"Old Money" Trusts?

[Dod101]

You need to take Dod's comments with a pinch of salt.

PNL is a great trust at what it does.

What it does is protect your capital.

It holds a mix of investment grade fixed interest in index linked and normal gilts plus cash and some Gold.

In addition it holds a small amount of really strong company shares eg Nestle, Coca Cola, Microsoft type of companies. Normally around 40 per cent of the total assets is invested in shares but at the moment even less so growth will be constrained in favour of defence.
Thus PNL should NOT be directly compared with ITs that aim to grow your capital e.g. RIT.

For some reason Dod, who is normally a very astute investor, cannot seen to get his head around this and is therefore always negative on PNL.

If I could only own only one share for the rest of my life then PNL would be a very strong contender.

A more growth oriented investor could do worse than stick half his money in PNL and half in Scottish Mortgage and rebalance annually, in my view.
This would give a very simple to manage portfolio which I think would probably do quite well in any market condition.

Gadge

I missed these comments Gadge. Don't know about astute if you saw my valuation this morning over my portfolios!

I know PNL, and those who run it, reasonably well and have attended their AGMs in the past. You are right that I cannot get my head around it. As a matter of fact, Caledonia has been a pretty good wealth preserver with some growth thrown in. I gave up on PNL because supposing I held say 3% of my entire holdings in PNL and it preserved the value of that portion. So what? It is hardly going to change my life and I think the cost of the preservation of value side is too great against the opportunity for growth foregone. I have sat in the AGM and looked around at the very wealthy Edinburgh types there as well as of course people like me. It is not for me.

Still, I like your idea of 50% in Scottish Mortgage (another of my holdings) and 50% in PNL. That would actually make some sense.

My one share would be a generalist investment trust, quite possibly Alliance which, until the recent downturn has been chugging along very nicely.

Dod

[Aminatidi]

The main reason for considering a PN/CGT/RCP/Ruffer type option is that I'm not convinced the traditional bond allocation is worth much these days, at least what I read makes it sound that way.

As always it's with the beauty of hindsight but a straight equal split of:

RCP
CGT
WTAN
BRUN
CLDN

Looked like it weathered 2008 pretty well. I'm not sure how much that counts for going forward though

[Aminatidi]

Ironically I'm considering a largish chunk of PNL now Not with SMT as I did once hold SMT and again psychologically I realised I'm not great with day to day volatility.

[LooseCannon101]

You mention 'not great with volatility'. Volatility does not matter over the long term e.g. 10 years+.

I own quite a large stake in Foreign and Colonial Investment Trust (FRCL) which has moved mostly up, 9% per annum on average, over the past 20 years, but has had periods when it has 'lost' 50% e.g. during 2008 banking crisis.

The great investors e.g. Warren Buffett and Charlie Munger do not care too much about day to day or even year to year volatility. What they look for are great companies at a fair and ideally a bargain price and are prepared to hold forever.

If you have been investing for only 6 months, I would strongly recommend reading 'The Intelligent Investor' by Benjamin Graham (Buffett's mentor). The only proviso is that today's market conditions are very different - particularly as regards bonds.

Warren Buffett thinks that a low-cost, highly-diversified world equity fund or index tracker (90%) plus some cash or equivalent e.g. short-dated US treasuries (10%) is ideal for the average investor today.

[Aminatidi]

You mention 'not great with volatility'. Volatility does not matter over the long term e.g. 10 years+.

Trust me, I get the logic and the maths, it's just not so easy to change your personality

[LooseCannon101]

Warren Buffett says that to be a good investor does not require superior intelligence, but it does require patience and a disciplined approach.

The knowlege gained from reading 'The Intelligent Investor' plus your own self control will pay dividends (no pun intended) in the years ahead.

[Aminatidi]

It arrives today

[RececaDron]

You mention 'not great with volatility'. Volatility does not matter over the long term e.g. 10 years+.

Trust me, I get the logic and the maths, it's just not so easy to change your personality

If you truly "get" the logic and the maths, then what's standing in the way is probably your own emotions.

What's probably happening is that despite your grasp of the logic and the maths you can't prevent the non-reasoning past of your brain from interpreting the volatility as "danger" which in turn makes you feel uncomfortable because that's how evolution has honed us.

To invest long and successfully you'll need your reasoning brain to overrule your emotional brain.

Ongoing exposure to volatility will help. Your reasoning brain will slowly recognize that despite the signals of danger that your emotional brain is detecting, nothing untoward has actually happened to you other than some numbers changing on a screen, or piece of paper, in a way that has no impact on you today, next week, next month or next year.

The advice often given is for people to switch off their screens when prices are falling so they don't feel these unproductive emotions, which they might otherwise make the mistake of responding to by selling low. That's very good advice. Do what you need to. This is Step 1.

Eventually move on to Step 2: embrace the volatility. Look at those screens flashing red. Watch your account balance falling and your 'profits' evaporating. Read the fearful news stories and watch people panicking. Immerse yourself in the emotions of the market. Over repeated iterations your emotional brain should slowly begin to observe less danger freeing you to slowly begin to reinterpret these signals as opportunity: "If you can keep your head when all about you" etc.

[colin]

To invest long and successfully you'll need your reasoning brain to overrule your emotional brain.

Volatility is a risk in investing, just how much of a risk it is to Aminatidi cannot be for you to know RebecaDron because only Aminatidi can be aware of his personal situation, emotional responses have evolved to quickly sumarise complex situations and make decissions which cannot be made rationally because to try and make rational decisions in the face of insufficient evidence is not possible. Investing requires decisions to be made without sufficient evidence about the future and so emotional responses such as expressed by Aminatidi are a valid warning triangle that risk lies ahead. I think it is very sensible to head such responses, just how much weight one Aminatidi should give to such reactions depends on his personal situation and his personal hierarchy of values.

[RececaDron]

[Volatility is a risk in investing, just how much of a risk it is to Aminatidi cannot be for you to know RebecaDron because only Aminatidi can be aware of his personal situation, emotional responses have evolved to quickly sumarise complex situations and make decissions which cannot be made rationally because to try and make rational decisions in the face of insufficient evidence is not possible. Investing requires decisions to be made without sufficient evidence about the future and so emotional responses such as expressed by Aminatidi are a valid warning triangle that risk lies ahead. I think it is very sensible to head such responses, just how much weight one Aminatidi should give to such reactions depends on his personal situation and his personal hierarchy of values.

Can you clarify which part of my sentence that you quoted...

"To invest long and successfully you'll need your reasoning brain to overrule your emotional brain."

...are you claiming is incorrect?

[Dod101]

This is all getting too technical for me. What Aminatidi probably needs is simply more experience of volatility. Having lived through the crisis back in 2000 and then 2007/8, the recent movements in the stockmarket are not to many of us I am sure much more than noise. He needs just to sit out the volatility if he is reasonably satisfied with his holdings anyway. In time, he will get used to it and accept volatility as part and parcel of investing. No need to go rushing off to the hills at the first sign of trouble.

It is really no more complicated than that.

Dod

[Aminatidi]

This is all getting too technical for me. What Aminatidi probably needs is simply more experience of volatility. Having lived through the crisis back in 2000 and then 2007/8, the recent movements in the stockmarket are not to many of us I am sure much more than noise. He needs just to sit out the volatility if he is reasonably satisfied with his holdings anyway. In time, he will get used to it and accept volatility as part and parcel of investing. No need to go rushing off to the hills at the first sign of trouble.

It is really no more complicated than that.

Dod

Possible, and to be clear I have sat it out, certainly haven't done anything (at all) to change things.

I'm absolutely comfortable with Fundsmith and Lindsell Train Global Equity (the main holdings), simply not sure I'm comfortable with my ISA's being 100% equities.

Whilst backtesting can only tell you so much, I'm starting to see there may be some merit in combining them with a slug of something like PNL.

I'd be more comfortable with that likes of Fundsmith and LT as the attack than I would be SMT alone.

[Dod101]

I do not think many of us would hold SMT on its own. I have held it for a long while but as part of a portfolio of what I call growth trusts. It can be volatile by its nature but I have other stuff that will compensate. PNL as has been said somewhere if not on this thread, I cannot get my head around, unless you are going for a meaningful proportion of your total holdings 10/15, maybe 20%? Then it will give you some protection but at the cost of much growth and I have always found that I prefer the opportunity for growth via more adventurous trusts. Nothing wrong with PNL or those who run it but it has always seemed to me to be best suited to those for whom it was presumably designed; rich professional Edinburgh types with the odd million or three to stash away without too much risk.

Nothing wrong with direct exposure to equities; after all all three of the funds you mention invest in equities. Maybe what you are saying is whether the equities you hold in your ISAs are the right ones for you and of course that depends on your aim and strategy (if you have one) You need a strategy for investing in equities because otherwise you will simply thrash about buying and selling the latest recommendations. Even if it is only a HYP, whether or not you need the income, that will give you a direction and something to aim for.

If you have only been at it for 6 months, I would if I were you leave everything, except maybe an obvious mistake, and let the portfolio mature for the next year or 18 months and try not to get to close to it in that time. Then revisit it and by then you may have a better idea what you want and you will see what the various shares have done over 18 or 24 months. That to me would be a minimum period to hold.

Dod

[colin]

"To invest long and successfully you'll need your reasoning brain to overrule your emotional brain.

...are you claiming is incorrect?
Top

i think that you RececaDron are confusing emotional reactions with panic, while panic is an emotional reaction that does not imply that all emotional reactions are panic reactions.
One can be perfectly rational in fields such as mathematics and engineering where one can know all the relevant values, but we do not live in such a world and fear (an emotional reaction) of volatility in financial markets is a perfectly rational response in a world of unknowable future returns.

[Aminatidi]

Well, from my side I don't believe I'm panicking.

20-40% down and candidly yes with the benefits of hindsight I'd likely wish I wasn't in for 100% of the pot that I consider "invested".

You can "panic" and sell stuff, which I haven't done, or you simply accept that perhaps you got your allocation riskier than you'd like and look to adjust.

Just my view

[RececaDron]

Well, from my side I don't believe I'm panicking.

...

You can "panic" and sell stuff, which I haven't done, or you simply accept that perhaps you got your allocation riskier than you'd like and look to adjust.

No one on this thread has stated that you're panicking.
[NB colin seems to have gone off on a tangent believing I'd written something I didn't, but meh...]

A key problem you face is that your stated objectives are somewhat incompatible.

Above you've written:

"or you simply accept that perhaps you got your allocation riskier than you'd like and look to adjust."

...which I interpret as referring to yourself.

While previously you've written:

Bottom line is I have too much cash and as I'm working it will keep flowing in.

&

I think the struggle is I already hold too much cash

So you simultaneously wish to dial-down the risk AND take on more risk by getting more of your cash invested. Hmmmm, I see a problem! You'll go around in circles until you figure your way past this apparent dichotomy...


You've pretty much self-diagnosed the problem with the following:

I struggle to see my entire holdings (savings, property, ISA, pension) as a portfolio - I know it is but it's a mindset thing and is difficult to get out of.

&

"Trust me, I get the logic and the maths, it's just not so easy to change your personality"

...which I interpret mainly as a need to gain experience.

I and others have suggested that you may "simply" need to become more accustomed to this volatility which'll happen as a matter of course if you persevere and continue to invest (gain experience). Simple but not necessarily easy, hence why many people never end up investing (or do but bale out), missing out on the benefits that long term investments can return.

My earlier suggestion to you to plot (chart) your overall portfolio total once per month, including the cash element, and apply smoothing to the plot line was a serious one. Don't monitor holdings too closely. Ignore the news when it leads on falling markets. Dial down the noise. Step 1 above.

Focus on "the logic and the maths" you say you get regarding long-term investing.

[colin]

f you truly "get" the logic and the maths, then what's standing in the way is probably your own emotions.

What's probably happening is that despite your grasp of the logic and the maths you can't prevent the non-reasoning past of your brain from interpreting the volatility as "danger" which in turn makes you feel uncomfortable because that's how evolution has honed us.

You could not be more wrong Rececadron
fear in the face of danger is not an irrational response, if volatility feels dangerous that is because it really is dangerous. Fear is a warning that things may not go well .
It is clear from what you have written RececaDron that you believe emotional responses should have no place in investing and that there are 'emotional' responses and 'rational' responses and never the twain shall meet. You could not be more wrong, it has been shown through studies of brain damaged people that those who have had their emotional responses impaired by damage to the emotional centers of the brain suffer from an impaired ability to make decisions.

[BusyBumbleBee]

Colin said

if volatility feels dangerous that is because it really is dangerous

Not so - volatility is an opportunity to buy at a low price and sell at a higher price. You can't do this if share prices don't move about. Trouble is that "volatility" is so often used as a euphemism to describe a falling market. This does of course offer the opportunity to sell - and hope to buy back at a lower price - dangerous methinks.

[colin]

Not so - volatility is an opportunity to buy at a low price and sell at a higher price.

What if you have no money left to buy at the lower price because it's all in the market?

[Lootman]

Not so - volatility is an opportunity to buy at a low price and sell at a higher price.

What if you have no money left to buy at the lower price because it's all in the market?

If the markets have gone down AND you believe they are heading back up, then you can sell your less volatile names and buy more volatile names.

In this context, you might sell PNL or CGT, since they will presumably have held up quite well. And buy, say, an index fund which is 100% in equities. That will increase your equity exposure on a look through basis even though you had no cash to invest.

I did something like that a decade ago, when the mortgage crisis was roiling markets. I had a six-figure position in PNL which I sold and reinvested in shares. It had done its job for me.