVs…
/6. A sage warning on how some investments work.
Don’t be the greater fool.
Successful investors tell you at cocktail parties how easy it is to get rich, which causes *MicroStrategy / BTC / Fartcoin* to rise further, which pulls in larger and larger groups of investors. But the whole mechanism is a kind of Ponzi scheme where more and more credulous investors must be found to buy from the earlier investors. Eventually, one runs out of greater fools.