Quotidian Investments Monthly Commentary – December 2017
Global stock markets were surprisingly calm in 2017 and went through the year with just an occasional downturn but without a really significant correction. In the UK, the FTSE100 index was constrained within a narrow trading range for much of the year until a typically superficial festive ‘Santa rally’ added a belated but unworthy gloss to a lacklustre year. In the USA, the S&P 500 index has now risen for a record 14 successive months but a weakening dollar diluted gains for a sterling-based investor. Neither of these situations are likely to persist.
On 31st December 2017 the FTSE100 closed at 7687.77 (a rise of+ 4.93% for the month) and it now stands at + 7.63% for the 2017 calendar year. By comparison the Quotidian Fund’s valuation at the same date shows a rise of +0.06% for the month of December and the Fund has achieved an increase of +32.42% for the 2017 year.
It is worth noting that at the end of May the FTSE100 was up 5.28% year to date (YTD) whilst Quotidian at that point was up by 25.33%. Within a month of that date Quotidian took the decision to consolidate and secure its 2017 YTD profits by converting the majority of its portfolio into cash rather than remaining exposed to markets that were largely lacking motivation and direction.
In the seven months from the end of May to 31stDecember Footsie rose by just 2.23% (and all of that uplift in valuations came during Christmas week) whereas the Quotidian Fund (largely unexposed to stockmarket risk throughout this period) still managed to increase by 5.66%. It would not be a complete surprise if the artifice and froth of the ‘Santa rally’ disappears again in the early part of the New Year.
2018 will mark the 30thanniversary of Quotidian (under one aegis or another) managing clients’ money. Indeed, a significant number of clients have been with us since those formative years.
One of our earliest pieces of research was an analysis of UK-based mutual funds (Unit Trusts, OEICs and Investment Trusts). At that time there were just over 3200 of these investment vehicles available on the UK market and we were looking to identify reliability and consistency of performance as well as the effect of charges. We have a very specific self-developed proprietary method of measuring investment performance in such a way as to clearly separate the men from the boys.
The result of our scrutiny and evaluation showed quite clearly that only 54 of this total number cleared the hurdles that, in our estimation, made them worthy of investment consideration. Frankly, little has changed in the interim. I can recall that this research took very nearly four months of painstaking effort to complete. Nowadays, with the power and speed of computers and the depth of information available on their databases, this analysis can be completed more quickly, more thoroughly and more regularly throughout the year.
Towards the end of 2012 Quotidian eventually rid itself of any remnants of unnecessary and unproductive baggage and since the beginning of 2013 we have operated entirely independently under our own flag and using our own research.
The Quotidian Fund’s performance since 2013 has been:
- Over one year: +32.42% (FTSE100: + 7.63%)
- Over 3 years: +32.74% (FTSE100: +17.08%)
- Over 5 years: +66.68% (FTSE100: +30.35%)
Quotidian’s figures are net of charges and based upon exact calendar years (not cherry-picked nor cleverly contrived ad hoc periods of time). Res ipsa loquitur.
Our full analysis of global stockmarkets produces a similar result today both in respect of mutual funds and, more significantly, for individual stocks and shares too. For example, by our evaluation, of the roughly 4200 publicly traded shares in the US markets today no more than 50 could be regarded as suitable investments (certainly as far as the Quotidian Fund is concerned). And of that group, only a handful are currently trading at a price that makes them attractive for the time being. It is the same story in other markets around the world.
We are under no illusion that private investors are at a serious disadvantage when trying to deal in the world’s stockmarkets. Of course, stockbrokers and other self-interested parties will continue to recommend ‘sucker’ stocks simply because their income depends upon the commissions they can generate and in the knowledge that private investors can be relied upon to regularly take the bait. Many of these ‘sucker’ stocks are well known names. The graveyard of stocks that have fallen more than 80% in recent years include such once-famous names as Pitney-Bowes, Enron, Sears, Royal Bank of Scotland, Motorola, Nokia and Cisco.
Sadly, market insiders (stockbrokers, market makers, major banks) use a technique they call ‘pump and dump’ to generate sales and commissions from unwary investors. It works like this:
Firstly they identify a well-known name (to give a degree of credibility and a mirage of security) whose stock has a high level of liquidity and preferably is undervalued. They then buy these stocks for themselves, often at bargain basement prices.
Their in-house analysts then write glowing reports on these shares and rate them as a ‘strong buy’. Then their ‘friends’ in the media and ratings agencies add to the hype, tout these stocks to typical retail clients and millions of small investors do just that. As a result, of course, the share price goes up…..which is when the brokers, banks and hedge funds get out, leaving unwary amateur investors holding the shares as their price drops back to its original level or below.
In some cases, lack of training and experience means that many of the enthusiastic young men sitting at sales desks in stockbroker’s offices or in the trading departments of the large battalion’s do not have the insight to realise that they, too, are being duped. It is difficult to get a man to understand something when his salary depends upon him not understanding it!
In the medium to long term cash is an unimaginative, unproductive and risky place to hold one’s money. In the short term, however, being in cash creates an opportunity to acquire worthwhile assets as and when cheaper buying opportunities arise (and one wouldn’t be able to take advantage of any price drops unless one has the cash available to buy).
And finally, a word of thanks. Without your support, Quotidian would not have the opportunity to pursue its professional passion of searching global markets for attractive investment opportunities. We truly value the trust you place in us and the confidence you maintain in our investment judgement. It is greatly appreciated and we are profoundly grateful. Thank you.