(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:


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. 


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)


Life goes on:

Comment/ Opinion:


  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/

Thought Experiment – Your best or worst decade?

Following on from the reasons to be cheerful or fearful post rather than offer one solution, I’m going to offer four five thought experiments; ways in which world events might hit your finances. How would you feel if each played out, and how confident are you that it will or won’t?

Scenario 1: Deep Doom

Driven by cultural nostalgia for the 1920s, the world markets continue their growth into a new ‘roaring twenties’. After three further years fuelled by tech stocks and IPOs, consumer purchasing falters. The West stops buying new IPhones or leasing cars, as people attempt to control their debt. As global consumerism falls off, global economic output follows. Falls in Chinese production lead to an internal banking crisis, as companies are unable to service their debt and require huge bailots. Simultaneously, consecutive quarters of poor returns to the FAANG stocks leads their share price to collapse by 50%. Companies pull investment as they attempt to balance books, which leads to a spiral of decreased corporate spending, job losses, and decreased consumer spending. Over a period of a year global markets lose half their value. Central interest rates, already low, cannot provide stimulus. Reposessions lead to global property price falls. Bond prices collapse as once top-rated companies go under. Government tax receipts cannot cover half of spending, and radical steps are taken. In the UK, the pension is means-tested. The NHS is means-tested. Unemployment benefit is replaced by a ration system. Unemployment rises to 30%, homelessness to 10%. Shanty towns spring up across the country, and crime rates rise dramatically. The world experiences a new Great Depression.

Scenario 2: Local gloom

The UK population enjoys a period of honeymoon euphoria after Brexit occurs. The pound and FTSE100 rise to levels not seen since the mid-00s. People spend the cash they’ve hoarded. The government invests in building swathes on houses on the greenbelt and big infrastructure projects. The honeymoon cannot last, and the economic stimulus leads to inflation and increased government debt. Growth is not stimulated, and the Bank of England is forced to increase interest rates to reduce inflation. People, used to cheap loans and credit, struggle to pay their bills. Repossessions rise, and companies which were just about managing with their debt burden, go under. Tax receipts to the treasury fall, leading to swingeing cuts to the NHS, police and social services. The pension age rises to 70. Income tax goes up 5% across the board. The housing market is flooded with repossessed homes, leading to a 25% drop in prices and negative equity. Globally, markets experience a 20% correction, before continuing their march onwards fuelled by growth in tech and green technologies. The UK is unable to capitalise on this growth, and increasingly sidelined, only sees a return to stability by the end of the decade.

Scenario 3: Wiggle room

The UK population enjoys a period of honeymoon euphoria after Brexit occurs. The pound and FTSE100 rise to levels not seen since the mid-00s. This financial rebound coincides with a global slowdown, prompting the UK to become a counter-cyclical anomaly. Global companies, seeing it’s growth and position as a stepping stone to the EU without tight regulatory control, invest into the UK. UK companies on the back of a stronger pound, stretch abroad. Wages rise, whilst interest rates remain low, leading property to become more affordable. UK domestic stocks show strong growth over the decade – >10% a year, while global stocks hobble along <5%. UK bonds and property remain flat. Increased tax receipts enable the government to focus on reducing national debt.

Scenario 4: Global boom

Driven by cultural nostalgia for the 1920s, the world markets continue their growth into a new ‘roaring twenties’. Tech growth continues, and as new companies rise on the back of radical inventions, older established companies pivot their business models to capitalise on new areas of growth. Tobacco, oil, gas and pharmaceutical companies invest into clean energy and renewables. Mining companies see boosted returns as once-waste metals become sought after for manufacturing. The BRICS nations embrace the new green revolution, and increase their growth by spreading manufacturing into developing nations. Periodic <20% corrections do not dampen stock growth, with 10%+ yearly returns average, and some years seeing 20%. Interest rates gradually creep up, with global bonds achieving 5-10%. Strong wage growth also leads to increasing property prices, at least 5% a year. The world settles into a new normal, with a globally integrated industrial stream and international co-operation.

Late addition – Scenario 5: Wuhan Pandemic

The novel 2019 Coronavirus (one word people) continues it’s inexorable march across the globe. Following the Wuhan pattern, there is approximately a one month lag in each location before the true extent of spread is known, made up of incubation period and asymptomatic spread. By May 2020 the Wuhan virus has spread across the globe, and the numbers of infected in western counties is growing at an exponential rate. In June the number infected has crossed 100 million. The most severely affected are the old, weak and frail. 2% of those infected die. In the UK this numbers over half a million, mainly 1% of the UK population over 65 (18% of the general population). Nobody is spared. Everybody loses someone they know. The global economy staggers but continues, given that working aged people are predominantly spared. In the UK there is a glut of property put on the market, as empty homes are sold by bereaved relatives. Money concentrates into the hands of those left, reducing debt burden and leading to a surplus of cash. The government receives a windfall of inheritance tax receipts and reduced pension/ social care expenses. Society continues onwards, but never quite forgets the potential of a pandemic.

Reasons to be fearful and cheerful in 2020

So a new year, a new decade, has arrived. What could lie ahead, and how could it impact your goals? In general I try to avoid the news and speculation on this blog. For ease of digestion I’ve condensed down my thoughts on current risks and boons on the financial horizon into this one post. As one man’s rubbish is another man’s treasure I’ve not separated the positive and negative, and any old hack can predict doom, so in a linked follow-up to this post I’ll also offer some ‘Ninja-style’ thought experiments. I encourage you to play out the options in your head, thoughts and comments welcome.

  • The whole damned B***it saga is nearly over.

Or at least we can see a light at the end of the tunnel. Is that light a rose-tinted halycon glow of coal-fired power stations and a Wolseley in every council-semi car port? Or is it a bright new future of an independent UK driven by strong economic growth and an embrace for emerging technologies? Is it both? Does it matter?

It is re-assuring that following the general election there was a general upswing in economic confidence in the UK, typified by the surge in the pound (1). But since the heady heights of $1.34/5, we’ve seen the pound whipsaw depending on what BoJo is saying, whether Trump is inadvertently warmongering, and the ECB/ BoE’s machinations (2). My top line take is companies hate uncertainty, and at least the current government will provide some certainty, even if it’s distasteful to some quarters. Whether you’re pro-Brexit like the DIY Investor UK, or anti like TI at Monevator, at least we can all agree that it’s time to get the debacle moving (3, 4).

  • World markets continue on an unprecedented bull run

People keep predicting recessions. They’ve not happened. Last year saw gains on the US stock market (S&P 500) of 28% (5, 6). Alright some of that was recouping the losses of the December 2018 ‘correction’, but that’s still massive. In fact it was the best return since 2013, with new record highs.

Help from the US Federal Reserve through cheap cash, and new tech IPOs/ expansion are the fuel for this growth. Trade wars, warnings of global economic slowdowns, Brexit and the inverted yield curve have all been unable to stop this juggernaught. The Stoxx Eurozone 600 also a 23% jump, with the Shanghei Composite close on 22%, and the Nikkei 225 a relative laggard at 18% (6). The FTSE was the only fly in the ointment at 12% (7). Still impressive by most standards. The CBOX Volatility Index (^VIX), a measure of fear in the market where spikes are usually associated with sell-offs, started 2020 well down on 2019. Much of 2019 was spent between 16-22, where fear levels greater than 15 suggest traders think a recession is imminent. 2020 started around 12-14 (8). Traders see people crying wolf about recessions, and are starting to ignore them. Investment through low-cost index funds may have removed the human behavioural volatility from the market, whilst consistent developments in technology and other sectors mean that gains in one area offset slowdowns in others (9, 10). Is the permanent bull charge the new normal?

  • Interest rates remain low meaning cheap credit and mortgages

Interest rates were cut in the wake of the 2008 recession, and they’ve remained there and it looks like they’ll stay low for the forseeable future (11, 12). The BoE base rate is currently 0.75%, and didn’t change at the last vote (12). In the US mortgage rates are also falling, though for different reasons (13). This is crap for cash savings, but fantastic for mortgages which due to the ongoing competition in the market, remain at or around record low rates (14). The house price to earnings multiples are also falling, and the combination of cheap mortgages, a bit of government certainty and (slightly) more affordable prices means the number of mortgage approvals is going up (15, 16). For us on the street this means cheaper mortgages and cheaper credit cards.

  • Monetary policy is limited by current low interest rate

Interest rates have been kept low over the last decade to continue stimulus (along with quantitative easing) to the sluggish economy. Here’s a 7 minute video on how interest rates influence inflation and public spending as the basis of monetary policy (17):

Low interest rates discourage cash savings and encourage spending (18). But the economy remains beset by headwinds, and at this point in the (supposed) economic cycle we should have high interest rates that can be cut again when the next recession comes. Instead quantitative easing and low interest rates have remained. Where can economic policy go to spur further growth? Some countries have started using negative interest rates to promote spending (19). Most notable is Japan, which has had negative interest rates for decades, with minimal effect on growth (20, 21). Has Japan led the way into a brave new world of shackled economic policy and stagnant growth?

  • Flatlining property prices

This could be something to cheerful about, or fearful about, depending on your point of view. Dan at Pursue Fire discussed in this month how house prices appear to have rebounded somewhat since the December 2019 election (22). This is Money also did a useful piece, looking at what different organisations are predicting for the coming months on property prices (23). The general consensus is that house price growth will remain ~2%, roughly in line with inflation. Lots of reasons behind this, which can be broadly summarised as: very high house price to earnings ration (-ve effect on sales due to affordability), low mortgage interest rates (+ve effect on sales due to affordability), government meddling with Help to Buy and LISAs (+ve effect on sales and inflation of prices), government meddling with Buy-to-Let rules (-ve effect on prices through landlords offloading property), changes in immigration including Brexit (-ve effect on house prices in South East due to decreased demand), and the coming of age of interest only mortgages (unknown so far). Bad news for those whose nest egg/ pension is the growth in equity in their property, good news for anyone just starting out or upsizing. All those wannabe property developers better pack up their bags, as the days of 10% year on year growth may well be gone (24).

  • Corporate and private debt is reliant on low interest rates

A monetary policy of low interest rates has not only meant cheap mortgages, but also cheap debt for consumers and industry. Those 0% interest credit cards are tempting. So tempting UK household debt has risen 11% in the last two years (25). One could argue that recent lifestyle inflation/ keeping up with Jones’ has been financed with cheap debt, but these stories are never that simple. If you deep dive Hire Purchase (PCP) and ballooning student loans (not low interest rate) are the majority of the story (26). What happens to all this debt if the interest rates start to rise?

Looking beyond private debt, there was some debate in media channels about the rise of ‘zombie firms’ – companies where turnover and profit were persistently low and with high leverage (27, 28). These firms have hung about because low interest rates enable them to survive, whilst in the good old days a recession would have killed them off. They drag down productivity and GDP, crowd out markets and generally stink up the place like a good zombie but with less bitey action. They haven’t gone away and probably constitute 10-15% of global companies (29). The IMF has spoken of almost 40% of the debt in the eight world leading economies would be too expensive to service in a recession (30). These crappy companies and their dodgy debt remain a sword of Damocles hanging over the market (31).

  • Many financial products offering high returns or underlying current strategies are untested

There’s a whole raft of financial instruments which can be filed under ‘working now’, promising and at times attaining strong returns, which have never seen an economic downturn. That’s either because they’ve gone mainstream since 2008, or they’ve been developed since then. We’ve got no idea what will happen to them. In this bucket of uncertainty I chuck:

  1. P2P lending – Connecting those investing with those borrowing with minimal middle men (32). I’ve spoken before about my concerns of default risk in P2P. There’s analyses that suggest P2P resembles subprime mortgages (32). The default rate at Zopa was 4.52%, and 5% doesn’t look unreasonable. The services take a percentage to cover for these defaults, but what happens when the default rates start to rise in an economic downturn. Zopa has stress-tested again BoE modelling, so here’s hoping they’re doing enough (33, 34).
  2. Buy to let, particularly student flats and hotels – As investors look for returns and the BTL allowances are tightened, those seeking returns have lent on students. Much easier to be a student landlord than a slum landlord. Increasing numbers of students, particularly from overseas, have been seeking better quality accommodation than the traditional damp bedsit. This has driven a property boom, with plenty of agencies helping you to invest in a purpose built flat providing 7-15% returns (35, 36, 37). University cities around the UK have seen massive blocks of flats go up to house students (35, 38).  Problem is students don’t want to live in them as they’re too expensive, and there’s now market oversupply (39, 40). I don’t blame them. I wouldn’t want to spend £600+/month for a studio flat with shared kitchen. My student accommodation was £280/month with an ensuite. That’s £300 for beer! So the companies are going under and investors are losing out (41). Hotel room investment appears to be aimed at a similar target market (42). 10% returns in bricks-and-mortar away from the scary stock market. Investment in this sector is growing despite a string of high profile collapses and vague references to ‘ponzi-schemes’ (43, 44). Frankly I file the whole idea under ‘too good to be genuine’.
  3. PCP car sales My pet hate, I advise everyone to read the FCA findings and tell me how this is not a car crash waiting to happen (45). Default rates remain low, but commission-based salesman are racing to the bottom of the lending pool. Everyone who wants a flash car has one, people aren’t buying but the pressure for sales remains (46). There’s already talk it could be the next PPI, but people are signing themselves up to this wittingly (47). Even when they admit they don’t understand (48). I’ll stick to my ropey old shitbox.
  4. Crypto – I’m not even going to try and speculate on that rollercoaster.

The simple answer here is stick to tried and tested financial mechanisms.

  • China, the engine room of recent growth, has an untested banking sector

Bit of a funny communist state China. The majority of the banks remain state-owned, and there’s a national culture of saving. They therefore rarely share worries about the sector. Beyond the state banks are ‘shadow banks’, which have funded much of the real estate development in recent years (49, 50). The lending those banks were built on was fuelled and funded by China’s hyperbolic growth. Now that growth is slowing, risky business ventures are failing, and there’s been a spate of bank bail-outs (50). Stress tests suggest this is the tip of the iceberg, with the People’s Bank of China’s annual stability report suggesting 586 out of 4,379 banks are at high risk of collapse (51).

  • Green and sustainable technology and funds are going mainstream

The diversification and ease with which individuals can self-invest, coupled with global recognition of the climate emergency, is fuelling a massive growth in green and sustainable funds. Millennials aren’t consulting a financial advisor and then putting cash in an active fund containing oil and tobacco, they’re using Nutmeg or Wealthsimple and selecting green companies (52). It feels like a tipping point has been reached when even companies like Vanguard bow to pressure (53, 54). Growth follows investment, and I hope the pressure will mean a societal industrial shift towards sustainable approaches. Are we seeing the re-invention of our economy, the greatest shift since the industrial revolution?


  • 2019-nCoV, a.k.a Wuhan Virus. 

To be clear, there are lots of coronaviruses, they are a source of the common cold. The novel coronavirus which emerged in Wuhan is a nasty bastard. I’ve been chatting to my friends who work in infectious diseases and they’re worried. To them it is Wuhan virus, and that is how I’ll refer to it. Why is it so bad:

  1. It’s seriously infectious – Conservative modelling suggests a basic reproductive number (R0) of 2.68, i.e. every infected person spreads it to 2.68 others (55, 56). I’ve seen less conservative estimates at 4. Epidemic doubling time is 6.4 days. Growth within the population is exponential. For reference most pandemic and endemic infections have R0s between 2-5, including Spanish Flu (57).
  2. It can be asymptomatic or mild – Control measures such as those used for Ebola, SARS, MERS etc were effective because once someone contracted the infection they became unwell, and they could be separated out and isolated. Their symptoms allowed isolation during the infectious period. Wuhan virus appears to be infectious while asymptomatic, meaning people can spread it without knowing (58).
  3. It hits the mortality sweet spot – It appears to kill around 1-2% of those diagnosed (probably much lower with asymptomatic cases). Ebola, SARS, MERS etc were all more deadly, but this reduces a pathogens ability to spread quickly and reduces the host reservoir. Wuhan virus kills the old and infirm, at a rate that maintains a large host population (59, 60).
  4. China has almost certainly hidden the true numbers – People in Wuhan are having quick burials, others aren’t being tested, and the fact Wuhan virus can be mild and asymptomatic suggests the spread could be significant worse than reported (61, 62).


People are already speculating on the effects of Wuhan Virus on the stock market (63, 64, 65). My friends suggest this is the next Spanish Flu, and we’ll see tens of thousands of deaths globally amongst the infirm and elderly (66, 67). We live in interesting times.

So that’s it, and I haven’t even touched on Trump or the Middle East (68). Making forecasts is a fools game, the only surety of which is that you’ll smack yourself for what you said (69). We suffer from huge psychological biases when thinking about the future (70). Is a consistent bull run the new normal, or will we see another great depression (71)? Join my in my next post to think through the options.


  1. https://www.independent.co.uk/news/uk/politics/general-election-result-pound-dollar-euro-exit-poll-tory-boris-johnson-a9244661.html
  2. https://www.bbc.co.uk/news/business-50821583
  3. http://diyinvestoruk.blogspot.com/2019/12/we-are-leavingat-last.html
  4. https://monevator.com/weekend-reading-brexit-bites/
  5. https://www.cnbc.com/2019/12/31/the-stock-market-boomed-in-2019-heres-how-it-happened.html
  6. https://markets.businessinsider.com/news/stocks/sp-500-2019-annual-return-for-year-best-since-2013-2019-12-1028790061?
  7. https://www.bbc.co.uk/news/business-50955629
  8. https://www.investopedia.com/terms/v/vix.asp
  9. https://www.forbes.com/sites/kenrapoza/2020/01/22/bull-market-without-end-amen/#146f30422637
  10. https://www.wsj.com/articles/global-stocks-mixed-on-last-day-of-exceptional-year-11577787736
  11. https://www.forbes.com/sites/billconerly/2020/02/01/interest-rate-forecast-remaining-low-throughout-2020/#4aa5548b5395
  12. https://www.thisismoney.co.uk/money/markets/article-7947231/Interest-rates-kept-hold-0-75-Mark-Carneys-rate-decision.html
  13. https://www.washingtonpost.com/business/2020/01/30/mortgage-rates-sink-their-second-lowest-levels-three-years/
  14. https://www.thisismoney.co.uk/money/mortgageshome/article-7723941/Ten-year-fixed-mortgage-rates-hit-new-record-low.html
  15. https://www.theguardian.com/business/2020/jan/27/uk-banks-mortgages-interest-rates
  16. https://www.independent.co.uk/news/business/news/housing-market-england-mortgage-approvals-lending-a9311706.html
  17. https://youtu.be/4XYlQ_HbDTw
  18. https://www.economicsonline.co.uk/Managing_the_economy/Monetary-policy.html
  19. https://www.theguardian.com/business/grogonomics/2019/oct/29/negative-interest-rates-mad-economic-science-or-the-logical-next-step
  20. https://www.fxstreet.com/analysis/japan-negative-interest-rates-and-the-death-of-monetary-policy-202001021535
  21. https://foreignpolicy.com/2019/11/13/japan-economy-west-us-economic-future-trump-topsy-turvy/
  22. https://pursuefire.com/monthly-update-16-december/
  23. https://www.thisismoney.co.uk/money/mortgageshome/article-7801417/What-property-prices-Britain-2020-onwards.html
  24. https://www.thisismoney.co.uk/money/mortgageshome/article-7943741/House-prices-174-years-70-year-period-got-cheaper.html
  25. https://www.bbc.co.uk/news/business-50671834
  26. https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddebtingreatbritain/april2016tomarch2018
  27. https://www.theguardian.com/business/2019/may/06/zombie-firms-a-major-drag-on-uk-economy-analysis-shows
  28. https://fortune.com/2019/09/02/why-zombie-companies-are-on-the-rise-and-could-pose-a-threat-to-the-u-s-economy/
  29. https://www.businessinsider.com/zombie-firms-statistics-on-low-interest-rates-and-leveraged-loans-2018-10?r=US&IR=T
  30. https://www.theguardian.com/business/2020/jan/04/debt-will-kill-global-economy-pensions-ageing-population
  31. https://www.telegraph.co.uk/business/2020/01/14/trillion-dollar-corporate-debt-mountain-threatening-worlds-economy/
  32. https://www.investopedia.com/terms/p/peer-to-peer-lending.asp
  33. https://www.moneyobserver.com/how-will-p2p-fare-during-downturn
  34. https://www.economist.com/finance-and-economics/2019/12/05/created-to-democratise-credit-p2p-lenders-are-going-after-big-money
  35. https://www.ft.com/content/770992fc-d3d6-11e9-a0bd-ab8ec6435630
  36. https://www.rw-invest.com/student-property-investments/
  37. https://www.endsleigh.co.uk/blog/post/why-property-investors-are-buying-student-accommodation/
  38. https://www.studyinternational.com/news/student-housing-uk-europe/
  39. https://moneyweek.com/503652/investing-in-student-property-doesnt-stack-up
  40. https://www.thisismoney.co.uk/money/buytolet/article-5620311/How-invest-student-property-buy-let.html
  41. https://www.ft.com/content/1db98d5c-98c5-11e9-9573-ee5cbb98ed36
  42. https://sterlingwoodrow.com/hotel-room-investment/
  43. https://www.savills.co.uk/research_articles/229130/274445-0
  44. https://www.bbc.co.uk/news/uk-wales-50350281
  45. https://www.fca.org.uk/publication/multi-firm-reviews/our-work-on-motor-finance-final-findings.pdf
  46. https://www.bbc.co.uk/news/business-46774053
  47. https://www.telegraph.co.uk/business/2019/10/05/car-financing-loans-could-erupt-next-ppiscandal/
  48. https://www.thisismoney.co.uk/money/cars/article-7546811/Nine-ten-motorists-confused-car-finance-options.html
  49. https://www.greenleft.org.au/content/paper-dragons-will-china-cause-next-financial-crash
  50. https://www.scmp.com/comment/opinion/article/3044148/chinas-banking-debt-crisis-ticking-time-bomb-must-be-defused-urgent
  51. https://www.fxstreet.com/analysis/theres-a-major-banking-crisis-unfolding-in-china-202001080837
  52. https://www.telegraph.co.uk/business/2019/02/16/millennials-push-green-bonds-mainstream/
  53. https://www.ft.com/content/7d64d1d8-91a6-11e9-b7ea-60e35ef678d2
  54. https://www.ft.com/content/5b6caa5e-bd4f-11e9-89e2-41e555e96722
  55. https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30260-9/fulltext
  56. https://www.ft.com/content/ed3fb63e-41ce-11ea-bdb5-169ba7be433d
  57. https://en.wikipedia.org/wiki/Basic_reproduction_number
  58. https://www.scientificamerican.com/article/study-reports-first-case-of-coronavirus-spread-by-asymptomatic-person/
  59. https://www.nature.com/articles/d41586-020-00236-9
  60. https://www.nytimes.com/2020/01/30/opinion/wuhan-coronavirus-epidemic.html
  61. https://www.telegraph.co.uk/news/2020/01/25/quick-burials-lack-tests-raise-fears-cornavirus-outbreak-much/
  62. https://www.theguardian.com/science/2020/jan/26/coronavirus-could-infect-100000-globally-experts-warn
  63. https://www.bbc.co.uk/news/business-51239745
  64. https://www.bbc.co.uk/news/business-51262450
  65. https://www.ccn.com/chinas-economy-on-the-brink-as-coronavirus-fears-intensify/
  66. https://khn.org/morning-breakout/who-to-reevaluate-global-emergency-designation-as-coronavirus-spreads-at-rate-of-1918-spanish-flu-pandemic/
  67. https://www.weforum.org/agenda/2020/01/coronavirus-flu-healthcare-symptoms/
  68. https://www.fool.com/investing/2020/01/28/these-4-world-events-could-kick-off-a-market-crash.aspx
  69. https://rpseawright.wordpress.com/2020/01/02/forecasting-follies-2020/
  70. https://www.collaborativefund.com/blog/the-psychology-of-prediction/
  71. https://www.theguardian.com/business/2020/jan/17/head-of-imf-says-global-economy-risks-return-of-great-depression

Quarterly Returns – Q4 and 2019 in Review

Quarterly return posts supplement my monthly Financial Dashboard, covering investments in detail and looking at my yearly targets. Here I track purchases and sales, document progress against my (in progress) investment strategy, and discuss re-balancing and changes over time.

Year two of tracking down, time for another review. After the tumult of 2018, 2019 has been a year of consolidation. There were no house moves, no big projects or events, and only one foreign holiday. It’s been a year focusing on finances and career, steadying and preparing for some big bills and life changes in 2020. But how did I get on for my 2019 goals?

Q4 Returns:

Net Worth

  • Cash Savings Accounts £7,600 (+3,200)
  • Investments £2,990 (+£1,440)
  • Property £40,500 (+£6,100)
  • Cars £2500 (£0)

My net worth now sits at £~49,700, a significant increase of £20k over the course of the year. I set a goal as part of my yearly targets to save 25% of my income in 2019. I narrowly missed out when you look at raw saved cash and investments, saving only 23.53% (15.59% pre-pension).

Yearly Targets:

Goal 1: Build an emergency fund

My first 2019 goal was to build an emergency fund, as per the r/UKpersonalfinance flow chart (1). My goal emergency fund is three months total household expenses (£6k) in my name, plus a further three months (£6k) held jointly.

I now currently hold £6,700 in my name, and £1,800 held jointly. I reached the £6k figure as I’d hoped, but I’m not going to rest on my laurels. I currently hold over half of my emergency fund in high interest current accounts, and I’ve found it irritating to meet the requirements of my FlexDirect account (certain amount of transactions, certain amount in/out). The FlexDirect bonus rate is up fairly soon, and most of the high interest current accounts have dried up with rates falling back to those matching regular savings accounts (2, 3). When the interest period is up I’ll move it over to somewhere like Marcus. I also have £1.5k in my Starling account. Some of that is saved for a new car rather than a simple emergency fund, and in anticipation of that expense I’m going to be paying into my 3% Monmouthshire Regular Saver for the next ten months. Our joint account also pays into a regular saver, and I need to have a think about how I’m going to increase our joint emergency fund alongside paying for some property renovation work in the next few months. This will therefore remain a goal for 2020.

Goal 2: Pay off short-term debts


This was achieved in Q3, but I may yet make a dip into short-term borrowing to buy a replacement car or to pay for building costs. Some of you may be screeching ‘lifestyle inflation’, and I take the criticism. My reasoning is this: as described in the Bangernomics 2019 post, my current car is due some a serious amount of repair work and pro-active maintenance. This will cost more than it is worth. Rather than spending this money for no gain, the temptation is to trade in for the next cheap and cheerful daily. I am as yet undecided, and while I am deciding I accrue further savings to purchase outright. As for the property matter, we have renovated six of the eight rooms in our house. One of the final two needs some structural work, and is generally vile. The work is going to cost maximum £8-10k. With that done we will have a finished home in a sought-after area, which will be readily marketable if we ever had to sell quickly. Getting the work done ASAP will give us a generally nicer life, and increase our liquidity. We’ll use a combination of savings, 0% interest credit cards and possibly borrow again from family. Not ideal, but it fits our joint choices.

Goal 3: Save 25% of my earnings

Savings Rate

I calculate my savings rate using this formula:

Savings rate as % = ((Income – spend) + Cash savings + Investments + Pension contributions) / (Income + Pension contributions)

So I sort of missed this goal. Remember how I said my raw saved cash and investments, for 2019 was only 23.53% (15.59% pre-pension). It’s always bugged me that my savings rate doesn’t include my mortgage payments. The increase in equity from the principle payment is a form of savings, right? So I changed my formula…

Savings rate as % = ((Income – spend) + Cash savings + Investments + Pension contributions + (half of principle mortgage payment)) / (Income + Pension contributions)

This makes more sense to me, as it means my savings rate comes closer to my absolute increase in net worth. Based on those numbers, my average savings rate for 2019 was 29.61%. My net worth saw a tasty 69% increase over the year, helped in part by increased equity as our property value went up. With this new formula, and a plan for incremental improvements, I aim to save 30% of my income in 2020.

Goal 4: Live more sustainably

Way back in January I took the WWF Carbon Footprint calculator, and we had a whopping 169% of our target footprint. At the end of the year, the calculator estimates we’re now down to 108% of the UK Average.

Carbon Footprint


The main improvement has been from reducing my travel footprint through fewer flights. Our diet is more healthy, more local and seasonal. We lose points for the new furniture we’ve bought, our meat consumption (I have many thoughts challenging this, but for another time), and my work car commute. I refuse to damage my cavity walls with insulation. I think the loose top line goal has helped with all the simple changes we can make, so now it’s time to look in a little more in depth way. First, I want to know how much I’m saving by growing my own. Second, I want to look at changes I can make to reduce my carbon footprint.

Goal 5: Commence investing

As a yearly goal, this is a win. I’ve gone from nought to £2,990 in investment accounts and seen a healthy return on my invested capital. I’m aware this is pretty small potatoes for most FIRE bloggers, but this is not a pension or a SIPP. The NHS pension provides me with (theoretically) something better (supposedly) than either. This is me breaking the psychological initiation barrier on a good old ISA. The next step will be to reduce cognitive drag, and automate.


My investments remain solely in Crowdfunding and my Vanguard ISA. I have a small amount in my FreeTrade account, mainly there to be available for the free share offer. If you want a free share for joining FreeTrade, drop me an email.


In the passive core of my investments, I paid irregular sums into my existing holdings (Developed World ex-UK and FTSE Global All Cap). Automating my investments should regulate the amounts, and following my incremental plan, I’m going to increase the amount I try to put in every month by £50. Looking at the graphs would suggest I’m US-heavy, as the market would expect. This visual representation bothers me, because although it’s true of my ‘portfolio’, it’s not true of my net worth. The vast majority of my that is in the UK housing market. I find myself talking across purposes, with goals and targets that differ depending on whether I’m talking about the ‘portfolio’ or total net worth. This is something I’ll be looking at in 2020, as I try to build my investments to diversify away from UK savings and property equity.

All this talk leaves me with the following 2020 Goals:

  • Goal 1: Build an emergency fund
  • Goal 2: Save 30% of my income
  • Goal 3: Calculate savings made by growing my own food
  • Goal 4: Make changes to reduce carbon footprint
  • Goal 5: Automate investments and savings

Good luck to everyone with their own 2020 targets,

The Shrink


  1. https://www.reddit.com/r/UKPersonalFinance/
  2. https://www.bankaccountsavings.co.uk/calculator
  3. https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/
  4. https://footprint.wwf.org.uk/#/

The Financial Dashboard – November 2019

The goals for November were:

  • Exercise at least 4x a week
  • Automate investments
  • Repair pushbike
  • Look at new emergency fund accounts

Checking the assets and liabilities:

November AssetsNovember Liabilities

These are taken, as always, from my Beast Budget spreadsheet. This month my net worth grew by 3.46%, as my good run came to an end. My savings rate was also a paltry 21.86%, dragging my yearly average down to 23.64%. My payroll is still incorrect, so I’m paying PAYE tax, pension and student loan contributions incorrectly. Despite hounding the payroll departments they continue to get it wrong every month. We also bought some furniture for the house which dragged the savings down.


Goal achieved: Exercise at least 4x a week

I actually managed this, surprisingly myself. Self-motivation must be improving; like a muscle the more you exercise it the stronger it gets. I’ve yet to decide if paying for the extra local gym is worth the added cost for the convenience, but it has meant I can squeeze in early morning workouts with ease. Need to focus on diet now to achieve some of my goals.

Goal achieved: Automate investments

Going back to the investing basics, I decided I needed to make my investments automatic and also use the paying myself first approach (1. 2, 3). As such I’ve set up a standing order to my regular investment platform, and another to my new emergency fund account. These will go out on the day I get paid, and I can use the spare cash for discretionary spending.

Goal achieved(ish): Repair pushbike

Took it to the local charity workshop for a quote, likely to be £150+, may get it fixed, may buy a crappy skip bike to replace it. Most importantly it’s no longer sat in my garage.

Goal achieved: Look at new emergency fund accounts

After a few months of poor cash savings, I decided to set up a new emergency fund account. I had been using a savings pot as an emergency fund in the Starling bank account I use for my day to day spending. This returns 0.5% and is generally a bit naff. I also found myself dipping into it for discretionary spending. I have a high interest current account with a further £2.5k sitting returning 5%, but I find moving money every month to satisfy the requirements of the account a bit of a faff. Therefore the new plan was to set up another regular saver. The local Monmouthshire Building Society offers a 3% regular saver, so I popped down to the local store to set one up. This was like stepping back in time thirty years, and I take some re-assurance from their old-fashioned safety procedures. This is how my income savings structure now looks:

Savings breakdown.JPG


  • Groceries – Budget £200, spent £157.76, last month £176.39 – We ate out more and spent less thanks to weekly meal planning
  • Entertainment – Budget £100, spent £119, last month £101
  • Transport – Budget £460, spent £394.05, last month £301.82 – Daily car passed it’s MOT with only minor work. Not bad for an old snotter.
  • Holiday – £150, spent £0, last month £336.40
  • Personal – £100/ £102.90/ £46.56 – Black Friday wardrobe updates
  • Loans/ Credit – £0/ £0/ £140
  • Misc – £50/ £100/ £215.15 – Christmas gifts now!
  • Fees – £70 /£135.40/ £177.91

In the garden:

Everything quiet now apart from some overwintering veg settled in the ground

Goals for next month:

  • Continue to exercise 4x a week
  • Keep a record of all dietary intake (what gets measured gets managed)
  • Sell 5 items (need to get back on my de-clutter)
  • Save 30% of my salary

Happy December everyone,

The Shrink


  1. https://monevator.com/the-investing-basics/
  2. https://monevator.com/no-time-to-invest/
  3. https://www.investopedia.com/terms/p/payyourselffirst.asp

Q3 2019 – Exposing myself

Quarterly return posts supplement my monthly Financial Dashboard, covering investments in detail and looking at my yearly targets. Here I track purchases and sales, document progress against my (in progress) investment strategy, and discuss re-balancing and changes over time.

I apologies for the title of this post. I am, at best, an overgrown manchild.

Q3 Returns:

Q3 Net Worth

  • Cash Savings Accounts £4200 (+£1000)
  • Investments £1550 (+£675)
  • Property £34,450 (+£1150)
  • Cars £2500 (-£500)

My net worth now sits at £40,350, an increase of £4.8k over the past three months, which is a pretty damn stonking (I’ll come onto this a bit more in Goal 3). This makes my rolling twelve month increase £18,000. Remaining strong. I’ve written down the worth of one of my cars for depreciation.
Yearly Targets:

Goal 1: Build an emergency fund

My first 2019 goal was to build an emergency fund, as per the r/UKpersonalfinance flow chart (1). My goal emergency fund is three months total household expenses (£6k) in my name, plus a further three months (£6k) held jointly. I now currently hold £3100 in my name, and £900 held jointly. I need to double down on this over the next few months to try and achieve the £6k figure by the end of the year.

Goal 2: Pay off short-term debts

Short Term Debt Q3

This goal has been achieved. Done. Sorted. I dip into my credit card now only for purchases where I want the security of the Consumer Credit Act 1974. Moving on…

Goal 3: Save 25% of my earnings

Savings Rate Q3

I calculate my savings rate using this formula:

Savings rate as % = ((Income – spend) + Cash savings + Investments + Pension contributions) / (Income + Pension contributions)

Having paid off all my unsecured debt, I’ve been able to channel money into savings a bit better. My current mean savings rate for 2019 is 21.48%, still short of my goal but closing in.

The interesting aside here is my three month net worth gain does not marry up with my savings rate. Gaining £4.8k would suggest a £1.6k/month increase, and at a 35% savings rate (average over the last three months), I’d have to be earning £4.6k take home! I am not earning £4.6k take home. I am not earning £4.6k gross. Try half that.

So where’s it coming from? My investments have (aside from new holdings) mainly tread water, and the local house prices are holding firm. As ever I think this is a demonstration of how you can get numbers to show you anything you want. Here, the rise is due to my decreased student loan, increased property equity and increased joint holdings. It’s all noise.

Goal 4: Live more sustainably

Our drive to weekly healthy dinners has meant less packaging and more local or home grown food. We’ve also been enjoying the harvest glut, which means less imported food. An area to focus on next quarter.

Goal 5: Commence investing

I’ve been better at investing this quarter, but still not at the automated stage yet. Some subconscious barrier is preventing me, by telling myself that I need to hold it out for other positions not on my ISA platform. For the next three months I intend to invest in an automatic way each month into one of my current holdings. Because it’s now not just one.

Q3 Types

In the past three months I did the bad thing, first by opening a couple of CrowdCube investments. I put a small amount of money into the second of the two Freetrade raises, having missed out on the first round due to the CrowdCube glitch. I like what Freetrade are doing, I think they have a good model which has worked previously overseas (RobinHood in the US for example), and I don’t think they’re particularly overvalued (2). I have gone into the psychology of crowdfunding platforms, but suffice to say I don’t think FreeTrade were there to exploit the psychological ploys. It’s also a company I would, and will, use.

If you’re interested in trying Freetrade and want a free share to boot, drop me an email.

The other crowdfunding investment I made was in a small mining company called Cornish Lithium ltd (3). They were exploiting the psychological ploys, and this investment was pure, emotional, domestic-market-biased speculation. Laugh if you choose, it was the cost of a fancy dinner out and it’s sitting as a leaden, illiquid lump in my active satellite picks. I’m hoping it was a better bet than Sirius Minerals (or Wolf for that matter) are turning out to be (I hold neither).

Global Exposure.JPG

In the passive core of my investments, I opened an investment in Vanguards FTSE Global All Cap Index Fund (4). This supplements my current Developed World ex-UK holding, adding some emerging markets exposure and small cap. Is it worth bothering with? The Accumulator over at Monevator reflected last week on the 10 year returns across the market, and the little difference emerging market holdings have made (5). I was also torn between this and the Vanguard FTSE All-World UCITS ETF (6). Ultimately I decided to be a purist for the passive global argument; the All Cap is slightly cheaper (OCF 0.24% vs 0.25% for VWRL), and the concept is to capture the whole of the market. The All Cap Index Fund does just that, whereas the All-World lacks the small cap. The small cap gains probably won’t beat the dividend gains available through VWRL, making this a principled rather than pragmatic choice, but we’ll have to let history decide.

Until next time,

The Shrink

  1. https://www.reddit.com/r/UKPersonalFinance/
  2. https://www.crowdcube.com/companies/freetrade
  3. https://www.crowdcube.com/companies/cornish-lithium-ltd
  4. https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-accumulation-shares
  5. https://monevator.com/10-year-retrospective-what-a-decade-of-returns-tells-us-about-passive-investing/
  6. https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf-usd-distributing/overview

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).



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.


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.


  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