The Full English Accompaniment – Is COVID-19 the crisis to heal Brexit divisions?

Ever since the swine-fancier-in-chief started on the Brexit linedance the UK has been divided. People were told their opinion mattered, and allowed to express it through a referendum. The voxpops mattered. 6-pints Ken in the pub mattered. Brexit was such a grey area, with so many fake statistics and hollow arguments, that just about any opinion could be aired without hindrance. Families were divided.

Ours was. Even now certain arms of our family won’t speak to each other. The use of the phrase “racist bigots” might have something to do with it.

In such a void battle lines were drawn, and programs like Question Time became copy-paste wars of words. Campaigners, politicians and ‘celebrities’ with nought but strong opinions rose to the top, froth on a slurry pit.

But in the last few weeks, something has changed. Fighting this Coronavirus, defeating COVID-19, requires us to work together. It doesn’t discriminate based on how you voted in 2016 (well…). Experts are called upon. Opinions are surplus to fact. United action across the world is required. There is suddenly a bigger enemy, a bigger battle. A reason to forget the artificial divisions and remember the reasons that bind us. We are all human.

People are reaching out to each other for support. Across borders, generations, timezones, opinions. Picking up shopping, refilling prescriptions, taking the dog for a walk (1, 2, 3). The sense of community that was lost is returning. Kindness, care and altruism will get us through this (4, 5, 6).

Keep handwashing, and take care!

The Shrink

Other News:

Positive news on COVID-19:

You may have missed:

A couple of weeks back the Competition and Markets Authority reported there was evidence of mis-selling and unfair contracts on the sale of new homes by developers (14). This was significantly stronger wording than anticipated, and has been considered a huge victory for leaseholders (15, 16, 17). With that stronger wording, the legal sharks left hungry after PPI dried up have smelt blood, and are already circling for mis-selling class action claims (18, 19).

Life goes on:

Comment/ Opinion:

References

  1. https://www.thecanary.co/uk/news/2020/03/14/city-residents-set-up-aid-group-for-people-struggling-with-coronavirus-measures/
  2. https://www.manchestereveningnews.co.uk/news/greater-manchester-news/amazing-things-people-greater-manchester-17947422
  3. https://www.theguardian.com/society/2020/mar/16/community-aid-groups-set-up-across-uk-amid-coronavirus-crisis
  4. https://www.bbc.co.uk/news/uk-51991566
  5. https://www.greenpeace.org/international/story/29371/11-simple-ways-to-care-for-each-other-during-the-covid-19-coronavirus-pandemic/
  6. https://www.theguardian.com/lifeandstyle/2020/mar/21/like-an-emotional-mexican-wave-how-coronavirus-kindness-makes-the-world-seem-smaller
  7. https://www.theguardian.com/world/2020/mar/18/japanese-flu-drug-clearly-effective-in-treating-coronavirus-says-china
  8. https://www.sciencedirect.com/science/article/pii/S2095809920300631?via%3Dihub
  9. https://www.statnews.com/2020/03/18/who-to-launch-multinational-trial-to-jumpstart-search-for-coronavirus-drugs/
  10. https://www.statnews.com/2020/03/16/remdesivir-surges-ahead-against-coronavirus/
  11. https://seekingalpha.com/article/4332561-gilead-sciences-even-not-counting-covidminus-19-company-significant-potential
  12. https://www.mediterranee-infection.com/wp-content/uploads/2020/03/Hydroxychloroquine_final_DOI_IJAA.pdf
  13. https://www.independent.ie/world-news/coronavirus/irish-developed-kit-confirms-infection-in-15-minutes-39046582.html
  14. https://www.moneywise.co.uk/news/2020-03-02/thousands-leaseholders-have-been-mis-sold-homes-unfairly-charged-developers
  15. https://thenegotiator.co.uk/leasehold-knowledge-partnership-victory/
  16. https://www.lovemoney.com/news/93583/cma-leasehold-buyers-being-taken-advantage-of-by-dodgy-developers
  17. https://www.bbc.co.uk/news/business-51671363
  18. https://www.claimexperts.co.uk/mis-sold-leasehold-property-claims/
  19. https://www.smoothcl.co.uk/site/services/mis-sold-leasehold-claims/
  20. https://www.independent.co.uk/news/business/analysis-and-features/stock-market-dow-jones-index-trump-coronavirus-wall-street-1929-crash-a9412221.html
  21. https://www.thisismoney.co.uk/money/mortgageshome/article-8134443/Has-mortgage-rate-fallen-bank-rate-cut.html
  22. https://www.cnbc.com/2020/03/17/crash-shows-major-corporations-broke-no-1-personal-finance-rule.html
  23. https://ofdollarsanddata.com/lessons-from-coronavirus/
  24. http://quietlysaving.co.uk/2020/03/14/our-hopes-and-expectations/
  25. http://bankeronfire.com/have-no-fear-surviving-and-thriving-in-a-recession
  26. https://monevator.com/weekend-reading-lockdown-links-for-days/
  27. https://firevlondon.com/2020/03/20/manic-month-still-in-progress/
  28. https://southwalesfi.co.uk/2020/03/20/why-your-car-is-making-you-retire-5-years-later-or-longer/
  29. https://obviousinvestor.com/obvious-investor-covid-19-investments-update/
  30. http://thefirestarter.co.uk/and-they-say-timing-is-everything/
  31. https://www.madfientist.com/coronavirus-market-crash/
  32. https://theescapeartist.me/2020/03/20/victory-is-inevitable-part-2/
  33. https://averagemoneymanagement.wordpress.com/2020/03/19/what-is-a-circuit-breaker/
  34. https://www.finumus.com/blog/burn-down-the-disco
  35. https://tuppennysfireplace.com/fast-easy-recipes-with-few-ingredients-5-ingredients-or-less/
  36. https://medfiblog.wordpress.com/2020/03/15/baked-beans-and-shotgun-cartridges/
  37. https://www.foxymonkey.com/coronavirus-special-investing/
  38. https://awaytoless.com/a-way-to-less-one-year-blogging/
  39. https://indeedably.com/isolation/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Belated) Full English Accompaniment – Ways to skin a bear

Over the course of the next few months, as the news is dominated by ‘OMG CORONAVIRUS TERROR’, I’ll try and stay off the topic. I couldn’t fail to discuss the changes in markets this week though. It’s quite hard to actually get a long term graph to show the progress of the market, so here’s one I knocked up using every week end closing value for the FTSE 100 since it’s inception:

FTSE

At the start of last week, when I started writing this post, there was fear that we were in a correction, that there might be a larger drawdown. The market has moved fast, driven by anxiety. December 2018’s correction is suddenly a distant memory. There were plenty of potential threats, many detailed in SeekingAlpha’s article from last week (1). Everybody was already looking for a reason for recession, eyes peeled for the signs. What they didn’t expect was this viral black swan to come drifting serenely over the horizon before shitting all over the picnic (2, 3). That is the nature of the cause of a bear market; if it was predictable it could be expected and adjusted for. The cause will always emerge from the unknown unknowns.

What’s working now won’t always work

I’m not going to speak to the markers, numbers and hallmarks of a bear market. The figures and data used by investors are better discussed in that same SeekingAlpha article than I ever could (1). As it explains:

“Bull and bear markets are NOT defined by a 20% move. They are defined by a change of direction in the trend of prices.”

There have been times (see below) in the last decade where the long term moving average has trended downwards, but they have not resulted in a bear market. Quantitative Easing (QE) at those times has shored up the market and returned us to the Bull course. So what has changed? Looking at it from my stock and trade, I would have to say anxiety amongst the general public and uncertainty. When looking at data and analysis we often fall prey to cognitive biases; cherry picking evidence to support our decisions, applying selection bias (4, 5). We look for the news we want to see. When anxiety peaked previously amongst market investors the FED/ ECB/ BoE stepped in and applied QE. This reassured investors and dampened anxiety. Joe Public, for whom it was a blip on the road, were fairly nonplussed.

Image credit: Seeking Alpha/ Real Investment Advice

Was the market the boy that cried wolf too many times to central banks? That allegory was being touted last year, with the observation that the commitment from central banks to maintaining asset prices had left them unable to normalise policies without risking recession (6). At some point the propping up would no longer support the fall. This time, as the Fed/ BoE reached once again for the chequebook, it’s not worked. Instead it’s been called ‘misjudged’, and appears to have driven the markets further (7). Fear and anxiety has not been eased, it’s remained high. Anxiety amongst the general population, visible in panic buying and the general hysterical pitch of the news cycle, has infected the markets. The VIX, a measure of the stock markets expected volatility, shot up from a moderate baseline to the mid-70s last week, and is currently sitting around the 78 mark (8). That’s well into expected nosedive territory. 

vix

Is this a reversion to mean – Fed rate cuts usually accompany recessions because declining interest rates suggest wider economic deterioration. Hard nosed market timers have been scoffing at new normals (9).

Image credit: Elliott Wave International

‘All bull markets are the same, all bear markets are different’

So, as I write this on March 15/16/17th, the Fed has slashed the interest rate to 0-0.25% (10). It’s a hallmark of a bear trend, accompanying volatility. We’re seeing 4-12% swings daily. This market is the saw blade, whipping down through your investment logpile. But this market noise covers the underlying drivers; uncertainty and anxiety. The market thrives on certainty and predictable outcomes. COVID-19 is an unknown and can’t be priced into the efficient market. We’ve never had a virus driven recession we have data for (11). The Black Death, Smallpox and Plague of Justinian tell no tales. 

We don’t know when it will end or what the fallout will be. People try to provide structure and certainty by reflecting on what can now be expected (12). They tell themselves it’s cyclical, that we’re in a recession and will bounce back (13). This market is not a response to internal cyclical events, or broad economic fallacies. This is the result of a pandemic threatening millions of lives and requiring a global response. The market won’t be able to price in the outcome until we’re past the peak of the virus, and we’re only just getting started. Leave your speculation at the door. Keep calm and carry on investing (14)As TI/ TA on Monevator intone:

“DO NOT SELL.” (15)

We’ve all got bigger things to worry about.

Keep handwashing!

The Shrink

Thought for the week:
“It is a mark of a mean capacity to spend much time on the things which concern the body, such as much exercise, much eating, much drinking, much easing of the body, much copulation. But these things should be done as subordinate things: and let all your care be directed to the mind” – Enchiridion XLI, Epictetus

Other News:

Covid-19 mini-special:

The History of Pandemics by Death Toll

Image credit: The Visual Capitalist (16)

Capture

Life goes on:

Comment/ Opinion:

References:

  1. https://seekingalpha.com/article/4330865-technically-speaking-on-cusp-of-bear-market
  2. https://en.wikipedia.org/wiki/Black_swan_theory
  3. https://monevator.com/investing-in-the-face-of-a-disaster/
  4. https://en.wikipedia.org/wiki/Cherry_picking
  5. https://en.wikipedia.org/wiki/Selection_bias
  6. https://www.marketwatch.com/story/the-fed-put-on-the-stock-market-may-expire-worthless-because-of-these-mistakes-stifels-bannister-2019-09-19
  7. https://www.telegraph.co.uk/business/2020/03/04/feds-misjudged-pyrotechnics-may-have-brought-us-even-closer/
  8. http://www.cboe.com/vix
  9. https://www.forbes.com/sites/investor/2019/07/27/the-fed-is-going-to-cut-rates-be-careful-what-you-wish-for/#4ed414f560b2
  10. https://www.theguardian.com/business/2020/mar/15/federal-reserve-cuts-interest-rates-near-zero-prop-up-us-economy-coronavirus
  11. https://www.marketwatch.com/story/goldman-sachs-analyzed-bear-markets-back-to-1835-and-heres-the-bad-news-and-the-good-about-the-current-slump-2020-03-11
  12. https://www.forbes.com/sites/simonmoore/2020/03/14/what-to-expect-from-this-bear-market/#4def34e661ff
  13. https://www.cnbc.com/2020/03/14/not-every-bear-market-is-accompanied-by-an-economic-recession-but-chances-are-high.html
  14. https://www.ukvalueinvestor.com/2020/03/coronavirus-stock-market-crash.html/
  15. https://monevator.com/weekend-reading-do-not-sell/
  16. https://www.visualcapitalist.com/history-of-pandemics-deadliest/
  17. https://www.history.com/topics/middle-ages/pandemics-timeline
  18. https://www.theguardian.com/commentisfree/2020/mar/05/even-as-behavioural-researchers-we-couldnt-resist-the-urge-to-buy-toilet-paper
  19. https://markets.businessinsider.com/news/stocks/stock-market-news-today-indexes-plunge-oil-market-coronavirus-selloff-2020-3-1028978137
  20. https://www.independent.co.uk/news/world/americas/coronavirus-cdc-1918-flu-pandemic-death-toll-symptoms-a9389171.html
  21. https://t.co/ZejfSQcO0Y?amp=1
  22. https://www.bbc.co.uk/news/science-environment-51825089
  23. https://www.bbc.co.uk/news/uk-england-york-north-yorkshire-51736395
  24. https://www.mortgagesolutions.co.uk/better-business/2020/03/02/equity-release-is-heading-into-the-eye-of-a-perfect-storm-blackwell/
  25. https://www.ft.com/content/fa038361-1faf-4083-8128-257f83d4b2ed
  26. https://www.bbc.co.uk/news/business-your-money-51841748
  27. https://www.theguardian.com/business/2020/mar/15/prepare-for-the-coronavirus-global-recession
  28. https://investornews.vanguard/a-message-from-vanguards-ceo-on-the-coronavirus/
  29. https://monevator.com/how-to-prepare-for-a-recession/
  30. https://www.cnbc.com/2020/03/01/millennial-millionaire-shares-what-he-refuses-to-spend-money-on.html
  31. https://metro.co.uk/2020/03/07/couple-ditch-jobs-retire-30s-live-greek-island-5000-year-12362827/
  32. https://ofdollarsanddata.com/the-worst-day-of-our-investment-lives/
  33. https://www.ukvalueinvestor.com/2020/03/hunting-for-dividends.html/
  34. https://www.finumus.com/blog/covid-19-and-bonds-no-time-to-die
  35. http://diyinvestoruk.blogspot.com/2020/03/asset-allocation-re-visited.html
  36. http://diyinvestoruk.blogspot.com/2020/03/national-grid-portfolio-addition.html
  37. http://www.retirementinvestingtoday.com/2020/03/lenses.html
  38. http://eaglesfeartoperch.blogspot.com/2020/03/thoughts-on-investment-portfolio.html
  39. http://eaglesfeartoperch.blogspot.com/2020/03/lockdown-in-tenerife.html
  40. https://gentlemansfamilyfinances.wordpress.com/2020/03/09/february-2020-month-end-accounts/
  41. https://awaytoless.com/monthly-spending-february-2020/
  42. http://quietlysaving.co.uk/2020/03/08/ravaged-dogs-of-the-ftse-and-random-shares-update/
  43. https://firevlondon.com/2020/03/10/feb-2020-buy-high/
  44. https://www.thefrugalcottage.com/my-updated-portfolio-march-2020/
  45. https://southwalesfi.co.uk/2020/03/13/innovative-finance-isa-pros-and-cons-ifisa/
  46. http://bankeronfire.com/pension-vs-isa-settling-the-debate
  47. https://pursuefire.com/playing-the-long-game/
  48. https://theescapeartist.me/2020/03/13/victory-is-inevitable/
  49. https://indeedably.com/prison-of-my-own-making/

The Full English Accompaniment – Premium Bonds: The time is now?

One of the cardinal rules of financial security is to have an emergency fund. If you need to ask why, you’re in the wrong place, and I suggest you read Monevator’s excellent explanation (1). A big credit line isn’t enough. You need 3-6 six months of expenses in a liquid, easily-accessed account. For the basic rules and steps Monevator again has your back (2)

So far, so basic.

Beyond that the arguments start. What classifies as an emergency? How much is too much? Where do you put it?

High yield current accounts and instant-access savings accounts have long been the go-to. Which was fine when returns were 3% plus in the early noughties, but over the past decade interest rates on savings accounts have drifted down (3, 4). The best easy access accounts, including the once-vaunted Marcus, are now returning 1.3% (5). Meanwhile inflation hovers around the 1.3-1.5% mark (6).


So we’re left with a dilemma: do we accept our emergency fund will (at best) tread water or (at worst) lose money relative to inflation, or do we chase returns?

The latter has led to some very creative accounting by some authors, including the suggestion that your emergency fund spending should be built into your household budget (7). Which sort of suggests it’s predictable, and not an unforseen emergency.

Or you could be like a number of other FIRE bloggers (Early Retirement Now, Physician on FIRE), and go without an emergency fund, relying instead on lines of credit and your investments to bail you out (8, 9). This reduces your opportunity cost and improves your returns (10). It also tackles the behavioural problem with an emergency fund; the temptation to dip into it for that emergency TV or holiday. It’s much harder to impulse spend an investment. But do you risk crystallising losses during the inevitable downturn?

Step forward premium bonds; long-derided though the UK’s biggest savings product (11). They’re a psychological leap from an instant access savings account, yet improvements in IT means you can check results on your phone and transfer into cash within a couple of days (ticking that liquidity box) (12, 13). The prize rate has been cut, but it’s still 1.3% – the same as instant access savings (14). And given you’re reading this and into FIRE, you’re probably a higher rate tax payer. Here premium bonds sweeten the deal further, with no tax to pay on winnings (15).

You’re still not likely to see a win, as that 1.3% is practically lower due to the skewing effects on the average of the top prizes. But maybe now, in the days of rubbish cash returns, premium bonds offer a credible emergency fund safe haven.

Have a great week,

The Shrink

P.S. Couldn’t really get away without mentioning the Coronavirus outbreak could I? I’ve briefly mentioned my thoughts in the Reasons to be cheerful/fearful post, and for how I think it’s going to go see Scenario 5 of the Thought Experiment. Ultimately it’s going to be a difficult time for the markets. Due to the number of unknowns we’re dealing with, trying to price in predictions is near impossible. The efficient market is going to struggle with the level of uncertainty. We’ve been near a market top for a long time. No-one knows the future. Stick with your plan and be confident in your preparation.

Other News:

Covid-19 mini-special:

And elsewhere:

Opinion/ blogs:

References:

  1. https://monevator.com/its-an-emergency-fund/
  2. https://monevator.com/emergency-funds-the-ten-essential-steps/
  3. https://thistimeitisdifferent.com/uk-savings-interest-rates-feb-2018
  4. https://www.bbc.co.uk/news/business-49752883
  5. https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/
  6. https://www.bbc.co.uk/news/business-51117888
  7. https://awealthofcommonsense.com/2019/09/what-do-i-want-my-money-to-do-for-me/
  8. https://earlyretirementnow.com/2016/05/05/emergency-fund/
  9. https://www.physicianonfire.com/dont-bother-with-emergency-fund/
  10. https://www.fool.com/investing/2018/04/15/people-are-thinking-about-emergency-funds-wrong.aspx
  11. https://www.moneysavingexpert.com/savings/premium-bonds/
  12. https://moneyfacts.co.uk/news/savings/nsi-enhances-its-premium-bonds/
  13. https://www.yourmoney.com/saving-banking/premium-bonds-winners-can-now-be-notified-by-text/
  14. https://www.moneysavingexpert.com/news/2020/02/premium-bond-prize-rate-to-be-cut-to-1-3-/
  15. https://monevator.com/are-premium-bonds-a-good-investment/
  16. https://twitter.com/i/status/1230554753182003203
  17. https://twitter.com/andrewgregory/status/1233076394084720640?s=19
  18. https://www.bbc.co.uk/news/business-51681620
  19. https://www.nejm.org/doi/full/10.1056/NEJMp2003762
  20. https://www.theguardian.com/world/ng-interactive/2020/feb/26/coronavirus-map-how-covid-19-is-spreading-across-the-world
  21. https://www.theguardian.com/business/2020/feb/15/coronavirus-black-swan-shadow-global-economy
  22. https://www.theguardian.com/world/2020/feb/26/coronavirus-spreads-further-as-who-expert-warns-world-not-ready-for-pandemic
  23. https://www.ft.com/content/e0ca01ee-57cb-11ea-abe5-8e03987b7b20
  24. https://www.theguardian.com/money/2020/feb/17/uk-housing-boom-leads-to-2500-jump-in-asking-prices
  25. https://www.thisismoney.co.uk/money/buytolet/article-8019811/Hundreds-thousands-landlords-sold-tax-relief-began-phased-out.html
  26. https://www.cnbc.com/2020/02/21/elon-musk-recommends-science-fiction-book-series-that-inspired-spacex.html
  27. https://www.theguardian.com/environment/2020/feb/17/west-midlands-canals-help-heat-hospitals-homes-plans
  28. https://www.theguardian.com/us-news/2020/feb/25/anti-greta-teen-activist-cpac-conference-climate-sceptic
  29. https://www.bbc.co.uk/news/uk-wales-51633458
  30. https://www.thisismoney.co.uk/money/investing/article-7978521/Is-worth-investing-space-stocks-Virgin-Galactic.html
  31. https://www.cityam.com/fintech-unicorn-klarna-posts-first-ever-annual-loss/
  32. https://www.vice.com/en_uk/article/qjd3p7/how-to-get-out-of-debt
  33. https://www.morningstar.co.uk/uk/news/199513/fire-means-i-can-retire-at-41.aspx
  34. https://www.bbc.co.uk/bbcthree/article/2b3f3f67-2338-4253-b7f5-a36192885492
  35. https://monevator.com/weekend-reading-bring-me-sunshine/
  36. http://www.retirementinvestingtoday.com/2020/02/perspective.html
  37. http://eaglesfeartoperch.blogspot.com/2020/02/the-end-of-world-as-we-know-it.html
  38. http://quietlysaving.co.uk/2020/02/28/february-2020-plus-other-updates/
  39. http://diyinvestoruk.blogspot.com/2020/02/sse-portfolio-addition.html
  40. https://www.ukvalueinvestor.com/2020/02/diageo-share-price.html/
  41. https://gentlemansfamilyfinances.wordpress.com/2020/02/28/bye-bye-aegon/
  42. http://thefirestarter.co.uk/resigned-to-my-fate/
  43. https://cashflowcop.com/so-near-and-yet-so-fi/
  44. https://theescapeartist.me/2020/02/28/sweat-those-assets/
  45. https://awaytoless.com/delaying-fire-to-enjoy-today/
  46. https://www.thefrugalcottage.com/february-2020-a-month-in-review/
  47. http://fiukmoney.co.uk/february-20-net-worth-and-monthly-update-18-525898-15143/
  48. https://thesavingninja.com/ficalc-ninja-mobile-application/
  49. http://bankeronfire.com/the-real-path-to-wealth?the-real-path-to-wealth
  50. https://www.foxymonkey.com/ir35-contract-market/
  51. https://firevlondon.com/2020/02/23/how-much-is-enough/
  52. https://indeedably.com/shedding-skin/
  53. https://indeedably.com/held-to-account/

The FIRE Cemetery (January 2020 Edition)

Here lies a list of blogs now deceased, moved on to fairer lands…

On life support (>3 months since last post)

  • The Finance Zombie – Last post in February 2019, infrequent prior
  • Early Retirement Guy – First post 2014, most recent June 2019, and that was a six month update – Guy posted an update the day this went out. He’s had a very eventful year, so I recommend a read.
  • Make Save Invest Money – Leon was posting from December 2017 to January 2019, and then appears to run out of steam
  • Formerly Skint – Weekly money diaries started in January 2018 and dried up in January 2019
  • Frugal Student – Lewys started in August 2016, last post in April 2019
  • Big Blue Money – Last post by Russell was in Jun 2019
  • Disease Called Debt – Seems to have started around 2013, with last post about July 2019. Ad-tastic
  • FIREthe9to5 – Genuinely sad to see this up here, last post in July 2019, by which time they had retired early.
  • UK girl on fire – Posted from April to July of 2019 (with a lot of apparent inspiration from indeedably)
  • Finance Your Fire – Marc participated in lots of the FIRE blogging scenes Thought Experiments etc, but last posted in August 2019
  • Left FI – Blogged from May to August of 2019
  • The English Investor – Last post at the end of August 2019
  • Pursue Fire – Dan started in July 2018, last post September 2019 – Dan also posted an update just after this blogpost came out.

 

In the morgue (dormant for >1 year)

  • Fire in London – First post in Nov 2016, last in December 2018
  • Deliberate Living UK – First post 2017, last from Wephway was in January 2019
  • Sex Health Money Death – Jim first posted in August 2015, and the last post was August 2018. At that point he was close to retiring, so he may well have blogged his last.
  • Under The Money Tree – One of the original few, now dormant since December 2017

 

Dead and buried

 

The Lazarus circuit

These are bloggers who have returned from the edge, touched the void, etc:

  • Sparklebee – After a six month hiatus returned to posting with the news they quit their job and were truly on countdown to FIRE!
  • 3652 Days – Fairly infrequently updated.
  • Rockstar Finance – Is now back under new management.

 

If you can think of any more please leave a comment below, and I’ll periodically return to update.

I am indebted to /u/reckless-saving over on /r/FIREUK, who makes this post so much easier.

The Full English Accompaniment – Cognitive biases in crowdfunding

Continuing my current theme looking at crowdfunding, and in advance of some behavioural finance pieces I’m putting together, this week I’m pointing out some of the ways crowdfunding websites use cognitive biases to convince you to invest. For examples, I’ve pulled two pitches from Seedrs and CrowdCube which were at the top of their lists (1, 2).

Seedrs

Crowdcube

Crowdcube rewards

In my opinion, some of the main cognitive methods that these sites use are:

  • Bandwagon effect/ Confirmation bias
  • Overconfidence effect
  • Illusion of scarcity
  • Denomination/ reciprocity effects/ present bias

Bandwagon effect/ Confirmation bias

Confirmation bias is the internal yes-man, that disregards data that contradicts your opinion and suggests that ambiguous information supports your opinion (3). Your search for, remember and interpret information subconsciously to prove you are right. The bandwagon effect refers to the tendency of people to follow others, regardless of whether it’s a good idea (4, 5). It stretches into and is allied with groupthink and herd behaviour. It’s common in politics and consumer economics, and was also seen in the Dotcom bubble. Here confirmation bias and the bandwagon effect work in tandem, people will invest along with others thinking that it is evidence that they are making the right choice.

Crowdcube Bandwagon

Seedrs Confirmation

In the two examples chosen, you can see (circled in orange) that the number of investors and their commitment to a theoretical goal valuation are given pride of place in the ‘pitch’. Both websites aim to convince you that it’s a good idea, as many others are doing the same. Others must have done the research (social loafing), and they’ve committed (sunk cost fallacy), so you should too.

Overconfidence effect

Tied into confirmation bias, the overconfidence effect is the subjective belief that a persons ability is greater than the objective results would suggest (6). This should be well known to anyone who has read Smarter Investing etc, and is the basis of the active investment mindset. It’s also the whole basis of the Crowdfunding system, offering a variety of ‘pitches’ which you then evaluate, thinking ‘I have the edge others do not’. It’s worth noting in this that. Adding to this, optimism bias makes you think you are less likely to have a negative outcome (like a company failing) than others.

To help you on your way in your overconfident selection, the websites use the framing effect (7). Information is presented in a positive manner. These are, after all, advertising pitches. Every page will play-up it’s ongoing good points. Causes of concern are never mentioned (except perhaps in the discussion section). To look at the company financials often requires an investment or access request, inhibiting due diligence.

Illusion of scarcity

Scarcity, in human psychology, boils down to the fact that we as humans place greater value on things which are rare than those which are common (8). The scarcity heuristic is the mental shortcut we do when we say, ‘this thing is rarely available, therefore it must be worth more’. Salespeople employ this to great effect as the basis for mark-down discounts, Black Friday, and the perpetual DFS sale. Scarcity can come from quantity, rarity or time. For quantity, our innate reaction to finding out there is a limited quantity of something is to believe our choice to have that something is threatened, and therefore we want it more. For rarity, we place value on items we perceive to be unique. In companies this is often played on with pro-innovation bias, where we will favour innovation over the status quo and ignore flaws in the innovation (9). Such a pitch could be ‘look at our innovative unique idea, set to change the world’. For time, the scarcity heuristic is simple; time is running out, you don’t have time to do the complex thinking, the short cut answer is to buy, buy, buy.

Crowdcube Scarcity

Seedrs Scarcity

Once again these methods are front and centre of our two chosen pitches. You have limited time left to choose (time scarcity). There’s a limited quantity of available investment (quantity scarcity), at odds with the over-funding concept. Ask yourself why the data is being presented in this way?

Denomination/ reciprocity effects/ present bias

Denomination effect is a cognitive bias in currency where people are more likely to spend an equivalent value in small denominations than in large denominations (10). I see this alot, as MrsShrink will actively avoid spending big sums, but £<10 in Tesco on tat twice a week is not an issue. You are more likely to buy multiple small crowdfunding investments than one large investment, which also fits with diversification bias, the tendency to opt for a selection which gives you options or variety in the future (11).

Crowdcube rewards

Crowdfunding sites pitch your investments in small amounts. They also offer rewards, which works on reciprocity effects and present bias. Reciprocity is responding to a positive action with a positive action, leading to positive regard from both sides (12). If the company rewards you for an investment, you are more likely to see it in a good light. You are also more likely to pick a company which rewards you for an investment due to present bias (13). This incorporates hyperbolic discounting, but essentially can be said that if we are offered £100 tomorrow or £100 in a month, we’re more likely to choose tomorrow. If we’re offered £100 tomorrow or £110 in a month, the choice will depend on the person and how much they discount the worth through time delay. As all crowdfunding investments are essential gambles set for an uncertain future, a present day reward sways our choices.

TL:DR

These are just a few of the methods that crowdfunding websites use to part us from our hard-earned. There are many, many more, and I encourage everyone to read up on behavioural finance and understand when cognitive biases may be at play. The post may come off as harsh, so know that I invested in the last month on one of these crowdfunding platforms. It’s all about doing your homework and looking beyond the sales pitch. If you can be bothered.

Have a great week,

The Shrink

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading (affiliate links):

Food Of The Gods: The Search for the Original Tree of Knowledge: A Radical History of Plants, Drugs and Human Evolution – Terence McKenna – An ethnobotanist explores humanitys’ fascination with hallucinogenics, and the role of altered states of consciousness on the development of human society.

References:

  1. https://www.seedrs.com/anna-money/sections/investors
  2. https://www.crowdcube.com/companies/justpark-1/pitches/bk7Aeb
  3. https://en.wikipedia.org/wiki/Confirmation_bias
  4. https://www.investopedia.com/terms/b/bandwagon-effect.asp
  5. https://en.wikipedia.org/wiki/Bandwagon_effect
  6. https://en.wikipedia.org/wiki/Overconfidence_effect
  7. https://en.wikipedia.org/wiki/Framing_effect_(psychology)
  8. https://en.wikipedia.org/wiki/Scarcity_(social_psychology)
  9. https://en.wikipedia.org/wiki/Pro-innovation_bias
  10. https://en.wikipedia.org/wiki/Denomination_effect
  11. https://humanhow.com/en/list-of-cognitive-biases-with-examples/
  12. https://en.wikipedia.org/wiki/Reciprocity_(social_psychology)
  13. https://en.wikipedia.org/wiki/Dynamic_inconsistency
  14. https://www.bbc.co.uk/news/business-49884247
  15. https://metro.co.uk/2019/09/30/chancellor-sajid-javid-raises-national-living-wage-10-50-10834020/
  16. https://www.bbc.co.uk/news/business-49849484
  17. https://www.bbc.co.uk/news/business-49891141
  18. https://www.bbc.co.uk/news/business-49919189
  19. https://www.thisismoney.co.uk/money/markets/article-7535061/Recession-fears-hang-global-economy.html
  20. https://www.thisismoney.co.uk/money/news/article-7541673/Cautious-Treasury-loses-Sirius-Minerals-millions-failing-company.html
  21. https://www.businessgreen.com/bg/news/3082227/new-gbp120m-low-carbon-greenhouse-project-set-to-deliver-one-in-10-uk-tomatoes
  22. https://www.getrichslowly.org/early-retirement-extreme/
  23. https://www.marketwatch.com/story/why-we-ditched-the-fire-movement-and-couldnt-be-happier-2019-09-30
  24. https://monevator.com/10-year-retrospective-what-a-decade-of-returns-tells-us-about-passive-investing/
  25. https://monevator.com/qa-thursday-with-lars-kroijer-session-1/
  26. https://gentlemansfamilyfinances.wordpress.com/2019/09/30/month-end-accounts-september-2019/
  27. https://drfire.co.uk/september-2019-report/
  28. http://www.thefrugalcottage.com/september-2019-a-month-in-review/
  29. http://www.thefrugalcottage.com/dividend-income-september-2019/
  30. http://eaglesfeartoperch.blogspot.com/2019/10/investment-review-september-2019.html
  31. https://asimplelifewithsam.com/2019/10/01/september-review/
  32. https://asimplelifewithsam.com/2019/10/04/saving-for-the-future/
  33. https://www.msziyou.com/net-worth-updates-september-2019/
  34. https://thesquirreler.com/2019/10/02/september-2019-update/
  35. https://thesavingninja.com/savings-report-15-getting-a-job-at-google/
  36. https://playingwithfire.uk/october-update/
  37. https://monethalia.com/monthly-savings-report-september-2019/
  38. https://awaytoless.com/monthly-spending-september-2019/
  39. https://firevlondon.com/2019/10/05/sep-2019-q3-review/
  40. https://gettingminted.com/reviewing-the-situation/
  41. https://grizgalonfire.com/do-i-need-a-personal-pension/
  42. https://indeedably.com/backwardation/
  43. https://thefifox.wordpress.com/2019/10/01/how-to-successfully-merge-finances-without-breaking-up-over-it/
  44. https://www.ukvalueinvestor.com/2019/10/the-hidden-debt-of-lease-obligations.html/
  45. http://diyinvestoruk.blogspot.com/2019/10/itm-power-finals-key-partnership.html
  46. http://www.retirementinvestingtoday.com/2019/10/human-being-and-2019-q3-review.html
  47. https://www.theguardian.com/food/2019/oct/03/always-cooking-the-same-thing-try-a-weekly-food-box

The Half English

Unfortunately I’m away/ busy this weekend, so it’s the abridged links only.

Have a great week,

The Shrink

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading (affiliate links):

Food Of The Gods: The Search for the Original Tree of Knowledge: A Radical History of Plants, Drugs and Human Evolution – Terence McKenna – An ethnobotanist explores humanitys’ fascination with hallucinogenics, and the role of altered states of consciousness on the development of human society.

References:

  1. https://www.cnbc.com/2019/09/24/theory-suggests-retiring-baby-boomers-could-spark-stock-dark-period.html
  2. https://www.thisismoney.co.uk/money/mortgageshome/article-7500027/Overpay-mortgage-beat-rock-bottom-savings-rates.html
  3. https://www.newscientist.com/article/mg24332493-100-ancient-grains-are-misnamed-and-their-health-benefits-are-unconfirmed/
  4. https://www.thisismoney.co.uk/property/article-7352931/Swapping-buy-let-short-term-holiday-let-prove-profitable.html
  5. https://www.thisismoney.co.uk/money/markets/article-7507989/Neil-Woodfords-Patient-Capital-shares-fall-amid-fresh-writedowns.html
  6. https://www.bbc.co.uk/news/uk-england-stoke-staffordshire-49648109
  7. https://www.theguardian.com/business/2019/sep/27/bank-of-england-hints-at-interest-rate-cut-even-without-no-deal-brexit
  8. https://www.theguardian.com/environment/2019/sep/28/uk-needs-billions-a-year-to-meet-2050-climate-targets
  9. https://www.theguardian.com/money/2019/sep/29/i-sold-our-house-and-gave-away-our-stuff-the-minimalists-doing-more-with-less
  10. https://www.theguardian.com/business/2019/sep/24/global-economy-trump-china-iran-brexit-argentina
  11. http://aswathdamodaran.blogspot.com/2019/09/runaway-story-or-meltdown-in-motion.html
  12. https://monevator.com/something-to-lose/
  13. https://theescapeartist.me/2019/09/29/building-blocks-of-a-wealthy-society-2-democracy/
  14. http://diyinvestoruk.blogspot.com/2019/09/nextenergy-solar-portfolio-addition.html
  15. https://www.msziyou.com/uk-fire-bloggers-directory-2019/
  16. http://bankeronfire.com/seven-popular-misconceptions-about-investment-bankers
  17. http://bankeronfire.com/junior-isa-is-it-as-good-as-it-seems
  18. http://fretfulfinance.co.uk/is-saving-and-investing-only-for-the-middle-class/
  19. https://www.foxymonkey.com/fi-getting-real/
  20. https://www.foxymonkey.com/gemfinder-q3-2019-doom-gloom/
  21. https://www.onemillionjourney.com/peer-to-peer-lending-risks/
  22. https://thesquirreler.com/2019/09/29/mcr-fire-meet-up-27th-september-2019/
  23. https://awaytoless.com/how-we-cut-our-food-shopping-bill-in-half/
  24. http://www.thefrugalcottage.com/aiming-to-save-50-of-our-income-4-years-on/
  25. https://gentlemansfamilyfinances.wordpress.com/2019/09/27/holiday-a-window-to-the-future-or-a-mirage/
  26. https://www.iretiredyoung.net/single-post/2019/09/27/Early-retirement-travelling-again—is-this-why-I-retired
  27. https://asimplelifewithsam.com/2019/09/27/the-power-of-positive-thinking/
  28. https://indeedably.com/rejection/
  29. https://www.theguardian.com/food/2019/sep/27/are-oysters-vegan-kitchen-aide
  30. https://www.jackwallington.com/allotment-month-46-tomatoes-edamame-apples-raspberries-and-sunflowers/
  31. https://agentsoffield.com/2019/09/22/reap-what-you-sow/

The Full English Accompaniment – Sticking my head in the sand

What’s piqued my interest this week?

As per the last Full English (wow it’s been some time) I’m pretty fed up with the news. It’s just one long tirade of the world going to hell in a handbasket. I guess because doom sells much more than positivism. Everyone’s a critic. I also try to keep this blog fairly free of market commentary or news analysis, but it’s hard when everything currently seems to be dominated by Brexit. The whole situation leaves me teetering between tearing my hair our in frustration and a sort of savage karmic justice. Just in the news in the last fortnight we’ve heard that house prices have stalled due to Brexit, Brexit has decreased living standards by more than the last recession and we’ve watched the pound tank as investors start to actually take No Deal seriously (1, 2, 3). Almost as if the experts in ‘project fear’ knew what they were talking about.

The rise of populism, and popular, non-expert opinion political decisions is going to have consequences. We’re leaving our level-headed reputation behind (4). Sarcastic/ sardonic responses to ineffectual elected officials are everywhere:

Plus we’re left with a pretty weird field of economic play (I’ve been listening to a lot of Test Match Special). The pound offers little source of cheer, and it seems unlikely to stop falling in the short-term, but it’s long term direction depends upon… Brexit (5). The FTSE100 will likely go up due to global holdings increasing returns on a weaker pound, but long term… who knows? The wider FTSE might tank if the economy stalls, but… who knows? The global markets, driven mainly by the FAANG stocks (and otherwise largely treading water) could falter; there’s lots of calls and warning signs out there about the longest ever bear market, but… who knows? We live in exciting/ perilous/ infuriating times.

Now if you’re a good investor, wise to behavioural mechanisms and carefully plodding on with your long-term plan this should make no difference. You will buy wide and ride the rollercoaster. It’s only your physical life that will be stuck yo-yo-ing in the current political/ economic climate. The pound in your pocket, not in your platforms, is the one that leaves you wondering if sterling/ economy collapses and it’s going to be pulses for dinner for the forseeable. FIRE theoretically will allow you to ride it out, but that’s no consolation if you’re not there yet.

And why the savage karma? Well the No Deal course is properly uncharted territory. The great economic tides that have carried UK finance are turning. UK prosperity has risen with high waters of international plunder (straight up colonialism), international plunder through companies (East India Co etc), global industrial powerhouse, and most recently global financiers. I have a dark optimism that, like some bedraggled phoenix, the UK might rise from the ashes in decades to come. Our national culture values creativity and inventiveness. But just as the 50s-70s saw thousands lose jobs as the economic juggernaut was set on a new path, so No Deal offers a gaping chasm of redundancies and poverty as the track is laid. And No Deal offers it on a scale that dwarfs the miners’ strikes and Three Day Week. At least there was a plan then. Who suffers most in that scenario? The less-educated, less-wealthy and less-informed. Who voted for Brexit?

Have a great week,

The Shrink

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading (affiliate links):

Food Of The Gods: The Search for the Original Tree of Knowledge: A Radical History of Plants, Drugs and Human Evolution – Terence McKenna – An ethnobotanist explores humanitys’ fascination with hallucinogenics, and the role of altered states of consciousness on the development of human society.

References:

  1. https://metro.co.uk/2019/07/15/house-prices-stall-brexit-hits-buyers-confidence-summer-10312534/
  2. https://www.independent.co.uk/news/business/news/brexit-economy-uk-living-standards-household-income-recession-a9007821.html?gclid=EAIaIQobChMIvref-8e74wIVS7TtCh33LwBvEAAYASAAEgIBUPD_BwE
  3. https://www.ft.com/content/dfab58d2-b512-11e9-bec9-fdcab53d6959
  4. https://simplelivingsomerset.wordpress.com/2019/07/08/schools-not-even-out-and-the-silly-season-is-well-underway/
  5. https://www.theguardian.com/business/nils-pratley-on-finance/2019/jul/16/for-the-pound-there-is-little-or-no-short-term-cheer
  6. https://www.theguardian.com/business/2019/jul/15/jaguar-land-rover-offered-500m-loan-to-develop-electric-cars
  7. https://www.bbc.co.uk/news/business-48995511
  8. https://www.theguardian.com/environment/2019/jul/16/true-cost-of-cheap-food-is-health-and-climate-crises-says-commission
  9. https://www.independent.co.uk/life-style/gadgets-and-tech/news/bitcoin-price-crash-latest-usd-prediction-value-facebook-libra-a9007761.html?gclid=EAIaIQobChMIvref-8e74wIVS7TtCh33LwBvEAAYASAAEgIBUPD_BwE
  10. https://www.thetimes.co.uk/article/long-term-savings-rates-raised-n08jb9f0h
  11. https://www.theguardian.com/society/2019/jul/17/renting-millennials-homelessness-crisis-retire
  12. https://www.thetimes.co.uk/article/pcp-car-buyers-in-negative-equity-3j0drpq9c
  13. https://www.independent.co.uk/environment/scotland-wind-power-on-shore-renewable-energy-climate-change-uk-a9013066.html
  14. https://www.theguardian.com/business/2019/jul/25/uk-solar-power-pioneer-solarcentury-profit-grows-860-in-a-year
  15. https://www.thisismoney.co.uk/money/mortgageshome/article-7305237/Virgin-Money-launches-Brexit-proof-15-year-fixed-rate-mortgage.html
  16. https://moneytothemasses.com/news/best-sunday-papers-money-sections
  17. https://www.theguardian.com/business/nils-pratley-on-finance/2019/jul/25/cobhams-demise-could-herald-a-flood-of-private-equity-takeovers
  18. https://www.reddit.com/r/UKPersonalFinance/comments/ceaqne/zoopla_estimates_how_accurate_are_they_an_analysis
  19. https://www.theguardian.com/lifeandstyle/2019/jul/24/millionaire-retired-30s-kristy-shen-bryce-leung-fire
  20. https://simplelivingsomerset.wordpress.com/2019/07/24/fire-is-for-the-few-not-the-many/
  21. https://www.thisismoney.co.uk/money/pensions/article-7240513/Should-fake-divorce-wife-split-pension.html
  22. https://monevator.com/weekend-reading-how-are-you-setting-your-table/#more-46828
  23. https://monevator.com/scared-by-a-share-split/
  24. https://www.mrmoneymustache.com/2019/07/20/estate-planning/
  25. https://theescapeartist.me/2019/07/18/op-loaded-getting-rich-in-the-military/
  26. https://theescapeartist.me/2019/07/31/living-low-cost-in-a-high-cost-city/
  27. http://www.retirementinvestingtoday.com/2019/08/refire-and-2019-half-1-review.html
  28. https://earlyretirementnow.com/2019/07/31/rising-equity-glidepath-4-percent-safe-withdrawal-rate-60-year-retirement/
  29. https://youngfiguy.com/working-to-work/
  30. https://cashflowcop.com/avoid-failure-to-launch-into-adulthood/
  31. https://tuppennysfireplace.com/how-to-go-green-thrifty-lifestyle/
  32. http://diyinvestoruk.blogspot.com/2019/07/my-concerns-about-investing-in-fossil.html
  33. http://diyinvestoruk.blogspot.com/2019/07/greencoat-uk-wind-portfolio-addition.html
  34. https://firevlondon.com/2019/07/24/why-the-markets-about-to-drop-and-what-im-doing-about-it/
  35. https://firevlondon.com/2019/07/30/angel-investing-1-10-top-tips-for-a-virgin/
  36. https://firevlondon.com/2019/08/04/july-2019-3rd-best-month-yet/
  37. http://quietlysaving.co.uk/2019/07/20/adjustments-to-my-investment-strategy/
  38. http://quietlysaving.co.uk/2019/08/02/july-2019-other-updates/
  39. https://ditchthecave.com/cheap/
  40. https://firehub.eu/bloggers-on-fire-dr-fire/
  41. https://drfire.co.uk/july-2019-report/
  42. https://www.msziyou.com/using-housesitters/
  43. https://www.msziyou.com/portfolio-july-2019/
  44. https://www.msziyou.com/net-worth-updates-july-2019/
  45. https://awaytoless.com/all-change/
  46. https://awaytoless.com/a-frugal-engagement/
  47. https://awaytoless.com/monthly-spending-july-2019/
  48. http://www.thefrugalcottage.com/july-2019-a-month-in-review/
  49. https://gentlemansfamilyfinances.wordpress.com/2019/07/29/back-to-airbnb/
  50. https://gentlemansfamilyfinances.wordpress.com/2019/08/01/month-end-accounts-july-2019/
  51. http://thecannycontractor.com/passive-income-quarter-2-2019/
  52. https://asimplelifewithsam.com/2019/08/02/july-review/
  53. https://www.iretiredyoung.net/single-post/2019/07/19/Difficult-early-retirement-question-%E2%80%93-what%E2%80%99s-next
  54. https://www.iretiredyoung.net/single-post/2019/07/26/Early-retirement—whats-next-Take-2
  55. https://www.iretiredyoung.net/single-post/2019/08/02/Early-retirement-costs-targets—July-2019
  56. https://firethe9to5.com/2019/07/22/things-i-havent-done-since-i-retired-early-and-a-few-i-have/
  57. https://indeedably.com/retirement/
  58. https://indeedably.com/on-the-margin/
  59. https://indeedably.com/a-very-british-fire/
  60. https://youtu.be/rzmOYU5Wpdk
  61. https://www.jackwallington.com/google-is-the-best-plant-id-app-and-it-will-only-get-better/
  62. https://www.jackwallington.com/allotment-month-45-salad-harvest-colourful-potatoes-and-rainbow-tomatoes/
  63. https://agentsoffield.com/2019/07/28/the-new-kitchen-garden/