tag:blogger.com,1999:blog-248181832024-03-08T07:56:16.070+08:00Tidbits here and thereShreenihttp://www.blogger.com/profile/08742144807675237049noreply@blogger.comBlogger230125tag:blogger.com,1999:blog-24818183.post-14276969610608485432022-11-22T17:27:00.001+08:002022-11-22T17:27:11.785+08:00UK's Silicon Valley aspirations and the witch hunt of middle-income professionals<p>We are now past the <a href="https://www.gov.uk/government/speeches/the-autumn-statement-2022-speech" target="_blank">autumn budget</a>, which ended up being another cornucopia of tax increases, stealth or otherwise, but a lot of that was along the <a href="https://www.thisismoney.co.uk/money/markets/article-11420145/Kite-flying-brace-Budget-seeks-50bn-hole.html" target="_blank">expected lines</a> anyway. But there was some interesting reading.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhrelP39DHE8bEnQr-JtUheNDwqKW70xDoTvqCUW9r6O-oExyRMkKGjTtnmVPWsz6qY7VpE_uyOhewFuib8eAtRBHgliv-vy8A4TvGFyCqZRmpIhih2WWym15hKSfoja70Y-4Sa_F6OUZbdMrQecoNBnzW1TY-3o0qRdzru2V3bJqD7F-yDraE" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="630" data-original-width="1200" height="336" src="https://blogger.googleusercontent.com/img/a/AVvXsEhrelP39DHE8bEnQr-JtUheNDwqKW70xDoTvqCUW9r6O-oExyRMkKGjTtnmVPWsz6qY7VpE_uyOhewFuib8eAtRBHgliv-vy8A4TvGFyCqZRmpIhih2WWym15hKSfoja70Y-4Sa_F6OUZbdMrQecoNBnzW1TY-3o0qRdzru2V3bJqD7F-yDraE=w640-h336" width="640" /></a></div><p></p><p>If you go through the transcript of <a href="https://www.gov.uk/government/speeches/the-autumn-statement-2022-speech" target="_blank">Mr. Hunt's speech</a>, you will find that he mentions the <b>Silicon Valley </b>aspirationally at least twice in his speech:</p><blockquote><br class="Apple-interchange-newline" />I want to combine our technology and science brilliance with our formidable financial services to turn Britain into the world’s next Silicon Valley.</blockquote><p></p><p></p><blockquote><p>Three priorities for growth, then. Energy security, investment in infrastructure and a plan to turn the United Kingdom into the world’s next Silicon Valley.</p><p></p></blockquote><p>This means he wants to foster a culture of <b>"growth"</b> (also mentioned 28 times in his speech). This would entail creating an environment of higher investment and higher entrepreneurism. The government wants companies, new or existing, to feel optimistic enough about the prospects of this country that they are willing to put either their real capital, or their opportunity capital, bloody and sweat into this country to create something out of nothing. </p><p>Exactly how is increasing taxes, both individual and corporate, going to inculcate that culture that will attract growth? It won't, but this is where the other side of the British tax system comes in..</p><p>The reality is that the UK tax code creates a punitive environment for those who aspire to get past middle income. The tax code, and consecutive chancellors (and the opposition parties, seeing their manifesto), all believe that £100K is too rich for a professional. There are evidences abound of this kind of thinking - <a href="https://www.gov.uk/income-tax-rates/income-over-100000" target="_blank">Personal Allowance Taper</a>, elimination of <a href="https://www.gov.uk/tax-free-childcare" target="_blank">Tax Free Childcare</a>, and the <a href="https://www.gov.uk/tax-on-your-private-pension/annual-allowance" target="_blank">Pensions Annual Allowance Taper</a> - all examples of the tax code doling out just that extra lit bit of punishment because someone got that extra little bit of fortune. </p><p>In each of the above case, we apply cliff edges and tapers such that planning someone's annual income becomes a game of pigeonholing their incomes - a dangerous game prone more to be lost than to be won. Dangers in this case are literal - <a href="https://www.ftadviser.com/pensions/2022/06/09/how-the-annual-allowance-is-driving-doctors-out-of-the-profession/" target="_blank">Doctors unwilling to work additional hours</a> for fear of a retrospective tax charge! </p><p>Let me tell you a little secret - £100K for a professional in the tech economy, living in London or thereabouts, is not a rich salary. It is just about making ends meet. It might be okay for a younger professional living on their own, but if it is a single-earning couple, or worse still, a single-earning family with children, £100K doesn't do much. </p><p>But hold on, isn't the median income £31,400 and isn't £100,000 more than 3 times that much and hence should avail no empathy from the general public? Yes, the median income is indeed £31,400 and we should do our level best to move that upwards so more of the local population can enjoy a better standard of living, but it shouldn't come at the cost of us punishing anyone who earns a higher living. </p><p>Economies are not zero sum games. In any economy, people of some professions, either because of the high level of training required, or due to demand-supply imbalance, will be paid significantly higher salaries than the medians. That's OK. That's how you get doctors, or PhDs, or software engineers. You also get a bunch of profligate investment bankers, but that's OK too - they have a role in the society too. And remember we tax them all at the highest marginal rate anyway. </p><p>In the India of late 1980s, we were besotted with a similar mentality. We believed that if we let anyone get rich in a country with so many poor, we were introducing moral hazard. Then by accident, India <a href="https://en.wikipedia.org/wiki/Economic_liberalisation_in_India" target="_blank">liberalised</a>, creating truck loads of newly minted rich. In doing so, however, we also kickstarted the growth of the economy that leads to <a href="https://www.forbes.com/sites/niallmccarthy/2019/07/12/report-india-lifted-271-million-people-out-of-poverty-in-a-decade-infographic/" target="_blank">100s of millions of Indians to be lifted out of poverty and destitution</a>. So, what's more important, raising people out of poverty, or preventing some people from getting rich?</p><p>Remember that the people who lay the seeds for exponential growth, i.e. Entrepreneurs, or the professionals who help us get there, have to train hard or deal with other obstacles to get to where they are, and one of the motivations that keeps them going is to enjoy a reasonable portion of their wealth themselves when they succeed in doing so, or fail trying. Being ignorant of this basic tenet of psychology will only doom any attempts we make of creating room for economic expansion. </p><p>Some will say "trickle down economies" don't work. That is a moot point in the UK. We already have a robust system of taxing people up to 45% of their income (and a little more if you add in NI) or their margin income while alive and up to 40% when deceased, and that is enough sharing of their wealth for the purposes of nation building - we don't need to go overboard with punitive treatment of wealth. </p><p>As someone with socialist leanings on many days, I have no problem paying high taxes on high income. I just believe that a simple, fair, predictable tax code that makes responsible tax payers of our best talent is a far better outcome than the witch hunt at arbitrary thresholds this country has resorted to. If overall taxes maxed out at 45% and inheritance tax progressively went up with thresholds between 20-40%, then rest of the code becomes a good meeting ground of the needs for both the next Silicon Valley as well as British Compassion. </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEi3uvlHzAXC0vZTdvzvuwWHpPuN7PjEZiZ5_Y9AUs0XMoC6EJ3SFFo9gS47FTe77BGQ1Hq41mJqB9rppzHQ865GIOZyZet5DAIjpCj7kiKJk-RmF3HpudNlcERA-6M1zYsjyGvWdhlwblXpqqKU1wZnebvca3R2VAChPk5cujzH9HeKsPhJ5Wg" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1690" data-original-width="1600" height="640" src="https://blogger.googleusercontent.com/img/a/AVvXsEi3uvlHzAXC0vZTdvzvuwWHpPuN7PjEZiZ5_Y9AUs0XMoC6EJ3SFFo9gS47FTe77BGQ1Hq41mJqB9rppzHQ865GIOZyZet5DAIjpCj7kiKJk-RmF3HpudNlcERA-6M1zYsjyGvWdhlwblXpqqKU1wZnebvca3R2VAChPk5cujzH9HeKsPhJ5Wg=w605-h640" width="605" /></a></div><br /><br /><p></p><p>If we can't get a balance right, let's remember that the smartest people have a choice - they don't have to come here, or stay here, and build the great companies of the next generation - they will go where the world doesn't target them for wanting to get rich. </p><div class="blogger-post-footer"><script type="text/javascript"><!--
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</script></div>Shreenihttp://www.blogger.com/profile/08742144807675237049noreply@blogger.com0tag:blogger.com,1999:blog-24818183.post-62819717497311249972022-11-15T17:08:00.000+08:002022-11-15T17:08:08.783+08:00Review of UK's tax growth ahead of Autumn Budget<p><span style="font-family: Arial; font-size: 11pt; white-space: pre-wrap;">This week we are expecting another budget from another Chancellor in the UK. Ahead of the budget, there has been a lot of <a href="https://www.thisismoney.co.uk/money/markets/article-11420145/Kite-flying-brace-Budget-seeks-50bn-hole.html" target="_blank">kite flying</a>, with promises to look at almost every avenue available at the hands of the government, to fill the purported £50-£55 Bn gap in the fiscal books. </span></p><p><span style="font-family: Arial; font-size: 14.6667px; white-space: pre-wrap;">Regardless of the options Jeremy Hunt deploys to solve this problem, let’s take a look at the UK's public finances. Receipts as a percentage of GDP is already nudging <a href="https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-annual-bulletin" target="_blank">30%</a> with over £716 Billion is collected by the country as taxes, both direct and indirect. Add another £55 Bn, or about 7% more in tax collections, to this and we are talking about taking out another ~2.4% of GDP towards tax collections. That will leave the UK north of 32% - a historical high.</span></p><p><span style="font-family: Arial; font-size: 14.6667px; white-space: pre-wrap;"><br /></span></p><p></p><div class="separator" style="clear: both; font-family: Arial; font-size: 14.6667px; text-align: center; white-space: pre-wrap;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgYBqP04_8yQggLMn1DikGvuep64ZW49We_wvM7qwkhHCwm7hM8kM6PGSmbDvjGkZJZiWf2_-gsZ2Z71dWF5y8KCeka3qQZpyOvECwPRv7KpET6KBo1nkcN-kyHlzPxH4TNoCR17dZsnebDKefR9K_Nb_WYWpUaPR8z4XOd04_-p2pzprbGqK8" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="945" data-original-width="1417" height="426" src="https://blogger.googleusercontent.com/img/a/AVvXsEgYBqP04_8yQggLMn1DikGvuep64ZW49We_wvM7qwkhHCwm7hM8kM6PGSmbDvjGkZJZiWf2_-gsZ2Z71dWF5y8KCeka3qQZpyOvECwPRv7KpET6KBo1nkcN-kyHlzPxH4TNoCR17dZsnebDKefR9K_Nb_WYWpUaPR8z4XOd04_-p2pzprbGqK8=w640-h426" width="640" /></a></div><br /><span style="font-family: Arial;"><span style="font-size: 14.6667px; white-space: pre-wrap;">Recently, I <a href="https://www.shreeni.info/2022/10/a-review-of-my-households-budget.html" target="_blank">wrote about where our household budget gets allocated</a>. That took a look at household finances on a post-tax basis. On a pre-tax basis, for every £100 earned, that represents somewhere around £70 as £30 is taken off the top in the form of income taxes and NI. This is despite the fact that I aggressively employ tax saving mechanisms - primarily through pensions relief.
Of the £70 we get in hand, some £22.33 goes towards VATable expenditures, giving the exchequer £3.72 in VAT collections. Of insurance premiums worth £2.87 our household pays in a year, the government collects £0.31 in Insurance Premium Taxes.
On SIPP Contributions, roughly £17 in our case, the government has a claim on deferred taxes, which depends on how you withdraw, but can go all the way up to 55% (for those over lifetime allowance). If you take a blended rate of 32%, that’s another £5.44 for each year’s SIPP collections that are due to be collected by the government in the future.
If you were somehow lucky enough to put away some money into savings, say £15.47 roughly in our case, then there is capital gains due on it, but not just on gains made this year, but likely of gains from past years. If I were to assume all my past monies add up to roughly 5 times my current year’s savings, and apply a 7% return on capital, that’s £6.50 in capital gains this year, or £1.30 due to the Chancellor’s coffers in form of deferred capital gains.
Remember that when you die, you got to give back 40% of your wealth to the government too, and if you were to apportion that at 1% for each year (I am 42 years, and a life expectancy of 82 seems fair to me), that’s an additional £1.10 in taxes owed, again the future. </span></span><p></p><p><google-sheets-html-origin></google-sheets-html-origin></p><table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: Arial; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="300"></col><col width="100"></col></colgroup><tbody><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Income"}" style="border: 1px solid rgb(0, 0, 0); overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Income</td><td data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":100}" style="background-color: #d9ead3; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">£100.00</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":" - less direct taxes"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">- less direct taxes</td><td data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":-30}" style="background-color: #f4cccc; border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-£30.00</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":" - less indirect taxes"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">- less indirect taxes</td><td data-sheets-formula="=- 2.8%* (R[-2]C[0]+R[-1]C[0])" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":-1.9599999999999997}" style="background-color: #f4cccc; border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-£1.96</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":" "}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Total VATable Expenditure"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Total VATable Expenditure</td><td data-sheets-formula="=31.9%* SUM(R[-4]C[0]:R[-3]C[0])" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":22.330000000000002}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">£22.33</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":" - VAT on that"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">- VAT on that</td><td data-sheets-formula="=-1*(20/120)*R[-1]C[0]" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":-3.7216666666666667}" style="background-color: #f4cccc; border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-£3.72</td></tr><tr style="height: 21px;"><td style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Insurance Premiums"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Insurance Premiums</td><td data-sheets-formula="= 4.1% * (R[-7]C[0]+R[-6]C[0])" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":2.8699999999999997}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">£2.87</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":" - IPT on Insurance Premiums"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">- IPT on Insurance Premiums</td><td data-sheets-formula="=-1*(12/112)*R[-1]C[0]" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":-0.30749999999999994}" style="background-color: #f4cccc; border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-£0.31</td></tr><tr style="height: 21px;"><td style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"SIPP contribution"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">SIPP contribution</td><td data-sheets-formula="=17" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":17}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">£17.00</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":" - Deferred Taxes on SIPP"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">- Deferred Taxes on SIPP</td><td data-sheets-formula="=-1*32%*R[-1]C[0]" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":-5.44}" style="background-color: #f4cccc; border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-£5.44</td></tr><tr style="height: 21px;"><td style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Investments from this year"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Investments from this year</td><td data-sheets-formula="=22.1%*(R[-13]C[0]+R[-12]C[0])" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":15.47}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">£15.47</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Accrued investments over past years"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Accrued investments over past years</td><td data-sheets-formula="=R[-1]C[0]*5" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":77.35000000000001}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">£77.35</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Gains on it this year"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Gains on it this year</td><td data-sheets-formula="=(R[-1]C[0] +R[-2]C[0] )*7%" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":6.497400000000001}" style="background-color: #d9ead3; border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">£6.50</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":" - Capital Gains on this "}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">- Capital Gains on this</td><td data-sheets-formula="=-1*20%*R[-1]C[0]" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":-1.2994800000000002}" style="background-color: #f4cccc; border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-£1.30</td></tr><tr style="height: 21px;"><td style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":" - Annual share of inheritance tax"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">- Annual share of inheritance tax</td><td data-sheets-formula="=-1*1%*(R[-5]C[0]+R[-4]C[0]+R[-8]C[0])" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":-1.0982}" style="background-color: #f4cccc; border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">-£1.10</td></tr><tr style="height: 21px;"><td style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td></tr><tr style="height: 21px;"><td style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td></tr><tr style="height: 21px;"><td style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Total Taxes collected by the Government"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Total Taxes collected by the Government</td><td data-sheets-formula="=-1*(R[-21]C[0] + R[-20]C[0] + R[-17]C[0] + R[-14]C[0] + R[-11]C[0]+ R[-6]C[0] + R[-4]C[0])" data-sheets-numberformat="{"1":4,"2":"[$£]#,##0.00"}" data-sheets-value="{"1":3,"3":43.82684666666666}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;"><b>£43.83</b></td></tr></tbody></table><p><span style="font-family: Arial;"><span style="font-size: 14.6667px; white-space: pre-wrap;">
If you add it all up, the government claims about £43.83 of every £100 that your employer is willing to employ you at, at least for my household. I am certain the calculation is arguable at best, as some of the deferrals and forward taxes are likely overstated, but it is clear that the government is already taking about £40 for every penny entering middle-income households, despite provisions for tax reliefs. If we were to add another 7% to this, that stresses the finances of households that much further.
</span></span></p><div><span style="font-family: Arial;"><span style="font-size: 14.6667px; white-space: pre-wrap;">The uncomfortable truth is that Kwasi and Liz were <a href="https://www.shreeni.info/2022/10/thoughts-on-taxes-laffer-curve-and.html" target="_blank">directionally right</a> - taxes in this country presently are too high and we need to find a way to take less of the GDP so more money remains in the hands of private hands and deployed back into the economy, generating growth. If at all they hadn’t been so rushed in their policies, we could have potentially given ourselves a fighting chance of taking tax receipts down to 25% of GDP and allowing the economy to grow. Sadly, that’s not something any Chancellor is going to attempt.
The current administration has a tough ask. While they would like to pursue growth, their stated priority, and one reinforced by the ill-fated departure of Kwasi and Liz, is going to be to reduce the fiscal deficit. Whatever mechanisms Jeremy Hunt takes this week to plug that hole, it is clear that he is going to inflict further pain, both on households, as well as on the corporate world. The results of such a tax expansion is only going to leave this country worse off in the medium term.</span></span></div><div><span style="font-family: Arial; font-size: 11pt; white-space: pre-wrap;"><br /></span></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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</script></div>Shreenihttp://www.blogger.com/profile/08742144807675237049noreply@blogger.com0tag:blogger.com,1999:blog-24818183.post-35689333143252570952022-11-08T03:05:00.004+08:002022-11-08T03:05:51.827+08:00Quick Portfolio Update and a debrief on BRK-B<p>A quick note on my portfolio, since I haven't written much for the past 3 months. Things are largely looking okay, specially given that markets have continued to be soft in the intervening 3 months or so. </p><p>Headline Performance Numbers*</p><div><div><div><google-sheets-html-origin><table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border-spacing: 0px; border: none; font-family: Arial; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="100"></col><col width="100"></col><col width="100"></col><col width="112"></col></colgroup><tbody><tr style="height: 21px;"><td style="border: 1px solid rgb(0, 0, 0); overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Return"}" style="border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Return</td><td data-sheets-value="{"1":2,"2":"Alpha"}" style="border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Alpha^</td><td data-sheets-value="{"1":2,"2":"Benchmark"}" style="border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Benchmark</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"1 Year "}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">1 Year</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[24]C[6]:C[6],COUNTA('Alpha calculations'!R[24]C[6]:C[6]))" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.042856834058485775}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;"><span data-sheets-formula="=(IRR!R[68]C[35]-IRR!R[56]C[35])/IRR!R[56]C[35]" data-sheets-userformat="{"2":1,"3":{"1":3,"2":"0.00%","3":1}}" data-sheets-value="{"1":3,"3":0.04583615070876535}" style="font-size: 10pt;">4.58%</span></td><td data-sheets-formula="=INDEX('Alpha calculations'!R[24]C[6]:C[6],COUNTA('Alpha calculations'!R[24]C[6]:C[6]))*100" data-sheets-numberformat="{"1":2,"2":"0.00","3":1}" data-sheets-value="{"1":3,"3":4.724586758603065}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;"><span data-sheets-formula="=R[0]C[-1]-R[0]C4-R[0]C[-3]*(R[0]C[-2]-R[0]C4)" data-sheets-value="{"1":3,"3":0.06869933823831598}" style="font-size: 10pt;">6.87</span></td><td colspan="1" data-sheets-hyperlink="https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview" data-sheets-value="{"1":2,"2":"Vanguard FTSE All World All Cap (Acc) Fund"}" rowspan="3" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; color: #1155cc; overflow-wrap: break-word; overflow: hidden; padding: 2px 3px; text-decoration-line: underline; vertical-align: bottom;"><div style="max-height: 63px;"><a class="in-cell-link" href="https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; color: #942b2b; text-decoration-line: none;" target="_blank">Vanguard FTSE All World All Cap (Acc) Fund</a>+</div></td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"3 Years"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">3 Years</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[35]C[14]:C[14],COUNTA('Alpha calculations'!R[35]C[14]:C[14]))" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.10592556316681412}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;"><span data-sheets-formula="=RRI(R1C[-2], 1, 1+R[0]C[-5])" data-sheets-userformat="{"2":3,"3":{"1":3,"2":"0.00%","3":1},"4":{"1":2,"2":16773836}}" data-sheets-value="{"1":3,"3":0.15205543113800335}" style="font-size: 10pt;">15.21%</span></td><td data-sheets-formula="=INDEX('Alpha calculations'!R[35]C[14]:C[14],COUNTA('Alpha calculations'!R[35]C[14]:C[14]))*100" data-sheets-numberformat="{"1":2,"2":"0.00","3":1}" data-sheets-value="{"1":3,"3":4.316294700879124}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;"><span data-sheets-formula="=R[0]C[-1]-R[0]C4-R[0]C[-3]*(R[0]C[-2]-R[0]C4)" data-sheets-userformat="{"2":2,"4":{"1":2,"2":16773836}}" data-sheets-value="{"1":3,"3":0.07817156401611595}" style="font-size: 10pt;">7.82</span></td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"5 Years"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">5 Years</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[58]C[22]:C[22],COUNTA('Alpha calculations'!R[58]C[22]:C[22]))" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.09645744898539221}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;"><span data-sheets-formula="=RRI(R1C[-2], 1, 1+R[0]C[-5])" data-sheets-userformat="{"2":3,"3":{"1":3,"2":"0.00%","3":1},"4":{"1":2,"2":16770457}}" data-sheets-value="{"1":3,"3":0.11560809016187634}" style="font-size: 10pt;">11.56%</span></td><td data-sheets-formula="=INDEX('Alpha calculations'!R[58]C[22]:C[22],COUNTA('Alpha calculations'!R[58]C[22]:C[22]))*100" data-sheets-numberformat="{"1":2,"2":"0.00","3":1}" data-sheets-value="{"1":3,"3":2.7531607645313017}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;"><span data-sheets-formula="=R[0]C[-1]-R[0]C4-R[0]C[-3]*(R[0]C[-2]-R[0]C4)" data-sheets-userformat="{"2":2,"4":{"1":2,"2":16770457}}" data-sheets-value="{"1":3,"3":0.04354352922354063}" style="font-size: 10pt;">4.35</span></td></tr></tbody></table></google-sheets-html-origin></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;"><br /></span></div><div>As you can see, there has been some improvement in the Alpha numbers. That's largely because I got a one-time tailwind through some 390/340 October PUT spreads that I picked up when SPY was trading at 406 and that handsomely paid off buoying the portfolio in what has otherwise been a time of moderate returns. It was good to have a win, but it is one-time and I don't dwell much on timing the markets as such. </div><div><br /></div><div>There have been some losses on a few tickers - mostly Chinese tickers and big tech - nothing out of the ordinary and very much along the lines to where the market has moved. I reckon the losses and the options win cancel each other out, which was kind of the intended outcome of buying the PUT spreads in the first place. Since I <a href="https://www.shreeni.info/2022/08/portfolio-update-jul-2022.html" target="_blank">last wrote about my portfolio</a>, there have been no material changes to geographic, thesis or term, though I have been putting away more money into long term holdings, increasing the slice of that pie. So, that's that.</div><h3 style="text-align: left;">A debrief on Berkshire</h3><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhIkjjND7xoMOZJXeHYnwTdaYCyEj2A5FDQ-8US8gx2fN8PLmmNOEcYpMrYB8sgZPg_Bg_3nfsW5M54KK2b0bQ0bWUimy6o9o79Xq4Fa30S-KNw1wyjahff2xdUNf04fkRKJdF29WLRPi-OuVRZZMp50MgF14sASI1KES6J5cRpmsAKzOjzshA" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="400" data-original-width="650" height="394" src="https://blogger.googleusercontent.com/img/a/AVvXsEhIkjjND7xoMOZJXeHYnwTdaYCyEj2A5FDQ-8US8gx2fN8PLmmNOEcYpMrYB8sgZPg_Bg_3nfsW5M54KK2b0bQ0bWUimy6o9o79Xq4Fa30S-KNw1wyjahff2xdUNf04fkRKJdF29WLRPi-OuVRZZMp50MgF14sASI1KES6J5cRpmsAKzOjzshA=w640-h394" width="640" /></a></div><br /><br /></div><div><br /></div><div>Now, on to more interesting thoughts in my head. My largest holding is BRK-B and I added significantly to that position in the past 3 months (increasing my holdings by about 25% during the period). Over the weekend, Berkshire dropped their <a href="https://www.berkshirehathaway.com/qtrly/3rdqtr22.pdf" target="_blank">quarterly results</a> and I want to put some thoughts about it here. People smarter than me have analysed the results, so please head over here to read, what I believe is the best analysis. </div>
<blockquote class="twitter-tweet"><p dir="ltr" lang="en">Berkshire Hathaway released its 3Q 10-Q and earnings release this morning. In what was a very quiet quarter on the capital allocation front, there are a number of interesting developments in the filing and particularly the MD&A. A few comments on the quarter and developments. 1/</p>— Christopher Bloomstran (@ChrisBloomstran) <a href="https://twitter.com/ChrisBloomstran/status/1589074558744948736?ref_src=twsrc%5Etfw">November 6, 2022</a></blockquote> <script async="" charset="utf-8" src="https://platform.twitter.com/widgets.js"></script>
<div><br /></div><div><br /></div><div><br /></div><div>Onto my thoughts - BRKB trades at a Market Cap of $630B. It holds $105B of cash. It also holds marketable securities worth $300B. That makes the core Berkshire businesses worth something like $225B. The core businesses generated $6.9B in the last quarter and $21.7B in the three quarter this financial year. </div><div><br /></div><div><div>Assuming that the core businesses generate another $6.9B in the coming quarter, that's roughly a $28.9B print for the full year. So, the core businesses are transacting at 7.8x P/E. But add back the $4.6B it collects on its cash holdings each year, and suddenly, the print per year gets close to $33.5B (even after excluding all currency fluctuations), putting the P/E closer to 6.7x.</div><div><br /></div><div>(Please note I am not adding dividends in the net print, as the valuation of that cash flow is already fully baked into the $300B of the marketable securities, that is already valued by the market inclusive of the dividend generation of those companies. So, this $33.5B print is everything core to the business plus coupons from the treasuries.)</div><div><br /></div><div>There is obviously some threat to the business from the Alternate Minimum Tax provision in the <a href="https://en.wikipedia.org/wiki/Inflation_Reduction_Act_of_2022" target="_blank">Inflation Reduction Act</a>, as unrealised gains might be taxed taking material cash out of the business. Berkshire's quarterly statements have this wording:</div><div><br /></div><div><div><blockquote>On August 16, 2022, the Inflation Reduction Act of 2022 (“the 2022 act”) was signed into law. The 2022 act contains numerous provisions, including a 15% corporate alternative minimum income tax on “adjusted financial statement income”, expanded tax credits for clean energy incentives and a 1% excise tax on corporate stock repurchases. The provisions of the 2022 act become effective for tax years beginning after December 31, 2022. We currently do not expect a material impact on our consolidated financial statements. However, we expect future guidance from the Treasury Department and will continue to evaluate the impact of the Act as more guidance becomes available.</blockquote></div></div><div>While I don't have enough understanding of either the changes in the tax provisions, or Berkshire's accounts, to be able to present a guidance on this, early indications from external commentators place the hit at <a href="https://twitter.com/ChrisBloomstran/status/1589076614683713536">about $3B a year</a>.</div><div><br /></div><div>Basing it on that estimate, the annual print after taking that out comes out to be $30.5B, or about $30B after rounding it down, putting the core businesses at 7.5x P/E. That's an incredibly cheap price point for a collection of business that has performed very well, sound management, sound balance sheet and with no obvious existential threat. Some businesses will face some head winds from time to time, but none of it explains the super cheap valuation.</div></div><div><br /></div><div><div>If the core businesses were to roughly be even 80% of what S&P 500 is trading at (19.6), that would mean a P/E multiple of 16, or valuing the core businesses at $480B, and add back the cash and marketable securities, we would get $885b market cap, some 40% higher than today.</div><div><br /></div><div>Even if the market never re-rates the privately held businesses to a more public-facing valuation, 7.5x is an incredible good P/E to pay for a business with an excellent record of capital allocation. As an ongoing shareholder, this means Berkshire's cashflow can be put to good use by reducing the share count as and when deemed necessary by the management, or by putting it to good use through acquisitions. </div><div><br /></div><div>I might be missing something in my calculations here, but unless I am massively off the mark, I don't see how this is not one of the best businesses to hold in the long run. I definitely plan to do so.</div></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">* Beta for this calculation is monthly. </span></div><div><span style="font-size: x-small;">+ I use Vanguard FTSE All World All Cap (Acc) as my benchmark. Ideally I should be using the underlying index and not the fund itself, but doing so is a lot harder. Getting good clean data on the index, and needing to track its tax and dividend implications gets too cumbersome. Using the fund is the closest proxy, however, I am aware that it is not a perfect benchmark, as fees get added, and tracking errors start showing up. I believe they are minor in larger scheme of things.</span></div></div><div><span style="font-size: x-small;">^ Risk free return for Alpha calculations taken from <a href="http://www.worldgovernmentbonds.com/bond-historical-data/united-kingdom/10-years/" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; color: #942b2b; text-decoration-line: none;">http://www.worldgovernmentbonds.com/bond-historical-data/united-kingdom/10-years/</a> </span></div></div><div><br style="background-color: white; font-family: Lora, serif; font-size: 16px;" /></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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This post is about an analysis based on that consolidation.</p><p>As an introduction, the analysis draws on 24 months of data, starting from 2020-October and ending in 2022-September. 24 months gives enough time to smooth out any minor ups and downs in the expenditure in months where major expenses tend to skew the data. Starting from October 2022 allows us to look at the expenditure on a regularised basis, so as to not factor in the lockdown periods of the pandemic, where expenditures were somewhat different, for obvious reasons.</p><p>In order to ensure that no one can double guess our exact income from these numbers, I have slightly obfuscated the numbers, by taking out some sections that are not relevant to this analysis, while keeping the statistical significance of this breakdown intact. Trust the proportions, not any reverse engineered absolute numbers!</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhKdHyeOEbOyggjB7TN9fHfkrmROftd0tBEEjg0l0-TqUkRkY8UAfUkHWG4gmkcYTSIOQEG5t3qJRcvERudkf7PanlH9eW-if6-e5-jowrCtjqP_zYK9RrKKeWEfXEh_16L_Ah3C7ffeGRS76mafkPyg7qIlgnP_A1mjy8_8PQ4wB_JbgjIRCw" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="438" data-original-width="708" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEhKdHyeOEbOyggjB7TN9fHfkrmROftd0tBEEjg0l0-TqUkRkY8UAfUkHWG4gmkcYTSIOQEG5t3qJRcvERudkf7PanlH9eW-if6-e5-jowrCtjqP_zYK9RrKKeWEfXEh_16L_Ah3C7ffeGRS76mafkPyg7qIlgnP_A1mjy8_8PQ4wB_JbgjIRCw=w640-h396" width="640" /></a></div><p>For context, the percentages represent each slice as a <b><i>percentage of our total post-tax income</i></b>. My wife and I both have salaried jobs and hence our incomes comes deducted with <a href="https://www.which.co.uk/money/tax/income-tax/tax-codes-and-paye/what-is-paye-ac3jl5z72h2g" target="_blank">PAYE</a> and <a href="https://en.wikipedia.org/wiki/National_Insurance" target="_blank">NI</a>. So the numbers in this post use post-tax income as the denominator in the calculations. If you see Tax being only 2.6%, that's because that slice is the additional taxes we pay after we get money in our hands. Paying only 2.6% taxes on our total incomes can't happen while we are still living under HMRC's aegis!</p><p>For further context, we are a family of 3 living in a Zone 3/4 suburb of London, owning a terraced townhouse on 90% mortgage, with our child attending state primary school. We like to vacation 1-2 times a year abroad and perhaps a short local getaway once a year, and eat out between 6-8 times a month. My wife works fully remote, while I go to office 3 times a week, sometimes more. Based on government data, we are in the <a href="https://www.ethnicity-facts-figures.service.gov.uk/work-pay-and-benefits/pay-and-income/household-income/latest" target="_blank">top-7% of household income in this country</a>, so we are definitely blessed for what we have, but we aren't rich by any means and I believe our lifestyles mimic middle-class living in London. </p><h4 style="text-align: left;">Rental Mortgage</h4><p></p><p>In rather self-explanatory slice, this is the amount of money we have paid towards our mortgage over the past 2 years. This also includes some pre-payment that we paid from redemptions of our past investments. Without the prepayment, this slice would have been something like 30%. Clearly the biggest expense in our house is our mortgage. Given the high LTV of our house (90% when we bought) and the fact that we bought it somewhat late in our lives (just about touching 40 years in age each) making sure we got a 27 years loan (as against 35 years for younger people), this is likely going to stay high for a while, unless we put away a lot of our monies in the direction of paying off our mortgage early. That day may come, who knows!</p><h4 style="text-align: left;">Discretionary Expenditure</h4><p>This includes everything that we choose to spend on a discretionary basis, including eating out, parties, events, sports etc. Vacations are included in this section, and so are one-time expenses like buying a car, or getting some upgrades done to the household. </p><h4 style="text-align: left;">Household</h4><p>This includes all of our non-discretionary household expenditures, such as groceries and essential home maintenance. This also includes fuel, day to day healthcare, online purchases on sites like Amazon, and miscellaneous spending of various types.</p><h4 style="text-align: left;">Childcare and Courses</h4><p>This includes what we explicitly pay on account of our child - includes courses, after or pre-school clubs, and any tuitions we put her on. This is obviously not the full extent of our expenditure on our child, but represents the most explicit line items.</p><h4 style="text-align: left;">Insurance</h4><p>This includes home insurance, car insurance, healthcare insurance (we have our own private family healthcare insurance), critical illness Insurance and obviously life insurance. It is a surprisingly large proportion of our expenditure, with some of the taxes being mandated by the government, but the rest allow my family to sleep tight at night. I chalk it up to "it is what it is and I would much rather be protected than not". </p><h4 style="text-align: left;">Tax</h4><p>As mentioned above in the context, this represent taxes we pay from our post-tax income, includes <a href="https://en.wikipedia.org/wiki/Council_Tax" target="_blank">council tax</a> and road tax for most part, but also a tiny representation from a small amount of tax we paid on some capital gains last year. </p><h4 style="text-align: left;">Charity</h4><p>This is one of the things my wife and I like to do - we like to do a little something each month, instead of waiting for our old age to give away parts of our wealth. We feel very privileged to be where we are and like to share some of it as we go along. By God's grace, we have been able to afford to do so, so we like to keep doing it. The 2.3% here is likely a small understatement, as some of our giveaways in 2020-2021 were from our monies in India and hence not counted here, but which we are now firmly doing from our incomes in the UK, so it is likely to land somewhere at about 3% in future years. So long as we can continue to afford it, we hope we can maintain that giveaway in the future too.</p><h4 style="text-align: left;">Utilities, Subscriptions & Commute</h4><p>Largely self-explanatory, utilities includes gas, electricity and water, subscriptions include everything we subscribe for including BBC License, Now TV (from time to time), Netflix, Newspapers and Magazines. Commute is largely bus and train expenditures.</p><h4 style="text-align: left;">Investment and External Remittances</h4><p>Last but not the least, this is the portion of our money we can put away, either by investing it, or by remitting it for our family's (or our own) use in India. The remittances are becoming smaller with time, as we have enough monies in India that we can put to use for such needs. I expect this section to be largely investment in the future.</p><p><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhEK9bYMM2tSV1WtfHL7fBjZ-CZzZqNmMLBf_Rh1ykhpcVHh8I98BjC8v30-XpztUtlp5eBi1wUFIOViNJEQsw_bH_ih84pFAAy_DyPXCEW7r8ymUKShPbdZbwaYY7KUJnqQOR3vrOcUvvogvGoU6uWS47zu63GjROM2NyUZf3RncV7jw44760" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img alt="" data-original-height="533" data-original-width="800" height="426" src="https://blogger.googleusercontent.com/img/a/AVvXsEhEK9bYMM2tSV1WtfHL7fBjZ-CZzZqNmMLBf_Rh1ykhpcVHh8I98BjC8v30-XpztUtlp5eBi1wUFIOViNJEQsw_bH_ih84pFAAy_DyPXCEW7r8ymUKShPbdZbwaYY7KUJnqQOR3vrOcUvvogvGoU6uWS47zu63GjROM2NyUZf3RncV7jw44760=w640-h426" width="640" /></a></p><h4 style="text-align: left;">Summary</h4><p>I started off thinking about our expenditures in response to the <a href="https://en.wikipedia.org/wiki/2021%E2%80%93present_United_Kingdom_cost_of_living_crisis" target="_blank">cost of living crisis</a>, that all of us are living through. I was wondering if there are expenditures we can cut. There is obviously potential here - mostly around the discretionary expenses. In fact I can see that the line item in our budget has seen some level of inflation in the past few months as everything has become more expensive and might need some moderation in the coming months. My purpose of doing this analysis, and sharing it with readers, is to have a medium term outlook of what it has been so I can plan properly.</p><p>I don't think too many households do this analysis on their own, forget having something ready enough to share with others. I am hoping that by putting this together, I have some frame of reference myself, as well as encourage others to analyse their own expenditures and write a post this like this themselves. If you write one, please drop a link in comments so I can go take a look. </p><p>If you have comments about some of the expenses here - something too big or too small, call it out too. Would love to hear your thoughts!</p><p><br /></p><div class="blogger-post-footer"><script type="text/javascript"><!--
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As I <span style="font-family: inherit;">write this, Lis Truss is <a href="https://www.bbc.co.uk/news/live/uk-politics-63309400" target="_blank">also gone</a>. </span></span><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">In the last few months, we have gone from wanting to be </span><a href="https://lordslibrary.parliament.uk/spring-statement-2022-key-announcements-and-analysis/" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">conservative with finances</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, to want to </span><a href="https://www.standard.co.uk/news/uk/kwasi-kwarteng-mini-budget-announcement-main-points-income-tax-stamp-duty-banker-bonuses-b1027680.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">grow the country</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> by being fast-and-loose with finances, to now wanting to be </span><a href="https://www.theguardian.com/politics/2022/oct/17/new-chancellor-shreds-pms-economic-plans-in-unprecedented-u-turn" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">conservative again</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> with finances. All along, it has been the </span><a href="https://en.wikipedia.org/wiki/Conservative_Party_(UK)" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">same party</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> in power and the same MPs representing us in the Parliament. The fact that our votes can represent 2 extremes within such a short span of time is bewildering to me at the very least. I come from a country with a </span><a href="https://en.wikipedia.org/wiki/First_Vajpayee_ministry" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">volatile political history</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, but even that is suddenly looking dead boring in comparison.</span></span></span></p><span id="docs-internal-guid-ddd76141-7fff-92b8-f21c-2518f68124c5"><span style="font-family: inherit;"><div><span><span style="font-family: inherit;"><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><br /></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFfjTNWS_zTt2qsqBOhCzJDCYfE7bLyNzRGHqtauMJX44WiL4JWi91RbXVvZOK_Cwx7CVFYO4J8p8o02ICIrJmBMdBTs0QWE6QXBea9PFLVLSxchfmexCKZo3Hlr_ZyV0rjOVUv6PEioYZhT0y-Ln08R6wiI0CfYTHj-UfHAVB0cnN0DyVOUo/s1024/GettyImages-1243671929.webp" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="768" data-original-width="1024" height="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFfjTNWS_zTt2qsqBOhCzJDCYfE7bLyNzRGHqtauMJX44WiL4JWi91RbXVvZOK_Cwx7CVFYO4J8p8o02ICIrJmBMdBTs0QWE6QXBea9PFLVLSxchfmexCKZo3Hlr_ZyV0rjOVUv6PEioYZhT0y-Ln08R6wiI0CfYTHj-UfHAVB0cnN0DyVOUo/w640-h480/GettyImages-1243671929.webp" width="640" /></a></div><br /></span></div><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">After years of Chancellors essentially just tweaking numbers here and then, Truss/Kwasi combo is the first one to propose a significant change of direction for taxation in this country. Obviously that didn’t go well either among their </span><a href="https://inews.co.uk/news/politics/mini-budget-tory-mps-publicly-criticised-kwasi-kwarteng-scrapping-higher-rate-income-tax-1889775" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">fellow Parliamentarians</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, or the </span><a href="https://www.telegraph.co.uk/politics/2022/09/30/liz-truss-news-kwasi-kwarteng-mini-budget-obr-labour/" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">general public at large</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">. There is obviously the issue of optics playing a bit of a part here, what with the tax changes being proposed as largely </span><a href="https://www.thenational.scot/news/22601685.mini-budget-analysis-finds-richest-5-will-get-richer-95-uk-get-poorer/" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">benefitting the ultra-rich</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> and the allegations of promoting trickle-down economics, as it were.</span></span></p><span style="font-family: inherit;"><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: inherit;">I was originally intending to write a strongly worded criticism of the original Kwasi proposals, but I have wanted to give myself time to avoid the immediate emotions from being a factor in what I write. I would much rather write a well thought-out piece than a rant.</span></span></p><span style="font-family: inherit;"><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">To start off with, I am a believer that taxation in this country is too high and </span><a href="https://cps.org.uk/wp-content/uploads/2021/10/211020221923-2021TaxCompetitivenessNote3.pdf" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">doesn’t necessarily encourage</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> investment, growth or migration. So I am supportive of the general idea of finding options to reduce taxes. </span></span></p><span style="font-family: inherit;"><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">On the other end of the national budget, I don’t think the tax monies are spent much towards promoting growth. The Top line item in the </span><a href="https://www.gov.uk/government/statistics/public-spending-statistics-release-may-2022/public-spending-statistics-may-2022" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">budget</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> is Social Care, at £192B, more than Education, Business Strategy, Defence and Transport put together, doesn’t necessarily do much for promoting new economic output. Correspondingly, we spend too little on things like Education, R&D, Business, International Trade and possibly even Transport, that could in theory make a much more positive impact towards economic development in the country. </span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"></span></span></p><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></span></div><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /><br /></span></span></div><div class="separator" style="clear: both; text-align: center;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRqTDi_uMD4q-XsyBhwwXNB0_0Vbx_9ln8sV-1j_-sAUyB8ofEu3K-lMpyjtado6Isu9WUHsy9_Cj9Xoesiy7ma68hqAce9eIUtXN9T5qmKeQ22099AG32Fa3cMacXQghONgv8W66hVdOWyugfqLo9TlZ0O8bGfgcsY1Q3kG7a_ir5OeRVHtc/s1000/298524.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="743" data-original-width="1000" height="476" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRqTDi_uMD4q-XsyBhwwXNB0_0Vbx_9ln8sV-1j_-sAUyB8ofEu3K-lMpyjtado6Isu9WUHsy9_Cj9Xoesiy7ma68hqAce9eIUtXN9T5qmKeQ22099AG32Fa3cMacXQghONgv8W66hVdOWyugfqLo9TlZ0O8bGfgcsY1Q3kG7a_ir5OeRVHtc/w640-h476/298524.png" width="640" /></a></span></span></div><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /><br /><br /></span></span><p></p><span style="font-family: inherit;"><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: inherit;">In a ruthlessly efficient world, we would like to leave taxes at the point where we invest the vast majority of it into economic growth opportunities and as little as possible into anything else. However, the UK considers itself a rich country (~25th in the world), and hence considers itself responsible for the wellbeing for all of its citizens, leaving it spending a third of its tax revenues on Social Care.</span></span></p><span style="font-family: inherit;"><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: inherit;">So, where does all of the criticism of the past few weeks emanate from? It basically comes down to Funding & Implementation. </span></span></p><span style="font-family: inherit;"><br /></span><h3 style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: left;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: inherit;">Funding</span></span></h3><span style="font-family: inherit;"><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">At a fundamental level, every government that seeks to reduce revenues must have a relatively good explanation of how the expectant gap will be filled. It could be by reducing costs, or it could be borrowing money, or finding alternative ways of filling the gap, like earnings from a sovereign wealth fund, which unfortunately the UK doesn’t possess. In case the government seeks to borrow, it must explain how the monies borrowed will update the budget and what it would mean to service the loans. The primary criticism of the mini-budget was that no such explanation was forthcoming, barring the fact that the government hopes to raise enough to cover the costs. Given that interest rates are rising and the pound was already </span><a href="https://yhoo.it/3SfRLOj" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">under some pressure</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, this was going to naturally lead to a rout in both gilts and in the pound. No surprises there.</span></span></p><span style="font-family: inherit;"><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: inherit;">Could the new government have done something different? Of course it could have. The Kwasi/Truss combo could have taken the extra time to put together a plan that sounded reasonable to the audience. It didn’t need to cover every penny of the gap, but just enough to leave the sense of general feasibility among those who tried to crunch the numbers. A small leap of faith would have probably even be desirable as a mark of the government trying to be ambitious. However, what came across was the kind of giant leap of faith and sadly fell flat on its audiences.</span></span></p><span style="font-family: inherit;"><br /></span><h3 style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: left;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: inherit;">Implementation</span></span></h3><span style="font-family: inherit;"><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Let’s say this country managed to get hold of an extra £54b to allocate into reduction of taxes, were the actual announcements made by the Chancellor the best use of that money? In a typical fiscal response, you want the money to go as wide as possible so that the people who get hold of the money spend it, thereby increasing economic activity, and thereby increasing tax base, which fills the reduction in taxes you attempted in the first place. This is in fact the premise of the original Laffer argument which led to the now famous </span><a href="https://en.wikipedia.org/wiki/Laffer_curve" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Laffer Curve</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">. </span></span></p><span style="font-family: inherit;"><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">The peak individual income tax in this country is </span><a href="https://www.spectator.co.uk/article/forget-50p-scrap-the-60p-tax-rate" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">60%</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> without factoring in National Insurance (NI) and 62% if you factor it in. Even leaving aside the peak taxation rate, anyone making over £25,000 per year pay a whopping 30% after including the effects of National Insurance. Any attempts to reduce the tax burden should have started by easing the pressures on these people. Instead, the ex-Chancellor’s attempts at a tax stimulus were widely misdirected, pointing it to the richest people who are well above that in income level, and IR35 contractors, a legislative loophole that has only now been plugged to make contracting and full time employment economically equivalent. </span></span></p><span style="font-family: inherit;"><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">I have also never understood this country's fascination with tapers and cliff edges. There are </span><a href="https://www.moneyhelper.org.uk/en/benefits/benefits-if-you-have-children/changes-to-child-benefit-from-2013" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">too many</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span><a href="https://www.whatinvestment.co.uk/beware-tax-taper-traps-2619652/" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">around</span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">. These all create warps in the tax system, in an attempt to create some sort of social equality, but instead achieving tax complexity and a deep sense of injustice among people caught in these traps. We need to get rid of them, in order to create a simple, fair and progressive system. Such a system might leave the well off getting some benefits that you think they shouldn’t be entitled to, but by the time they get to these levels of income, they would have already paid enough to the exchequer to make any attempts to curtail benefits futile and unworthy. </span></span></p><span style="font-family: inherit;"><br /></span><h3 style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: left;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: inherit;">Summary</span></span></h3><span style="font-family: inherit;"><br /></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: inherit;">What could have been a once-in-a-generation economic masterstroke has been frittered away in an ill-thought attempt to brute force their way into glory. In doing so, they have made it impossible for any cabinet to attempt anything of the sort in the near future, thereby damaging whatever prospects of kicking start growth in the UK, at least through the fiscal route. Sadly, they have also done little to undo the damages of the complicated tax system in this country, which in itself would have been a laudable goal. Such a shame!</span></span></p><span style="font-family: inherit;"><br /></span><br /></span><div class="blogger-post-footer"><script type="text/javascript"><!--
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</script></div>Shreenihttp://www.blogger.com/profile/08742144807675237049noreply@blogger.com1tag:blogger.com,1999:blog-24818183.post-63941598263476469542022-10-16T14:53:00.002+08:002022-10-16T14:56:01.917+08:00Special Situations, and a debrief on $TWTR<div style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: left;"><span style="white-space: pre-wrap;"><span style="font-family: inherit;">While I mostly focus this blog about general thoughts on investment, and not so much on the specifics of the investments and trades I make, I am going to take a bit of detour and use this post to write about one category of investments I do a lot - Special Situations.</span></span></div><div style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: left;"><span style="font-family: inherit;"><span id="docs-internal-guid-448cb66e-7fff-f230-3ef6-08be57c5435e"><span style="white-space: pre-wrap;"><br /></span></span><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">What do Special Situations mean? It is the collection of all situations where something is happening with a particular company/stock/security that may have nothing to do with fundamentals or valuation. These include acquisitions, liquidations, delisting/re-listing/dual-listing, forced selling/buying. </span></span></div><div style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: left;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></span></div><div style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: left;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEj0coRTB9v11A-xha4uH8GE6qySKqVhAimONpEuvc9L8YcZ1eLuYp5YwnNdGT12t3FVXBYH9IQQNoLudwk47E18rx5uD0mKlvh3bCkXxhnely4YeN1w18yrgz7oA0AeNcjr5GyeMBIxs_M9N0bOwfK_atBHgaQrq2agemtt8Cp_pllL9z0rhKc" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="800" data-original-width="1200" height="426" src="https://blogger.googleusercontent.com/img/a/AVvXsEj0coRTB9v11A-xha4uH8GE6qySKqVhAimONpEuvc9L8YcZ1eLuYp5YwnNdGT12t3FVXBYH9IQQNoLudwk47E18rx5uD0mKlvh3bCkXxhnely4YeN1w18yrgz7oA0AeNcjr5GyeMBIxs_M9N0bOwfK_atBHgaQrq2agemtt8Cp_pllL9z0rhKc=w640-h426" width="640" /></a></div><br /><br /></span></span></div><div style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: left;"><span style="font-family: inherit;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">In the last 2 years, led by the fact that I am subscriber to <a href="https://rapercapital.com/investment-philosophy/" target="_blank">Raper Capital blog</a>, and he has spent an inordinate amount of his research time on these kind of investment opportunities, I have also been drawn to them. It is not that I have gone all in - most of my investments are still buy and hold of the kind that I would happily set aside to gift my daughter (minus the <a href="https://www.gov.uk/browse/tax/inheritance-tax" target="_blank">Tax-person’s cut</a>), but I have increasingly allocated more and more capital to these situations to benefit from some rather asymmetric opportunities.</span></span></div><span id="docs-internal-guid-448cb66e-7fff-f230-3ef6-08be57c5435e"><div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: inherit;"><br /></span></span></div><div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: inherit;">Let’s take a few examples. A few successful ones from the past are:</span></span></div><div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: inherit;"><br /></span></span></div><div><ul style="text-align: left;"><li><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;">Hunter Douglas - a stock that the owning family wanted to take private, but eventually <a href="http://investor.hunterdouglasgroup.com/news-releases/news-release-details/3g-capital-completes-acquisition-controlling-interest-hunter" target="_blank">sold to a PE firm</a></span></span></li><li><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;">Haier Corp - a stock whose german listing was trading significantly cheaper than its Hong Kong listing and <a href="https://seekingalpha.com/article/4399099-haier-smart-home-german-listed-shares-50minus-80-percent-near-term-upside-massive-discount-to" target="_blank">the bet</a> being that the prices will converge.</span></span></li><li><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;">Tattooed Chef - big gap between the <a href="https://www.globenewswire.com/en/news-release/2021/01/14/2158614/0/en/Tattooed-Chef-Announces-Redemption-of-Public-Warrants.html" target="_blank">warrant</a> and the price of the underlying stock</span></span></li><li><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;">Think Childcare</span></span> - <a href="https://www.fool.com.au/2021/04/06/think-childcare-asxtnk-share-price-rockets-33-on-latest-takeover-bid/" target="_blank">acquisition arbitrage</a>, punting on acquirer paying more than what they have currently offered</li></ul><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;"><br /></span></span></div><div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;">Don’t get me wrong, there have been a share of unsuccessful ones too:
<ul style="text-align: left;"><li><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;">Casper Sleep - hoping that the acquisition won’t happen (but <a href="https://www.businesswire.com/news/home/20220124005885/en/Durational-Capital-Management-Completes-Acquisition-of-Casper#:~:text=The%20acquisition%20was%20previously%20announced,the%20New%20York%20Stock%20Exchange." target="_blank">it did</a>)</span></span></li><li><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;">IAG - shorting (in 2020) with the hope that the <a href="https://www.iairgroup.com/~/media/Files/I/IAG/press-releases/english/2020/Fully%20Underwritten%20Capital%20Increase%20to%20Raise%20Gross%20Proceeds%20of%202741%20million.pdf" target="_blank">rights issue</a> will significantly reduce the share price. After adjusting for the rights (which you were short too, and had to acquire back to close the trade), it didn’t.</span></span></li><li><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;">Capricorn Energy - hoping that the <a href="https://www.thetimes.co.uk/article/capricorn-considering-alternatives-to-tullow-deal-hs5jfb525" target="_blank">Tullow deal won’t go through</a>, and that CNE team would extract much more value from the company</span></span></li><li><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;">The Works - hoping for reinstitution of dividend endearing it to markets (<a href="https://ir.design-portfolio.co.uk/viewer/101/28565" target="_blank">it didn’t</a>)</span></span></li></ul></span></span></div><div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;"><br /></span></span></div><div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;">This is obviously not the full list and like everything else, the outcomes form a bit of a <a href="https://www.investopedia.com/terms/n/normaldistribution.asp" target="_blank">normal distribution</a>. There are some very good outcomes, some very bad outcomes and most of the rest kind of clump together around 0 returns (not much profit, and not much loss). Collectively, however, the hope is, like any other portfolio that you build, that your winners carry you significantly farther than your losers hold you back by.
If you select your special situations well, such that the downside is generally kept low but have a small opportunity of a significant upside, then this technique largely works and overall you end up making a reasonable quid or two. You also carry lower volatility on your books, as special situations often don’t move till the time of reckoning comes, and then it either shoots up or down, and you get to close your trade either way. In a sense, it helps dampens the jumpiness of the rest of your portfolio.
However, this method of investments need you to do a lot more research, pay a lot more to your brokers (many special situations trades are OTC and hence cost more brokerage) and perhaps carry interest costs too (as you may not want to carry currency risk if the trade happens to be in a currency you don’t want to hold).
So, the risk-effort-returns aren’t much better than other kinds of investments, but it has generated a little bit of alpha for me, compared to everything else I hold, so I would like to keep it going.
<b>A Debrief on $TWTR</b>
From almost the beginning of the <a href="https://en.wikipedia.org/wiki/Proposed_acquisition_of_Twitter_by_Elon_Musk" target="_blank">acquisition drama</a>, I have had my eye on this trade and have been following it rather closely. It is one of the rare Special Situations where I made my conviction almost entirely on my own (though I was reading and hearing a lot about it from people like <a href="https://twitter.com/compound248" target="_blank">@compound248</a>, <a href="https://twitter.com/AnnMLipton" target="_blank">@annmlipton</a> and <a href="https://twitter.com/AndrewRangeley" target="_blank">@andrewwalker</a>).
I traded this rather conservatively at the beginning, but then got bolder and bolder. My trades looked like:
<ul style="text-align: left;"><li>In May, selling the 18 Aug 22 Expiry $30 Strike PUTs for $2.30 (collecting $2.22 per share)</li><li>In Mid-July, buying $TWTR outright for 36.10 and selling it at 42.90 (netting $8.80 per share) in August</li><li>In August, the same day I sold my previous lot of outright shares, I bought the 40/45 Risk Reversal on Twitter with a Nov expiry, for a credit of $0.14, which I closed early in the month (netting a total of $6 per share)</li><li>Finally, entering the stock again on 7th October on 49.15 that I closed last week for 50.50 (netting another $1.35 per share)</li></ul>
The lot sizes and market positions were all over the place, but I collected on an average about $11.90 per share. In all honesty, it wasn’t a big absolute win - it ranked probably 6th of 7th best among my trades in the past 3 years; the dollar value of the upside was even less than the worst 2-3 trades I have made in the last 3 years. However, just for the fact that I did this independently and stuck through the process makes me happy.
Happiness upon success in investing should also come with some reflection. Upon reflection, however, I consider the $TWTR trade pretty unusual, even a bad trade. Why? It is because most of special situations trade are </span></span></div><div><span style="text-align: center; white-space: pre-wrap;"><br /></span></div></span><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span><div style="text-align: left;"><span style="text-align: center; white-space: pre-wrap;">Low Probability of Success / High Upside </span><b style="text-align: center; white-space: pre-wrap;">vs</b><span style="text-align: center; white-space: pre-wrap;"> High Probability of Failure / Low Cost of Failure</span></div></span></blockquote><span><div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;"><br /></span></span></div><div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;"><span id="docs-internal-guid-c0ceb0ed-7fff-4620-06e3-79553d394b03"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"></span></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgrI3ISSfFL7KSQzw5nd9bqxDHmg7wFENHZYchldk6So7__pf1jBh9QYMnJhFl9w_zFXRgI4qm4GBFFli55dsqRqnM5Xkr1dsa_x4pNweKjR77GgFGzg-4PfY-sVAG4zSl09TnpHt0xAnKlD-xricYUG0o9-jPK4IrtvH2G_CDsjrZNRUAjtAI" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="680" data-original-width="1234" height="353" src="https://blogger.googleusercontent.com/img/a/AVvXsEgrI3ISSfFL7KSQzw5nd9bqxDHmg7wFENHZYchldk6So7__pf1jBh9QYMnJhFl9w_zFXRgI4qm4GBFFli55dsqRqnM5Xkr1dsa_x4pNweKjR77GgFGzg-4PfY-sVAG4zSl09TnpHt0xAnKlD-xricYUG0o9-jPK4IrtvH2G_CDsjrZNRUAjtAI=w640-h353" width="640" /></a></div>
The $TWTR trade was exactly the opposite: </span></span></div><div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;"><span style="text-align: center;"><br /></span></span></span></div></span><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><span><div style="text-align: left;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;"><span style="text-align: center;">High Probability of Success / Low Upside </span><b style="text-align: center;">vs</b><span style="text-align: center;"> Low Probability of Failure / High Cost of Failure</span></span></span></div></span></blockquote><span><div><div style="text-align: center;"><span style="white-space: pre-wrap;"><br /></span></div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="white-space: pre-wrap;">I am personally not comfortable with trades like this. I like trades to be asymmetric in my favour, not the other way round, at least with special situations.
It wasn’t that I came across the conundrum only now. I knew it all along, which is why despite my conviction, I never sized it too outrageously, and why my actual upside now looks somewhat mediocre despite the stock moving $20 during the time I was involved, but I netted only $11.90.
I am also aware that some kind of trades I do, fall into the same category of the $TWTR trade - say selling PUT options, which I routinely do from time to time. However, in general, I can support my PUT option trades with backtesting, which clearly wasn’t available to me in this case. As an investor, you need to understand which are good and which are bad trades, regardless of the outcomes. I think this one was a bad trade - so that’s that.
Regardless of my introspection, I want to pass my gratitude to <a href="https://twitter.com/compound248" target="_blank">@compound248</a>, <a href="https://twitter.com/AnnMLipton" target="_blank">@annmlipton</a>, <a href="https://twitter.com/puppyeh1" target="_blank">@puppyeh1</a> and <a href="https://twitter.com/AndrewRangeley" target="_blank">@andrewwalker</a> for their insightful twitter commentary on this whole episode and making the trade possible.
</span></span></div><div><span style="font-size: 14.6667px; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial;"><br /></span></span></div></span><div class="blogger-post-footer"><script type="text/javascript"><!--
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This shouldn't come as a surprise to anyone, given that the FTSE All World All Cap Index (and a bunch of other market indices) have all had a <a href="https://yhoo.it/3zZqQ3D" target="_blank">good time</a> in the same time period. </p><p>Let's get started with the charts and then get on to some commentary in the latter half of this posts.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgBeek_ucGcMUp0sbvs57QOBJaD2r98CfIw2ezssNpTQl9MFljjCDyGhFNENp2-Vk2v9YUmG0ttvlnJJ6TE978No3ydZoKajKGEd92G4cy86JLJceuQpce8nMw_SrPFBsd7L591r1rMbvYO7s72zdR_olnFElj-aZ14NY2nGWJDXYcKM6-6dTI" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="321" data-original-width="518" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEgBeek_ucGcMUp0sbvs57QOBJaD2r98CfIw2ezssNpTQl9MFljjCDyGhFNENp2-Vk2v9YUmG0ttvlnJJ6TE978No3ydZoKajKGEd92G4cy86JLJceuQpce8nMw_SrPFBsd7L591r1rMbvYO7s72zdR_olnFElj-aZ14NY2nGWJDXYcKM6-6dTI=w640-h396" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhv2_blkI6xq8wz4FoT-e-ujP1c3h_oYJRkTlhZGY21PxtY6U8ri1J-01VRyCEdJ9Z-UjxaHw0ac9webEk38sY9LSd0eV-qOXJJmjvl3EXA2osP1Nh3h-pdeM3__wSahMmkn9j7plZCP1Zh-Xf1_wXi-THTSjP7g9Ov8Zo7aEDaZ1w-XO17h54" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="321" data-original-width="518" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEhv2_blkI6xq8wz4FoT-e-ujP1c3h_oYJRkTlhZGY21PxtY6U8ri1J-01VRyCEdJ9Z-UjxaHw0ac9webEk38sY9LSd0eV-qOXJJmjvl3EXA2osP1Nh3h-pdeM3__wSahMmkn9j7plZCP1Zh-Xf1_wXi-THTSjP7g9Ov8Zo7aEDaZ1w-XO17h54=w640-h396" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEinl0OOy4lHSzt72b7B6lzrdV26sThSx-uiJ_-JOpeVk3ZJcMUw9vRYWvFoyaulpqxWicHWCKdxPKSNlGE6xX90X5lemD6oL-0TY6U_hB3dhUoYOme3xEQgjScr5mkdFYpcaJsneYcwuqa3O5TLuvZB5VqeuxbQ2K-hbJV8eVXmQ-aB8qWHZPI" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="321" data-original-width="518" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEinl0OOy4lHSzt72b7B6lzrdV26sThSx-uiJ_-JOpeVk3ZJcMUw9vRYWvFoyaulpqxWicHWCKdxPKSNlGE6xX90X5lemD6oL-0TY6U_hB3dhUoYOme3xEQgjScr5mkdFYpcaJsneYcwuqa3O5TLuvZB5VqeuxbQ2K-hbJV8eVXmQ-aB8qWHZPI=w640-h396" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgQj7ZV5XytKQPwcuTA0E1hnWxQQSBmtEYd3yXoqD88moOhfuh-DLSJj3UyrApcg3k0mGZV2-sAhN5xxLzJGZg1dA4VoEgKJNByFU32wP-nQ35L4au3hqPUvpWKVhaHSgejCnl-8SNu-eZHPiC5GIhFBj0uBHYXNXqm83uSa8ubqIVrsVNz1lA" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="321" data-original-width="518" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEgQj7ZV5XytKQPwcuTA0E1hnWxQQSBmtEYd3yXoqD88moOhfuh-DLSJj3UyrApcg3k0mGZV2-sAhN5xxLzJGZg1dA4VoEgKJNByFU32wP-nQ35L4au3hqPUvpWKVhaHSgejCnl-8SNu-eZHPiC5GIhFBj0uBHYXNXqm83uSa8ubqIVrsVNz1lA=w640-h396" width="640" /></a></div><p></p><p><b>Commentary</b></p><div>Markets are likely factoring in possible sightings of the end of the interest rate hikes. I am personally not convinced that the interest rate hikes are anywhere close to where they will be in the worst case, but I anyway don't worry about the short term macro changes in setting up my portfolio.</div><div><br /></div><div>Like I wrote <a href="https://www.shreeni.info/2022/07/portfolio-update-jun-2022-ft-top.html" target="_blank">last month</a>, I have been carefully observing if my portfolio can withstand the kind of drawdown / volatility and continue to generate beta, if not alpha, that we have seen over the past few months and continue to be quietly confident that it will do the trick.</div><div><br /></div><div>In terms of Geography, there is a significant drop in the Australia allocation (from 16.1% down to 10%). This is partially because of the <a href="https://finance.yahoo.com/quote/RAP.AX?p=RAP.AX&.tsrc=fin-srch" target="_blank">ResApp (ASX:RAP) </a>special situation which played out well with a <a href="https://thewest.com.au/business/pfizer-australia-again-revises-share-offer-on-back-of-resapp-covid-cough-test-fail--c-7741656" target="_blank">new offer at 20.6</a>. I had held it in the hope of a renewed offer and have gotten out of the position after the offer came through. This has reduced my Australia allocation by a bit. </div><div><br /></div><div>The other reason for the drop is that I have completely eliminated my <a href="https://finance.yahoo.com/quote/VHY.AX?p=VHY.AX&.tsrc=fin-srch" target="_blank">Vanguard Australian Shares High Yield ETF (ASX:VHY)</a> holdings and reallocated it to my Buy & Hold portfolio of about 50 stocks. VHY was meant to be a ETF to provide me some dividend earning potential and some slow and conservative growth while I focused on more interesting trades. Sadly, VHY has been a bit of a dividend trap, dropping when aggressive markets (say S&P 500) drop, but not growing fast enough when other markets did. I felt like I could easily substitute the desired behaviours from my own stock picking, which is what I have backed myself to do. </div><div><br /></div><div>In very similar spirit, I have also cut out my <a href="https://finance.yahoo.com/quote/G3B.SI?p=G3B.SI&.tsrc=fin-srch">Nikko AM Singapore STI ETF (G3B.SI)</a> holdings, and reallocated that too into my Buy and Hold Portfolio. That has reduced my Singapore holdings down from 8.3% to 6.7%.</div><div><br /></div><div>In terms of Sectors, there is a significant drop in Funds/ETFs which is precisely because of what I have written above and that has been replaced by a smattering of new sectors that have come in due to the reallocation. Conglomerate (primarily Berkshire-B) and Consumer are two sectors I have consciously rotated money into. I believe both are better allocations of capital for the next few years.</div><div><br /></div><div>In terms of holding periods, my short term and medium term positions have reduced, primarily as some of my trades paid off (ASX:RAP for instance) while others didn't and I decided to close them out in order to clean up book.</div><div><br /></div><div>No changes to Top-3 positions since the last update. </div><div><div><h4>Headline Performance Numbers*</h4><div><google-sheets-html-origin><table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: Arial; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="100"></col><col width="100"></col><col width="100"></col><col width="112"></col></colgroup><tbody><tr style="height: 21px;"><td style="border: 1px solid rgb(0, 0, 0); overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Return"}" style="border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Return</td><td data-sheets-value="{"1":2,"2":"Alpha"}" style="border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Alpha^</td><td data-sheets-value="{"1":2,"2":"Benchmark"}" style="border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Benchmark</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"1 Year "}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">1 Year</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[24]C[6]:C[6],COUNTA('Alpha calculations'!R[24]C[6]:C[6]))" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.042856834058485775}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">1.55%</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[24]C[6]:C[6],COUNTA('Alpha calculations'!R[24]C[6]:C[6]))*100" data-sheets-numberformat="{"1":2,"2":"0.00","3":1}" data-sheets-value="{"1":3,"3":4.724586758603065}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">3.10</td><td colspan="1" data-sheets-hyperlink="https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview" data-sheets-value="{"1":2,"2":"Vanguard FTSE All World All Cap (Acc) Fund"}" rowspan="3" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; color: #1155cc; overflow-wrap: break-word; overflow: hidden; padding: 2px 3px; text-decoration-line: underline; vertical-align: bottom;"><div style="max-height: 63px;"><a class="in-cell-link" href="https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview" target="_blank">Vanguard FTSE All World All Cap (Acc) Fund</a>+</div></td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"3 Years"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">3 Years</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[35]C[14]:C[14],COUNTA('Alpha calculations'!R[35]C[14]:C[14]))" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.10592556316681412}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;"><span style="font-size: 13.3333px;">10.88%</span></td><td data-sheets-formula="=INDEX('Alpha calculations'!R[35]C[14]:C[14],COUNTA('Alpha calculations'!R[35]C[14]:C[14]))*100" data-sheets-numberformat="{"1":2,"2":"0.00","3":1}" data-sheets-value="{"1":3,"3":4.316294700879124}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.40</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"5 Years"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">5 Years</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[58]C[22]:C[22],COUNTA('Alpha calculations'!R[58]C[22]:C[22]))" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.09645744898539221}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;"><span style="font-size: 13.3333px;">10.22%</span></td><td data-sheets-formula="=INDEX('Alpha calculations'!R[58]C[22]:C[22],COUNTA('Alpha calculations'!R[58]C[22]:C[22]))*100" data-sheets-numberformat="{"1":2,"2":"0.00","3":1}" data-sheets-value="{"1":3,"3":2.7531607645313017}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.54</td></tr></tbody></table></google-sheets-html-origin></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">* Beta for this calculation is monthly. </span></div><div><span style="font-size: x-small;">+ I use Vanguard FTSE All World All Cap (Acc) as my benchmark. Ideally I should be using the underlying index and not the fund itself, but doing so is a lot harder. Getting good clean data on the index, and needing to track its tax and dividend implications gets too cumbersome. Using the fund is the closest proxy, however, I am aware that it is not a perfect benchmark, as fees get added, and tracking errors start showing up. I believe they are minor in larger scheme of things.</span></div></div><div><span style="font-size: x-small;">^ Risk free return for Alpha calculations taken from <a href="http://www.worldgovernmentbonds.com/bond-historical-data/united-kingdom/10-years/">http://www.worldgovernmentbonds.com/bond-historical-data/united-kingdom/10-years/</a> </span></div></div><div><br /></div><div><br /></div><p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
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And if I had to factor that in, the damage to our financial wealth was probably a lot worse off.</p><p>On top of it, there was always a fear that things could get worse - I could lose my job which would have meant I would have had to move back to India, forcing me to sell the house I had just purchased. Of course, we were thankful that we were healthy in the midst of a pandemic and the family was together, but anxiety and uncertainty were definitely prevalent moods. Things were not good, to say the least.</p><p></p><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEg-EmGcfwvbepR5Q8cEbbL9hF1jeywyH97NlTyhdod9lfhdgB07zBTUs1azpprkkTe8BxiSbBz0zTKJzZ0cl1ZbzEHb_q-XdB28L51cckoPuZMDIPWTtjTZWkxs9j7ZPdGh5eaVuES4TgsQEsXxBCd7bpDpz40sTmF4uE7j0SltmT8O_8soEZ0" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="459" data-original-width="800" height="368" src="https://blogger.googleusercontent.com/img/a/AVvXsEg-EmGcfwvbepR5Q8cEbbL9hF1jeywyH97NlTyhdod9lfhdgB07zBTUs1azpprkkTe8BxiSbBz0zTKJzZ0cl1ZbzEHb_q-XdB28L51cckoPuZMDIPWTtjTZWkxs9j7ZPdGh5eaVuES4TgsQEsXxBCd7bpDpz40sTmF4uE7j0SltmT8O_8soEZ0=w640-h368" width="640" /></a></div><br /><br /></div>The conditions today are somewhat similar - there is economic uncertainty, and there is bound to be some stresses on personal finance planning for many of us. The entire economy isn't shutdown, and hence it is likely that the bruises we face will likely be far less painful than in 2020, but the extent of damage will also depend on personal circumstances. Some of us will likely face a far more damaging few months than others.<p></p><p>So, why am I writing about all this now? Because in the throes of that crisis, I put together a personal finance plan that might benefit some of the readers today. </p><p>Right then in the spring of 2020, while everything was seemingly going wrong, I put together a Vision 2025 plan. The plan consisted of a lot of things I planned to do. These things took the form of simple goals. They went like these:</p><p></p><ul style="text-align: left;"><li>In 2020-2021, put away £XX in my <a href="https://www.gov.uk/individual-savings-accounts" target="_blank">ISA</a></li><li>In 2020-2021, put away £YY in my daughter's<a href="https://www.gov.uk/junior-individual-savings-accounts" target="_blank"> Junior ISA</a> </li></ul><div>and so on. These goals were based on realistic estimates and didn't go over the top. I had one line item for each kind of goal (ISA, <a href="https://en.wikipedia.org/wiki/Self-invested_personal_pension" target="_blank">SIPP</a> etc) and one for each year for the next 5 years.</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhmJIC4UBa_gjiV06-PYoH0BrLgHjnwFi4RB0goC7YAvPOSJuouNCULKu6HfJWzwobP3kq6IINE4C_AbR2ZE3ELDgBFrfMNjH1LPTuRxPGXKO_NxNxDts9KC2fRQbysF13j4p8t1mSYz_Ax4ak38N67_HNZ0fIbjiWE2c0Cb4WItoxCp2oM9UE" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="935" data-original-width="1641" height="364" src="https://blogger.googleusercontent.com/img/a/AVvXsEhmJIC4UBa_gjiV06-PYoH0BrLgHjnwFi4RB0goC7YAvPOSJuouNCULKu6HfJWzwobP3kq6IINE4C_AbR2ZE3ELDgBFrfMNjH1LPTuRxPGXKO_NxNxDts9KC2fRQbysF13j4p8t1mSYz_Ax4ak38N67_HNZ0fIbjiWE2c0Cb4WItoxCp2oM9UE=w640-h364" width="640" /></a></div><br /></div><div>On top of that, I created a list of simple projections. Those took the form of:</div><div><ul style="text-align: left;"><li>By 2025, my ISA corpus would be £PP</li><li>By 2025, my daughter's Junior ISA would be £QQ</li></ul><div>The way I arrived at PP and QQ was to take the current value of the corpus, add up the investments I hoped to make through the goals above, and then take some very conservative growth estimates - between 3%-5% depending on the kind of investments. </div></div><div><br /></div><div>The result of all of this was a plan and a projection of what our family finances would look like in 2025. While everything looked uncertain in the present, if these realistic goals were met and the conservative projections were met, the family's finances <b><i>would</i></b> be okay when 2025 came along.</div><div><br /></div><div>I am happy to say that for the past 2 years I have followed the goals to the T. I also believe I am on track to meet some of the projections, even after the recent drawdowns in our portfolio. Whether or not all of it will be met is yet to be determined, but I stay extremely hopeful.</div><div><br /></div><div>A plan like this can give you an immense level of control in a world where everything seems to be falling apart. That's the power of simple goals and modest projections. </div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEj4X8rTeKbAby6wlEVZSPGnr4d6R_GSen6e-liDXFoChFwz2s6mQPmO1iMgQpgs2YVJ1gL6vxRWp9Ot0n1EN_x6EhVxkMlX2Ch0vDXpdoCSWlRNUwyLGbz5JeEeea7JGmFG07oHEzAPJvoyZOaVUQvn71OJ3URCIof2sknyyzMw5xtSeSqKgjE" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="490" data-original-width="960" height="326" src="https://blogger.googleusercontent.com/img/a/AVvXsEj4X8rTeKbAby6wlEVZSPGnr4d6R_GSen6e-liDXFoChFwz2s6mQPmO1iMgQpgs2YVJ1gL6vxRWp9Ot0n1EN_x6EhVxkMlX2Ch0vDXpdoCSWlRNUwyLGbz5JeEeea7JGmFG07oHEzAPJvoyZOaVUQvn71OJ3URCIof2sknyyzMw5xtSeSqKgjE=w640-h326" width="640" /></a></div><br /><br /></div><div>If you are dealing with uncertainty in your personal finances, give this approach a try. It doesn't need to be 5 years long. It doesn't need to have too many details. It doesn't need anything complex. Just make a start and stick to it and see where it gets you to. If you are unable, or unwilling to do this on your own, get a trusted friend, or family member, or even a financial advisor to help you set something up. Something to get you started..</div><div class="blogger-post-footer"><script type="text/javascript"><!--
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The natural next chapter, then, is to look at the effect of interest rates on house prices.</p><p><br /></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEj6mu_e4DuZoscmYzMEysmF7WFBz01_3vNOetFuxYffzooNXxr00hsEE354y6POF1-c4JlB-eFrSTyrd5CqLDFEIyxPa7LPK0SKaVX2iSicuVQc_Yrsca_GRbM6OCcT4B5-p4_fQZQhNEvin0x9ralZ3pCSK6I-pmMVt-ZTdfSSPt0tjxnVRWs" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1200" data-original-width="1600" height="480" src="https://blogger.googleusercontent.com/img/a/AVvXsEj6mu_e4DuZoscmYzMEysmF7WFBz01_3vNOetFuxYffzooNXxr00hsEE354y6POF1-c4JlB-eFrSTyrd5CqLDFEIyxPa7LPK0SKaVX2iSicuVQc_Yrsca_GRbM6OCcT4B5-p4_fQZQhNEvin0x9ralZ3pCSK6I-pmMVt-ZTdfSSPt0tjxnVRWs=w640-h480" width="640" /></a></div><br /><br /><p></p><h3 style="text-align: left;">In theory</h3><p>At the basic theory level, interest rates are integral part of the home ownership equation. Given vast majority of home owners borrow to fund the purchase, and that interest rates directly affect the affordability of loans, theory dictates that increasing interest rates must have a dampening effect on demand on property. But by how much?</p><p></p><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhTRSSY3ttMo2de87eGSHAuRVVgiThBaEvrNPdcB2vJH0jbS4rsfkx19wjvgu3oB8LA9r7ax4ZjOfSHgQCnRwehJfyW8l5D3qGpy4aoEDGXK_JKqX0mYxoeUWtcsmta9xiLfWrJVp_7DdSrmoJ-e_oWC4oBeO6xsQZYXoGHfEtuZr7hemyp73E" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="430" data-original-width="1618" height="170" src="https://blogger.googleusercontent.com/img/a/AVvXsEhTRSSY3ttMo2de87eGSHAuRVVgiThBaEvrNPdcB2vJH0jbS4rsfkx19wjvgu3oB8LA9r7ax4ZjOfSHgQCnRwehJfyW8l5D3qGpy4aoEDGXK_JKqX0mYxoeUWtcsmta9xiLfWrJVp_7DdSrmoJ-e_oWC4oBeO6xsQZYXoGHfEtuZr7hemyp73E=w640-h170" width="640" /></a></div><br /></div></div>Imagine a base case of a house that's transacting at £280K when the interest rate is at 1%. Assuming a 20% deposit (or down payment as it is called in some societies) and a mortgage payment of £844 over a 24 year time period. If the interest rates go from 1% to 2%, this yields an increase in mortgage payments of about 12.47%. So a buyer with the same economic buying power as before intending to decrease their mortgage payments in proportion, while still paying the same deposit, to buy a house in the same affordability as before, would only be able to transact the said house at 255,171, which is a reduction of 8.87%. If you extend the interest rate all the way to 4%, that might result in reductions of as much as 22.88%.<div><h4 style="text-align: left;">Is it really that much?</h4><p>In practice, property market doesn't quite move as much as theory would suggest. This is due to a combination of reasons </p><p></p><ol style="text-align: left;"><li>Houses don't transact that fast and hence adjustment in prices don't happen that rapidly.</li><li>Houses being an emotional purchase often end up transaction beyond economic fundamentals, at least within a few percentage points of valuations.</li><li>Changes in interest rates are often not reflected immediately due to in-principal approvals etc, which can last for up to 6 months.</li><li>People's economic buying power also changes with interest rate change (often positively) - i.e. wages go up, deposits grow in time etc; and these act as balances on the other side.</li><li>There is supply flexibility in the market. Most property owners prepare for lack of liquidity. When they don't get the price they desire, they just take the property off the market, which in turn buoys the prices at which transactions happen.</li></ol><div>Property markets don't move as rapidly low as is suggested by economic models. So, what happens in practice?</div><div><br /></div><div><h3>In Practice</h3></div><div>Let's look at some data. I downloaded about 54 years of data on UK wages, UK house prices and UK interest rates (interest rates data go as far back as 1694, but the other data points go only as far back as 1968). At first glance, it seems like property prices almost never go down (apart from small time periods):</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgW5C9VA_1GntziFbU1Eo5JjFnxTdFapnkcwMMy8vRQobcgvgR6PiZ9aTWDwcE597075doGFmw07ZPd1Rlvm-CxZkUI5yj3HQCYtOIXB779APgZ9DkgWUcVnJja53cCNN_oON2RbSTlGNRIxka4v8KrU-S9mXyr_onPpMSQYmtLTS9hoLrPiOg" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEgW5C9VA_1GntziFbU1Eo5JjFnxTdFapnkcwMMy8vRQobcgvgR6PiZ9aTWDwcE597075doGFmw07ZPd1Rlvm-CxZkUI5yj3HQCYtOIXB779APgZ9DkgWUcVnJja53cCNN_oON2RbSTlGNRIxka4v8KrU-S9mXyr_onPpMSQYmtLTS9hoLrPiOg=w640-h396" width="640" /></a></div><br />However, when you plot it as a multiple of wages, then things start looking a lot more interesting:</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiwSnMjtgBN_7oGUz3vnoTNNZvEscD0i29uuJA4SlA_SEfCuP-NT8HTA9M681zgCZjZq5Am1yj6hRNzEk52o_s1wRg6xQhHoX-g93WnPlpBSV_77hp5BJIU2awmjD1XbLXjHOzp33LGclChT-311CmGm8_vJ9yToADPRkWR55T8UbUnu9qK7Wc" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEiwSnMjtgBN_7oGUz3vnoTNNZvEscD0i29uuJA4SlA_SEfCuP-NT8HTA9M681zgCZjZq5Am1yj6hRNzEk52o_s1wRg6xQhHoX-g93WnPlpBSV_77hp5BJIU2awmjD1XbLXjHOzp33LGclChT-311CmGm8_vJ9yToADPRkWR55T8UbUnu9qK7Wc=w640-h396" width="640" /></a></div><br />In fact it seems that house prices moved within a range of 4x annual wages to 6x annual wages between 1968 to about 2002. After this there has been a discernible movement of this band to be between 7x annual wages. This makes sense, as women have come into workforce a lot more in the last 20 years, families are typically 2 income owners now compares to the 70s or the 80s, and hence the affordability of homes has gone from being funded by one set of wages to 2 sets of wages. </div><div><br /></div><div>However, what is clear, in both eras (1968-2002 as well as 2002-2022) is that there are property cycles. Based on multiple of wages, property market tends to be in an up-cycle or a down-cycle for a few years at a time. </div><div><br /></div><div>What happens to wages when interest rates go up or down? It seems that the two are largely well correlated:</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjVK54iIdN_JCbSv3mD4NLoWWmb_Y84AGeuc73XHuyC8blHSkN_1zaAPdZtQojhpjTkhCM90iD7LtquSWWcX9XtoPcLb8eUkaHwDC5FYPm9N026thAUiU6CZfHF8EKzvJov_yBzCS09-RIoydDJRNHodAhWi0BwGzdXYStGpdfcKaeF-t5Ag6o" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEjVK54iIdN_JCbSv3mD4NLoWWmb_Y84AGeuc73XHuyC8blHSkN_1zaAPdZtQojhpjTkhCM90iD7LtquSWWcX9XtoPcLb8eUkaHwDC5FYPm9N026thAUiU6CZfHF8EKzvJov_yBzCS09-RIoydDJRNHodAhWi0BwGzdXYStGpdfcKaeF-t5Ag6o=w640-h396" width="640" /></a></div><br />While the correlation isn't 1 to 1, it comes out to be 0.68. This means that when interest rates go up, employees are able to demand and obtain wage improvements that tend to be directionally right. Wage growth also slows down during times of low interest rates. This correlation makes sense - interest rates are often an indication of high levels of economic activity, paired with inflation. So, the high level of economic activity leading to higher wage growth largely makes sense.</div><div><br /></div><div>If property markets go through cycles on a price/annual-wage basis, and interest rates are well correlated to annual-wages, then the price multiples buyers must be willing to pay for property must be inversely correlated to interest rates directly. </div><div><br /></div><div>Let's see if the data bears that out or not:</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEg47WVBAp1rLITlvRxz_iUOireKRSYOrj8pIJumEeao1EPVdHzkbrWe5V-MLfXipoGFYCC_QGVQ7ajIb-89JFlaYalc3GCP4_kRWzrfhsCqKyFY4SHnBT8QDbybIldzmwsE4nWuHDbG2hGCppZQIKXjdaKy4wnHfyGxUvxbOWpuv2xXcJmSNII" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEg47WVBAp1rLITlvRxz_iUOireKRSYOrj8pIJumEeao1EPVdHzkbrWe5V-MLfXipoGFYCC_QGVQ7ajIb-89JFlaYalc3GCP4_kRWzrfhsCqKyFY4SHnBT8QDbybIldzmwsE4nWuHDbG2hGCppZQIKXjdaKy4wnHfyGxUvxbOWpuv2xXcJmSNII=w640-h396" width="640" /></a></div><br />For most of the 54 year data records, it seems that higher the interest rates, lower is the wage-multiple property buyers are willing to pay for houses and vice versa. This graph may not show it as clearly, so I plotted the rate of change of the blue line - i.e wage-multiples, to see if I can see a clearer mirror effect between the two lines and indeed, that seems to be the case:</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjeL1Zj0GTfkg6DKVkrwe_Yxlmc4_zF3pNSEia8LePlH687IjbQRko8ikXZ5I-Cj7zZMnrijFa8pZBIqmar_1J-14lptWCyrZf0k8jHUFRnAkom0CzdFXeuLgbBe6tGlmh3P0g17hHUQCmU1yi91eoJHW5Gjt0j5GzVYiL7s7dggZ8cEWEKPiw" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEjeL1Zj0GTfkg6DKVkrwe_Yxlmc4_zF3pNSEia8LePlH687IjbQRko8ikXZ5I-Cj7zZMnrijFa8pZBIqmar_1J-14lptWCyrZf0k8jHUFRnAkom0CzdFXeuLgbBe6tGlmh3P0g17hHUQCmU1yi91eoJHW5Gjt0j5GzVYiL7s7dggZ8cEWEKPiw=w640-h396" width="640" /></a></div><br />If you carefully observe, in every phase the blue line has gone up, the red line has trended down and vice versa. The correlation between the two is -0.12. Quite not the smoking gun, but directionally observable.</div><div><br /></div><div>So, let's summarise what we know so far:</div><div><ul style="text-align: left;"><li>Theory suggests that property prices should come down when interest rates go up.</li><li>In practice, property market goes through cycles, less on absolute value, than on price-to-annual-wages basis</li><li>When observed in historical data:</li><ul><li>wage growth doesn't get tempered by interest rate hikes, which is good news for the workforce.</li><li>price-to-wage multiples tends to get tempered by interest rates</li></ul></ul></div><h4 style="text-align: left;">What does this all mean for an individual?</h4><div>Like anything else in personal finance, it is hard to give silver bullets. It is clear that property, like all other asset classes has benefitted from lower interest rates for the past 15 years or so. It is also clear that we are at a relative peak in property valuations when taken on the basis of price-annual-wages. Theory as well as data suggests that property markets should cool down, at least relative to wages. </div><div><br /></div><div>However what will happen in the market tomorrow or a month later or a year later will depend on other factors too. </div><div><br /></div><div>Property markets are affected by as much micro conditions as they are by macro conditions. An upcoming new railway station close-by can likely cross out a 2-3% interest rate hike in one locality. Property is also affected a lot by wages, and wages in various sectors and markets move based on conditions in that sector. If you work in a hot sector of the market, you are likely to be as aggressive a buyer at 3% interest rate as someone else working in a less hot sector at 1% interest rates.</div><div><br /></div><div>Property market also tends to be slow moving markets. When demand slows down, number of sellers decrease, which in effect means that transaction volumes might come down but the few transactions that happen, get done not that much lower than previous markets. </div><div><br /></div><div>However, there are probably a few thumb rules when interest rates are rising. If you are a prospective buyer, best to do your affordability maths and be as conservative as you can with your offers. If you already own a property and waiting for your next renewal, best to be prepared and build some headroom in anticipation of mortgages going up. If you are a seller, best to understand that the price you might be looking to get may not be forthcoming and hence to adjust your expectations - either delay your sale, or take what's on offer. </div><div><br /></div><div>Raw data <a href="https://docs.google.com/spreadsheets/d/1YP1eehF2IhwVUmgPppKo3wfgUGgzTfzXIzcmwDMsvXA/edit?usp=sharing" target="_blank">here</a>.</div><div><br /></div><div><br /></div><div><div><i>Disclaimer: Anything mentioned in this post should not be considered financial advice. The post should be consumed purely for entertainment and educational purposes.</i></div><div><br /></div></div><p></p></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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Nevertheless I hope to provide a framework that can be used by readers in navigating changing economic situation in the future.)</i></p><p>There is so much talk about <a href="https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/" target="_blank">interest rates affecting stock market valuations</a> and as the market corrected consequent to interest rates going up, a colleague of mine asked me how does a change in interest rate affect stock market valuations. As part of that conversation I tried my best to explain the fundamental effects of interest rates on <a href="https://en.wikipedia.org/wiki/Discounted_cash_flow" target="_blank">Discounted Cash Flow (DCF)</a> valuations. However, I made a mental note to follow up with a blog post where I can explain this with some illustrations. This post is that follow up and intends to be read by anyone curious about the mathematic machinations that connect interest rates and stock market valuations. This post will need basic understanding of maths (such as compounding and discounting), but nothing more than what you might have learned at high school (or perhaps sooner).</p><p>If you are an experienced investor, it is time for you to give this post a pass. But if you are investor who have never wandered into the realm of the mathematics of company valuations, the next few minutes might prove a reasonable use of your time. </p><p>As we know that a dollar or pound today is more valuable than the same dollar or pound in the future. Hence cashflow that a company is expected to be generated in the future needs to be discounted to today. You do it by discounting it at <a href="https://en.wikipedia.org/wiki/Risk-free_rate" target="_blank">Risk Free Rate (RFR)</a> - return that you could generate if you took no risk at all. At its core, DCF uses the expected future cash flows of a company and discounts them to today and you get valuation of a company. So when the interest rates change, then RFR changes and this impacts DCF calculations of every company out there. </p><p><i><b>Note 1:</b></i> Please note that DCF has many inputs, all of which are subjective and hence 2 analysts may value the same company differently. However, if interest rates change, both analysts will have to change that particular input to their analysis. This post specifically looks at how that one input. i.e. interest rates affect valuations. This post is not a tutorial in DCF - there are ample tutorials online that do a great job of teaching DCF to beginners. </p><p><b><i>Note 2:</i></b> Markets seldom trade a stock at what might be your estimation of the DCF. Market trades at the collective expectations, and behaviours of all investors and traders out there, and hence a stock might trade wildly different than what you think the company is valued at. However, the trends in price at which a stock will generally match the trend in your calculation of DCF, i.e. if your own DCF calculation of a company goes down after an interest rate change, it is very likely the stock is also down and vice versa. </p><p>In this post I present an example company, primarily for purposes of illustration of DCF maths. In this company's case, the company has revenues that grow with time, and it has margins that improve with time. The company produces a profit every year and we are interested in calculating how much should the company be valued today. Terminal Value is the value of the company when it stops growing - all companies tend to either grow or shrink or stay in size with respect to market in different phases of their life. Obviously investors need to take into account what phase the company is in and apply the right kind of calculations to value the company. In this illustration, the company I have conceived has an extremely rosy projection of growing for 5 years and then fall in line with broad economy growth. </p><p>In this classic DCF valuation scenario, I have taken 5 years of growth and then the 6th year is used for <a href="https://en.wikipedia.org/wiki/Terminal_value_(finance)" target="_blank">Terminal Value (TV)</a> calculation. There are multiple ways of calculating TV - I use the method of calculating TV as Profits (of the TV year) / (Equity Risk Premium + Risk Free Return). This is equivalent to multiplying the profits with market's average P/E. As I said there are multiple ways to calculate TV and we can split hairs over whether this is the right approach or not, but this approach is not unreasonable and I use it consistently in this blog post. So, the effects of changes in the valuations that I hope to illustrate won't be affected by the formula, but only what goes into it.</p><p>So, back to our sample company illustration:</p><p></p><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKO6qKFW1mJg5m1KHifaaYUKq6REoAMC9gpX8UHiyUqwBafnjblSj1PjxiZcGSbfC6aYZZH1WOCrOYCRWR1BWplO-Cr0IJI2lLoHf8X61OABf7B60soo11TTCdXoWCp08llOOqB7xp7fAi8BKI-PlaEJOqinrX5fT-HSBtP8bI7Dq09JkRO9Y/s1242/Screenshot%202022-07-16%20at%2009.46.40.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1240" data-original-width="1242" height="638" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKO6qKFW1mJg5m1KHifaaYUKq6REoAMC9gpX8UHiyUqwBafnjblSj1PjxiZcGSbfC6aYZZH1WOCrOYCRWR1BWplO-Cr0IJI2lLoHf8X61OABf7B60soo11TTCdXoWCp08llOOqB7xp7fAi8BKI-PlaEJOqinrX5fT-HSBtP8bI7Dq09JkRO9Y/w640-h638/Screenshot%202022-07-16%20at%2009.46.40.png" width="640" /></a></div></div></div><p></p><p>As you can see, this company is being currently valued at $521,117, a P/E of 34.74 and P/S of 5.21. So far so good. The actual numbers itself aren't very important. This obviously is a made up company with extremely optimistic outcomes. What we are interested in seeing what happens if some of these assumptions change. </p><div data-en-clipboard="true" data-pm-slice="1 1 []">Now that we have a sample valuation based on some assumptions, we can change the assumptions and see how the valuation changes. Here I vary the starting interest rate in increments of 0.5%, with everything else being the same and see how the valuation changes. </div><div data-en-clipboard="true" data-pm-slice="1 1 []"><br /></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvPKSsc7wZzwIygl7Hs3Xqp6IXzPhgs-zgQAzIcp3Buugn_wbs8bY45CSJtGIm7udHYNv51IG7UNXfBl6oKLf3vYqxk_hfr_XUcaqHMDeXq5_vz2KgEs17OeIrwQWYwy2JYXDae6XNgW3H9M4v5YGwDl0YLJkZPaCFkAllfHlFzGxgr4bwlrg/s1218/Screenshot%202022-07-16%20at%2009.46.57.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="504" data-original-width="1218" height="264" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvPKSsc7wZzwIygl7Hs3Xqp6IXzPhgs-zgQAzIcp3Buugn_wbs8bY45CSJtGIm7udHYNv51IG7UNXfBl6oKLf3vYqxk_hfr_XUcaqHMDeXq5_vz2KgEs17OeIrwQWYwy2JYXDae6XNgW3H9M4v5YGwDl0YLJkZPaCFkAllfHlFzGxgr4bwlrg/w640-h264/Screenshot%202022-07-16%20at%2009.46.57.png" width="640" /></a></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><br /></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiF-JJoeAmzFcnnO--MmE5LORKBimZopkoJLggey_ALeoGcYmfcQoVrbK07F4qwn6CbIft_cuJwueY2E6zKDqcX3MzimqfEzW7KS39ohbwyfwC54GEvnSpyjX4kerPl9DOUSGHPI7O1UO-kmvaeUSyHy1uzut3buXHRxqMEb0Tv4rCl1b4DE2A" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="341" data-original-width="550" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEiF-JJoeAmzFcnnO--MmE5LORKBimZopkoJLggey_ALeoGcYmfcQoVrbK07F4qwn6CbIft_cuJwueY2E6zKDqcX3MzimqfEzW7KS39ohbwyfwC54GEvnSpyjX4kerPl9DOUSGHPI7O1UO-kmvaeUSyHy1uzut3buXHRxqMEb0Tv4rCl1b4DE2A=w640-h396" width="640" /></a></div>Clearly the DCF valuation for the company changes quite drastically with each increment of 0.5% in RFR. Remember that RFR is essentially a proxy for Treasures/Central Bank rates. So if the Fed or the BoE increases rates, then RFR changes. 20% drop in valuation happens roughly at 1.5% increase from the base case. No wonder that's where the stock market has rerated to so far on news of changing interest rates. Remember that markets are more often than not forward looking in their projections of economics, and hence if the interest rate has only moved by 1%, but the market expects it to increase by another 0.5%, that change will almost instantaneously be priced in. Markets sometimes also over-react to the changes more than is necessary, so the changes in market valuations and theoretical valuation changes will differ from time to time but will converge in the long run.</google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><br /></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin>We are however also interested in knowing what happens when interest rate starts at 1% but gradually increases (year by year) upwards. Here are the projections for that. Obviously the valuations change much more drastically as the interest rate changes are increasing the discounting of cashflows from father away in future.</google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><br /></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZ3H5KTCOMQQAP4QlgVdiWskxrozxYzv3X9vlhphFEH1tRkF0xTiFqOXEa_fAN62bSMLbOblTS63aINcrw8VXyRw-dwnogacWAb-RZz1ktczFFHdc1WRpBcRzBzEpy3V2z7dIMpGWiAzy640sE28RKeKnrbxmYhTO-xrQmxnBhaQYTZIMaJaY/s1218/Screenshot%202022-07-16%20at%2009.47.07.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="250" data-original-width="1218" height="132" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZ3H5KTCOMQQAP4QlgVdiWskxrozxYzv3X9vlhphFEH1tRkF0xTiFqOXEa_fAN62bSMLbOblTS63aINcrw8VXyRw-dwnogacWAb-RZz1ktczFFHdc1WRpBcRzBzEpy3V2z7dIMpGWiAzy640sE28RKeKnrbxmYhTO-xrQmxnBhaQYTZIMaJaY/w640-h132/Screenshot%202022-07-16%20at%2009.47.07.png" width="640" /></a></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiDLJ5l83PuyR7dzc6O10gR3l8yR5kZIqJov2cG7ot16HKuMEay5WhTKDe0rE9_Jy_yu5GbJcgjWHUmS3_3F15qU5DPvZrcYN1b-gp7tYOpmRYq6qwqfpo9-GjzquIeGf6rU4KRXNIlGLBQTIOWJ6m5WER_AGzv1E4slRtTXAZy6zsu1pZ1Xko" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="341" data-original-width="550" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEiDLJ5l83PuyR7dzc6O10gR3l8yR5kZIqJov2cG7ot16HKuMEay5WhTKDe0rE9_Jy_yu5GbJcgjWHUmS3_3F15qU5DPvZrcYN1b-gp7tYOpmRYq6qwqfpo9-GjzquIeGf6rU4KRXNIlGLBQTIOWJ6m5WER_AGzv1E4slRtTXAZy6zsu1pZ1Xko=w640-h396" width="640" /></a></div><br /></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><div data-en-clipboard="true" data-pm-slice="1 1 []">Most companies won't be able to retain their profit margins when interest rates change, as they might have increased cost of capital for their operations. We can simulate this by altering the rate at which profit margins changes. As we decrease the profit margins, valuations drop, again quite substantially.</div><div data-en-clipboard="true" data-pm-slice="1 1 []"><br /></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3qYf6ltMrDnjKtr3k9l3ccXBxPUSMnn37-pstcy9qKdAOfLuM6BVco_XTuF3FGxeImRvMPOVzbXY_MQn-T5vobqHcI9gh7SKlQ5MhQt9h9pmclg8Yk8ClBrUaXSwA-uxjfL5RL_sXiB_ve8TgjSp2CJT22dn8hmlo_BsJc1apGvpi5ovNxiw/s1218/Screenshot%202022-07-16%20at%2009.47.22.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="312" data-original-width="1218" height="164" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3qYf6ltMrDnjKtr3k9l3ccXBxPUSMnn37-pstcy9qKdAOfLuM6BVco_XTuF3FGxeImRvMPOVzbXY_MQn-T5vobqHcI9gh7SKlQ5MhQt9h9pmclg8Yk8ClBrUaXSwA-uxjfL5RL_sXiB_ve8TgjSp2CJT22dn8hmlo_BsJc1apGvpi5ovNxiw/w640-h164/Screenshot%202022-07-16%20at%2009.47.22.png" width="640" /></a></div></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEigObTt9J9ZbM9KzcHfy5cGhT5dx59Cew1PqJNlGOF1Fk-49cijRIwgnjVR4X5EqIO-xotq9gOvBJHz9bK6ynQpsatrnv2H12XsCuYgby98Q9hnWoAhkhuOCrH42K9-ZwCNNpcrh-7WwSviK3JNBes2c84FwXt88f4l8FhgB8EZub1MpF4oiYU" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="341" data-original-width="550" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEigObTt9J9ZbM9KzcHfy5cGhT5dx59Cew1PqJNlGOF1Fk-49cijRIwgnjVR4X5EqIO-xotq9gOvBJHz9bK6ynQpsatrnv2H12XsCuYgby98Q9hnWoAhkhuOCrH42K9-ZwCNNpcrh-7WwSviK3JNBes2c84FwXt88f4l8FhgB8EZub1MpF4oiYU=w640-h396" width="640" /></a></div></div><h3 style="text-align: left;">Why have growth companies decreased in valuations by so much more (80-90%) than the scenarios presented here?</h3></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []">The reason for much deeper drop in the valuations of growth companies is because the base DCF case for these companies is quite different. Many tech/growth companies weren't generating any profits at all at the moment - in fact they are/were burning cash in order to chase growth. However, the promise of these companies is that growth and improving profit margins will lead to much better cashflow in the future than companies that aren't growing so rapidly. So, I illustrate it with the following sample company's DCF calculation. Notice that the DCF has been extended to 11 years to capture the longer growth period, and the profit margins and profit margin improvements have been adjusted to reflect the base case for such companies.</div><div data-en-clipboard="true" data-pm-slice="1 1 []"><br /></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrS2IftayHm_DxwnPwvLvOh1EQ70HSGEJfYZUl_zhcNsqzj-RTz4pIg0t7IcCx-x-nAC9Q61DM5dhZFHcPC0bAn2wOcLeCY56WOh6N7zruV-F6l-GerGPmgU5jbY129R23vR3lAxVdZtTYdLhccXvsIGSL3mrCUaXUIl1oDK05OU2DOJdvx-E/s1836/Screenshot%202022-07-16%20at%2009.47.53.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="1434" data-original-width="1836" height="500" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrS2IftayHm_DxwnPwvLvOh1EQ70HSGEJfYZUl_zhcNsqzj-RTz4pIg0t7IcCx-x-nAC9Q61DM5dhZFHcPC0bAn2wOcLeCY56WOh6N7zruV-F6l-GerGPmgU5jbY129R23vR3lAxVdZtTYdLhccXvsIGSL3mrCUaXUIl1oDK05OU2DOJdvx-E/w640-h500/Screenshot%202022-07-16%20at%2009.47.53.png" width="640" /></a></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><br /></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><div data-en-clipboard="true" data-pm-slice="1 1 []">As you can see, valuing a company like this by traditional measures such as P/E is extremely hard, so discussions tend to use proxies like P/S. This sample company has a P/S of 108.</div><div data-en-clipboard="true" data-pm-slice="1 1 []"><br /></div><div data-en-clipboard="true" data-pm-slice="1 1 []">However, now we have a bit of a twist. Since the company isn't making a profit, the company has to fund the losses that it is accumulating each year. While some companies will look to raise equity funding for this, others will use debt funding. To keep things simple and to focus on the changes brought about by interest rate, let's assume that the funding for losses would come from debt funding. Let's assign an interest rate of 5% as a starting point. While RFR is 0.5% in the base case, no investor in their right mind would give a loss making company loans at those rates. They have to be compensated for the risk of the company going bankrupt. So, I use 5% as a reasonable reflect the difference, or 4.5% over the RFR.</div><div data-en-clipboard="true" data-pm-slice="1 1 []"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWD4EyUPLi9jFVxWo9cnXyOuCotzYM7FwvbDGHrI4-PmOY8cu5cN4663tsniNIwdZiloeCz__uluW4UGp6_Ken8TfvLV2H6ixCL_TQL6WNruUTJ3MJ1LtQWwPA-myKA6BWqMpZbtosVcs4KjvOK9kcMYvTnXWmr_eH1YQUVID3psWVw0XzLVI/s1862/Screenshot%202022-07-16%20at%2009.48.24.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="1306" data-original-width="1862" height="448" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWD4EyUPLi9jFVxWo9cnXyOuCotzYM7FwvbDGHrI4-PmOY8cu5cN4663tsniNIwdZiloeCz__uluW4UGp6_Ken8TfvLV2H6ixCL_TQL6WNruUTJ3MJ1LtQWwPA-myKA6BWqMpZbtosVcs4KjvOK9kcMYvTnXWmr_eH1YQUVID3psWVw0XzLVI/w640-h448/Screenshot%202022-07-16%20at%2009.48.24.png" width="640" /></a></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><br /></div></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><div data-en-clipboard="true" data-pm-slice="1 1 []">The gap between two valuations is only a few percentage points - this is because while the interim periods of cashflows change and are worse, it is all eclipsed by terminal value when the company starts generating profits. </div><div data-en-clipboard="true" data-pm-slice="1 1 []"><br /></div><div data-en-clipboard="true" data-pm-slice="1 1 []">However, we have now quite a few moving parts, all of which depend on interest rates. Firstly as interest rates move up, your ability to raise capital at the same rate as you did previously is gone. Any cashflows now generated have to be discounted at a higher rate. So as interest rate changes, the drop in valuation is quite substantial. </div><div data-en-clipboard="true" data-pm-slice="1 1 []"><br /></div><div data-en-clipboard="true" data-pm-slice="1 1 []">However, as the company is expected to deliver on an extremely optimistic outlook over the next many years, any small deviation from these super optimistic outlook can be extremely damning for these companies. Here, I simulate what would happen if we lower the sales growth by a meagre 2% (from 30% to 28%) or couple it with a smaller margin improvement (from 17.5% to 16%). Between increasing cost of capital, and increase in discounting rates, and slightly slower growth and slightly slow margin improvement, a company's valuation can drop by as much as 94%!!</div><div data-en-clipboard="true" data-pm-slice="1 1 []"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPPMpigiUsmIAplHy_1OqsIdxEgN184pIYSSksR_QcVxCaeSpIi_r3pjk4YHaGB75tw-r9kRm94dz8n_fMjvjc_D9bCncmPxeFJiDohLP9gFZswp9dIAfwGs1u1rU3rx_6t88JS3UCkBA5nEU1d7AI9tari8sBX4_X9vOOZUElk2Sr8tlIo8Y/s1544/Screenshot%202022-07-16%20at%2009.48.42.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="834" data-original-width="1544" height="346" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPPMpigiUsmIAplHy_1OqsIdxEgN184pIYSSksR_QcVxCaeSpIi_r3pjk4YHaGB75tw-r9kRm94dz8n_fMjvjc_D9bCncmPxeFJiDohLP9gFZswp9dIAfwGs1u1rU3rx_6t88JS3UCkBA5nEU1d7AI9tari8sBX4_X9vOOZUElk2Sr8tlIo8Y/w640-h346/Screenshot%202022-07-16%20at%2009.48.42.png" width="640" /></a></div></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin>Remember that any company that grows by 28% and improves its margin 16% year on year would be an absolute gem to hold in the long run. However, if investors pay too much for these companies, i.e. using super rosy predictions, then the impact of even mild variations in the company's actual performance and changes in macro-economic factors, can lead to outsized changes in valuation. This is what we are seeing played out in the markets presently. </google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><br /></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><div data-en-clipboard="true" data-pm-slice="1 1 []">What can we do about all this?</div><ul><li>Focus on valuations - buy companies whose projection don't need ideal conditions. On that, apply a margin of safety for changing circumstances.</li><li>If you feel compelled to buy companies at exorbitant valuations, buy small lots and see how the story pans out. You can always add to your positions.</li><li>If you already hold stocks that have dropped significantly (80 or 90%), but where you expect the story to be intact more or less, consider continued purchase of these shares at lower prices so that you can lower your average cost of ownership over many years. If the company in fact turns out to be a super compounder over many years, your investment will still pay off very good returns. If you started with small lot purchases of these companies and have powder dry, now is the time to add to your position, but only to those companies whose growth story is intact. </li></ul></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><br /></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin>Original data <a href="https://docs.google.com/spreadsheets/d/1gL_shZzw8JpCWbIPROiFFTv1-hOVSnMbBRzTFJY-GvU/edit?usp=sharing" target="_blank">here</a>. </google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><br /></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: center;"><google-sheets-html-origin><google-sheets-html-origin><b>Appendix</b></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><br /></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin>I use a small function to generate DCF calculations for scenarios. You can find it in the data file, but I am pasting it here for reference:</google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><br /></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><div style="background-color: #fffffe; color: #3c4043; font-family: "Roboto Mono", Menlo, Monaco, "Courier New", monospace; font-size: 13px; line-height: 20px; white-space: pre;"><div><span style="color: #185abc;">function</span> <span style="color: #202124;">calculate_dcf_value</span>(</div><div> <span style="color: #202124;">revenue</span>, </div><div> <span style="color: #202124;">revenue_growth</span>, </div><div> <span style="color: #202124;">initial_profit_margin</span>, </div><div> <span style="color: #202124;">profit_margin_increment</span>,</div><div> <span style="color: #202124;">tax_rate</span>,</div><div> <span style="color: #202124;">risk_free_return</span>, </div><div> <span style="color: #202124;">risk_free_return_increments</span>,</div><div> <span style="color: #202124;">equity_risk_premium</span>,</div><div> <span style="color: #202124;">year_of_terminal_value</span>,</div><div> <span style="color: #202124;">cost_of_capital</span> = <span style="color: #098591;">0</span>,</div><div> <span style="color: #202124;">price_in_cost_of_capital</span> = <span style="color: #185abc;">false</span>) {</div><div> <span style="color: #185abc;">var</span> <span style="color: #202124;">dcf</span> = <span style="color: #098591;">0</span>;</div><div> <span style="color: #202124;">cumulative_profit</span> = <span style="color: #098591;">0</span>;</div><div> <span style="color: #185abc;">for</span>(<span style="color: #202124;">year</span> = <span style="color: #098591;">1</span>; <span style="color: #202124;">year</span> <= <span style="color: #202124;">year_of_terminal_value</span>; <span style="color: #202124;">year</span>++) {</div><div> <span style="color: #202124;">y_revenue</span> = <span style="color: #202124;">revenue</span>*<span style="color: #c92786;">Math</span>.<span style="color: #202124;">pow</span>(<span style="color: #098591;">1</span>+<span style="color: #202124;">revenue_growth</span>, <span style="color: #202124;">year</span>-<span style="color: #098591;">1</span>);</div><div> <span style="color: #202124;">y_profit_margin</span> = <span style="color: #202124;">initial_profit_margin</span> + (<span style="color: #202124;">year</span> - <span style="color: #098591;">1</span>)*<span style="color: #202124;">profit_margin_increment</span>;</div><div> <span style="color: #202124;">y_pbt</span> = <span style="color: #202124;">y_revenue</span> * <span style="color: #202124;">y_profit_margin</span>;</div><div> <span style="color: #202124;">cumulative_profit</span> += <span style="color: #202124;">y_pbt</span>;</div><div> <span style="color: #202124;">y_interest</span> = <span style="color: #098591;">0</span>;</div><div> <span style="color: #185abc;">if</span>(<span style="color: #202124;">cumulative_profit</span> < <span style="color: #098591;">0</span> && <span style="color: #202124;">cost_of_capital</span> > <span style="color: #098591;">0</span> && <span style="color: #202124;">price_in_cost_of_capital</span>) {</div><div> <span style="color: #202124;">y_interest</span> = <span style="color: #202124;">cumulative_profit</span> * (<span style="color: #202124;">cost_of_capital</span> + <span style="color: #202124;">risk_free_return</span>);</div><div> <span style="color: #202124;">cumulative_profit</span> += <span style="color: #202124;">y_interest</span>;</div><div> }</div><br /><div> <span style="color: #202124;">y_fcf</span> = (<span style="color: #202124;">y_pbt</span> + <span style="color: #202124;">y_interest</span>) * (<span style="color: #098591;">1</span>- <span style="color: #202124;">tax_rate</span>);</div><div> <span style="color: #202124;">y_rfr</span> = <span style="color: #202124;">risk_free_return</span> + (<span style="color: #202124;">year</span>-<span style="color: #098591;">1</span>)*<span style="color: #202124;">risk_free_return_increments</span>;</div><div> <span style="color: #185abc;">if</span>( <span style="color: #202124;">year</span> < <span style="color: #202124;">year_of_terminal_value</span>) {</div><div> <span style="color: #202124;">y_dcf</span> = <span style="color: #202124;">y_fcf</span>*<span style="color: #c92786;">Math</span>.<span style="color: #202124;">pow</span>(<span style="color: #098591;">1</span>-<span style="color: #202124;">y_rfr</span>, <span style="color: #202124;">year</span> - <span style="color: #098591;">1</span>);</div><div> <span style="color: #202124;">dcf</span> += <span style="color: #202124;">y_dcf</span>;</div><div> } <span style="color: #185abc;">else</span> {</div><div> <span style="color: #202124;">tv</span> = <span style="color: #202124;">y_fcf</span>/(<span style="color: #202124;">y_rfr</span> + <span style="color: #202124;">equity_risk_premium</span>);</div><div> <span style="color: #202124;">dtv</span> = <span style="color: #202124;">tv</span>*<span style="color: #c92786;">Math</span>.<span style="color: #202124;">pow</span>(<span style="color: #098591;">1</span>-<span style="color: #202124;">y_rfr</span>, <span style="color: #202124;">year</span> - <span style="color: #098591;">1</span>);</div><div> <span style="color: #202124;">dcf</span> += <span style="color: #202124;">dtv</span>;</div><div> }</div><div> </div><div> }</div><div> <span style="color: #185abc;">return</span> <span style="color: #202124;">dcf</span>;</div><div>}</div></div></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><br /></google-sheets-html-origin></google-sheets-html-origin></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><google-sheets-html-origin><google-sheets-html-origin><br /></google-sheets-html-origin></google-sheets-html-origin></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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As they were going through the process, they asked me what's the best thing to do with the money they were about to receive from the sale.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgc86EcDMiELRKdQnu1AvmT6kJEbaMEJPQFQm5uZ7ZGGrZOiUUFdSoInGSEL3xZ_V_g_oNWfxjsSfyUos5kixwZDMeTJJrdWsi42_AjUeTw-VIvbROT80v8NZNthzvsQShuDdswLd_TmcAPUcNc5DR8eBW06qG6XkNorqHU7KjN2dZ_1gJzN9g" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="499" data-original-width="850" height="376" src="https://blogger.googleusercontent.com/img/a/AVvXsEgc86EcDMiELRKdQnu1AvmT6kJEbaMEJPQFQm5uZ7ZGGrZOiUUFdSoInGSEL3xZ_V_g_oNWfxjsSfyUos5kixwZDMeTJJrdWsi42_AjUeTw-VIvbROT80v8NZNthzvsQShuDdswLd_TmcAPUcNc5DR8eBW06qG6XkNorqHU7KjN2dZ_1gJzN9g=w640-h376" width="640" /></a></div><br /><br /><p></p><p>The natural response to this situation is to put all of the money into safe money-market or government funds or <a href="https://en.wikipedia.org/wiki/Fixed_deposit" target="_blank">fixed deposits</a> (FDs) that would yield a safe return and not have any risk of loss of capital. However, given where the interests rates have been, the yields weren't going to be too great. This is a problem a lot of retirees face today, and one I might have to face myself in future. So I was very much interested in finding a solution that worked. </p><p>But what does "working" in this context mean? For me, working in this context means the following:</p><p></p><ul style="text-align: left;"><li>There should be a steady stream of cashflow that my parents can use for their day to day expenses.</li><li>Such a stream of cashflow should ideally run till they lived.</li><li>There must be a scope for increasing the cashflow if they so desired based on inflation and other needs.</li><li>This arrangement should come with minimal intervention.</li><li>As a plus, the corpus can be passed on in inheritance.</li></ul><p></p><p>When it comes to retirement planning, so much more is written about saving, investing and accumulating, than is written about drawing down on the corpus you build over all these years. The options are largely limited to </p><p></p><ol style="text-align: left;"><li>live off a <a href="https://www.investopedia.com/terms/s/safe-withdrawal-rate-swr-method.asp" target="_blank">safe withdrawal rate</a> of 3-4% or </li><li>live only <a href="https://www.simplysafedividends.com/intelligent-income/posts/1-living-off-dividends-in-retirement" target="_blank">off the dividends</a> of your investments. </li><li>Buy <a href="https://www.investopedia.com/terms/a/annuity.asp" target="_blank">annuities</a></li></ol><p></p><p>Neither of this approaches are appealing to me. On one hand I find 3-4% way too conservative. If markets in general return 7-9% in the western world, or 12-14% in a country like India, shouldn't we be able to enjoy somewhat similar withdrawals and still largely be able to let the corpus run forever? Perhaps a small amount of buffer makes sense, but 3-4% invariably leaves a good amount of growth of capital untapped for the majority of the withdrawal phase.</p><p>As for living off dividends, it has the great feature of protecting your holdings, but given where asset prices are, you will likely get far less than even 3-4% on a balanced portfolio. You could obviously seek a portfolio biased to income generation, but such a portfolio doesn't correlate to general stock market returns in the long run and are likely to underperform markets in general.</p><p>Annuities aren't workable these days - premiums in the last decade are so high that these would have yielded only a paltry yield, while swallowing up your capital altogether.</p><p><b>So, what's the solution then? </b></p><p>My solution was somewhat simple - invest all the monies into broad market equity funds and conduct a <a href="https://www.franklintempletonindia.com/investor-education/new-to-mutual-funds/article/beginners-guide-chapter9/a-definitive-guide-to-systematic-methods-sip-swp-stp" target="_blank">Systematic Withdrawal Plan</a> (SWP) from this. If you keep the SWP close to the expected long term returns, perhaps leaving a small buffer for safety, you can receive a much higher yield - closer to 10% instead of the lower options available with other arrangements. </p><p><i>(This has the added benefit that is everything worked well, I get to inherit the corpus after my parents don't need it. However, I also had to promise them that I would make them whole if the strategy failed altogether. There is enough trust between my parents and I that this works. This won't work for all families, obviously.)</i></p><p>In India, setting this kind of arrangement is relatively easy, so this needs little intervention. We chose <a href="https://www.franklintempletonindia.com/" target="_blank">Franklin Templeton India</a> for this. The corpus was divided into 2 funds - Fund A and Fund B <i>(full names below)</i>. A few months later we figured out that Fund A and Fund B were both fully loaded funds with high fees and that we can move to a lower fees arrangement. At the end of the first year, I transferred the funds over to Fund C and Fund D which were the lower fees equivalent of A and B. Since then this arrangement has largely been left untouched.</p><p>The choice of these funds were simple for me because I had been investing in them to build my own corpus since 2005. I knew these funds quite well - so kept my choice quick and simple.</p><p><google-sheets-html-origin></google-sheets-html-origin></p><table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: Arial; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="152"></col><col width="495"></col></colgroup><tbody><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Short Name"}" style="border: 1px solid rgb(0, 0, 0); font-weight: bold; overflow-wrap: break-word; overflow: hidden; padding: 2px 3px; vertical-align: bottom; white-space: normal;">Short Name</td><td data-sheets-value="{"1":2,"2":"Full Official Name"}" style="border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow-wrap: break-word; overflow: hidden; padding: 2px 3px; vertical-align: bottom; white-space: normal;">Full Official Name</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Fund A"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Fund A</td><td data-sheets-value="{"1":2,"2":"Franklin India PRIMA FUND - GROWTH"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow-wrap: break-word; overflow: hidden; padding: 2px 3px; vertical-align: bottom; white-space: normal;">Franklin India PRIMA FUND - GROWTH</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Fund B "}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Fund B</td><td data-sheets-value="{"1":2,"2":"Templeton India EQUITY INCOME FUND - Growth"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow-wrap: break-word; overflow: hidden; padding: 2px 3px; vertical-align: bottom; white-space: normal;">Templeton India EQUITY INCOME FUND - Growth</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Fund C"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Fund C</td><td data-sheets-value="{"1":2,"2":"Franklin India Flexi Cap Fund - Direct (Erstwhile Franklin India Equity Fund - Direct) - Growth"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow-wrap: break-word; overflow: hidden; padding: 2px 3px; vertical-align: bottom; white-space: normal;">Franklin India Flexi Cap Fund - Direct (Erstwhile Franklin India Equity Fund - Direct) - Growth</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Fund D"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Fund D</td><td data-sheets-value="{"1":2,"2":"Templeton India Value Fund - Direct (erstwhile Templeton India GROWTH FUND - Direct) -\nGrowth"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow-wrap: break-word; overflow: hidden; padding: 2px 3px; vertical-align: bottom; white-space: normal;">Templeton India Value Fund - Direct (erstwhile Templeton India GROWTH FUND - Direct) -<br />Growth</td></tr></tbody></table><p>I set the drawdown to 9% of the corpus, and adjusted it to 10% after the first year.</p><p></p><div class="separator" style="clear: both; text-align: left;">How have the funds done themselves? It has been mixed. Much of 2019, the funds went nowhere, and then they took a bit of beating during the onset of the pandemic, but since then the funds have been on a tear right up to the beginning of this year where there has been mild softening in their performance. The chart below show their performance indexed to 100. <i>All performance numbers listed here are net of fees.</i></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgLP9QzbzzVecY2MVe12cnk51-Ter_zomrJVk3j-x5lT3pkngnuYKjoDGMrOFGT4SD3UNguLMF5NS2jB6cRfHq4KeXYgEEBG6AV4um8Trx-gMRI7W8XgMlYakHGHp2BF7kVd_XI0rRJR0enQScxUEV2iIVZL6sfFaUNvxgjPcjgLrM1Ha-d5AY" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="403" data-original-width="651" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEgLP9QzbzzVecY2MVe12cnk51-Ter_zomrJVk3j-x5lT3pkngnuYKjoDGMrOFGT4SD3UNguLMF5NS2jB6cRfHq4KeXYgEEBG6AV4um8Trx-gMRI7W8XgMlYakHGHp2BF7kVd_XI0rRJR0enQScxUEV2iIVZL6sfFaUNvxgjPcjgLrM1Ha-d5AY=w640-h396" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: left;">I went and looked at the returns on an ongoing/cumulative basis and it has been a bit of roller coaster ride, and the <a href="https://www.investopedia.com/terms/i/irr.asp" target="_blank">IRR</a> has swung wildly in tune to the market performance themselves. However, over time, the cumulative IRR seems to be stabilising now. </div><br /><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhIdarSP3bSzsifYeHAIrDPlvb5aPjxwJb_ZV2vKTGHc3eGiGQyAWqVgMdfWDc6PEcvpzUoLAfHt09u_jJTWtdTRa0uUZph9DTJRvmi_4F8jfnHLLmlCOO3tDndNroE0oxXeXRkawibVidfDKnU109hxVBDlKl9IBunWjlxgZImn63z8qkipuY" style="margin-left: auto; margin-right: auto;"><img alt="" data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEhIdarSP3bSzsifYeHAIrDPlvb5aPjxwJb_ZV2vKTGHc3eGiGQyAWqVgMdfWDc6PEcvpzUoLAfHt09u_jJTWtdTRa0uUZph9DTJRvmi_4F8jfnHLLmlCOO3tDndNroE0oxXeXRkawibVidfDKnU109hxVBDlKl9IBunWjlxgZImn63z8qkipuY=w640-h396" width="640" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"></td></tr></tbody></table>As of end of June 2022, which represents a little under 4 years of this strategy, the IRR is pretty reasonable, in INR terms as well as in other currency terms. <i>All performance numbers listed here are net of fees.</i><br /><p></p><p><google-sheets-html-origin></google-sheets-html-origin></p><table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: Arial; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="100"></col><col width="100"></col></colgroup><tbody><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"Currency"}" style="border: 1px solid rgb(0, 0, 0); font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Currency</td><td data-sheets-value="{"1":2,"2":"IRR"}" style="border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">IRR</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"INR"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">INR</td><td data-sheets-formula="='IRR Analysis'!R[95]C[-1]" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.12980221140081852}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">12.98%</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"USD"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">USD</td><td data-sheets-formula="='IRR Analysis'!R[94]C[2]" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.10833551219720604}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">10.83%</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"GBP"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">GBP</td><td data-sheets-formula="='IRR Analysis'!R[93]C[5]" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.1233147140336024}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">12.33%</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"SGD"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">SGD</td><td data-sheets-formula="='IRR Analysis'!R[92]C[8]" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.11225851779371085}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">11.23%</td></tr></tbody></table><p><br /></p><p>I find that this strategy has worked reasonable well, at least over the past 4 years, despite some market idiosyncrasies. All else being equal, it might work for many more years, if not decades.</p><p>Obviously, if you live outside of the India, entrusting your retirement corpus on to a fund in India and hoping it will all work out, is probably a bad idea. If you aren't invested in India, then expecting the corpus to return 9-10% consistently without eroding permanent capital is also perhaps being too ambitious. However, I feel that this strategy tells me that I could form a similar strategy for my own withdrawal phase, after perhaps adjusting some of the numbers. At the moment, it looks like holding a global index like <a href="https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview" target="_blank">FTSE Global All Cap Index Fund</a>, and then aiming for a drawdown of 6-7% should work out reasonably well for those living outside of India. </p><p>I have put together all the raw data <a href="https://docs.google.com/spreadsheets/d/1KU4kKHAe53rc2h0JzBV9JJu9jcRe-aEIRTi-sT1upXk/edit#gid=1213692230" target="_blank">here</a>, for those who would like to go through. I have adjusted the original corpus to be INR 10L so that the original amounts are hidden. All numbers have been made proportional. </p><div class="blogger-post-footer"><script type="text/javascript"><!--
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</script></div>Shreenihttp://www.blogger.com/profile/08742144807675237049noreply@blogger.com0tag:blogger.com,1999:blog-24818183.post-17506063890578950062022-07-01T21:03:00.000+08:002022-07-01T21:03:47.088+08:00Portfolio Update - Jun 2022 (ft Top Holdings + Headline Performance Numbers)<p>Following up on my <a href="https://www.shreeni.info/2022/06/portfolio-update-may-2022.html" target="_blank">May Portfolio update</a>, time for another one. Given all the mayhem in the markets, it seems pertinent to discuss what I do, and explain why I did those things. Part of the reason I do this is to leave my approach in the open for others to read and offer feedback, but the other part of the reason is to hold myself publicly accountable. </p><p>Obviously, my interests in keeping myself accountable and solicit feedback has to be traded off with producing something that would interests readers - otherwise, the blog runs the risk of mimicking a journal - might be an interesting record, but not an opportunity to collaborate with others in the field of investing. So I am likely going to change the format and frequency of the updates a few times to see what sticks and what doesn't. If you like/dislike something you see here, feel free to add a comment or reach out to me in person (in case you know me in person), so I can use that feedback to make these posts more interesting.</p><p>Let's get started with the charts and then get on to some commentary in the latter half of this posts.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjnN0oURd-NQno37QrQ9jUTkR7l2B1YnNO2H6Nehawcxs8hFK7BOir707uuZ5cvYEZk3b-M5I9dhIk6Dof7ey_VOIy-QOTexlEtjHl7IX1khcZWUdFLPUlxLJG4Qy9cKHwfiN6-skP7FDa2HCVVqPK9mOu6Igf3bZrXyHJomt3hLYwUZQ4eytQ" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="321" data-original-width="518" height="397" src="https://blogger.googleusercontent.com/img/a/AVvXsEjnN0oURd-NQno37QrQ9jUTkR7l2B1YnNO2H6Nehawcxs8hFK7BOir707uuZ5cvYEZk3b-M5I9dhIk6Dof7ey_VOIy-QOTexlEtjHl7IX1khcZWUdFLPUlxLJG4Qy9cKHwfiN6-skP7FDa2HCVVqPK9mOu6Igf3bZrXyHJomt3hLYwUZQ4eytQ" width="640" /></a></div><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiH1dVDimczet88ETLUFIBJcmOLjJTxNZKii4DETetc7ibgZQ1JX3vDpGoC8rK-c4bXP09ZEF9urkVyGut7aHSae25HNbMn_1QYfrZHCMUzfWG3gLXbmnq31ZP-gFy7j5BPjfAvqupUldLe7fz1fb-8LcpQcRJW_OiOOHE57lAuLxo0dUOSHew" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img alt="" data-original-height="321" data-original-width="518" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEiH1dVDimczet88ETLUFIBJcmOLjJTxNZKii4DETetc7ibgZQ1JX3vDpGoC8rK-c4bXP09ZEF9urkVyGut7aHSae25HNbMn_1QYfrZHCMUzfWG3gLXbmnq31ZP-gFy7j5BPjfAvqupUldLe7fz1fb-8LcpQcRJW_OiOOHE57lAuLxo0dUOSHew=w640-h396" width="640" /></a><br /><div><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjmTAdJyKMo4tY3qM-mfCOeQpUNUu12xY026FX5ldsQDGJzE5KV8wrtRPYnHZrzbDLSPRV6lyf7qdNr37FTJ_ZcR7AzVdfDdOX5edl0qwYQQR7V5gRFgxlTh5mLuIEIFO8HrFb6RG4H7sSJVKZsRbbgUdAxzYZ02G9fko7FiesyFYoFP7vJHVQ" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img alt="" data-original-height="321" data-original-width="518" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEjmTAdJyKMo4tY3qM-mfCOeQpUNUu12xY026FX5ldsQDGJzE5KV8wrtRPYnHZrzbDLSPRV6lyf7qdNr37FTJ_ZcR7AzVdfDdOX5edl0qwYQQR7V5gRFgxlTh5mLuIEIFO8HrFb6RG4H7sSJVKZsRbbgUdAxzYZ02G9fko7FiesyFYoFP7vJHVQ=w640-h396" width="640" /></a><div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjdKMSWI3pYXKEGLDgsYnlA3cjEotvKdG6c4mxCgJwkvdYt7URLuOt7jmbD_JDqH0t9TE0hB6Pk07X1ch34w06BG_2nZ8w5L1nBGr3QQKJ_D71lWlcX4GwURKPPR9ZX5D4kVC04CN4ugqyOgWlneUzf2j1B0gUx_SujEw2DaasPYHN2WZHGLXc" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="321" data-original-width="518" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEjdKMSWI3pYXKEGLDgsYnlA3cjEotvKdG6c4mxCgJwkvdYt7URLuOt7jmbD_JDqH0t9TE0hB6Pk07X1ch34w06BG_2nZ8w5L1nBGr3QQKJ_D71lWlcX4GwURKPPR9ZX5D4kVC04CN4ugqyOgWlneUzf2j1B0gUx_SujEw2DaasPYHN2WZHGLXc=w640-h396" width="640" /></a></div><h4 style="text-align: left;">Commentary</h4></div></div></div><div>In general, markets are in a sell-off and will likely be in sell-off till the tide of economic news start turning around. Exactly when that will happen is anyone's guess. However, I have been closely observing how my portfolio does in comparison to the wider falls and I am convinced that the allocations can withstand a drawdown at not much worse outcomes than holding the broad market itself. Furthermore, I am convinced that looking back at this day in 18 months, I am likely to have no regrets about portfolio allocations. </div><div><br /></div><div>In terms of <b>sectors</b>, Energy and Conglomerates are up, cash and Funds/ETFs are down. </div><div><br /></div><div>I continue to be bullish on the <i>Energy</i> sector. While Energy sector has also sold off in the last month, it is my belief that energy prices are likely to stay high long enough to make a material difference to the balance sheets of companies that their valuation are going to be significantly different in the next year or two. If a company has a significant debt, accumulated over 10 years, on their balance sheet and get to write all of it off in a year's earnings, it is likely to make a significant difference to their capital allocation and returns going forward. Coupled with the cheap prices at which these companies trade, it is likely that their valuations will significantly improve in the next 2 years. </div><div><br /></div><div>That said, I am fully cognisant that these companies are under threat of long term extinction given the energy transition we are undergoing, and likely to be negatively impacted by government interventions like <a href="https://www.shreeni.info/2022/06/why-does-uk-windfall-tax-sound-like-bad.html" target="_blank">Windfall Taxes</a>. All in all, I believe they are a worthy addition. However, I am selective about which companies I invest in and I have been conservative in selecting those opportunities that I feel have the lowest downside.</div><div><br /></div><div><i>(note: My Energy exposure is larger than the 8.2% showing up in the pie chart above, because I am also involved in a bunch of derivatives which are carried at low value, but hold a high capital-at-risk / intrinsic value. This is all buried in the Derivatives slice in thesis. Doing the right maths to get it accurate is too much work, I don't get paid to write this blog, and I am lazy. 🙂)</i><br /><div><br /></div><div>As for Fund/ETF allocation, I made use of the current meltdown in the markets to take out money from funds and reallocate them into individual stock allocation managed by me directly. These fund weren't doing a particularly great job and redeeming them now means I will get to exit them without a significant taxable gain. In addition, I get to move the proceeds into my Interactive Brokers margin account, where I will have the option of using the additional funds to leverage my positions. I am very careful in not using leverage, but as the market falls, it is always better to have a higher margin available in case I decide to start ramping up positions. Never let a crisis go waste!</div><div><br /></div><div>In terms of <b>regions</b>, US is up, with also a small increase in China allocation, and everything else shrinking accordingly. US is up primarily because of some of the energy trades as well as an addition to my <a href="https://finance.yahoo.com/quote/BRK-B" target="_blank">Berkshire-B</a> holdings.</div><div><br /></div><div>In terms of <b>thesis</b>, Special situations (merger and acquisition arbitrage, liquidations, etc) has grown as a big thesis in the past month and is likely to continue to grow over the next few months. In what is an extremely volatile market, building up convictions on special situations seems relatively easier for me. Some of the situations I have been involved in last month are <a href="https://finance.yahoo.com/quote/ATVI?p=ATVI&.tsrc=fin-srch" target="_blank">Activision</a> acquisition arbitrage, <a href="https://finance.yahoo.com/quote/SAVE?p=SAVE&.tsrc=fin-srch" target="_blank">Spirit Airlines</a> acquisition drama and the <a href="https://finance.yahoo.com/quote/TWTR?p=TWTR&.tsrc=fin-srch" target="_blank">Twitter</a> acquisition arbitrage. I played all of them with conservative positions by being short on PUTs, just to be safe, and collected a bit of pocket money premium here and there. If nothing else, the put premiums fund my cups of chai! </div><div><br /></div><div>I have also added tracking Private Equity as a new slice of the pie. For the avoidance of doubt - I didn't acquire this position in the last month. I only started <i>tracking</i> it in the last month. Going forward this should continue to represent a slice of the pie. Most of my Private Equity investments come from my employments - my current employer Quantcast, my previous employer Vocanic, Rhino Partners - a company I co-founded, Advocacy - in which I played an advisory role and RangDe, a not-for-profit NBFC that I supported during their capital raise, not for profit motive, but to support their work in society. </div><div><br /></div><div><div>In summary, I remain a net buyer and I have been adding a lot to either special situations or stocks that have become cheaper in the sold off, and whose prospects I am confident of - Berkshire Hathway, for instance, which is now among my top-3 holdings. </div></div><div><h4 style="text-align: left;">Top 3 Positions</h4><div>In alphabetic order:</div><div><ul style="text-align: left;"><li><a href="https://finance.yahoo.com/quote/BRK-B" target="_blank">Berkshire Hathway Class B</a></li><li><a href="https://secure.fundsupermart.com/fsm/funds/factsheet/FSDVAD/First-State-Dividend-Advantage-A-DIS-SGD" target="_blank">FSSA Dividend Advantage Fund</a></li><li><a href="https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview" target="_blank">Vanguard All World All Cap Index (Accumulation)</a></li></ul><h4 style="text-align: left;">Headline Performance Numbers*</h4></div><div><google-sheets-html-origin><table border="1" cellpadding="0" cellspacing="0" dir="ltr" style="border-collapse: collapse; border: none; font-family: Arial; font-size: 10pt; table-layout: fixed; width: 0px;" xmlns="http://www.w3.org/1999/xhtml"><colgroup><col width="100"></col><col width="100"></col><col width="100"></col><col width="112"></col></colgroup><tbody><tr style="height: 21px;"><td style="border: 1px solid rgb(0, 0, 0); overflow: hidden; padding: 2px 3px; vertical-align: bottom;"></td><td data-sheets-value="{"1":2,"2":"Return"}" style="border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Return</td><td data-sheets-value="{"1":2,"2":"Alpha"}" style="border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Alpha^</td><td data-sheets-value="{"1":2,"2":"Benchmark"}" style="border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">Benchmark</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"1 Year "}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">1 Year</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[24]C[6]:C[6],COUNTA('Alpha calculations'!R[24]C[6]:C[6]))" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.042856834058485775}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.29%</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[24]C[6]:C[6],COUNTA('Alpha calculations'!R[24]C[6]:C[6]))*100" data-sheets-numberformat="{"1":2,"2":"0.00","3":1}" data-sheets-value="{"1":3,"3":4.724586758603065}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.72</td><td colspan="1" data-sheets-hyperlink="https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview" data-sheets-value="{"1":2,"2":"Vanguard FTSE All World All Cap (Acc) Fund"}" rowspan="3" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; color: #1155cc; overflow-wrap: break-word; overflow: hidden; padding: 2px 3px; text-decoration-line: underline; vertical-align: bottom;"><div style="max-height: 63px;"><a class="in-cell-link" href="https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview" target="_blank">Vanguard FTSE All World All Cap (Acc) Fund</a>+</div></td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"3 Years"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">3 Years</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[35]C[14]:C[14],COUNTA('Alpha calculations'!R[35]C[14]:C[14]))" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.10592556316681412}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">10.59%</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[35]C[14]:C[14],COUNTA('Alpha calculations'!R[35]C[14]:C[14]))*100" data-sheets-numberformat="{"1":2,"2":"0.00","3":1}" data-sheets-value="{"1":3,"3":4.316294700879124}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">4.32</td></tr><tr style="height: 21px;"><td data-sheets-value="{"1":2,"2":"5 Years"}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0); border-image: initial; border-style: solid; border-width: 1px; font-weight: bold; overflow: hidden; padding: 2px 3px; vertical-align: bottom;">5 Years</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[58]C[22]:C[22],COUNTA('Alpha calculations'!R[58]C[22]:C[22]))" data-sheets-numberformat="{"1":3,"2":"0.00%","3":1}" data-sheets-value="{"1":3,"3":0.09645744898539221}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">9.65%</td><td data-sheets-formula="=INDEX('Alpha calculations'!R[58]C[22]:C[22],COUNTA('Alpha calculations'!R[58]C[22]:C[22]))*100" data-sheets-numberformat="{"1":2,"2":"0.00","3":1}" data-sheets-value="{"1":3,"3":2.7531607645313017}" style="border-color: rgb(204, 204, 204) rgb(0, 0, 0) rgb(0, 0, 0) rgb(204, 204, 204); border-image: initial; border-style: solid; border-width: 1px; overflow: hidden; padding: 2px 3px; text-align: right; vertical-align: bottom;">2.75</td></tr></tbody></table></google-sheets-html-origin></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">* Beta for this calculation is monthly. </span></div><div><span style="font-size: x-small;">+ I use Vanguard FTSE All World All Cap (Acc) as my benchmark. Ideally I should be using the underlying index and not the fund itself, but doing so is a lot harder. Getting good clean data on the index, and needing to track its tax and dividend implications gets too cumbersome. Using the fund is the closest proxy, however, I am aware that it is not a perfect benchmark, as fees get added, and tracking errors start showing up. I believe they are minor in larger scheme of things.</span></div></div></div><div><span style="font-size: x-small;">^ Risk free return for Alpha calculations taken from <a href="http://www.worldgovernmentbonds.com/bond-historical-data/united-kingdom/10-years/">http://www.worldgovernmentbonds.com/bond-historical-data/united-kingdom/10-years/</a> </span></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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</script></div>Shreenihttp://www.blogger.com/profile/08742144807675237049noreply@blogger.com2tag:blogger.com,1999:blog-24818183.post-60439880170656267162022-06-25T00:47:00.001+08:002022-06-25T00:53:05.946+08:00Movements in the Crypto World<p>(Note: I am going to use bitcoin as a poster child of crypto in this post. I am aware that crypto is far more than just bitcoin, and it is very likely that the larger crypto world and bitcoin may likely diverge in their paths in the future, but at the time of writing, using bitcoin to speak about crypto seems reasonable.)</p><div><br /></div><div><div>There is a crypto correction/collapse/drawdown in action at the moment. About a year back, I wrote about my <a href="https://www.shreeni.info/2021/06/bitcoin-paul-krugman.html" target="_blank">thoughts on crypto</a> and for better or worse, I never ended up taking a position in crypto and hence suffered neither profit nor loss in what has happened to those markets over the past 24 months. However, it has been exceptionally hard to ignore the crypto market and to stay out of it while everyone and their pets were investing in them.</div></div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhbUT_z37FWHk3P3J8Io70cRouRuCJCf-n5SWsBXSIvsQSiO5j7_y98QmD0vdx3UsQQZgv9d2qsgaUjoqHRTPqCj8OHZ3T4PxHRTRm9yvwCbesju_xJLnEUR2nW1L_icFovKBhpVR0jkKBWG9MNnVbedhdWFUyLY_I2U75Ns_Xx33Q0TiA0RV8" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="828" data-original-width="1576" height="336" src="https://blogger.googleusercontent.com/img/a/AVvXsEhbUT_z37FWHk3P3J8Io70cRouRuCJCf-n5SWsBXSIvsQSiO5j7_y98QmD0vdx3UsQQZgv9d2qsgaUjoqHRTPqCj8OHZ3T4PxHRTRm9yvwCbesju_xJLnEUR2nW1L_icFovKBhpVR0jkKBWG9MNnVbedhdWFUyLY_I2U75Ns_Xx33Q0TiA0RV8=w640-h336" width="640" /></a></div><br /><br /></div><div><br /></div><div><div>In general, assets are bought because they are expected to give you something back in return. The mathematical model that works to explain this is the <a href="https://www.investopedia.com/terms/d/dcf.asp" target="_blank">Discounted Cash Flow Model (DCF)</a>. For anyone with high school maths competency, DCF is an incredibly powerful tool that allows you to model almost any financial asset. DCFs can be used to model anything from a private business, to stocks, to real estate, to bonds, to annuities and so on and so forth. </div></div><div><br /></div><div><div>The tools needed to perform a DCF are incredibly ubiquitous too. All you need is a spreadsheet and knowledge of some formulas, like <a href="https://support.google.com/docs/answer/3093184?hl=en-GB" target="_blank">NPV</a>, <a href="https://support.google.com/docs/answer/3093224?hl=en-GB&ref_topic=3105398" target="_blank">FV</a>, etc and you are good to go. Of course, DCF is also a dangerous tool, as you can input it with values to fit whatever output you would like to rationalise a purchase you wish to make. So, it is important to use it the right way to understand whether or not an investment is sound. </div></div><div><br /></div><div><div>Regardless of whether you use it properly or poorly, DCF at least gives you an opportunity to value a financial asset based on a model, whatever the flaws might be. My biggest issue with Crypto, at least Bitcoin, has been that there is<a href="https://medium.com/the-capital/why-a-dcf-model-wont-work-with-bitcoin-6647e99211f6" target="_blank"> no way to do a DCF calculation</a> on crypto. Since many crypto currencies don’t produce a cash flow and are entirely priced on whatever you and the counter-party chooses to value it on, there are wild swings on valuations. This is not to say other assets like stocks don’t swing wildly - they swing wildly because what goes into the DCF models change; Crypto can swing for far less rational reasons. </div></div><div><br /></div><div><div>Of course there are ample attempts at <a href="https://crypto.com/university/introduction-to-crypto-assets-valuation" target="_blank">fundamental analysis for what crypto</a> should be valued on, just that they have all been very unconvincing. The holes are much bigger to observe than the argument themselves. There are of course some cryptos where valuations can be made, but they are not as attractive as comparative assets in non-crypto world as yet (More in <a href="#appendix" name="top">appendix</a>). </div></div><div><br /></div><div><div>What then explains the fact that quite a few investors (<a href="https://www.pewresearch.org/fact-tank/2021/11/11/16-of-americans-say-they-have-ever-invested-in-traded-or-used-cryptocurrency/" target="_blank">at least in the US</a>) investors hold bitcoin? There are a couple of possible reasons:</div></div><div><div><ol style="text-align: left;"><li>Investors didn’t understand the fundamentals behind the crypto pricing, but for all practical purposes, they don’t understand stock market valuations too, and so, if stock markets can return healthily, then why wouldn’t another asset class with broad ownership also return healthily? Basically, this is the “everything goes up” rationale. </li><li>Investors knew that the fundamentals didn’t exist, but invested nevertheless.</li></ol></div></div><div><div>My own anecdotal evidence suggests that a large majority of investors who understand fundamentals and have been using them to guide their investment decisions in the past ignored them and invested in bitcoin/crypto regardless.</div></div><div><br /></div><div><div>If indeed, people were investing knowing well they don't know what the future valuation of an asset should be, what is driving them to do it? </div></div><div><br /></div><div><div>I am going to conjecture that it is some combination of <i style="font-weight: bold;">greed, envy and fear of missing out (FOMO) </i>that has led so many investors to acquire crypto. </div></div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEj3WI2V5PIzOeRI4KweCXIGm0leh8F7g2MWNblvuxXZFzVqIdWw3emCRYSwNDPvBieU3rw_hBz9BLnNEdNBnDYIOw4J1l-dTE53jmqbLkOX0rHj6bsd2SN6AjpPJ-Dk1XmCkOCqOYvj_3BHFH1mYzdp7KKsMNhVj9sas1fAJp6j8Q_AuM9n8qk" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="478" data-original-width="742" height="412" src="https://blogger.googleusercontent.com/img/a/AVvXsEj3WI2V5PIzOeRI4KweCXIGm0leh8F7g2MWNblvuxXZFzVqIdWw3emCRYSwNDPvBieU3rw_hBz9BLnNEdNBnDYIOw4J1l-dTE53jmqbLkOX0rHj6bsd2SN6AjpPJ-Dk1XmCkOCqOYvj_3BHFH1mYzdp7KKsMNhVj9sas1fAJp6j8Q_AuM9n8qk=w640-h412" width="640" /></a></div><br /><br /></div><div><br /></div><div><div><ul style="text-align: left;"><li><i>I want to get rich soon. Stock markets are too slow in generating wealth. Bitcoin is going up and up. If I buy it now, I will be rich, hopefully, soon.</i></li><li><i>My neighbour/cousin/colleague/nephew bought crypto and they gloat about their massive returns and they can afford better things than I can, so let me put some money there and enjoy similar benefits.</i></li><li><i>Oh no, the world is only going to crypto and I will be left with worthless assets like cash. Let me get into it before the transition is complete.</i></li></ul></div></div><div><br /></div><div><span id="docs-internal-guid-c4686f13-7fff-2226-b572-e44db5beced6"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">All natural emotions. All incorrect emotions.</span></p><div><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></div><div><ul style="text-align: left;"><li><span style="font-size: 14.6667px; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial;">Unless you understand an asset incredibly well, too good to be true is almost always true. Better to get rich slowly than become poorer quickly.</span></span></li><li><span style="font-size: 14.6667px; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial;">Doing what your neighbour does just because it has worked out in the recent past is a sure shot way of getting your own finances in a knot. </span></span></li><li><span style="font-size: 14.6667px; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial;">As for FOMO, there has never been an asset class that came and took control of the world's wealth overnight. Every asset that has promised to do so has ended up in a bubble and has collapsed. That was <a href="https://en.wikipedia.org/wiki/South_Sea_Company" target="_blank">true in 1720</a>. That’s true in 2022. 300 years of analysis of bubbles always indicates the same pattern.</span></span></li></ul><span style="font-family: Arial;"><span style="font-size: 14.6667px; white-space: pre-wrap;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"></span><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;">
</span></span></span></div><div><span style="font-family: Arial;"><span style="font-size: 14.6667px; white-space: pre-wrap;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;">Just to be clear I am not against anyone investing in Cryptocurrencies or in Bitcoin (or for any assets for that matter). All I am suggesting is that you should do it for the right reasons and not for the wrong ones. There are ample investors who are spending time deeply understanding cryptocurrencies and the movements in that work and are taking positions and <a href="https://adventuresincapitalism.com/2021/04/07/all-good-things-must-end/" target="_blank">pulling it off</a>. If you are one among them, more power to you. </span></span></span></div><div><span style="font-family: Arial;"><span style="font-size: 14.6667px; white-space: pre-wrap;"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><br /></span></span></span></div><div><span style="font-size: 14.6667px; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial;"><b>Morale</b>
<ul style="text-align: left;"><li><span style="font-size: 14.6667px; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial;">Invest for the long term. Get rich slowly.</span></span></li><li><span style="font-size: 14.6667px; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial;">Invest in things you know and understand at a reasonable level. If you don’t know something, then be comfortable foregoing returns on that asset class. It is better than losing money on something you don’t know. </span></span></li><li><span style="font-size: 14.6667px; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="font-family: Arial;">Don’t get swept up in greed, envy or FOMO - none of that matters. Perhaps create a checklist with these 3 tick boxes and use it every time you invest to make sure you aren’t buying it either due to greed, envy or FOMO. </span></span></li></ul><div><br /></div></span></span><a name="appendix"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="font-family: Arial;"><span style="font-size: 14.6667px; white-space: pre-wrap;">
</span></span></span></a><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="font-family: Arial;"><span style="font-size: 14.6667px; white-space: pre-wrap;"><div style="text-align: center;"><a name="appendix"></a><a name="appendix"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="font-family: Arial;"><span style="font-size: 14.6667px;"><b>Appendix - DCF analysis on Hedera</b></span></span></span></a></div><div style="text-align: center;"><a name="appendix"><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="font-family: Arial;"><span style="font-size: 14.6667px;"> </span></span></span></a></div></span></span>
</span>
<div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="font-family: Arial;"><span style="font-size: 14.6667px; white-space: pre-wrap;">One crypto asset where a DCF calculation makes sense is with <a href="https://hedera.com/how-it-works" target="_blank">Hedera protocol</a>, which is among the most efficient crypto protocols, using the <a href="https://hedera.com/learning/hedera-hashgraph/what-is-gossip-about-gossip#:~:text=Hashgraph%20utilizes%20the%20gossip%20protocol,(DAG)%20called%20a%20hashgraph." target="_blank">gossip about gossip protocol</a> for establishing consensus on the public ledger. Despite being the most efficient blockchain algorithm, they would still need O(log(n)) time units and O(n*log(n)) messages to achieve what is currently O(1), n being the number of participants on the blockchain. We obviously want the blockchain to have enough participants to make it decentralised, but not too many, as it increases costs.
Given that Hedera is based on <a href="https://www.coindesk.com/learn/proof-of-work-vs-proof-of-stake-what-is-the-difference/" target="_blank">proof of stake and not proof of work</a>, Hedera would generate cashflow by paying back the owners of the coins who stake their coins, to the extent they can charge their clients for processing a transaction. For instance if Hedera could indeed power transactions at roughly the same price point as Visa, and distribute its proceeds to its coin holders as a “dividend” or a “staking fee”, I can see a DCF model fitting nicely.
Hedera has still not started operating a visa-styled system and I am sure that building that kind of infrastructure will take years and also need change of systems at multiple locations along the ecosystem (merchants, users etc), but if they pull it off, you can start doing calculations that mimic the numbers we see from Visa:
</span></span><span id="docs-internal-guid-d6e0b976-7fff-42ab-e986-e519f6188e3c"><div align="left" dir="ltr" style="margin-left: 0pt;"><table style="border-collapse: collapse; border: none;"><colgroup><col width="165"></col><col width="100"></col><col width="147"></col></colgroup><tbody><tr style="height: 26.25pt;"><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><br /></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Hedera / HBAR</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Visa</span></p></td></tr><tr style="height: 15.75pt;"><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Transactions per day</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">321,875</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">635,616,438</span></p></td></tr><tr style="height: 15.75pt;"><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Transactions per year</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">117,484,375</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">232,000,000,000</span></p></td></tr><tr style="height: 15.75pt;"><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Profit per year</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><br /></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">12,000,000,000</span></p></td></tr><tr style="height: 26.25pt;"><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Equivalent Profit per transaction</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">6,076,778</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><br /></td></tr><tr style="height: 26.25pt;"><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Total Coins in Circulation</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">21,251,991,975</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><br /></td></tr><tr style="height: 15.75pt;"><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Profit per coin</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">0.0002859392</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><br /></td></tr><tr style="height: 15.75pt;"><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Price per coin</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">0.0731010000</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><br /></td></tr><tr style="height: 15.75pt;"><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">P/E</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">256</span></p></td><td style="border-bottom: solid #000000 0.75pt; border-color: rgb(0, 0, 0); border-left: solid #000000 0.75pt; border-right: solid #000000 0.75pt; border-style: solid; border-top: solid #000000 0.75pt; border-width: 0.75pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">37</span></p></td></tr></tbody></table></div></span><span style="font-family: Arial;"><span style="font-size: 14.6667px; white-space: pre-wrap;">
To be clear, Bitcoin is not Hedera and its protocol is way too slow and way too costly for us to make a reasonable comparison between Bitcoin and Visa. However if DCF were to work on a crypto asset, then Hedera seems like a much better asset to model on than Bitcoin. Hedera needs to build a much bigger network and conduct a lot more paid transactions for it to be taken seriously, but at least we can make a reasonable approach to valuing the ecosystem. <a href="top"><sup>↩</sup></a>
References:</span></span></span></div><div><span style="font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline;"><span style="font-family: Arial;"><span style="font-size: 14.6667px; white-space: pre-wrap;">
https://usa.visa.com/dam/VCOM/global/about-visa/documents/aboutvisafactsheet.pdf
https://annualreport.visa.com/financials/default.aspx
https://hedera.com/hbar
</span></span>
</span></div><div><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></div></div></span></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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</script></div>Shreenihttp://www.blogger.com/profile/08742144807675237049noreply@blogger.com0tag:blogger.com,1999:blog-24818183.post-36979501454325171622022-06-18T02:04:00.002+08:002022-06-18T16:01:21.987+08:00A comment on volatility<p><i>(Anything mentioned in this post should not be considered financial advice. The thoughts in this post are purely for entertainment and educational purposes.)</i></p><p><i><br /></i></p><p>Stock markets are a powerful asset class, for a variety of reasons:</p><p></p><ol style="text-align: left;"><li>They offer superior medium to long term returns.</li><li>You can invest in, and divest from, them in a systematic manner, eliminating timing risk.</li><li>You can invest in them with very small amounts, something you can't do in other asset classes such as property or bonds which often have minimum lot size, or private equity.</li><li>You can massively diversify your investments with almost no effort, given the proliferation of diversified index funds and ETFs available in the market. </li><li>You can invest and get good returns without needing to resort to leverage (unlike say property where leverage is almost always a given) - i.e. without needing to borrow money from others.</li><li>Your investment maintenance cost and energy is next to 0. In contrast, if you were to own gold, you have to worry about its security and might even have to expend some money for its secure storage. Or if you were to hold property, you have to buy insurance and perhaps have to deal with maintenance of the property from time to time.</li></ol><p></p><p>In exchange for all of these fantastic goodies, stocks markets have provided <a href="https://yhoo.it/3b2O12V" target="_blank">healthy returns</a> for the past many decades - here is a graph from the last 10 years. </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgFEeuoz-o775iEDdyfzr56b2uzzXCOFOkJpEjO-c_8bLrHdMRCJMFr6bH-hhrwdu0dgDDDh2r36zPxo_XqHhoi2-PeBaT2T96jLXixAKyYqleTomZuWM75MutI3M5QKCIAE7JH2fUOtVlFPSPqAj-5ZfOHL-D5XDe01JLpGDoUKe8CW4N6b9g" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="802" data-original-width="1521" height="338" src="https://blogger.googleusercontent.com/img/a/AVvXsEgFEeuoz-o775iEDdyfzr56b2uzzXCOFOkJpEjO-c_8bLrHdMRCJMFr6bH-hhrwdu0dgDDDh2r36zPxo_XqHhoi2-PeBaT2T96jLXixAKyYqleTomZuWM75MutI3M5QKCIAE7JH2fUOtVlFPSPqAj-5ZfOHL-D5XDe01JLpGDoUKe8CW4N6b9g=w640-h338" width="640" /></a></div><br /><br /><p></p><p>However, there is one major drawback - volatility. <b>Volatility in stock markets are a given.</b> Volatility is a price that you pay for the superior returns and all the goodies that I just mentioned above that are the characteristics of stock market investments. </p><p>From Morgan Hausel's superb book Psychology of Money:</p><p></p><blockquote><i>Market returns are never free and never will be. They demand you pay a price, like any other product. You are not forced to pay this fee, just like you are not forced to go to Disneyland. You can go to the local county fair where tickets might be $10, or stay at home for free. But you’ll usually get what you pay for. Same with markets. The volatility/uncertainty fee – the price of returns – is the cost of admission to get returns rather than low-fee parks like cash and bonds.</i></blockquote><p></p><p>If anyone promises you a lower volatility return, it is then almost always the case that they are diluting stock market returns by adding something else to the mix. They could do so by adding bonds, or property, or other assets like gold or bitcoin, or perhaps pay to buy up hedges - essentially insurance on the stock market. All of these are legit methods, but it alters the composition of what you hold and changes the consequent characteristics - potentially reducing long term returns. </p><p>For someone like me who like the good parts of the stock market (mentioned above), that's generally undesirable. So I have often not bothered too much and have allocated an outsized position of my family wealth in the stock markets - somewhere between 70-75% depending on when you ask me. It has gone upwards of 95% at times, but for the past few years it has been hovering between 65-75%. </p><p><b>What do I do about volatility? </b></p><p>Before I say something about it, let's look at some data. I recently backfilled my own investment data going back to 2010. This data tells me how my wealth has grown. For each month in the intervening period, I now have the following data (with reasonable level of accuracy):</p><p></p><ul style="text-align: left;"><li>Snapshot of the value of the Portfolio</li><li>Amount invested in the month</li></ul><p></p><p>Given these two params, you can then create a month by month performance chart. That data is pretty interesting</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjJA5--IMMZ5a4qMs3vZuuXQbPeqUU50MWcROvNq46kIO4kYcp5h6eHV1dAmtlB0CvFDOOgXV1qU3Fs9gzqYxoZpgtEnNRMxD-PbnwpCpbq9AIgDX5JRKrtgnvembSLzF9mOr8D0_bNCL0pxi4fRVmmPIXOg_g3o08KyLrko-tv0CeBTrIv350" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEjJA5--IMMZ5a4qMs3vZuuXQbPeqUU50MWcROvNq46kIO4kYcp5h6eHV1dAmtlB0CvFDOOgXV1qU3Fs9gzqYxoZpgtEnNRMxD-PbnwpCpbq9AIgDX5JRKrtgnvembSLzF9mOr8D0_bNCL0pxi4fRVmmPIXOg_g3o08KyLrko-tv0CeBTrIv350=w640-h396" width="640" /></a></div><br /><br /><p></p><p>It has an average of 0.89%. If you were to add up 0.89% 12 times over, you get 10.68%<a href="#1" name="top1">**</a> which is roughly the per year returns at which my portfolio has compounded annually for the past 11 years or so. </p><p>However, it also has </p><p></p><ul style="text-align: left;"><li>a standard deviation of 5.6%. </li><li>of the 120 months tracked, 75 were up months, and 45 were down months. </li><li>on the good months side, I have had 11 months > 10% and on the bad side I have had 4 months < -10%</li></ul><p></p><p>Volatility in an inescapable part of being in the markets.</p><p><b>What to do about it?</b></p><p>A large part of dealing with volatility is to <b>just let it be</b>. It is a price you pay for gaining access to this wonderful wealth generation machine. Unless you need the money in the near term, worrying about volatility is the wrong way to look at the situation. Remember Volatility is not Risk. Read <a href="https://www.livemint.com/Money/zaVyv3XUuJY1z3PAjBGxBM/Equity-may-be-volatile-but-its-not-risky-in-the-long-term.html" target="_blank">here</a> and <a href="https://www.reuters.com/article/us-saft-on-wealth-idUSKBN0H52AL20140910" target="_blank">here</a> about this idea.</p><p>The second important step is to avoid concentration. If you are concentrated, either in a single country, or single sector or a single style of companies, you are likely to increase the possibility of prolonged or permanent loss of capital. What you want to do is to reduce that possibility by being significantly diversified. See <a href="https://www.shreeni.info/2022/06/portfolio-update-may-2022.html" target="_blank">my own diversified portfolio</a> as an example.</p><p>Once you have achieved a required level of diversification, then sitting out volatility might be mentally difficult but logically the best choice.</p><p><br /></p>
<p><i><a name="1">**</a> I know you can't just add up average monthly returns to get annual returns. I am trying to simplify to make a point. For the detail oriented, the returns were 11.26% inclusive of dividends but gross of taxes. All returns used here are based on GBP basis. In other currencies, returns were 8.66% in USD, 9.29% in SGD and 12.39% in INR. <a href="#top1">↩</a></i></p>
<div><br /></div><p><i>(Anything mentioned in this post should not be considered financial advice. The thoughts in this post are purely for entertainment and educational purposes.)</i></p><p><i><br /></i></p><p><br /></p><div class="blogger-post-footer"><script type="text/javascript"><!--
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<br /></span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 12pt; margin-top: 12pt;"><span><span style="font-family: inherit; white-space: pre-wrap;">Since this tracking has gotten reasonably mature over the past few months, I thought I will share them here.
<br /></span></span></p><p style="line-height: 1.38; margin-bottom: 12pt; margin-top: 12pt; text-align: left;"><span><span style="font-family: inherit; white-space: pre-wrap;">This is the first breakdown. This is based on the sectors of investment I have in my portfolio. Some of the Funds, ETFs and Funds of Funds are so broad in their coverage that I had no option but to categorise them individually.
<br /></span></span></p><p style="line-height: 1.38; margin-bottom: 12pt; margin-top: 12pt; text-align: left;"><span style="font-family: inherit;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiuvtukOaSB5qTk1jYMU5SxNRkNYRetT6z0y2utbf2Qco5dXaE_V_2kzuNwpfDBZMRKXXaZFR0TILFTUGS9Xgru__MQ2R7iauMBaOyqV169Dy0HKQz08zuKLbCHgEjrJ8SnUYE2QnHAuEQZghgiouOHgDUxiwDlQfZbxtMYvBzuQMMMsRHY_ek" style="margin-left: 1em; margin-right: 1em; text-align: center; white-space: pre-wrap;"><img data-original-height="321" data-original-width="518" height="397" src="https://blogger.googleusercontent.com/img/a/AVvXsEiuvtukOaSB5qTk1jYMU5SxNRkNYRetT6z0y2utbf2Qco5dXaE_V_2kzuNwpfDBZMRKXXaZFR0TILFTUGS9Xgru__MQ2R7iauMBaOyqV169Dy0HKQz08zuKLbCHgEjrJ8SnUYE2QnHAuEQZghgiouOHgDUxiwDlQfZbxtMYvBzuQMMMsRHY_ek=w640-h397" width="640" /></a><span><span style="white-space: pre-wrap;">
Notable changes in this over the past month
</span></span></span></p><ul style="text-align: left;"><li><span><span><span style="font-family: inherit; white-space: pre-wrap;">Allocation to Commodities have gone up (from 4.4%). The opportunities in commodities continues to be interesting.</span></span></span></li><li><span><span><span style="font-family: inherit; white-space: pre-wrap;">Allocation to Energy has come down (from 8.6%). I had one large UK based Energy position and after the windfall tax announcement I have exited that position altogether. I have taken minor energy ETF based derivatives position that I will talk later about</span></span></span></li><li><span><span><span style="font-family: inherit; white-space: pre-wrap;">Cash has reduced (from 10.1%)</span></span></span></li><li><span><span><span style="font-family: inherit; white-space: pre-wrap;">I have exited Aviation altogether - it was only one position and I have exited it altogether. I still have travel exposure. A month before, that sector was 3.9.</span></span></span></li></ul><span style="font-family: inherit;"><span style="white-space: pre-wrap;">The next breakdown is a geography based breakdown. Geography used here is where I believe the company draws its revenues from, not where they are listed. You will see both UK and Europe being listed - this is because in some cases the revenues are primarily from UK, whereas in other cases, UK listed companies may be drawing their revenue from Europe. There is some subjectivity in these allocations, so read this chart with a pinch of salt. <br /></span><span style="white-space: pre-wrap;"><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgynzOywR3LqsoOxvy0tJ1a5gJ1OtgqsoQOJ3WhHuVlSmEHAazwcekamCN7anD8K7JdtUjHVkjIJiYwtgz0zTiv7MItK2nyuNATaYIrvUcPRFhXcxxlj1wpDwIIM2A8tOwL1napj4ln1Nb5x2mIVzp7XFOp8ES76UThKaxmcfo2GUxw5RyBagM" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="321" data-original-width="518" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEgynzOywR3LqsoOxvy0tJ1a5gJ1OtgqsoQOJ3WhHuVlSmEHAazwcekamCN7anD8K7JdtUjHVkjIJiYwtgz0zTiv7MItK2nyuNATaYIrvUcPRFhXcxxlj1wpDwIIM2A8tOwL1napj4ln1Nb5x2mIVzp7XFOp8ES76UThKaxmcfo2GUxw5RyBagM=w640-h396" width="640" /></a></div><br /><br /><br /></span></span><p></p><p style="line-height: 1.38; margin-bottom: 12pt; margin-top: 12pt; text-align: left;"><span style="font-family: inherit; white-space: pre-wrap;">Notable changes in the past month:
</span></p><ul style="text-align: left;"><li><span style="font-family: inherit; white-space: pre-wrap;">Australia have gone up (from 9.5%) as it is rich in special situations as well as commodity opportunities. </span></li><li><span style="font-family: inherit;">UK has reduced (from about 10%) as I have exited the position I talked about in my previous post.</span></li></ul><span style="font-family: inherit;"><span style="white-space: pre-wrap;">
</span><span style="white-space: pre-wrap;">Based on thesis, here is the breakdown
<br /></span></span><p></p><p style="line-height: 1.38; margin-bottom: 12pt; margin-top: 12pt; text-align: left;"><span style="font-family: inherit; white-space: pre-wrap;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEissOWmK6yn5_yqVjYn1_ZSeRUdlku4Q3apxlRqTZXuw2H-B-czfIslZB2K7jOfDzEn6nauN3xypkYk7HcIduGb5kX9NYbSEOMjQsavhxVe4V1Km8r6oq5Cbmadx2zF5vvjfptjxxvd9d3KRkJNB5lCZ34KOjQOhSOSmAl8Dr958dT4dTraHWo" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit;"><img data-original-height="321" data-original-width="518" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEissOWmK6yn5_yqVjYn1_ZSeRUdlku4Q3apxlRqTZXuw2H-B-czfIslZB2K7jOfDzEn6nauN3xypkYk7HcIduGb5kX9NYbSEOMjQsavhxVe4V1Km8r6oq5Cbmadx2zF5vvjfptjxxvd9d3KRkJNB5lCZ34KOjQOhSOSmAl8Dr958dT4dTraHWo=w640-h396" width="640" /></span></a></div><span style="font-family: inherit;"><br />
The only notable change here has been a reduction in Derivatives holdings. This is because I have swapped being long on some in the money Calls to being short on out of the money Puts in the same positions. I am tracking here based on price of the PUTs, but the amount of capital at risk (based on the full ex-liquidity of the Puts) is very much similar to previous month.
I am also trying out a new chart starting this month, and that is by the expected duration of holding.</span><p></p><p style="line-height: 1.38; margin-bottom: 12pt; margin-top: 12pt; text-align: left;"><span style="font-family: inherit; white-space: pre-wrap;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhUevMIF48Zr62czM0bE8aeiZegjy4sS59oGvWMra30l1g17euBDBGzahvcR2EGXSsoUiVRWqO2LFVXUaPo71cQU6ePbYSBaX287T7vEFKaiYSj3O7hYx7Y7cJ3_6qh5ie9g5gQRAgZOdQn67EY48N-MlbV6K_fKXudXilcZZxgfBkKDcFNhw4" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit;"><img data-original-height="321" data-original-width="518" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEhUevMIF48Zr62czM0bE8aeiZegjy4sS59oGvWMra30l1g17euBDBGzahvcR2EGXSsoUiVRWqO2LFVXUaPo71cQU6ePbYSBaX287T7vEFKaiYSj3O7hYx7Y7cJ3_6qh5ie9g5gQRAgZOdQn67EY48N-MlbV6K_fKXudXilcZZxgfBkKDcFNhw4=w640-h396" width="640" /></span></a></div><span style="font-family: inherit;"><br />
I expect Short Term positions to wind down within 6-9 months, Medium Term to unwind in about 12-18 months and anything longer than that to play out, or positions I plan to hold for a very long period are categorised under Long Term. Since I have only started tracking it, I can’t note any changes. I will track changes in due course of time.</span><p></p><p style="line-height: 1.38; margin-bottom: 12pt; margin-top: 12pt; text-align: left;"></p><h2 style="text-align: left;"><span style="font-family: inherit; font-size: small; white-space: pre-wrap;">General Notes</span></h2><span style="font-family: inherit; white-space: pre-wrap;">Special Situations continue to be very attractive and there are so many trades available in this category. The most public of them are ATVI, TWTR and SAVE and there is ample literature around for you to understand what is happening in these trades. I am involved in all of them, though I am using derivatives with conservative strike prices to enter these positions. I have generally preferred to not write Puts for a while, but given the nature of these opportunities, I have been drawn back to using them for particular trades. Let’s see how they pan out.</span><p></p><p style="line-height: 1.38; margin-bottom: 12pt; margin-top: 12pt; text-align: left;"><span style="font-family: inherit; white-space: pre-wrap;">
Special Situations have also been the most resilient to the market volatility in the past 2 months. Since most of the positions are underwritten by some well known price point, or are less liquid and none of the players in the trade have blinked, they have all kept up their price points rather well. Of course, none of that stability will matter unless they also pay off. So, fingers crossed on that. </span></p><div><br /></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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The cost of living crisis has been induced, as far as we can tell, due to three things:<br /><ul style="text-align: left;"><li>Interruptions to Supply Chain, largely caused by Covid disruptions, especially in China</li><li>Large scale quantitative easing in the last 2 years leaving the economy flush with cash and the subsequent reopening in play now</li><li>The war in Ukraine which has upset the energy ecosystem in the world</li></ul><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre;"><span style="border: none; display: inline-block; height: 351px; overflow: hidden; width: 624px;"><img height="180" src="https://lh4.googleusercontent.com/GVP4jLBWfl4j0ivDZTzL719GCbiJHz5mOY4TfRmuuFcDROSJnvynBRO8snOzsZwzJ-eBloENyk281EjzUoqL-_aPhVHbA_2verGecbhYHgnzkpfIc9Gwb_BhbGfPVnK920J32NUeAXab0Pk6dA=w320-h180" style="margin-left: 0px; margin-top: 0px;" width="320" /></span></span></p><span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;">The UK government can do nothing about Supply Chains, and has already contributed their bit with quantitative easing over the past 2 years, which can't be easily undone (without risking an immediate recession). One of the biggest derivatives of the Ukraine war has been energy prices shooting up. This has directly resulted in significant increases in utility bills (mine have gone up by 100% over the past few months). It is this last factor that the Chancellor is looking to offset.</p></span><br />However, the windfall taxes are odd because they are targeted at a particular sector and are arbitrary in the absence of a proper taxation policy. Let's look at these 2 factors in detail.<br /><br /><h2 dir="ltr" style="line-height: 1.38; margin-bottom: 4pt; margin-top: 18pt;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 17pt; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre;">Why Non-Renewable Energy Sector Specifically?</span></h2><span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><b style="font-weight: normal;"><br /></b></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre;"><span style="border: none; display: inline-block; height: 351px; overflow: hidden; width: 624px;"><img height="180" src="https://lh4.googleusercontent.com/WqQTX_tRECXvza9Uldplex1ReOFbcHfYhGZusqqPCWmFp7l-LvnrETLf35mWbcwGPe-Sk0eIsMYy0wXmwyD1OG0_w1X-IsBQecRagyyIB6Mbr_8I0S4z_l_O0KHD4ziIjvzH4939K5YDsZ9Urg=w320-h180" style="margin-left: 0px; margin-top: 0px;" width="320" /></span></span></p></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><br />To pay for the cost of living increase, the Chancellor is looking to specifically attack the Non-Renewable Energy sector for taxation. Why the Non-Renewable Energy sector alone? There seems to be a bunch of different reasons being provided depending on who you ask<br /></p><ul style="text-align: left;"><li>They are the ones causing the cost of living to go up</li><li>They are earning a "windfall" and hence should be taxed on such windfalls</li><li>Since fossil fuels are causing environmental damage, they should be taxed</li><li>Non-Renewable Energy companies haven't paid their fair share so far, so let's tax them directly now</li><li>Non-Renewable Energy companies don't succeed without support of government and aren't independent economic actors, and hence they shouldn't be treated like other private companies</li></ul><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span><span style="font-family: Arial; font-size: 13pt; font-weight: 700; white-space: pre;">The "cause and effect" argument</span></span></p><br />Non-Renewable Energy sector isn't the one causing the cost of living to go up. It is the energy policies of the combined European Society that has contributed to where we are today. Starting from shutting down nuclear plants, to preferring to buy energy from dictatorial governments to discouraging investments in energy companies as well as drilling in their own backyards, the western world has largely created a situation where they were dependent on energy from Russia and when that has gone belly up in the last few months, the natural reaction has been a stark increase in energy prices. Non-Renewable Energy sector didn't cause this crisis - for most parts they are reactors to what the governments and policymakers have been pushing for. It is not as if Non-Renewable Energy companies got together and orchestrated an increase in energy prices, or they orchestrated the war in Ukraine, or supported any of the above policies I am talking about. So, this argument seems weak at the outset.<br /><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre;"><span style="border: none; display: inline-block; height: 183px; overflow: hidden; width: 275px;"><img height="183" src="https://lh3.googleusercontent.com/6iGvz-xiSyrwiNitiCfLT-sy3P_-tPn921mwlgVkWn_MZVB0z_NaQUvKLQE4LF_4m2fZ5afXHcYGdjLdvcXRjJ2EN2g8zFZErlY_1iIltwWlb1OHggzGzRHmWRM45NuWZdxKEFzkpFDgycQ75w" style="margin-left: 0px; margin-top: 0px;" width="275" /></span></span></p><span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><b style="font-weight: normal;"><br /></b></p><h3 dir="ltr" style="line-height: 1.38; margin-bottom: 4pt; margin-top: 14pt;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 13pt; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre;">The "windfall" argument</span></h3></span><br />Let's take the "windfall" argument. Here, we are specifically saying these companies are earning for something they didn't specifically earn, i.e. their additional profits are a windfall. At some level, it makes sense that these companies benefited from an event not of their creation. So, perhaps taxing them is OK. However, here we are setting ourselves a dangerous precedent.<br /><br />In the past 2 years, many companies have benefitted from Covid pandemic without necessarily doing anything different than what they were doing before - i.e. a windfall. Think of food delivery companies, video conferencing companies, e-commerce companies etc. Similarly after the war in Ukraine, some sectors like Aerospace or Defence companies are going to enjoy a windfall due to increased spending from governments on defence budgets. Should they be windfall taxed too?<br /><br />If we were to say windfalls should be taxed, then we are setting ourselves an argument that all windfalls should be taxed, or none at all. Selectively taxing Non-Renewable Energy companies now seems neither here nor there. <br /><br /><h3 dir="ltr" style="line-height: 1.38; margin-bottom: 4pt; margin-top: 14pt;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 13pt; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre;">The "environment policy" argument</span></h3><br />I get that fossil fuels are bad and we want an energy transition. However, that is going to be achieved by dampening demand, not by extracting profits from Non-Renewable Energy companies. Remember that an unprofitable energy company, i.e. one that doesn't pay windfall taxes, does as much damage to the environment as a profitable one and hence if the true motivation is to encourage energy transition, then taxing profit of energy companies is an idea inferior to taxing demand. <br /><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 11pt; font-style: normal; font-variant: normal; font-weight: 400; text-decoration: none; vertical-align: baseline; white-space: pre;"><span style="border: none; display: inline-block; height: 181px; overflow: hidden; width: 278px;"><img height="181" src="https://lh4.googleusercontent.com/b_zqY0dPdf3BhzmgBtWwlU3DIrmwe9h7JZpZ1mIXs7SNj2MZo8O2Kvg5W0q_jcK6i-8d7uSJQfp-PvdPa2r2ZsI8LEExbg0niaJFckGl8EUORvlY64-0stUXzFFXPxIaeO-AyOogIV5U7aErZA" style="margin-left: 0px; margin-top: 0px;" width="278" /></span></span></p><span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><b style="font-weight: normal;"><br /></b></p></span><br /><br />Let's take an example. Company A extracts 1M barrels of crude per day at cost of $50 and sells for $100. They got to pay $12.5M to the government in windfall tax per day. Company B, say an inefficient fracking extraction operation extracts 10M barrels of crude per day at cost of $95 and sells it at $100. They will also pay only $12.5M to the government in windfall tax per day. However company B is generating (a) far worse economic value and (b) far worse environmental outcome. If they both were being taxed through other methods of demand based taxation, say carbon taxes for instance, company A would pay a lot less carbon tax, as the case should absolutely be. <br /><br />This kind of example isn't as hypothetical as one might think. Oil drilling costs varies wildly on where you are drilling and what methods you use. The cost of production could very well be as stark as in the examples above.<br /><br />There are so many better ways to structure the transition that is not as absurd as a windfall tax. Here are some examples:<br /><br />1. Tax demand (add 10p per litre to fuel costs) and use that as a renewables-investment fund.<br /><br />2. Ask all Non-Renewable Energy companies to take a percentage of their revenue (not profits) and invest it in renewables in a mandatory manner and increase the percentage year on year for the next 15 years. This way the shareholders of these Non-Renewable Energy companies get to participate in the transition.<br /><br /><h3 dir="ltr" style="line-height: 1.38; margin-bottom: 4pt; margin-top: 14pt;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 13pt; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre;">The tax arbitrage argument</span></h3><span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><b style="font-weight: normal;"><br /></b></p></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;">Non-Renewable Energy companies are known for not paying taxes by claiming for various deductions when issuing their corporate tax filing in the UK. This is hardly new and hardly restricted to Non-Renewable Energy companies. Any corporate finance team worth their salt is going to go through every single opportunity they have for reducing their tax bill. <br /><br />There are two kinds of reasons for tax generation. One is pure funding. This should be based on an individual's or company's ability to earn. Hence both Income Tax and Corporate Tax are progressive in nature.</p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><br />Another is punitive taxation. Governments tax you not because you are earning - they tax you because you are doing something that is considered a sin, or a moral hazard, or damaging to society, or has negative externalities. Think of alcohol taxes or tobacco taxes or gambling taxes. In these cases, it is normal to tax such that it prevents demand generation of what is otherwise harmful to society in one way or the other. (Same reason short term capital gains is taxed higher than long term capital gains, as the society considers speculation harmful in the long run). Windfall taxes, carbon taxes, etc are all punitive taxation.<br /><br />There is obviously the opposite of punitive taxation - which are tax incentives. They work in the opposite manner. I am sure you can fill the details.<br /><br />The larger point is that each country decides what combination of generative taxes, punitive taxes and tax incentives they want to have out there to encourage and discourage economic activity while funding the costs of governance. By doing so, they leave it open for all companies, and individuals, to play the game they so desire based on the rules. <br /><br />If Non-Renewable Energy companies are doing so, and the government is unhappy over it, then they should change the rules of the game and not target a particular sector.</p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"> <br /><span><span style="font-family: Arial; font-size: 13pt; font-weight: 700; white-space: pre;">The patron argument</span></span></p><br />There is an argument that Non-Renewable Energy companies don't succeed without the help of diplomacy and government intervention - imagine BP being able to operate without oil diplomacy with various state actors across the world. If they are to succeed because the government helps them through their diplomatic efforts, shouldn't the government be able to tap into their coffers when needed to pay for something?<br /><br />This argument can be rebutted across two directions - (a) they aren't the only ones to benefit from geo-political stances, many other industries including defence and aviation earn their income through similar support and (b) if they didn't want these companies to be treated as a fair private sector player and offer a level playing ground, then they should nationalise the players instead of letting them be private and finding backdoors to funding their needs when they arise.<br /><h2 dir="ltr" style="line-height: 1.38; margin-bottom: 4pt; margin-top: 18pt;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 17pt; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre;">The arbitrariness of it all</span></h2><br />The second major problem with the windfall tax is its arbitrariness. There is no policy statement on what would happen if an Non-Renewable Energy company in the near future were to generate a loss - would the Chancellor be willing to provide an enhanced tax credit, the equal and opposite of enhanced taxation when profits are perceived to be high?<br /><br />When Singapore’s metro operator SMRT had capex issues, the government (through its arms) was willing to fund it by capping the EBIT to <a href="#">no more than 5% margin</a>s, with a floor of 1.5% margin, if I recall correctly. (note: When they saw that shareholders were not happy about it, they nationalised the company altogether by buying out the shareholders)<br /><br />Something more broad-stroke like that, where the government chooses to floor and ceiling the margins the Non-Renewable Energy sector companies in the UK would at least seem a bit long-term and allow various participants to think about how to support the remnant demand for fossil fuels while funding the energy transition to renewables.<br /><br /><h2 dir="ltr" style="line-height: 1.38; margin-bottom: 4pt; margin-top: 18pt;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 17pt; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre;">What can go wrong?</span></h2><br /><br />Quite a bit, in my opinion.<br /><br />Firstly, as an energy policy, this is a bad idea, as it will discourage investments in the North Sea and move investments abroad. Where is "abroad"? Mostly in lands dominated by one dictator or the other. In effect we are swapping the outcomes of one energy crisis with the possibility of another one in the future - seems like an example of myopic decision making.<br /><br />Secondly, from a corporate taxation perspective, it is going to leave shareholders and investors double-guessing their ability to extract returns when the government arbitrarily chooses a profitable sector to extract more whenever they so choose.<br /><h2 dir="ltr" style="line-height: 1.38; margin-bottom: 4pt; margin-top: 18pt;"><span style="background-color: transparent; color: black; font-family: Arial; font-size: 17pt; font-style: normal; font-variant: normal; font-weight: 700; text-decoration: none; vertical-align: baseline; white-space: pre;">Why is this happening?</span></h2><span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><br /></p></span><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;">Unless someone is roaming the corridors of Downing Street, it is difficult to ascertain why this is happening. However, the proximity of the release of the Sue Gray report and this decision casts aspersions that likely the PM-Chancellor duo are feeling the heat on Partygate and taking whatever steps necessary to give themselves breathing room to fight opposition. In that scenario, what better to take steps on what is considered the burning issue of the day by doing what the opposition has been suggesting already?<br /><br />It is even more interesting that Bojo-Sunak arrived at the decision of using windfall tax despite initially opposing the move.<br /><br /><span><span style="font-family: Arial; font-size: 17pt; font-weight: 700; white-space: pre;">Alternatives & Summary</span></span></p><br /><br />As mentioned in the post above, there are alternatives depending on what the objective is.<br /><br />If the objective was energy transition, either a tax on fossil fuel demand, or a forced investment by fossil fuel companies on energy would have been better. If the objective was to reduce windfalls in general, then taxation above a certain absolute value of corporate P&L could have been introduced. Finally, if the objective was funding the energy bill reduction program, a fairer method would have been to increase taxes in general - something that the Tory manifesto doesn’t allow. Hence, they keep raising taxes just in one form or another. I am not sure if the PM and the Chancellor consider the public that unwise - that they won’t be able to see through the various tax moves that have come in since they have come in power. Sure, there are justifications for all the moves, but the manifesto has still been broken, regardless of what they may claim. <br /><div class="blogger-post-footer"><script type="text/javascript"><!--
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</script></div>Shreenihttp://www.blogger.com/profile/08742144807675237049noreply@blogger.com0Antalya, Turkey36.8968908 30.71332338.5866569638211558 -4.442926700000001 65.207124636178847 65.8695733tag:blogger.com,1999:blog-24818183.post-4379972014566819842022-05-28T04:35:00.004+08:002022-05-28T04:39:31.321+08:00How do I make sense of my financial health?<div style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: left;"><span id="docs-internal-guid-7c3ed623-7fff-95ac-d041-11c47df86212"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">I have been investing for a long time. I have also been living in multiple countries since I started investing. The result is that I have a large collection of bank accounts and brokerages and investments of all stripes. I try to consolidate them as much as I can, but I am still left with too many things that can’t necessarily be consolidated much further. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Here is where all my investments are split across:</span></p><br /><ul style="margin-bottom: 0px; margin-top: 0px; padding-inline-start: 48px;"><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><a href="https://en.wikipedia.org/wiki/Public_Provident_Fund_(India)" style="text-decoration-line: none;"><span style="color: #1155cc; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">PPF</span></a><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> accounts for me and my daughter back in India from before we moved out of India</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Joint brokerage account for general investing</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">3 Vanguard </span><a href="https://en.wikipedia.org/wiki/Individual_savings_account" style="text-decoration-line: none;"><span style="color: #1155cc; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">ISA</span></a><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> accounts for me, my wife and my daughter</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">2 more ISA stocks and shares brokerage account for me and my wife</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">1 Vanguard </span><a href="https://en.wikipedia.org/wiki/Self-invested_personal_pension" style="text-decoration-line: none;"><span style="color: #1155cc; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">SIPP</span></a><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> Account (for my wife)</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">1 other SIPP Account (for myself)</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">1 </span><a href="https://www.dbs.com.sg/personal/investments/srs-and-cpf/supplementary-retirement-scheme" style="text-decoration-line: none;"><span style="color: #1155cc; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Singapore-SRS</span></a><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> account (for myself)</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">1 corporate brokerage account for Singapore trading </span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">1 corporate brokerage account for everything-but-singapore trading </span></p></li></ul><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">(The last 2 are under a corporate account my wife and I set up while we were still in Singapore)</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">As you can see, a lot of these instruments are a result of tax saving opportunities that I have availed of from time to time in various countries I have lived in - PPFs in India, SRS in Singapore, SIPP and ISA accounts in the UK. It all adds up very quickly. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 266px; overflow: hidden; width: 300px;"><img height="266" src="https://lh3.googleusercontent.com/qbNwFJm8HgG8VR2m5SLLFEvjkkplWF7H7wU95C-cD_ogDkN9tPQXF-PTHQmDx25xbA9z1HS9jLd5KsF18d9bjtc4Obiybg1IpAONQwSVywqpcijProo4pLO5t8Jmr1OuVe9CXEyTc4elz6zVdg" style="margin-left: 0px; margin-top: 0px;" width="300" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Obviously, these accounts grow and shrink in importance over time. When I was in India, the PPF and Indian brokerage was pretty much all my net wealth (outside of property). Now, they are a relatively small proportion of my savings, partly because I stopped putting in new money and partly because I moved money out when the occasion demanded. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">However, for a very long time I struggled with what I should be tracking. </span></p><br /><ul style="margin-bottom: 0px; margin-top: 0px; padding-inline-start: 48px;"><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Should I be tracking the performance of the portfolio of individual accounts? </span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Should I be tracking the growth of the corpus in each of the individual accounts? </span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Should I be adding all of them together?</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Will I reach my financial goals? </span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Am I doing well or am I doing poorly in reaching my financial goals? </span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Am I doing well or am I doing poorly compared to the market or compared to, say, handing all of this money to a financial adviser? </span></p></li></ul><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">The answers to these aren’t simple. Traditionally I would track only the performance of my primary portfolio trading account, whatever that happened to be at that point of time, and either fret or contend after comparing the performance of my portfolio to market returns. However, I felt that I didn’t know how I was tracking towards my financial goals, as I was also constantly either adding new savings to my investments, or taking them out for one expense or the other. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 484px; overflow: hidden; width: 624px;"><img height="310" src="https://lh4.googleusercontent.com/L9_hVJxgdQTsgohjvEwrwUakEBIdHmc1SrOuafOQc2BE6udTIUqdbHattDeqyv9T3BSaIjEyZG5X8WTWfLSjI8v8keRbvKC6XGdTCbWwRDDpNg7cPJoeCnZ5M2tTaHf7ahnAyDa7AGpgdx8e3A=w400-h310" style="margin-left: 0px; margin-top: 0px;" width="400" /></span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">I tried a variety of different formats none of which worked. By 2019 May, various attempts I made evolved into an approach where I now track the following (and I feel I can’t simplify any more), each of which is a single </span><a href="https://www.google.co.uk/sheets/about/" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Google Sheet</span></a><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">:</span></p><br /><ul style="margin-bottom: 0px; margin-top: 0px; padding-inline-start: 48px;"><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Budget Tracking</span><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">: A file which tracks what comes in and what goes at a very coarse level - it uses buckets like “utilities”, “credit card payments”, “subscriptions”, “investments” etc on a monthly basis. I update this once a month, by looking up the monthly bank statement and converting each translation into a bucket. Since I don’t use this account for day-to-day transactions (for which we both have an “expense” card and a credit card), it takes me less than 10 minutes to get this done</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Portfolio</span><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">: Contains a record of all our savings, across all our accounts. For all equity, I used </span><a href="https://support.google.com/docs/answer/3093281?hl=en-GB" style="text-decoration-line: none;"><span style="color: #1155cc; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">GoogleFinance</span></a><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> function in Google Sheets for tracking current prices. Updated whenever the portfolio changes, which happens every time I trade, or monthly when I update any dividends received.</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Corporate Portfolio</span><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">: Since my corporate account needs annual statutory filing, I keep that separate and don’t mix with individual accounts. Updated whenever the portfolio changes, which happens every time I trade, or monthly when I update any dividends received. Similar to above Portfolio, the valuations are updated using GoogleFinance function for the most part, so needs very little attention for it to be up to date.</span></p></li><li aria-level="1" dir="ltr" style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; list-style-type: disc; vertical-align: baseline; white-space: pre;"><p dir="ltr" role="presentation" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Summary Portfolio</span><span style="font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">: Adds up the values of portfolios, and records all liabilities (i.e. loans) and provides a “Summary” value. A snapshot of summary value is maintained on a monthly basis so I know how our net wealth is growing. The Summary itself is auto-calculated by connecting them to the above 2 sheets. All I need to do is the snapshotting, which I do once a month.</span></p></li></ul><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Coming back to answering the questions above..</span></p><br /><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="color: #4a86e8; font-family: Arial; font-size: 11pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Should I be tracking the performance of the portfolio of individual accounts? </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">I don’t care anymore. I just feel that the performance of any one account is essentially useless. What matters is your overall investment portfolio.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 183px; overflow: hidden; width: 275px;"><img height="183" src="https://lh3.googleusercontent.com/uVkO3OsF9UHFBtecpCzddGdh0dAhxuxFAln244jOPqEJ44Nadt_X_Ve6BJhzRFRstHOJng_SeHik07sY5c5tgIGVStmMTGJn6zEkTaTzehmuy8DqGgVMwZug6LlMW5QhdQwjGZ5Z2WRnolI2Lw" style="margin-left: 0px; margin-top: 0px;" width="275" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="color: #4a86e8; font-family: Arial; font-size: 11pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Will I reach my financial goals? Am I doing well or am I doing poorly in reaching my financial goals? </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">The primary financial goal for me is financial independence, by the age of 50, or sooner. Financial independence for me is the ability to have a corpus, whose passive income (dividend + part of the capital gains) cover all my expenses, assuming a reasonable standard of living.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">I can’t answer this precisely as it is out in the future, but with 3 years of past data in my </span><span style="font-family: Arial; font-size: 11pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Summary Portfolio</span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, it is extremely easy to create a trend line on how the corpus is building up. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 416px; overflow: hidden; width: 624px;"><img height="267" src="https://lh3.googleusercontent.com/fIIRw_NkVzWV5xnOZ2pNzfdKRc3eCDIPgoM_kEYbutbPEVq8N5Jv6eXqiSyrqNa-A8w1de6acVx6afVaYVfl6_cEGeLljJrAH9oIiHjOQK7iddHd0YOg3THL1fJdx9KiPHSyOxksc5apm15XJw=w400-h267" style="margin-left: 0px; margin-top: 0px;" width="400" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="color: #4a86e8; font-family: Arial; font-size: 11pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Am I doing well or am I doing poorly compared to the market or compared to say handing all of this money to a financial adviser? </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">If you are a passive investor holding a bunch of ETFs or letting a financial advisor manage your money, you shouldn’t worry about this at all. However, this data is important to me because I like to manage my own money and I want to know if the effort is worth it.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Getting this is a bit tricky, though. This is because if you are only looking at corpus growth, your returns compared to the market are obscured by new inflows and outflows. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">To get this right, I have added a column in the </span><span style="font-family: Arial; font-size: 11pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Summary Portfolio</span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> that maintains new capital added or removed from the corpus each month. I get this from my </span><span style="font-family: Arial; font-size: 11pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Budget Tracking </span><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">sheet. With the information of what the corpus looked like last month, how much I added during the month, and then where the corpus stands today, I can estimate exactly what the return was for a single month. Across multiple months, you can do an </span><a href="https://support.google.com/docs/answer/3093266?hl=en-GB" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">XIRR</span></a><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> calculation and you get some pretty accurate reflection of your overall returns. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">To compare it with markets, I also maintain the price of Vanguard’s </span><a href="https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">FTSE All World All Cap</span></a><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> (AWAC for short) fund. It is an extremely diversified global fund of over 6000 equities. I find this a reasonable proxy for my own investment approach which is diversified across the world. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">With both my own performance now available on a month-on-month as well as XIRR basis, and the same available for Vanguard FTSE AWAC, I can then compare how I am doing.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: center;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 252px; overflow: hidden; width: 282px;"><img height="252" src="https://lh5.googleusercontent.com/0bq8GP8pqR-mjRZRJ65Tyl1loh07i_-Rr4NvolGNl2ix0fC9B6ufa2L1bMYhuXrMekBBROiNLoh6qcX1MeVuznXOs9HlWMsK7RDR1XlOHp0MT-8u8-zKI0x5DR528cYimdt4gsPSfWO15SbapQ" style="margin-left: 0px; margin-top: 0px;" width="282" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Is it all worth it?</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">I don’t know. Perhaps I overdo it, but financial independence is an important goal for me and spending a few hours (<2-3) in a month to keep track of it seems like a worthy effort. Knowing how I am progressing towards my goals helps me make a lot of decisions relatively easily.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">For instance, I fretted endlessly when I bought my first car in 2018 (a second hand Nissan Micra), but when it came to my upgrade last year (a second hand Ford), the financial part of the decision was pretty easy as I had my financial records in one place and easy to understand and internalize. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">In fact, God Forbid, if I were to lose my job tomorrow, I know how many months of runway I have to find the next job. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">That kind of knowledge, in my humble opinion, is priceless.</span></p><div><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></div></span></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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Review what happened between 2000-2013<p>If you are an investor, it is very likely you are not liking what you are seeing in the markets for the first few months of the year.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEj4oJrpVLfu7op2EliqPRfvJvlhuxR9WP5Nigr39qvFQsw1zmsVNRLy0pdM8E80HlRHVu_yuaWxcnhijUTXqFo8OJvSoPiP8lXiYhpGVWkPAznROtWXy-9NlOOyxbSa2vyicK98WNDM4xqCf5QYWWIdzMbB3azEEid9vPvZyKCT7xEaDsw-VA" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="1026" data-original-width="1418" height="464" src="https://blogger.googleusercontent.com/img/a/AVvXsEj4oJrpVLfu7op2EliqPRfvJvlhuxR9WP5Nigr39qvFQsw1zmsVNRLy0pdM8E80HlRHVu_yuaWxcnhijUTXqFo8OJvSoPiP8lXiYhpGVWkPAznROtWXy-9NlOOyxbSa2vyicK98WNDM4xqCf5QYWWIdzMbB3azEEid9vPvZyKCT7xEaDsw-VA=w640-h464" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><div style="text-align: left;">In UK market, things are better, but still down from the beginning of the year.</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhmW4s4hehNvLX-qEgyJPHx8Z19tbehUecCg_EYk4yEPwTACM88d72iOPl9qWttsB_SfNXLdZBXbhgo-Z5quga4x39GFM2kwE7aKjXlI5bHPxNxRfrtk1KK33HScRMo_Zj8ATIG8D4_-rIgQwalYeyeK-qVHUWLQ12_ao2X5eGFc2rv-IUfzw" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="1026" data-original-width="1464" height="448" src="https://blogger.googleusercontent.com/img/a/AVvXsEhmW4s4hehNvLX-qEgyJPHx8Z19tbehUecCg_EYk4yEPwTACM88d72iOPl9qWttsB_SfNXLdZBXbhgo-Z5quga4x39GFM2kwE7aKjXlI5bHPxNxRfrtk1KK33HScRMo_Zj8ATIG8D4_-rIgQwalYeyeK-qVHUWLQ12_ao2X5eGFc2rv-IUfzw=w640-h448" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: left;">There are ample articles explaining what's happening in the markets at the moment, so I am not going to attempt repeating any of the rationale here. However, the more pertinent question - what should one do given what's happening in the markets?</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">In Psychology of Money, Morgan Housel states (chapter 15): </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"></div><blockquote><div class="separator" style="clear: both; text-align: left;"><i>You can pay this price accepting volatility and upheaval. Or you can find an asset with less uncertainty and a lower payoff, the equivalent of a used car. </i></div><div class="separator" style="clear: both; text-align: left;"></div></blockquote><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">In essence, volatility is the price you pay for higher long term returns. That's all good in theory and perhaps the daily/weekly/monthly volatility is easy to ignore and move past. In essence we are saying that it is okay for a stock/ETF/asset to be priced below what I acquired it for, so long as it is somewhat temporary and that the price becomes positive after some time. That "some time" is obviously variable on a bunch of different parameters, but for most people they expect it to be medium-term - i.e. 3-5 years. In fact if you listen to Motley Fool podcasts, they often talk about investing in the market with at least a 3-5 year horizon, so that time period seems to be reasonable to look at. </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">What if, however, there is an extended bear market where the price of the equity assets you own stay low for a very long period? i.e. what if the period taken for the prices to come back to where you acquired them becomes too long? </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">Between June 2000 and June 2013, S&P went through an extended phase of not trading in the positive territory. (It went briefly beyond the starting price just before the <a href="https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008" target="_blank">GFC</a> and promptly returned to negative territory all the way to 2013)</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEho8zTM4Yi5P4IhkF7W6owdNQbNi8lsj05oBHK124TdNXiZv1MIlYvTUepGrc3YPobRoXLb3aaTs8YkrGlaIW6epYwI9EeJ0cC1Z5YjElZnBRf-N306Qct639TfqwmjH70dwSi2QGNHBXLBpv6i2izutTMFb67eA5i5bYPSlFGb8PMKzTwXfg" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="1734" data-original-width="2796" height="397" src="https://blogger.googleusercontent.com/img/a/AVvXsEho8zTM4Yi5P4IhkF7W6owdNQbNi8lsj05oBHK124TdNXiZv1MIlYvTUepGrc3YPobRoXLb3aaTs8YkrGlaIW6epYwI9EeJ0cC1Z5YjElZnBRf-N306Qct639TfqwmjH70dwSi2QGNHBXLBpv6i2izutTMFb67eA5i5bYPSlFGb8PMKzTwXfg=w640-h397" width="640" /></a></div><br /><br /></div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">Taken by itself, this looks bad. If you were an investor and had to continue to be investing in an asset that stays under water for no less than 13 years, staying on course would have been exceptionally difficult. </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">However, most of us don't invest a lump sum of money. We tend to invest a little bit, typically each month, into our portfolios. So, what happens if we take that into account and see how our investment would have done?</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgu47bmCJaspwp9DutLZ0gd2AV3SOjUGDvo6ekvbkuXyzwVGWoKL_dmnSQfVy8JZoCFgyUbmvR3gq3xjVe1hCdA_4BjevtC_janBKXJj6XhfTgz6UK13Ng2Uu_O6_EGQAvzy77pPZd8IVj-h1-305fGJOpmYp4QYtcmSetN62UqpM2K3rEXrg" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEgu47bmCJaspwp9DutLZ0gd2AV3SOjUGDvo6ekvbkuXyzwVGWoKL_dmnSQfVy8JZoCFgyUbmvR3gq3xjVe1hCdA_4BjevtC_janBKXJj6XhfTgz6UK13Ng2Uu_O6_EGQAvzy77pPZd8IVj-h1-305fGJOpmYp4QYtcmSetN62UqpM2K3rEXrg=w640-h396" width="640" /></a></div><br /><br /></div><br />Things look a lot better. For the first 3 years or so, you would have been underwater, and then largely in positive territory all the way up to the GFC period, where after a brief tryst with negative territory, you would have been back in positive territory all the way to the end of bear phase. In fact, including dividend reinvestments, you would have made an IRR of 6.47% for the entire 13 years period. That is significantly lower than the S&P historical average of about 10%, but it is not bad for one of the worst long bear phases of the index.</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">Why does this happen? This is because every time you invest a bit more money when the stock/ETF trades lower, your average price of the ETF comes down. Essentially, you are <a href="https://en.wikipedia.org/wiki/Dollar_cost_averaging" target="_blank">dollar cost averaging</a> your investments. This is also because dividends come along and if you reinvest them, you are improving your position without putting in any fresh money.</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">If you were in accumulation mode, this is probably okay. What if you were a retiree with a big portion of your retirement assets in S&P index funds? </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">This is where it gets a bit tricky. If you are in pure drawdown mode of say 3.6% a year (lending itself to a 3000 per month withdrawal on a 1Million initial holding, which is 100% allocated to SPY), after those 13 years, you will be left with just a 532K corpus and a 1.19% IRR. This is quite bad, for obvious reasons, as you have been drawing significantly more than the IRR leaving you with a smaller corpus. This would likely mean you have a shorter time before you run out of money altogether. </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhGwU8d_Ylg37FyzrYD1kfq_B6TtHw9oX11PGZwPuFoBVCAFAtR-gWRneUufGPdJ9KfhwDuEgYYo_aY6z6RmGI1LRpmnJFa5DNaW9UWtt_cCAf1hW40PUvEK2cMyh6e-Z7JlILO_puVg-6QbAx0N9nsYfDU39PezZ3JzqFt2_f4r4jEobETNw" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEhGwU8d_Ylg37FyzrYD1kfq_B6TtHw9oX11PGZwPuFoBVCAFAtR-gWRneUufGPdJ9KfhwDuEgYYo_aY6z6RmGI1LRpmnJFa5DNaW9UWtt_cCAf1hW40PUvEK2cMyh6e-Z7JlILO_puVg-6QbAx0N9nsYfDU39PezZ3JzqFt2_f4r4jEobETNw=w640-h396" width="640" /></a></div><div class="separator" style="clear: both; text-align: left;">In practice it worked out fine as we saw a big rally in S&P 500 since then leaving such retirees well in sustainable mode as of now. </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEg9XfDQz4g3NFC_2-lT8lDyvBED7VWi-6EhlgCDXcmXaezqF67tH3aeW2tKGU10pxoJ4mv4Qy5WVBoIh_nj29CjnegompdVwfbULn7BZNId28GTW5PXb_Uty0JiNZ54KiMWKqpzHkRLMR9qLLKqS2-08q-hajWRzUuf3za0Cf-ALETNodR8ig" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="1098" data-original-width="2498" height="282" src="https://blogger.googleusercontent.com/img/a/AVvXsEg9XfDQz4g3NFC_2-lT8lDyvBED7VWi-6EhlgCDXcmXaezqF67tH3aeW2tKGU10pxoJ4mv4Qy5WVBoIh_nj29CjnegompdVwfbULn7BZNId28GTW5PXb_Uty0JiNZ54KiMWKqpzHkRLMR9qLLKqS2-08q-hajWRzUuf3za0Cf-ALETNodR8ig=w640-h282" width="640" /></a></div><br /><br /></div>However, instead of being in the drawdown, if you were only living off your dividends, then things start looking rosier. On a $1M investment, in the first year, you would have received ~ USD 10,200 in dividends which would have gradually risen in time over the next many years, reaching ~ USD 22,860 in 2013. This is obviously not a great amount of money to spend in retirement specially after accumulating a $1M corpus, but assuming that you had some supplemental earnings, and only depended on the dividends you would have done just fine. </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiEZMVTVCCWVWKSw1jViA-qFge56TLc0KcqWGiCZhnuvLawp_VF-tL317s9Nq3DXIZBO_nu09m7SsU0_wZMwVmXuVL49rgSrLX9-ZS8JsbGW8-ACwIOncJ4YLIeCSm9W9KtApPvJIzUQReHSfOsI0LthQtGpFzZTLXrBkYbjdb-IuCH6vb0cg" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEiEZMVTVCCWVWKSw1jViA-qFge56TLc0KcqWGiCZhnuvLawp_VF-tL317s9Nq3DXIZBO_nu09m7SsU0_wZMwVmXuVL49rgSrLX9-ZS8JsbGW8-ACwIOncJ4YLIeCSm9W9KtApPvJIzUQReHSfOsI0LthQtGpFzZTLXrBkYbjdb-IuCH6vb0cg=w640-h396" width="640" /></a></div><br />But isn't all of this data US specific? What happened in the similar period in other countries, say the UK? </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">Turns out, not a very different graph for accumulation phase, when using LON:ISF, a FTSE100 tracking ETF. <span style="text-align: center;">ISF in the UK returned a marginally poorer 6.4% IRR over the same time period, which, for all practical reasons, is a repeat of the thesis across the pond. </span></div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjUa8OONPkXhtczyXBqHc0k9NLkT3jJbCxeMAgHZaBwn4b-dWFk3aLcv1K71M1RuMj2zAhECJKTNyAj7AD7QyYEbQRnsd1gvCSQz4PfSZRb-LOknRSg_8D2YWWoi0DQ7WmkAf5JzPMa3_L-hwxtanyCJ6vzdCwq8s8shVsZZPEz-kU_Fbmk0w" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEjUa8OONPkXhtczyXBqHc0k9NLkT3jJbCxeMAgHZaBwn4b-dWFk3aLcv1K71M1RuMj2zAhECJKTNyAj7AD7QyYEbQRnsd1gvCSQz4PfSZRb-LOknRSg_8D2YWWoi0DQ7WmkAf5JzPMa3_L-hwxtanyCJ6vzdCwq8s8shVsZZPEz-kU_Fbmk0w=w640-h396" width="640" /></a></div><div class="separator" style="clear: both; text-align: left;"><br /></div>In terms of dividends, ISF had a very similar acceleration in return of earnings to unit holders over the same time period.</div><div class="separator" style="clear: both; text-align: left;"><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEj3RB4XM5LgJM-EXNOUmRfVXKidsPwEGQpVOfTcq8OkMierjRsg8q3L2X31mCXCFSF-9xal2UlsjIlYi_9_NbQxRNZt_L6vepGr_PN28OT3n8_JtWnKFjzenXOoosZCokTm5RAoExskIHRc1GTauMeMsxsH60J45BwvcuXBAfkCW-5qK2Z9Nw" style="margin-left: 1em; margin-right: 1em;"><img data-original-height="371" data-original-width="600" height="396" src="https://blogger.googleusercontent.com/img/a/AVvXsEj3RB4XM5LgJM-EXNOUmRfVXKidsPwEGQpVOfTcq8OkMierjRsg8q3L2X31mCXCFSF-9xal2UlsjIlYi_9_NbQxRNZt_L6vepGr_PN28OT3n8_JtWnKFjzenXOoosZCokTm5RAoExskIHRc1GTauMeMsxsH60J45BwvcuXBAfkCW-5qK2Z9Nw=w640-h396" width="640" /></a></div><br /></div><div class="separator" style="clear: both; text-align: left;"><b>Takeaways</b></div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><ul style="text-align: left;"><li>If your investment strategy is buy and hold, there is little reason to do anything different during a bear market. Your returns won't be spectacular, but given you know nothing about how the future is going to turn out, continuing your strategy is perhaps best. Time in the market is more important than timing the market. </li><li>If you are planning for retirement, consider the strategy of starting your retirement by only using dividends - it is likely going to provide you a significant headroom when asset values drop. </li></ul></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><div style="background-color: white; font-family: Lora, serif; font-size: 16px; text-align: start;">I am sharing <a href="https://docs.google.com/spreadsheets/d/1a46UjHe0bgzL9-sO7e8NRYx0DjIOb3GgdXZC0RbAJZs" style="background: transparent; color: #942b2b; text-decoration-line: none;" target="_blank">the raw data </a>here - you can copy the sheet and play around with other calculations you might want to do.</div><div style="background-color: white; font-family: Lora, serif; font-size: 16px; text-align: start;"><br /></div><div style="background-color: white; font-family: Lora, serif; font-size: 16px; text-align: start;"><i>Disclaimer: Anything mentioned in this post should <b>not</b> be considered financial advice. The post should be consumed purely for entertainment and educational purposes.</i></div></div></div><p></p><div class="blogger-post-footer"><script type="text/javascript"><!--
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margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/04/days-1-2-east-coast-april-2-3-2022.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Days 1-2, the East Coast</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/04/day-3-amtrak-westwards.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 3, Amtrak westwards</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/04/day-4-pittsburgh-post-industrial.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 4, Pittsburgh, a post Industrial City</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/04/day-5-columbus-oh-vibrant-town.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 5, Columbus, OH, a vibrant town</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/04/day-6-dayton-oh-splendid-air-force.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 6, Dayton, OH, splendid Air Force Museum</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/04/day-7-driving-through-farmland-midwest.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 7, driving through farmland Midwest</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/04/day-8-windy-city.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 8, the Windy City</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/05/day-9-heart-of-america-kansas-city.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 9, Heart of America, Kansas City</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/05/day-10-amtrak-amtrak-and-some-more.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 10, Amtrak, Amtrak and some more Amtrak</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/05/day-11-deserts-of-new-mexico-and-arizona.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 11, the deserts of New Mexico and Arizona</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/05/day-12-spectacle-of-grand-canyon.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 12, the spectacle of Grand Canyon continues</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/05/day-13-red-rocks-of-sedona.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 13, Red rocks of Sedona</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/05/day-14-city-of-angels.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 14, the city of Angels</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/05/day-15-back-home.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Day 15, back home</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><a href="https://www.shreeni.info/2022/05/epilogue-us-coast-to-coast.html" style="text-decoration-line: none;" target="_blank"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Epilogue: US Coast to Coast</span></a></p><p dir="ltr" style="line-height: 1.2; margin-bottom: 0pt; margin-top: 10pt; text-align: left;"><br /></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><img height="468" src="https://lh6.googleusercontent.com/ooci4EEIYl9kQaET7Q_l3iVyR9-olhWcb_hyjHyHDrBP9MX3dc8Ek8xmj-tTrpIu2o1M7XqXSAy6fn0drMrjdJvRrsFdZjaBQI-OfVIvRvRU32avWBs9Ooqu27BTUULsxrEcKN-hJaXcPRPhSw" style="font-family: Arial; font-size: 14.6667px; margin-left: 0px; margin-top: 0px; white-space: pre-wrap;" width="624" /></p><p dir="ltr" style="line-height: 1.2; 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In most other countries, a rail network would be a lot more used for passenger travel, but in the US, the rail network is largely used for goods movement, while the passenger trains are occasional and only form a small proportion of the travelers in any given segment. The US is primarily an aviation and road traveling country.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Nevertheless, there are a few available routes and making this work is not all that hard. However, the more variables (stops, segments, modes of travels) you add, the more likely it is that you are going to get something wrong.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">For instance, in our planning, I can notice quite a few mistakes that we wish we hadn’t made. For instance, I am not sure why we stopped at Albuquerque where all we did was to pick up the car and drive westward. We could have taken the train further west to Flagstaff and enjoyed more of the Arizona land OR we could have spent a bit more quality time in New Mexico checking out the local hotspots. In the event, we ended up over-paying for our rental car (as we picked up and returned at different locations) and made very little use of that extra payment. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh4.googleusercontent.com/3g6w8GB_42iJY7-eIyHwkeyZ2TG_R9ABfO4Ff5cYRP_xkhaaalpSuVVcgQbZam-aTHGY4oe_OUAsLHC78Yxiro8OLUPkafU388VIxZohsUCFqgRAtTR7enO5dMJIktBsXpl2oRy4alM09cwoAg" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Similarly, the day we spent in Kansas, also happened to be a day when there was a concert in town. All the hotels ended up being significantly costlier. We could have easily landed up a day late or early and saved a bunch of money. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">I also felt we spent too little time in Chicago. I know that whatever time we planned for was curtailed due to poor weather, but I can see myself spending a bit more time enjoying the architecture of the city. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">In terms of expenses, the trip cost a total of £3,522 (expected to be accurate within 1% margin of error). I used Monzo for the vast majority of my foreign expenditure as it offers favorable forex compared to other cards I have, and we used Splitwise to track all shared expenses. In fact, Splitwise was so easy to use that I used it to track my individual expenses too. </span></p><br /><br /><div align="left" dir="ltr" style="margin-left: 0pt;"><table style="border-collapse: collapse; border: none;"><colgroup><col width="160"></col><col width="195"></col></colgroup><tbody><tr style="height: 16.5pt;"><td style="background-color: #dfe4ec; border-bottom: solid #8093b3 2.2478700000000003pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-style: italic; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Section</span></p></td><td style="background-color: #8093b3; border-bottom: solid #8093b3 2.2478700000000003pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; color: white; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">SUM of My Share of Spend</span></p></td></tr><tr style="height: 15.75pt;"><td style="background-color: #f4f6f8; border-right: solid #ffffff 0.7457385000000001pt; border-top: solid #8093b3 2.2478700000000003pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Accomodation</span></p></td><td style="background-color: white; border-left: solid #ffffff 0.7457385000000001pt; border-top: solid #8093b3 2.2478700000000003pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">£626</span></p></td></tr><tr style="height: 15.75pt;"><td style="background-color: #f4f6f8; border-right: solid #ffffff 0.7457385000000001pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Food & Beverages</span></p></td><td style="background-color: white; border-left: solid #ffffff 0.7457385000000001pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">£646</span></p></td></tr><tr style="height: 15.75pt;"><td style="background-color: #f4f6f8; border-right: solid #ffffff 0.7457385000000001pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Fuel</span></p></td><td style="background-color: white; border-left: solid #ffffff 0.7457385000000001pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">£105</span></p></td></tr><tr style="height: 15.75pt;"><td style="background-color: #f4f6f8; border-right: solid #ffffff 0.7457385000000001pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Miscellaneous</span></p></td><td style="background-color: white; border-left: solid #ffffff 0.7457385000000001pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">£149</span></p></td></tr><tr style="height: 15.75pt;"><td style="background-color: #f4f6f8; border-right: solid #ffffff 0.7457385000000001pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Tourist Entry</span></p></td><td style="background-color: white; border-left: solid #ffffff 0.7457385000000001pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">£139</span></p></td></tr><tr style="height: 16.5pt;"><td style="background-color: #f4f6f8; border-bottom: solid #000000 2.2478700000000003pt; border-right: solid #ffffff 0.7457385000000001pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Transportation</span></p></td><td style="background-color: white; border-bottom: solid #000000 2.2478700000000003pt; border-left: solid #ffffff 0.7457385000000001pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">£1,857</span></p></td></tr><tr style="height: 15.75pt;"><td style="background-color: #dfe4ec; border-top: solid #000000 2.2478700000000003pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Grand Total</span></p></td><td style="background-color: #dfe4ec; border-top: solid #000000 2.2478700000000003pt; overflow-wrap: break-word; overflow: hidden; padding: 2pt 2pt 2pt 2pt; vertical-align: bottom;"><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="background-color: transparent; font-family: Arial; font-size: 10pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">£3,522</span></p></td></tr></tbody></table></div><br /><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">As mentioned above, it is possible that we didn’t optimize our spending all that wisely. Between the additional rental car fees and the overpriced Kansas Hotel, we could have easily saved about £200-£300 for each person. I also paid £230 in extra leg room seats which I imagine most readers won’t require. In all, it is possible to replicate this trip within about £3000 or thereabouts, but better to budget £3500 to be on the safer side. Needless to say, it is the best £3,500 I have spent in a while. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">The United States of America is a blessed land. It is an enormous stretch of land bestowed with fantastic terrain and natural beauty. The coasts are beautiful, the rivers serene, the lakes noteworthy, the mountains spellbinding, the deserts are artwork and all in all, everything about a trip like this is memorable.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh4.googleusercontent.com/RT8sedCiV1pt6ocRJ7a642-9i-HssLm2rlgSU5lDNrb5aS6JAGh_ECXjFD7w2DEU8QrqtowGaIy9_FAnGyhYUrPU1Z5qJu8FVAajX4nASG0m5S7H4GrW8prXnvWDvWo_C4iVPUECtBUcPct3Vw" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> </span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">The result is an eminently wonderful visitor experience. Having gone through the trip - 15 states and 15 days feels too little. I am hopeful that I will return to see more of this country in my future lifetime. </span></p><div><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></div></span><div class="blogger-post-footer"><script type="text/javascript"><!--
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</script></div>Unknownnoreply@blogger.com0London, UK51.5072178 -0.127586223.196983963821154 -35.2838362 79.817451636178845 35.0286638tag:blogger.com,1999:blog-24818183.post-42246751851607439882022-05-03T21:46:00.005+08:002022-05-04T19:22:48.991+08:00Day 14, the city of Angels<p> </p><span id="docs-internal-guid-96cd0a0c-7fff-abd9-3b6c-467a82795f80"><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Arriving at LA in the morning (an hour or so late, if I recall correctly), it was a wonderful experience to alight at the station and realize that coast-to-coast is now a tick in my bucket list!</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">We had a day to kill here, so we checked into our hotel (near the airport) and headed off the USS Iowa where the US battleship has now been converted into a Museum. You can see all of the history and inner workings of the battleship. This should come as no surprise but the battleship is a township on its own and seeing the arrangements for catering, and laundry, and a jailhouse, and a flag room, among everything else intended to destroy enemy installments through some serious firepower is enlightening.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 832px; overflow: hidden; width: 624px;"><img height="832" src="https://lh6.googleusercontent.com/LJgl1kyKkd26fKGpBVokCIGoqQWk_YHMNh2cD3sJ7PaONctfkkwx7J66_kEjNV26941AVP5YpckhGnC3Vjsd-H1ZnBxk9Y7oaHpD3KAHvVz-HB6uj0IJzv26KB5sgQmXKXOKMdVXOskXl2wbBw" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 832px; overflow: hidden; width: 624px;"><img height="832" src="https://lh3.googleusercontent.com/cMGX10vxk1EJAtVqf7NxCWlwdcKda_6g7VBA1RpcvO0V6r99_WlaK1GCcJPfYz91RW4Y_WNnvlM-dm-Q1rzaYGlkqPcl6SrEg7MljDO4MVZLwWGaQH4WbOwAOgFyls0RMnmDRM3wzQqkiGFlqg" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">After grabbing a quick meal at the battleship cafe, with seating on the deck, overlooking the LA port, we headed off to the Santa Monica beach, where we killed off the final few hours of our trip together. Lukasz was going to spend two more days in LA, while I was going to make the eastward journey home. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh6.googleusercontent.com/lbAtHjS85oH_433ezxU8WatChwnBvctNRuMrfuD9ya8WxUHpyHWh0FV9KJbkCWlql1fOI_sSsvX6EFildB-thBWajSbJN0Tq7JPOEG1alu3QFv2glx1oB3VAVs8TXgRcqUyZiusWOQCxSJSqtA" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">We had a final few rounds of drinks at the Santa Monica pier and then headed out to Joe’s Pizza for a few slices. I know it is two nights of pizzas but the two experiences were very different and both left us very satiated.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh4.googleusercontent.com/LyO1BKpi72DgXMO_AxfoWM1FT2XQArsCW9tKifyjRbF-LYDf2MHGXvTug9t25Bsoo-wSE0i466bdTVnDe-WGPTrL_orgwVUBSh8BJ5_oLoPHCAFqJNTo0Z-jpkby0Vzqp2ovJg38hDpLRH0Xsw" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><a href="https://www.shreeni.info/2022/05/day-15-back-home.html" target="_blank">Next Chapter</a></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Food Tip: </span><a href="https://g.page/joespizzasm?share" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Joe’s Pizzas</span></a><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> at Santa Monica</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; font-weight: 700; vertical-align: baseline; white-space: pre-wrap;">Progress</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 444px; overflow: hidden; width: 624px;"><img height="444" src="https://lh6.googleusercontent.com/CDi6-Yvy_MCUuwRdF2Fnne_-cA9FbH6apxjLHGlqQPLsazDtvOcvl1m4Mi9D5Lc8peRCpkKbabXzNcREHQUJgLgbSYsVX1AFUVvASNFk_acw5kLj5mXGITgGF2ELjMsNQKvI5fDJ" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><div><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 444px; overflow: hidden; width: 624px;"><br /></span></span></div></span><div class="blogger-post-footer"><script type="text/javascript"><!--
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As you drive on 89A, you will get to see spectacular views of the valley and hills along the way, packed with coniferous trees. The path itself is a snaking one, passing through steep bends to get you to Sedona. The drive was, put succinctly, quite spectacular.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh6.googleusercontent.com/Oq7C5d7mi1Kkw3UD_4hhbRvacVMh-od31O6o4LU9XEaOhy9mdLkTBAu_wDttoSCqIe-ehAKviES4uqNqhKwhiZeXrqIzdN9YOV8QB6MXitc_7dRSSwU5IOBwDF7VgYr4fqlmSC-j" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Once at Sedona, we made our way to the trek that covers the Seven Sacred Pools. Through a short trek of less than 2 KMs (back and forth), you can see some great views along the way of the red rock structures covering the Sedona area. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh6.googleusercontent.com/ifCiOMQuW73kMbzAJkjuUth4i0fUYHQG3j8EvhyodBrYoiuPLhPHsdqNyje2tzfkTuynSxqzJ2wNawxgFhf3IUHxuTafGXYOk_LWUAh1__U25oZzqNa-f31ReQrWqsRuEqMz3D2rDNgmjg0Lxw" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 832px; overflow: hidden; width: 624px;"><img height="832" src="https://lh6.googleusercontent.com/ZH9TkH7rRVfCCRqT-KhfxaZItHvIlBueb24kkBnycQTtGxlwQThDmeYGheIUyDoD4jw44ko4fW1fbnzwbTs45-Ersc-yHsLvqb0KPcHx2v4Z5ypcTNXAv5Siqv1lbqkYCsbi00Pv" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">After this area, we drove down to the Airport area of Sedona and took to the 5km long Airport Loop trail. This trail is just around the airport, which sits on top of the mountain, while you walk just under it in terms of height - so you don’t get to see the airport, but a 360 view of everything around Sedona. The walk offers incredible views of the surroundings. Now that we had dropped a few hundred feet in altitude the temperature was much warmer and we had to be comfortable in much lighter clothing.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh3.googleusercontent.com/uL-y-0d4mTYxeVTeHskHwtFnFXT8IHpGKoZeG8pXCi-MYAf7VZ38g8Lonv6dkuJY-e8-qxrSfAQOhLVvqMm9dMO77MlhPrDLSzj_KJVEVc4pkfqQTSIfxhKAkwX8gH0G5VgG5gtFjVqhdTDxIQ" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh3.googleusercontent.com/wCm99fQClowAZ93UMjPNpXk5YoUZImSHi0rYJ_Y2Bg9hm2BjFszjxaMP8Q81kTgqFJwRoDavJ2g_XKbKR5UjOJqQHv20YakmLhXUSMJmO87j89SVqsXbZuzeS5OkKFkKhV9IEmtB1ZdzciJGvQ" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">We drove back to Flagstaff, returned our call, took a shuttle to the city, grabbed a pint and a slice at Dark Sky Brewing, and awaited our final ride westwards on yet another overnight Amtrak. To maintain its reputation, the 3 Southwest Chief arrived 2 hours fashionably late. Since the passengers who were in our beds just alighted, the staff took another hour to flip over our beds before we went to sleep - what was supposed to be an early retirement-to-bed evening turned out to be somewhat delayed. Nevertheless, we were brimming with excitement - the trip was almost coming to an end!</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 832px; overflow: hidden; width: 624px;"><img height="832" src="https://lh6.googleusercontent.com/CijtBEhF1soc_UoepTWK2Un5_I3w_XSftYFVli68iGYlPVswt6EYAzwEklfyAsn0c_tKnXrjRv5g17eynM4cTj3E_gsSuYXe-gfvWehTknxpuF6y_rq-ADB2JXZCy3b9_se5PVPr" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><div style="text-align: right;"><span style="font-family: Rasa, serif; font-size: 14pt; white-space: pre-wrap;"><a href="https://www.shreeni.info/2022/05/day-14-city-of-angels.html" target="_blank">Next Chapter</a></span></div></span><div><span><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></span></div><div><span><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Food Tip: Pizzas at </span><a href="https://g.page/darkskybrewing?share" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Dark Sky Brewing</span></a><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, Flagstaff</span></span></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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In the morning, I took a punt with the hot water available at the site (needing me to keep holding a handle to keep water coming) and took a hot shower and the body slowly started to warm up after the shower and the sunlight which was starting to pick up.</span></p><span id="docs-internal-guid-c57649d4-7fff-8590-2d33-403919c5871f"><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh3.googleusercontent.com/Tqe6cK7e367CXbkd9z_SFEq6rTLfE5lrpqMMQsX2NNW43mKL_OLcsBVyw16TNcCebvtHL1tLRFBJge2s9ZvJrXV-wQy8ynMcqRwSHvZNswfD7Ek7Cykc4kMX6nOK1pxiiUHg-z6WjWmwm5cugQ" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">We grabbed a quick breakfast at Starbucks at Tusayan Village and headed into the Grand Canyon. The idea was to go to the western points covering the southern rim. You can’t drive there but the national park authorities run a free shuttle from the Grand Canyon village into that side of the rim. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh4.googleusercontent.com/yIp55I7meW6fLTUzwPN47RQib66LsE-V69OvrMzFVEsvshrIBYAgNezXlpD7CYN96NBwAErlzKU7wvluy05w20PJ-b9HdkfCPvh1hboTxx0tCEuJS6cwPuWWOlMY2ZKHz48XZRMMQQLTB0_RRg" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">While we had already been to the Grand Canyon the previous evening, seeing the Canyon again from newer points, such as </span><a href="https://goo.gl/maps/9hPkeTBxaSBNYU6s8" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Trail View Overlook</span></a><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, </span><a href="https://goo.gl/maps/7HXBStAnh9MrGchf8" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Hopi Point</span></a><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, </span><a href="https://goo.gl/maps/RsshRxTGyYT9mrDx9" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Mojave Point</span></a><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, </span><a href="https://goo.gl/maps/dVs73YSsWG4Li7Z29" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Pima Point</span></a><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"> and </span><a href="https://goo.gl/maps/nwJpxdUn4uVsU5fi8" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Hermit’s Rest</span></a><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, continued to be spellbingly fresh for us. As mentioned in yesterday’s notes, the Grand Canyon is massive and every new point you visit to see the Canyon presents you yet another new perspective on the natural wonder!</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh5.googleusercontent.com/KjCSlE8DI9Cm4fIaBEW1mN9nIz8wMIxBbHpO8AfqcMr1r1HVVVC-jzWNYkfyHDrK-CkPZjmWILH69lEpTK5WmvouwHz7hhyim5M7gDGInV8N8pnBu6tTEO0h0apZ-bEEbdW-LAxI" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">After spending our first half of the day there, we decided to head off northwards to see the Horseshoe bend. After stopping for a quick meal at Cameron, we headed off on I89 towards the horseshoe bend area. Along the way, we got to see the vast expanse of the Arizonanian desert, which is a riveting view. The painted desert is truly stunning! We stopped at a couple of places along the way to enjoy the views of the deserts before arriving at the Horseshoe bend.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh5.googleusercontent.com/i3Embb0tiqG_2-UBiDdLIZ6p2WomfdprazGgglfrM4WpOT1l1rFj2_egLgPdm6tqsW9UeGuuZjDgcrL9r3ekw_NR06slCiPc_Y2FFf6rCCbSAaRI0UFuszvY7BBYeckIiggRqRsI" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">After a short trek from the parking lot, we arrived at the bend and the view was spectacular!! We had seen pics of the bend and knew what to expect, nevertheless the view in life is breathtaking. We spent an hour or so seeing the bend and the surrounding areas from various points, including from a high placed rock right next to the viewing area.</span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh5.googleusercontent.com/Mw2YI_N4S_AzgN_h2Z5ayb9NFY7LZTS22_Pc8namazmvl_gK-MmXGSZbz6ejW584u8CePhL6Vbdrc29snlghcnwat8bzXBJBq0TdqQSF-NG-y2qy1y3nYJ8WsxQUCcHHnOmFF80L" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">After having our hearts full of the north end of this stretch, we headed south towards Flagstaff which was going to be our overnight halt. We found ourselves at a nice Indian restaurant to get some warm food before retiring to bed. </span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><span style="border: none; display: inline-block; height: 468px; overflow: hidden; width: 624px;"><img height="468" src="https://lh5.googleusercontent.com/VUnMJAH0T2-ifu1lfEDhydzxYH9L4kCwOs-8ZEDJkAeAyUsZsc37ABdPRlZFj7tsJ76Rbn2jpD3lUtDoMpXZzs3detAk5qkbkzHGitS07oQ3gxf-lWuUdxKBgv-_Y-SvKiPMRf20" style="margin-left: 0px; margin-top: 0px;" width="624" /></span></span></p><br /><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">One of the features of traveling in this area is that the time zone changes just around the longitude of Flagstaff, which means you could either lose or gain an hour depending on which direction you drive a 50 miles and it can get very confusing at times, because your phones need an active internet connection to update their times. While driving back to Flagstaff, we rushed to the restaurant thinking we are on Mountain time and we shall be too close to closing time, but turns out that Flagstaff is indeed on Pacific time giving us another hour to get through our meal.</span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><br /></span></p><p dir="ltr" style="line-height: 1.38; margin-bottom: 0pt; margin-top: 0pt; text-align: right;"><span style="font-family: Arial; font-size: 11pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;"><a href="https://www.shreeni.info/2022/05/day-13-red-rocks-of-sedona.html" target="_blank">Next Chapter</a></span></p><br /><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">Food Tip: Paneer Korma, </span><a href="https://goo.gl/maps/jAo2GcmRku9XtUuQ9" style="text-decoration-line: none;"><span style="color: #1155cc; font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; text-decoration-line: underline; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">Delhi Palace</span></a><span style="font-family: Rasa, serif; font-size: 14pt; font-variant-east-asian: normal; font-variant-numeric: normal; vertical-align: baseline; white-space: pre-wrap;">, Flagstaff</span></span><div class="blogger-post-footer"><script type="text/javascript"><!--
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