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Did you know that the Chinese characters for the phrase “tariff-induced crisis” are the same as those for “obvious buying opportunity for equities”? I learned that on Reddit.
And what could better sum up the gift of a meltdown we had last month? Based on nothing more than some White House policy waffle — mostly ditched or delayed since — my favourite stock markets were suddenly 15 per cent cheaper.
Thanks Donald! I calculated straight away that UK and Japanese shares were oversold relative to the direst predictions for the effect of tariffs on long-run cash flows. It was probably the same for my Asia fund, but I was less sure given Trump’s beef with China.
I wrote immediately that I would be buying a FTSE 250 exchange traded fund. Now, after more than 30 days have passed, I have — as you can see in the table below. Small and mid-cap UK companies went from very undervalued to ridiculously so.
Likewise, I can reveal that I more than doubled up on Japanese equities last month. Almost half of my portfolio is now exposed to where I spent my gap year in 1991, working as a construction worker in those funky pants and two-toed shoes they wear.
The problem I had — which again I mentioned in a recent column — was what to sell in order to make these two purchases. My energy fund was a no-brainer, for the simple reason it was too small to make much difference to anything, even if I loved it.
But I craved more UK and Japan than an extra 5 per cent. I wanted to take full advantage of the short-run drop in prices. The trouble was, I had no spare cash and didn’t want to sell my Asia fund.
That meant my Treasury ETF had to go. I put the whole £132,000 into Japan, while the money raised from my energy fund became UK mid-caps. No pressure, Sir Keir — you now have 36 per cent of my pension.
Regular readers will know that I am not embarrassed to list my investment screw-ups. Boy, have I made some screamers over the decades. So you won’t mind me saying that I nailed the bond/Japan switcheroo.
As Trump was sending bond traders into a spin in early April, I managed to sell my short-dated Treasury fund into a sharp increase in prices. And at the high for the day too — £94 per unit. It’s trading at £90 now.
My timing on Japan was also perfect, save for the fact my broker gave me the worst price of the day — as I moaned about a fortnight ago. Still, I’m up handsomely. Likewise, the World Energy fund I torched has plummeted since.
A combination of all these bits of luck means that my portfolio has finally reached £538,330 — the milestone I was approaching just before Trump caused markets to spasm. I’ve now made a six-figure gain since the first Skin in the Game was published in November 2022.
That’s a 23 per cent nominal return which amounts to an annualised rate of 8.7 per cent. So I’m also on track to reach my stated goal of hitting a million pounds by my 60th birthday, which requires a return of 9 per cent per year.
I’ll need a few more crises then, especially as I don’t own the one asset class that has actually generated such a return (before inflation) over the past century: US equities. I’ll need either crises or a huge reversal in America’s outperformance versus the rest of the world.
It might happen. It has this year. But even if it doesn’t and US stocks head to the moon once again, my other equity funds will do fine in that scenario. The more important question for now is what I do with this huge bond-shaped hole in my portfolio.
I’m in two minds about this. As I have written previously, financial textbooks are pretty unified when it comes to arguing for a significant allocation to bonds. Maybe not as many as considered sensible decades ago — because we live longer. Besides, my youngest child is only three years old. I’m not retiring any time soon and can take more risk.
On the other hand I am partial to the view — often put by my colleague Rob Armstrong — that fixed income may struggle to match the bumper returns of the past couple of decades. Public indebtedness, higher inflation on average, demographics and de-globalisation all suggest higher yields (and lower prices).
I also worry what the strong run in gold and crypto say about investor faith in governments in general. Note the latest squabbles over the US debt ceiling and rapid rise in the cost of credit default swaps on 5-year Treasuries.
The truth is that bond prices have been all over the shop since the Orange Crash and no one I’ve read frankly has a clue why. Therefore, I’m keen to let things settle down a bit before deciding what to do.
In the meantime, more than 80 per cent of my retirement savings is now in the UK and Japan. Talk about skin in the game. Gambare geezer! I’m fine with this on a relative basis, as I believe these countries offer the best value for money out there.
But in an absolute sense I’m still being illogical, as I’ve mentioned before. If I really do believe the US is overvalued, it will take down every other stock market if it falls. April showed this fear to be justified.
And what if the past month was just a classic dead cat bounce in equities? Perhaps I should take my £100,000 and thank the gods for giving me a final chance to sell everything. Maybe there’s a Chinese proverb on Reddit that can help me.
The author is a former portfolio manager. Email: [email protected]; X: @stuartkirk__