“Jonathan has advised us for 5 years and always provided consistent, truly independent thinking with emphasis on capital preservation”

Tim Bacon (CEO, Colville Estate) and Marylyn Bacon (Kent) (2011)

What a Year! Where are we?

Posted by jdavis on December 22, 2008

Financial advice

Everyone’s saying ‘thank goodness that year’s over! Phew! That was terrible’. Of course, they’re also
saying ‘No-one could possibly have predicted the downturn, the housing crash, the stock market
collapse etc’.

I was advised by a marketing expert this week that I shouldn’t trash the ‘competition’. (Of course
other firms are not directly competitors, however stockbrokers and financial advisers are giving
investment ‘advice’ – or as I prefer to call it ‘sadvice’!)

Well normally I wouldn’t (trash them) however when they score SO MANY own goals WITH OTHERS’
MONEY I can’t keep quiet. I actually want readers to see what is wrong with the traditional model of
financial ‘sadvice’ in this country.

Investors trust banks, IFAs and insurance companies like St James Place Capital with their financial
well-being. And what do the recipients of this trust do time after time? They mess up families’
financial positions. They encouraged Buy-To-Let at the peak in 2005-2007, after over a decade of
rises in house prices; they recommended stocks at the peak in 2007, after the 2nd longest bull-market
in history (October 2002 to October 2007); similarly for commercial property funds and corporate
bond funds. (Not counting Tech stocks and funds in 1998 and 1999…)

You see, the standard broker/’adviser’ takes the path of least resistance. In other words, they show a
chart of past performance which, naturally, has risen from year dot. Then they ‘advise’ or recommend
this as the best investment since Microsoft in the early 1990s.

Once again, dear reader, we would remind you of a Sir Alan Sugarism which we, at Armstrong Davis,
have championed because it’s what we aim for our clients: ‘Buy Low, Sell High’.

Yet most brokers and ‘advisers’ effectively recommend to Buy High and Sell Low. Hmmm…

It is the same advice if you are an individual with £300,000 in savings, a family worth tens of millions
or an institution with hundreds of millions.

What did we advise?

Allow me to remind you that

We largely took people out of stocks in 2006 to 2007 (the FTSE went back to 2003 levels in
October 2008).

We took clients out of excess property since 2006 and we advised against further exposure
since 2005 (house prices in the UK are already back to 2005 levels according to the Halifax).

We have steered clear of commercial property funds for years. Most funds are still applying
the small-print clause of requiring investors to wait up to 12 months before they can access
THEIR own money.

We have been increasing exposure to commodity funds for the last couple of years. We cannot
yet entirely prove this to have been correct however, given the parlous state of GBP (Gordon
Brown’s Pesos…) and the USD (having restarted its multi-year collapse) we are very confident
of this course of action for the years ahead.

And the results?

Our heaviest losing portfolio is down around 10% this year from January 1, including all costs. Most
of our portfolios are neutral
…in the year of the most vicious attack on wealth in at least a decade.

How does that compare to other portfolios entrusted to other wealth managers?

The heaviest losing investor portfolios in the UK are down around 50%. (Some are have lost
everything…)  Most - whether personal, family, corporate or institutional - are down around 25%.
(No doubt the old mantra will come out – ‘The market’s down 40% but we’ve only lost you 25%. Haven’t we done well?’)

Also, those who stayed in cash – thinking this to be risk-free – have seen their interest income fall by
around 2/3rds as Bank of England rates have been slashed. Hardly risk-free.

What now?

On 13 October – when all around was doom and gloom – we said (see our email of that date) the stock
market was likely to rally from there. In fact, from a low of c 3700 (FTSE 100) it currently stands at
c 4200 – a rise of c 16% in around 2 months. We are still confident of a further rise into the New Year
taking the market up around 30-50% from the lows.   (Please note: we are not saying the market is out of the woods. Far from it. However we did
and do see this bear market rally. We do, also, expect to read many reports in the year-end
press that all is now well and the bear market is over.)

We said in 2007 that the bear market, when it arrived, would be brutal – following, as it does, the 2nd
longest bull market in history.

Investors who are rightly concerned for Sterling should invest in commodities, longer term. Our
expectation of a continued long-term rise in commodities will secure against the longer term
devaluation of our currency and help you retain your wealth in purchasing power terms. That is what
we call preservation of capital which is uppermost in our minds at all times (especially these times.)

The real economy

The economy is a tragedy:

  •  Unemployment is rising faster than for decades
  •  Home repossessions are exploding
  •  Corporate bankruptcies will soar next year (above what we have seen this year, most recently the big names Woolworths and MFI)
  •  Personal bankruptcies will soar

So, to combat the tragedy Brown and Darling cut VAT. A bottle of Claret goes to the best response of anyone who can tell me how exactly that will help. Funny responses can also win.

As Churchill said ‘This is not the end…but… the end of the beginning.’

They’re also borrowing on our behalf and bailing out failed industries. (Does it remind anyone of the
1970s? Or is it just me?)

After the next election (what a co-incidence!) our taxes will soar to pay the government debts and
they will remain high for years. The economy is now in recession and I fear it will stay so during the
whole of next year and it will be weak for years. No ‘V’-shaped recovery as our political leaders would
have us believe.

Currently, we have falling prices due to primarily the state of the economy and due to
a) The high street having stocked too much for Christmas and
b) The price of oil on the world market diving off a high board during this autumn
c) Also, of course, still rapidly falling house prices to, in our view, 2011/12. Currently, we
     forecast that prices, on average, will fall 40-50% to the trough from the August 2007 high.
     Surveys (e.g. Halifax and Nationwide) show prices are down around 15-20%. They are out of
     date. Transaction prices are down, thus far, at least 25-30% from private discussions with
     senior property professionals and this will reveal itself in those surveys next year
d) Rents have also fallen around 20% over the last year or so due to the oversupply of properties
     available for rent.

We expect to see rising inflation again from 2010/11 due to
a) A weak currency requiring higher payments for our imports e.g. food, fuel etc i.e. commodities
b) A global economy which will come out of recession before we do thus raising the price of
     commodities globally, and further for us
c) Fewer competitors across industries and those remaining will increase prices to rebuild their
d) The Bank of England keeping interest rates lower than inflation for longer than they should, in
     order to restart the economy. Laudable short term however deeply flawed for our economy in
     the long run.

Talking of the 1970s, we expect to see 1970s style inflation by the middle of the next decade. This
could well lead to industrial strife as we experienced then, as well as continued falling standards of
living. Thus, the problems extend to years from now.

The politicians, bankers, central bankers and others have effectively bankrupted the United Kingdom.

Clients of Armstrong Davis need have NO fear or concern about how this affects you. Your
bespoke arrangements are sound and will continue to combat effectively the great problems we have
and those still to come.

We invite clients to refer friends and family to us so that we may review their arrangements for the
coming onslaught.

We invite solicitors and accountants to refer clients to us, similarly.

We invite enquiries directly.

Investors must secure their capital and ensure it retains purchasing power

At Armstrong Davis we are serious about preserving capital, first and foremost.

We merge our expertise of markets and macroeconomics with financial planning tools to provide
excellent financial advice to high net worth families and business people and trustees.

Please remember, investments can fall as well as rise – and they will.

All the very best from the team at Armstrong Davis Ltd for the festive season and for 2009.


JD, I note your prediction for house prices made here in December 2008 and you quote Halifax and Nationwide. You predict falls of 40%-50% . Its now summer 2009 and Halifax and Nationwide are saying that prices have and continue to rise. Did your crystal ball get it wrong or you?

Posted by Steve Hunter on August 12, 2009 at 3:52 p.m.

They said prices would rise in 2007, 2008, 2006, 2005, 2004 etc etc Stopped clocks etc. Why on earth do you listen to them when they do not care about you? I only quote their stats or to dissagre with their forecasts. Listen to the audio on 10 September with Declan Curry and watch the Sky News on 2 September. Thx for posting.

Posted by jd on September 22, 2009 at 6:19 p.m.

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