Given the Prime Minister’s announcements on 31 October we thought we should send an update with our initial reactions to the latest grim news.
The government has announced another national lockdown. This is dreadful news for many individuals and businesses. While we are nervous about the big picture, Satis finds itself in a very fortunate position for the following reasons
- Colleagues. Our colleagues have demonstrated that we can run the business successfully while working from home. The IT on the whole works well. All data is held securely and we can access all software remotely and securely. Our colleagues are dedicated to continuing to serve our clients as evidenced by their actions over the last six months. There have been some immensely annoying glitches and we continue to work to reduce these frustrations
- Clients. Our clients have been built up over the years by referrals from other clients. Every client is unique and has unique requirements and goals but they share some common attributes, most importantly that without exception they are individuals who care very much about their community, their world. They are also financially secure. They, like me, worry about the future but do so from a position of strength.
- Shareholders. Our shareholders are supportive. We are a small private company with no pressure to focus on our share price or dividend policy. We have no big institutional shareholders nor short-term focussed private equity backers. Our profits may dip and our shareholders will not enjoy that but they will tolerate that and are able to take a medium term view
- The balance sheet. Our business is well capitalised. We have a few regulators but the key one – the Financial Conduct Authority – stipulates a minimum level of what is known as “capital adequacy” which is a minimum amount of liquid capital we must hold. Despite recent increases in this amount our bank balances are far in excess of what is required by the FCA.
- We have been here before. During the first lockdown we were learning on the fly. The weather was better than this time around but we have a good idea of what to expect and how to manage the practicalities. We have members of staff who are able and willing to walk or cycle to our offices and they will keep the mechanics of post collection going. We have a stretched but able IT department who keep an array of software and hardware functioning.
Investment
We spend a lot of time working on investments. We estimate perhaps 25% of our efforts are directly focussed on investment advice. All portfolios have declined in value over the last week as markets become more nervous of the financial impact of Covid. As I have discussed with many of you over the last six months, the best financial academics in the world are struggling to make anything but the vaguest predictions particularly for the short term. There is simply no particularly good historic data which is a good frame of reference for the current circumstances.
In short, we (along with the government) have no real idea what the near term future looks like. This is hardly reassuring I know but it is the truth. We do however retain our confidence in capitalism and its ability to look after itself. Economies have been through many crises before and, with some exceptions, have emerged on the other side of each crisis with a functioning capital market. I have discussed the exceptions before and agree that they are scary. We therefore continue to recommend highly diversified low cost portfolios managed with a tortoise rather than hare approach.
There are many areas of the economy that are in very serious difficulty. Obvious ones include the arts, travel and hospitality but do not forget the gig economy and the entire retail sector (except supermarkets). However the Chancellor decides to fund our getaway, unemployment is going to rise sharply. For those of us that remember the 1970s and 1980s we cannot escape our trepidation about high levels of debt and price inflation. None of those gloomy sentences cause us to alter our investment approach.
Times of dislocation are great breeding grounds for snake oil salespeople. Witness the recent rise in fraud and scams. In our world this will be translated as a sooth sayer or pied piper who has the investment answer. Not only does he (and it probably will be a he) have the investment answer – he also has the proof. On top of that he invested in Zoom in January 2020. There will be all manner of compelling stories about how a new approach is needed for a new paradigm. Please treat such approaches with great scepticism. We continue to happily offer a second opinion service. For existing clients and referrals from existing clients we offer the service free of charge. We will review and offer initial impartial advice on any financial planning matter including investment strategies.
We have had an interesting internal debate recently on how to measure decision taking success. Should one judge the success of a decision on inputs or outputs? If one takes into careful account all the available information and makes the decision on that basis does that make the decision a good one? Or are outputs a better gauge – is the result of the decision the best measure? In a cold theoretical laboratory the former is clearly the victor. We should strive to remember this but it is tough when decisions lead to bad outcomes. You may remember Dr Phil Hammond who spoke at a client appreciation event (remember them? What fun they were). He suggested judging decisions on whether they were intelligent and kind. I think I prefer that measure.
Our biggest worry is the effect on the country’s morale. This horrible disease affects all age groups but the physical effects on average worsen as the sufferer’s age increases. The other effects however such as the financial and mental health effects are far more complicated. If you are young, or are in a poorly paid or insecure job, or are single, or work in a crowded or poorly ventilated environment the effects of Covid seem desperately unfair. This feeling of unjustness will work against the spirit that for many of us pervaded the summer – the feeling of all being in this together. As most of you will know I am no Boris Johnson fan but whoever is in charge is going to have a desperately difficult job juggling managing Covid, public opinion and public health never mind the public finances.
Hot on the heels of that worry are climate change, Brexit and the US election. I can write about them another time.
Conclusion
The financial effects of the recently announced lockdown will be brutal. Satis are in a strong financial position and will continue to advise clients. If you have any queries at all (investment, taxation, legal, philanthropy – you know the areas we cover) or are seeking reassurance or would just like a chat then please contact us. As you know our telephone system has proved intermittently unreliable. Many of us have company funded mobile telephones, please use these telephone numbers to contact us or email.
The next months or maybe even years will be challenging for all. We are confident that one day this will be in our rear view mirror, we just do not know when.
We have no detailed idea what to expect in the short term regarding the economy. Anybody that says the reverse is deluded. Our core investment advice is unchanged. In these uncertain times expect your portfolio to be volatile.
We find ourselves in a fortunate position and very much look forward to hearing from you.