Divesting and the Carbon Bubble

I was interested to read recently about Norway's largest sovereign wealth fund, the Government Pension Fund Global (apparently the world's richest fund) dropping some of its shares in fossil fuel funds.
This wasn't an "ethical" move, as such, but one that was driven by the belief that the fund was in danger of being invested in companies who would be unable to realise expected profits without breaching legislation outlawing the removal of the remaining fossil fuel reserves. This move is:

 "part of a fast-growing campaign...over $50bn in fossil fuel company stocks have been divested by 180 organisations on the basis that their business models are incompatible with the pledge by the world’s governments to tackle global warming. But the GPFG is the highest profile institution to divest to date."

However it still invests heavily in fossil fuels and has since reinvested some of those resources into oil and gas. The general trend, though, is encouraging and the pressure on large investment bodies to reassess and justify where they put their money is definitely growing.

Part of this pressure comes from warnings such as that made by Mark Carney (Bank of England governor) back in October that "most carbon fuel is unburnable". His argument is supported by evidence from studies into the concept of the Carbon Bubble which conclude that the shares of companies involved in fossil fuels are overvalued due to the fact that their value is calculated with the "assumption that all fossil fuel reserves will be available to be consumed". Whereas in fact:

"... A series of analyses have shown that only a quarter of known and exploitable fossil fuels can be burned if temperatures are to be kept below 2C, the internationally agreed danger limit. 

The divestment movement is growing in response to this realisation. Members of several large Danish pension funds are to be asked to vote on divestment and, closer to home Boris Johnson has been called on by the London Assembly to "change the city's investment policy to exclude fossil fuels."

Now, it will be no surprise to anyone out there that I am a Guardian reader but I make no apology for the number of references to the paper as a source for this post. The current editor (Alan Rusbridger) is stepping down over the Summer and, when looking back over his career he finds that he few regrets 

...  except this one: that we had not done justice to this huge, overshadowing, overwhelming issue of how climate change will probably, within the lifetime of our children, cause untold havoc and stress to our species. So, in the time left to me as editor, I thought I would try to harness the Guardian’s best resources to describe what is happening and what – if we do nothing – is almost certain to occur, a future that one distinguished scientist has termed as “incompatible with any reasonable characterisation of an organised, equitable and civilised global community”.

My last quote given below comes from a particularly powerful article which makes a key point by questioning the effectiveness of relying on broader reasons to persuade investors to divest due to one of the key characteristics of the typical investor -  how they are prone to isolate the process of investing from the actual purpose of money and the part it plays in their lives.

 "Indeed, investors often fetishise monetary returns without thinking about the world in which those monetary returns will have to be spent. This is partially due to misunderstanding the nature of money, which is best thought of not as an independent “thing”, but rather as a claim upon society. What is the point of amassing such monetary claims if the society in which I can use them in has become a lot less liveable?"

So many people worry about inheritance tax. They go through all sorts of loops to pass on their pensions and property and preserve their assets for their children without even acknowledging the truth that none of this will be of much help to those children in a world completely destabilised by climate change. Logic should now dictate the course of action to both institutions and individuals. No-one should need persuading any more. In the case of climate change I fear we have already got past the stage of fiddling our way through the burning and it's now just a matter of how much damage limitation we can plaster over the wound.

This particular issue is very close to my heart but the quote about the way that investors "fetishise" money also sparked my interest in a more general way. I see it in myself, the slavish obsession with tweaking spreadsheets, calculating strategies to claim back and avoid paying tax (incidentally something I'm beginning to feel more and more uncomfortable with - I have a feeling that I should be examining my own "fetishistic" behaviour in this particular arena and comparing it with the kind of world I actually want to live in), fiddling about trying obsessively to lower charges and generally spending lots of my valuable "free" time doing things that I have not "costed" against the returns.. maybe one for a later post.

Graphic via Wikipedia

Starting With the Woman in the Mirror

By the end of a week in which it became increasingly difficult to maintain any faith in the possibility of integrity and banking being at all compatible, I finally took the plunge and joined the Green Party.

This wasn't an easy decision. I was born and brought up in South Yorkshire and both my father and grandfather were miners so socialism has been in my heart and soul since birth. A degree in Philosophy didn't dislodge it from either, but rather settled it deeper, as did having children. I haven't given up on the ideas, I just don't think Labour are coming up with the goods at the moment.

The Greens haven't a hope in hell of getting anywhere in my constituency, but then neither have Labour, so I'm won't be doing anything significant by shifting my vote, but it will certainly make me feel better. Whilst reading their website to double check I knew what I was getting into, I came across the moveyourmoney initiative and their current campaign "Divest" encouraging people to withdraw support from banks that invest in fossil fuels, which is pretty much all of them as far as I can see, with HSBC being the biggest offender (surprise, surprise). My own bank is up there too.

What struck me the most about all this was the fact that I simply hadn't put 2 and 2 together as regards my recent investment in oil with climate change and the importance of creating a sustainable energy policy for future generations. I suppose I'd been telling myself that the amount involved was so small that it didn't make a difference where I put it, and that I probably had money in all sorts of things I don't approve of without even knowing it, so it was pointless being sniffy about this buy. Well in this particular case I do know and it does make a difference, so this morning I've sold my BlackRock World Mining Trust shares, taken a bit of profit and set up an account with Abundance which is a crowdfunding platform that allows you to invest in renewable energy projects.

Abundance Generation. 

I'm really interested in the current project they have under offer which involves putting solar panels into social housing in Berwickshire. I just need to check that I understand the investment properly as it's something called an Income Growth Debenture with an IRR of 7.5%. Further details state:

This is the first project on Abundance to issue an Income Growth Debenture. An Income Growth Debenture is a long-term unsecured certificate that gives the holder the right to receive a defined amount of interest income each year (for Oakapple Berwickshire 3.3% for the first year - excluding the 0.4% Pioneer Bonus), which increases annually (for Oakapple Berwickshire by 3.3%) for the life of the investment. The amount paid out is not linked to the amount of energy produced and is paid in addition to repayment of your capital in the form of regular Cash Returns.

I'm not quite sure how this all fits together. If anyone can throw any light on it please do leave a comment. Although debentures are meant to be held for the long term you can sell via a bulletin board on the site and they do state that all sales so far have been "positive" - ie have made a profit. There is obviously some risk to all this but the amount I would be investing would be quite small (£1,500), in fact you have to confirm that you won't invest more than 10% of your assets on the platform when you create an account, and I really like the double whammy of sustainable energy and social housing.

The events this week also prompted me to look at where I hold my current account, and, as a result, I've decided to switch to NationWide which come out with a MoveYourMoney score of 64/100. On top of that their Flex Account pays 5% interest on up to £2,500 for a year so we'll be setting up two (one joint for our everyday banking and one in my name to manage the rental income) and closing down everything we have with Halifax. Now I just have to work out what to do with the bulk of our cash which is sitting in a Santander account.

It's been a busy weekend but I feel better for it. I've done a lot of reading that has given me back hope that despite the events of last week, there are plenty of people out there who are working hard to give us opportunities to invest, save and use our money in a positive way so that we can secure not just our own future, but the future for us all.

I hope that at some time I will feel that I can also re-invest in the Labour Party and see it as the Party of the future but at the moment this isn't the case. Time will tell..

Labour? It is in transition. It knows the socialism it used to champion no longer functions: it knows neoliberalism does not work either. It experimented with Blairism, which for all its electoral success did not address the fundamental weaknesses in the British system. It knows it is a party for the mass of Britain, with roots that must remain in the workplace and the day-to-day life of ordinary people. It is dedicated to their flourishing, and to the justice that must underpin it. The country at different times in its history has looked to its left and right traditions to do the correct thing. It now needs Labour to complete its transition, to pick up this programme, or something like it, and implement the change we need to show how good we can be. "

Will Hutton, extract from "How Good We Can Be: Ending the Mercenary Society and Building a Great Country".
http://www.theguardian.com/business/2015/feb/11/british-capitalism-broken-how-to-fix-it

Should I Buy Commodities?

I currently have around £4,200 sitting as cash in my S&S ISA which I'm looking to re-allocate and now seems a pretty good time to do it. My portfolio doesn't hold any commodity shares directly, only via the exposure I have via my general equity funds, so this is an area I could potentially use for a little further diversification.

In addition some of the bloggers I read are currently buying commodities - or waiting for the funds so that they can do so, so this does seem to be where the sensible (and knowledgeable) money is going at this point in time. However I'm anything but knowledgeable regarding this kind of asset and I know I shouldn't be buying anything I don't understand. The main question I have being why are the stocks currently so cheap and what is likely to have an influence on their price in the future.

So I did a little research and  reading which was more than a little depressing about the current state of the global economy and the part played by the price of the raw materials needed to build growth, but which did suggest that buying now would quite likely be a good move. That's so long as growth does pick up next year and doesn't halt completely, in which case no-one would be needing the raw materials needed to build, or make anything. However the WTO is cautiously forecasting a rebound next year which gave me the confidence I needed to think about this further.

So what to buy? I was tempted by Billlton as the research done by other bloggers is very convincing (thanks especially to FI UK on Financial Independance UK and Huw on Financially Free by 40)  but I haven't yet taken the plunge and bought any shares in individual companies and I'm not sure that doing so is the way I want to go at the moment, so I decided to look for a more general access point. Following up a comment made by diy Investor UK on Huw's post (thanks again) I took a look at a couple of investment funds - Blackrock Commodities Income with a yield of  7.25%, trading at premium to NAV of 4.9, charges 1.08% and BlackRock World Mining which is trading at a discount to nav of -7.55% with a yield of 7.20% and charges of 1.42% (and which incidentally has almost 10% invested in Billiton).

What about the passive choice of a tracker/ETF? I did find a Global DB-X tracker  available at 0.45% charges inside my ISA on Interactive Investor which might do the job - far less volatility than the Investment Trusts and with lower charges but 0% dividend yield and it hasn't done at all well when compared to the sector over the last 3 years. I'm afraid I wasn't tempted.

My decision - I'm going to take a risk and go with the Blackrock Mining Investment Trust. My reasoning being that it is trading at a good discount, the fund managers have been around for a long time and so have a lot of experience in the area and, although it has had a bad year, according to MoneyObserver and  some other sources, this blip is due to a particular set of circumstances and is not likely to be terminal. The high charges are a bit of a downer, but I have also read that they may be reduced in an attempt to lure investors back in and the yield at 7.20% does a fair bit to offset them.

Decision made. I've just bought £1,500. Let's see how things go.

Knowing When to Sell

This week I flexed my developing investing muscles in a new direction. I forced myself to sell something that was doing very well and it was much harder than I expected.

My reasoning process was sound (I think), the fund (Axa Framlington Biotech) has risen over 20% in the 8 weeks I have held it and I can't see it continuing to rise steeply for much longer (it actually dropped 1.66% the day after I sold). Even if it does continue to gain I had definitely started to feel that it was time to take some profit so I sold £500 worth, which was about the amount my investment had gained since I bought it. However, my emotions played havoc with my common sense in a "But what if you sell and it goes up more - you'll be sorry then won't you?" kind of way which was unforeseen and I didn't like. It smacked too much of unreasoning greed. I steadfastly refused to listen to my inner "kid in a sweetie shop" and pressed "Sell". For this reason I will consider this a successful sale even if the finances don't turn out to maximum advantage, because I've now proved to myself that I am very aware of the part emotions play in investing and I am capable of overriding them. I felt the greed and did it anyway.

The downturn in October actually caused me far less angst, maybe because hanging on when things are dropping is far easier than deciding when to sell when things are going up. Inactivity is always easier than action (or so I find anyway). Selling something that has been more or less standing still (as my CIS UK Growth fund has been doing for the last year or so) was also easy to do. But giving up something that is rising steeply (surely the time to do just that?) was a different matter altogether. I almost (but not quite :-)) hope I don't have to do it too often.

In all the reading I have done as a novice investor, the subject of when to sell is one on which I haven't actually found a great deal of help. But we all have to do it don't we? No matter how good we are at the long-term "buy and hold" strategy at some point we are all going to need to take the money out. Steep growth (i.e .growth at a high rate over a short period of time) will surely be mirrored by steep falls. If this averages out to excellent long term growth does this mean that the best strategy is still always buy and hold, even though it must also depend on when you want to realise the profit? What is the best way to manage very volatile funds/markets?

This is something of a testing time for me as I am pretty new to investing and I had been congratulating myself that I had weathered the (admittedly somewhat modest) downturns in my riskier funds without feeling too much pain. However I wasn't prepared for this side of the volatility coin. I've only been watching and actively managing my investments since March and haven't seen anything much in the way of gains so the way this particular fund has behaved has taken me by surprise.  I've realised that I didn't (and still don't) have a strategy for dealing with this situation.

My sale this week was actually more a test of resolve over emotion than a move dictated by financial planning and although I still believe I did the right thing, I would like to be more sure and have the reasoning to back it up. As ever I'm probably searching for a non-existent perfect recipe, but any tips, or links to reading on this, would be very welcome.

Whoops I did it again ...

Bought active.

I've just put in a purchase order for £2,000  worth of AXA Framlington Biotech. This is despite the fact that my long term plan is to move most of my ISA funds into a low maintenance stable of cheap trackers very much along the lines of Monevator's "Slow and Steady Passive Portfolio".

However, I have always intended to keep some small holdings in a few specialist areas one of which is pharmaceuticals (I also have Herald IT (comms and multi-media) and IShares Global Clean Energy) and I needed to invest some of the cash left over from my recent sale of a third of my UK Growth fund that was sitting there doing nothing in my account. I looked for a passive-friendly Healthcare ETF but couldn't find one that was available to small investors in the UK so I took the plunge and went with one of the (recently) very successful active funds in the area. The downside of this success is that the fund is valued high at the moment which is another reason I should have perhaps found somewhere else to put the money. Oh well :-)

So, I must admit that I felt a little guilty after clicking on "Buy" but I consoled myself with the fact that the total expense ratio is a fairly low 1% and the trading costs came out of my commission credit so I won't be racking up fees at anything like the level I was whilst holding my CIS active fund at Royal London.

This investing lark certainly does play with the emotions.

"Almost" and "If Only..."

Last week I read an article on Interactive Investor discussing how to invest in the Internet of Things - a world in which everyday objects contain technology that connects them online.

We are beginning to explore this type of technology at work so I know a little about it and I also know that it is definitely a growth area so I was very  interested to read about the some of the companies involved as potential investment opportunities.

The one which really caught my imagination was CSR and the more I read about the company and its products the more I began to wonder if this wasn't "the one" that would finally make me take the plunge and buy individual stocks. If I'd had my CIS funds in my ISA I do believe I would have gone ahead, sold a little of them and bought £1000's worth of CSR, but, not having available cash and not wanting to sell anything else, I just put the company on my watch list for the time being.

This is what happened two days later:



The stock went up by over 30% overnight.

I was stunned. To be honest although I "knew" that things were volatile out there in the market I have had my limited experience of it cushioned by the fact that I have been watching large funds move slowly up and down. This was the first time that I realised that things can actually move very fast indeed at individual stock level. Am I actually really ready for the type of environment where this was possible? Although I consider myself towards the top end of the "prepared to take a risk" spectrum", this has never actually been tested. Seeing first hand what happened with CSR and being so close to actually being in the thick of it has concentrated my mind on what I would actually be letting myself in for . It has given me the opportunity to think about what individual stock picking and its potentially higher level of risk/reward would mean to me.

These are some of the things I came up with:

Benefits

• The satisfaction of feeling more directly involved with the company in question. I really enjoyed researching CSR and reading about their development work. 

• Technology is my "field" so I felt that I would be able to make a genuinely informed choice to invest rather than relying on the recommendations of financial pundits where I sometimes find it difficult to separate the genuinely knowledgeable from the salesmen.

• I would feel that I am investing more responsibly/ethically by choosing the company and area of business rather than leaving it to a find manager or tracking the whole market. 

• I would learn far more about the business world and how that works which would be time well spent in preparation for actual retirement because at that point I intend to transform my portfolio into an income-producing rather than capital-building model.

• Excitement/ Enjoyment/Enrichment due to a feeling of getting things right

• Potential Financial Gain

Risks

• Loss of confidence if things go wrong

• Excitement/Over confidence/Too much risk taking

• Potential Financial Loss

From the list above I guess you can tell which way I'm leaning and I'm pretty sure I knew which way I was going to go with this even before my experience this week. However I'm glad it happened as it really got me thinking about what I would be getting myself into. I know that this kind of thing doesn't happen often but, crucially, I now know how it feels when it does. 

After all, I almost bought, I almost made a fair bit of money overnight. I now know how it feels to have to deal with "almost" and "if only" and it hasn't put me off. 

(btw I still like the look of CSR. Hurry up ISA transfer :-))

Seeing Red

The standard advice to novice investors like me is "Don't keep checking what your investments are worth, turn off the portfolio tracker". The reasons for this are pretty obvious - the markets are inherently volatile and humans are inherently "easily spooked" (or most of us are).

My portfolio tracker currently looks like this:

Portfolio name	Holdings	GBP Value	% of total	Performance
				1m	6m	1y
Cerridwen	16	£73,554.96	76.08	-1.9%	-1.4%	5.7%

So, according to Prospect Theory (people tend to be influenced more by the "prospect" of an investment - i.e. whether it is rising or falling than its actual value), I should be starting to feeling the fear and itching to do something about it. However, because I know that red in a portfolio tracker is inevitable due to the way the markets work, I'm happily keeping irrationality at bay.

Personally I don't believe that the way to deal with volatility is to pretend it doesn't happen and refuse to see it. Ignorance is not bliss as far as my investments go. I used that tactic for years and I'm sure their value suffered because of it. But the key here is "informed" involvement.

Knowledge of how things work does help to damp down our inbuilt emotional reaction to risk. I know that flying is statistically very safe, planes do not fall out of the sky (or do so very rarely). They are engineered so that this is virtually impossible and pilots are highly trained, skilled individuals. In the same way markets tend to recover and continue to rise, and periodic set backs are part of this process. Rationality insists that we sit tight when the markets drop, buy whilst prices are low and wait.

However, if the red figure on my whole portfolio reaches double digits and stays there for a while, which, my reading tells me it mostly likely will at some point, it might be more of an effort to keep my nerves steady.

I have a strategy for dealing with my nerves when a flight becomes a little bumpy and it involves several stiff gin and tonics. I'm not sure that this is quite what financial experts have in mind when they advise how best to deal with stock market turbulence by saying "chose a strategy and stick to it."

Big In Japan

This is what we're up against:

Ruffer Tips 50% Upside in Japan within three years
Experts warn Japanese revival is doomed

These articles appeared on Trustnet within a few days of each other recently and, to my mind, this demonstrates the main reason why the majority of people in the UK still feel that investing is not for them and instead scratch about looking for an extra 0.01% in savings accounts.

Not only are most of us not experts in financial matters it seems that even if we were to become so and join the people who are "in the know",  it wouldn't protect our cash because even "experts" cannot agree as to what best to do with it. When your savings are important to you and you can't afford to lose them, having confidence about what you do with them is essential. The bottom line is that the investment universe, and all who live in it, do not inspire confidence. There is so much "talk" that we can't keep up with it all, there is too much "buy this or lose out", quickly followed by "buy this and lose out". In a way the only rational thing to do is keep well away.

I don't mean to say that we don't have faith in the big picture, I think that the majority of people believe that the markets can be relied upon to self-regulate, bounce up and then drop down again but ultimately recover. It is more that there is a bewildering gap between what looks to most of us as if it should be a science (graphs, statistics, pye charts ad nauseum) and the apparent behaviour of those who deal in it and seem to be ruled by rumour, incantation and superstition (how can we call it anything else when there is rarely any consensus and the "experts" cannot produce any reliable results based on any proven methodology).  There is no firm ground. "Information" and advice cannot be trusted.

In these days when being able to rely on our own abilities to look after our money is becoming even more important it is a scandal that the financial press seems so often to delight in what is, in effect, a tabloid-esque treatment of its subject.

Personally I am currently reading a lot of this stuff because I am trying to learn (and as a whole it is useful in order to get a grip on the basics) but more than 90% of the little I do know has not come from all the journalistic "noise" but from reliable sources such as Monevator and individuals on the moneysavingexpert forums. Maybe it's just the nature of the beast but it does make me more than a little cross that the world of personal investing acts as if it deserves to call itself a science when it seems to be sadly lacking in solid technique.

(btw I put £300 in Baillie Gifford Shin Nippon this week but only because I hadn't got any Japan - otherwise the net result of reading both articles would probably have been inertia ).