Category: Personal Finance

All posts relating to my personal finances.

Forever Blowing Bitcoin Bubbles

Forever Blowing Bitcoin Bubbles


Let’s get this clear – bubbles tend to be round so it’s absolutely futile to predict the top of a bubble.

So how do bubbles work? A trip down memory lane willl serve as a good starting point. When you were a child you blew bubbles – if you achieved the precise mix of fairy washing up liquid with water you could create killer bubbles which would blow for what felt like miles.

 movie film dream bubbles the abcs of death GIF

Investment bubbles act in a similar way. If the correct combination of monetary and fiscal conditions collide and you throw a new era story into the mix then bubbles can grow extremely large. We are certainly in the Goldilocks zone when it comes to bubbles.

First lets define bubbles:

“An economic bubble or asset bubble is trade in an asset at a price or price range that strongly exceeds the asset’s intrinsic value” – Investopedia

So we need to understand bitcoin’s intrinsic value – Buffett gives a masterclass on valuations so what does he say?

“You can’t value bitcoin because it’s not a value-producing asset.”- Buffett, 2017.

Mediums of Exchange

Spot on. But does that mean that bitcoin has no value? What about precious metals then? They aren’t value producing assets and yet they have a total valuation in the trillions! The value of all gold in the world as of today is:


Almost 8 trillion dollars for those of you who struggle quantifying the above.

Precious metal values comes from nothing less than their efficacy as a medium of exchange – as a form of money. It may sound weird at first, or perhaps tautological, to claim that gold is valuable because it can be used as value, but this is precisely the point. So bitcoin sits in this category of assets.

Incidentally Buffett doesn’t recommend buying Gold either for the very same reason. That doesn’t make a dint in that $8 trillion valuation though now does it? Buffett also states that there’s no telling how far bitcoin’s price will go and described it as a “real bubble in that sort of thing”. Lets try to quantify the opportunity here.

Valuing Bitcoin using comparatives

Investopedia tries to estimate bitcoin’s value on the basis that it is a medium of exchange here. In short form they state that the total estimate for global value of mediums of exchange and stores of value comes to 72.1 trillion US dollars. If bitcoin were to achieve 15% of this valuation, its market capitalization in today’s money would be 10.8 trillion US dollars. With 21 million bitcoin in circulation, that would put the price of 1 bitcoin at $514,000. That would be over 1,000 times the current price.

Predict the top at your peril

Andrew Williams, a Schroder’s Investment Specialist has charted bitcoin against a commonly known bubble chart. As an institutional investor himself he should realise the error in his ways. The stealth phase includes smart money, awareness phase includes institutional investors, mania phase includes the rest of the public. How many institutional investors are/ have been invested? very few. So how can we be at the blow off phase based on his graph?

This chart would therefore suggest that we are entering the awareness phase. It’ll be a matter of time before institutional investors can trade bitcoin derivatives and, as per behavioural economic theories, institutional investors will become invested when their clients demand an explanation as to why they’ve missed the 600% increase in bitcoin. Followed shortly after by the hardcore skeptics.

Indeed, bull markets are fueled by successive waves of prior skeptics finally capitulating as their fears fade. Eventually, fear turns to euphoria, and that’s the stuff of bubbles. -Kenneth Fisher

Prit Kallas charted the exact same thing in April 2013 for bitcoin. At first I thought it represented the peak at the end of 2013 on the chart above but no! It’s the much smaller peak at the start of 2013 when the price was $225. If only Print invested $1,000 back then – he’d have over $25,000 today.

It’s also worth reminding ourselves that the value of the dot com boom was a round $7.3 trillion. 47 x greater than the value of all cryptos today. History demonstrates the potential meteoric rise of such bubbles.

Bitcoin Bubble Graph Compared to DotCom Crash

Bubble upon Bubble

So let’s now look at a chart by Paul Gordon which looks at the chart of bitcoin using fractal Elliot waves. Paul quite rightly points out the many times bitcoin has experienced such a pattern in the past. This is where we were in Jan 17 if such a price rise repeated itself as it has many times before… interestingly his forecast wasn’t too far off by Nov 17. He also quite rightly states that past results are by no means extrapolatable to future results.

Credit: Paul Gordon

Another perspective I like is this non-linear logarithmic chart which is based on Metcalfe’s Law.

Metcalfe’s law states that the bigger the network of users, the greater that network’s value becomes. Bitcoin might look like a bubble on a simple price chart, but when we place it on a logarithmic scale, we see that a peak has not been reached yet.

The perfect bubble concoction

As stated earlier, when you get a good mix of loose monetary policy and loose fiscal policy you get strong bubbles. The crypto bubble has the strongest combination of fairy liquid and water possible.

Cyptocurrencies are a direct rebellion against the very policies that are supporting it. Bitcoin cannot be printed to infinity unlike fiat currencies and banks cannot control its users which is one reason why it appeals to its buyers. It’s almost as though the lack of trust in the elites and banking institutes which is playing out at the voting polls is also causing this break away assets price to rise. Even daily mail readers know that most asset prices are being inflated by the central bank’s ZIRP. The price of bitcoin is therefore self-fulfilling as people become more distrustful.

An asset price crash is probably a few years away (read here for my reasoning) and everyday that goes by reduces the chances of bitcoin going to zero as more venture capital pours into the infrastructure around the tech. The economic conditions are ripe for a bitcoin melt up.


The people who criticize cryptocurrencies the loudest seem to see that crypto has a long way yet to grow. JPMorgan Chase CEO Jaime Dimon called bitcoin “stupid” and a “fraud,” and yet his firm is a member of the pro-blockchain Enterprise Ethereum Alliance (EEA). Quite hypocritical if you ask me. Russian president Vladimir Putin publicly said cryptocurrencies had “serious risks,” and yet he just called for the development of a new digital currency, the “cryptoruble,” which will be used as legal tender throughout the federation. Cryptocurrencies are here to stay – how the decentralised currencies become regulated is the question on everybody’s lips. 

Personally, I don’t believe GOV et al are ready to relinquish their grip on society. 

Still, Follow the money.

Personal opportunity cost to date – £93,000

I first heard about and thought bitcoin was a bubble at £53 in 2012. Assuming I understood the opportunity here and was as convinced about the tech behind the blockchain then as I am now, I would have happily forked out £1,000 for 19 bitcoins. I’d now be able to put a hefty deposit down on a house at £93,000. Many people are probably doing similar retrospective calculations.

Perhaps I should purchase a Bitcoin as a practical lesson on bubbles.

My FOMO and the fact that I can afford to lose out quite possibly marks the end of this bitcoin bubble. Or is it the start? Who knows because bubbles are round and can pop at a moment’s notice…

Image result for bubble pops gif

Is The Stock Market Overvalued? (2017)

Is The Stock Market Overvalued? (2017)

How overvalued is the market? Everybody seems to want to know. Whilst the overall market valuation isn’t of primary concern for a value investor, it will test our decision-making if the market dropped by 50%. Remember, undervalued stocks can still lose 70%. Therefore it would be dangerous of me to sit here and preach that you should not care if the market falls because I haven’t experienced such a drop yet.

People are fretting about the S&P500, Dow Jones & FTSE valuations everywhere so here’s my take!

Is the S&P 500 overvalued by historical standards?

By Robert Schiller’s CAPE ratio calculations – absolutely. Is that a worry? absolutely not.

What is the CAPE ratio? It stands for cyclically adjusted Price to Earnings ratio also known as the Schiller PE or P/E 10.

Prof. Robert Schiller of Yale University invented the Schiller P/E to measure the market’s valuation at any given point in time.

The Schiller P/E is a more reasonable market valuation indicator than a P/E ratio alone because it eliminates fluctuations of the ratio caused by the variation of profit margins during business cycles. Essentially it looks back at profits for the last 10 years. Read more about the P/E 10 here.

 As you can see in the graph below, as of today the CAPE ratio for the S&P is at 30.7 times. It’s only been higher twice before – 1929 and 1999.. so you can see why alarm bells are ringing.
CAPE overvalued in USA

Is the FTSE 100 overvalued by historical standards?

The FTSE is fairly valued and has a CAPE ratio of 16. John Kingham from UK Value Investor built the below graph. You can read his analysis here. I’m going to be a contrarian now and intellectually speculate that the S&P 500 is fairly valued and the FTSE 100 is therefore a bargain.

Why would I speculate that? Because I think Robert Schiller is wrong this time.

FTSE 100 fair value 2017 07 v3

Could Prof. Robert Schiller be wrong?

I read about the CAPE ratio in Schiller’s 2014 revised edition book, Irrational exuberance.  It’s a fantastic read because it makes a lot of sense and his arguments on bubbles and investor psychology are spot on – if only people listened to him in 1999 & 2005!

Schiller released the latest edition presumably because he expected/expects another crash soon. He spells out the reasons why we will see another crash and I don’t wholly disagree but there is one large oversight – interest rates.

CAPE ratio weaknesses

The issue with CAPE analysis in today’s world is its oversight of interest rates which leads me to think that we are ripe to see a melt up similar to 1999 when everyone realises (intellectually or not) that the markets are acting differently this time – and for good reason.

Investors and professional analysts use discounted cash flows and NPV analysis to price assets and many of the hurdle rates have fallen due to the lower risk free premiums (10-30 year bond rates). Many asset prices are therefore historically higher than usual for that reason.

Look at the options you as an investor have:

  1. Leave your money in a bank and receive 0.25% interest rate.
  2. Purchase short-term UK bonds for 2.26% return.
  3. Buy long-term USA bonds for 2.76% return.
  4. Bet on Iraqi bonds for 6.25%. Yes this is real (scary)!
  5. Property offers an average yield of between 4% (in London) to 7%.
  6. Buy stocks for an average yield of 3-7%

As time has gone on and interest rates remain low the higher risk yield premiums have been falling because investors are chasing the yields.

The FED model

On the other hand, valuation measures that adjust for inflation and interest rates, both of which are near record lows, suggest that the S&P isn’t overvalued – it is fairly valued. Stocks are mostly in the Goldilocks range: Not too cold, and not too hot. Goldilocks is pretty happy.

I read Dr. Ed Yardeni’s blog which might be a new area of interest for you because he follows this line of thinking – it’s called the FED model.

This is why Buffett says stocks are relatively cheap! He values businesses using DCF analysis and uses 30 year bond yields as the discount rate for his asset purchases to set a benchmark.

Let me demonstrate with a simple DCF:

Present Value of Cash Flow in Year N = CF at Year N / (1 + R)^N

CF = Cash Flow

R = Required Return (Discount Rate)

N = Number of Years in the Future

Suppose we have a £1,000 cash flow five years in the future with a 7% rate of return. The present value of that cash flow is:

£1,000 / (1 + .07)^5 = £712.99

You wouldn’t be willing to pay more than £713 today for £1000 in 5 years otherwise you will lose money in real terms after you deduct your required rate of return.

Low-interest rates has forced investors to naturally reduce their R or required rate of return. Now look at the PV if we reduce it to the S&P 500’s current CAPE ratio return of 3.33%.

£1000 / (1 + .0333)^5 = £849.92

I would now be willing to pay up to £850 today for £1000 in 5 years. 20% more than before!

Ray Dalio’s Market View

Like Schiller, Ray Dalio also predicted the crashes and actually made money in 2008! I like him because he takes the FED model into consideration. This was his latest view in May 2017.

Big picture, the near term looks good and the longer term looks scary. That is because:

  1. The economy is now at or near its best, and we see no major economic risks on the horizon for the next year or two,
  2. There are significant long-term problems (e.g., high debt and non-debt obligations, limited abilities by central banks to stimulate, etc.) that are likely to create a squeeze,
  3. Social and political conflicts are near their worst for the last number of decades, and
  4. Conflicts get worse when economies worsen.

So while we have no near-term economic worries for the economy as a whole, we worry about what these conflicts will become like when the economy has its next downturn.

You can read his full Linkedin post here and he’s worth following on Linkedin too. I’ve also linked one of his videos at the bottom of the page which really helps you consolidate your understanding on the subject and the economy as a whole – if you are wondering where we sit on that timeline it’s 1937 according to Dalio.

A warning from History

The obvious issue here is what will happen as low inflation and low-interest rates come to an end? That is where Schiller’s CAPE comes in handy because we all know where the normalisation of asset prices sit if they do increase. The conundrum is not how expensive the market is but when will things normalise?

We only have to look at Japan who has fixed rates for 10 years to know that it might be a long way off. Therefore we shouldn’t speculate that it’ll be December, next year or 10 years from now.

How do we invest in today’s market?

My opinion is to keep investing in the stock markets regardless of the current CAPE and justify asset prices on the basis of their individual fundamental analysis. If the asset is below fair value in the US with a discount rate of 8-12% then why wouldn’t you buy it? Just look at how that price action moves as you reduce the discount rate to 4-7% which may technically happen if this extraordinary situation continues.

Admittedly I don’t condone low rates but I really think that we should take this into consideration in our portfolio allocations going forward. We may miss opportunities if we hold back. I think the FTSE is very cheap and I wouldn’t be surprised to see it become as overvalued as the S&P500 based on historical standards in the next few years all things equal.

It’s important to keep eyes wide open and allocate capital appropriately. Keep calm and carry on – our opportunity is where the worry is. Ensure you have cash to deploy if things do go belly up.

FY17 Personal Investment Fund Return +27%

FY17 Personal Investment Fund Return +27%

Stocks & Shares ISA Fund

I opened my investment ISA fund in July 2016 so it makes sense to review my performance objectively, analyse my trades and reflect on my decisions.

The fund enjoyed a CAGR of 27%.

Just to put things into perspective, it’d take about 17 years to grow £10,000 into £1 million at that kind of growth rate. Quite motivating when you think about it like that.

Ignore the media narrative

My first investments were Apple, Berkshire Hathaway, Goldman Sachs and General Motors in July 2016. Pretty concentrated on the USA you may think. Well this opening ensemble had greater strategic depth which still plays a role in my allocation of capital today. Firstly, and you may have forgotten already, the US was unloved last year – the media thought that the US would collapse if Trump became president.

I did not predict the trump rally, however, I did think investors were missing a trick by avoiding US equities. Secondly, my goal was to convert my GBP savings into USD earnings due to BREXIT. I entered my positions around GBP/USD $1.33 expecting a drop to circa $1.20. I reaped my reward with that speculation.

Sell at fair value

I implemented and maintained my value based investment strategy this year and haven’t diverged. Apple had become seriously undervalued so I started buying Apple before Buffett announced he was snapping it up (that was quite the compliment by the way, Mr Buffett). I calculated intrinsic value between $125-$146 back then. The media were bashing Apple and comparing them to Blackberry or Nokia but as I noted here, google trends showed otherwise. It’s the only company I have retained out of the four.

US banks were the least loved out of all US equites so, unphased, I purchased Goldman Sachs. I bought at $160 and sold at my estimated fair value of $227. This provided a 51% return, dividends and currency gains included. I sold before the peak but the chart below shows that it has hovered around fair value since March. I wasn’t expecting a fair return so quickly, I was actually hedging against interest rates. It has pleased me that I am able to make the difficult sell decisions. I haven’t been carried away in the market stampedes yet.

Goldman Sachs 2 Year share Price fund
Goldman Sachs 2 Year share Price – ISA FUND

Find a Gem or two

I discovered Taptica just as my US investments reached fair value in February. You can read all about that opportunity here. My conviction led me to sell my US positions and load up on Taptica. Taptica generates it’s earnings in USD so it also maintains my bearish position against UK plc.

I was anticipating a very strong earnings rally. It paid off and returned 30% in seven days. I then halved my position in Taptica and invested a portion into payment processor Paysafe (recently sold after the Blackstone takeover offer for a 25% gain).

I continue to hold Taptica despite it reaching fair value based on last years results. It’s hard to justify selling because of its growth potential and shareholder friendly management team. The shares have increased 100% since I entered at £2.00. This allows me some wiggle room if things turn sour.

Value stocks don’t always go up

I had been lucky that everything I’d invested in showed positive price action as soon as I entered. This lulled me into a false sense of security and so I invested in Hurricane at its high. I wrote about Hurricane here.

Retrospectively it was silly move. The national news plastered Hurricane in all corners of the UK. My dad actually mentioned it in passing – I should have known better. It had become inflated to the point that management needed to destroy shareholder value to gain the EPS funding.

Luckily I saw this as a risky speculation from the beginning and I only invested 6% of my fund into this. I’m down 37% on Hurricane but I still believe in it’s valuation and management have significantly de-risked the proposition by retaining 100% ownership. I’ve since picked a few more shares up at 31p. I continue to hold knowing that I could double my money or lose it all.

Value > Diversification

Value is presently a difficult thing to locate in the large cap universe so I continue to hold small/medium caps with exception to Apple. There are many companies which I would certainly purchase at the right price but I will not diversify to the detriment of value. Time is on my side to diversify into larger and more stable companies in future.

I have therefore invested in exciting opportunities which include North Midland Construction, a turnaround opportunity, BOFI and Softbank (speculation). I will write about these companies in separate posts in future.

Going forward

My portfolio is trading at a circa 50% discount to fair value which gives me a large margin of safety. Risks are building around interest rate rises and general credit levels in the UK but stocks remain competitive.

In February Buffet said “Measured against interest rates, stocks actually are on the cheap side compared to historic valuations”. I tend to agree. Everyone is falsely focusing on the record Shiller PE ratio which doesn’t take this key component of investor returns into consideration. If anything, the environment is ripe for a melt up where markets rally to levels of excess.

Either way, it’s been a fruitful and educational year.

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Are you an investor or a speculator?

Are you an investor or a speculator?

If Buffett is the father of value investing then Benjamin Graham was the Godfather but what is the composite of a true investor? Graham wrote Security Analysis, the old testament of value investing along with Intelligent Investor.

Find out how the Godfather fared in the stock market crash of 1929, here.

According to Graham there are two types of investors and spotting your principles early will save you a lot of money in the long run.

Investing vs speculating

The two types of people Graham noticed in the market were investors and speculators. What’s the difference between the two? An investor sees the stock for what it is: ownership of a business which they believe will give them a return in the future. An investor will decide to invest only after performing a fundamental analysis of the intrinsic value of the business. The speculator looks at the price of a stock and decides to invest based on the assumption that someone will be crazy enough to pay more in the future.

How to spot if you are a speculator

Here are some of the traits of a speculator:

  • Speculators only invest in hot new issues or business trends. Snapchat and Tesla spring to mind.
  • A Speculator doesn’t analyse the businesses at all.
  • They do not consider risk or loss of their principle and instead focus on their potential return.
  • And they don’t look at financial reports. If they do, they don’t look at the financial sections in the annual reports and they’ll sell if it sounds like bad news.
  • All speculators focus on the next day, week or month.
  • Most speculators are nervous about their decision and they look to the market for validation. “My stock has gone down 10%, I was wrong, I need to sell ASAP.”
  • They buy and sell based on no new information.
  • Some Speculators try to time the market and are obsessed with what the finance media says.
  • Most speculators have massive FOMO (fear of missing out) and jump in at the wrong time.

There are many people who make a career out of the above but they are usually very skilled traders with a unique set of abilities. The intelligent speculators usually profit from the stupid money though.

How to spot if you are an investor

  • Investors have no problem with being a contrarian and will happily invest in unloved businesses/ industries.
  • True investors can’t analyse a business enough, furthermore they are looking for hidden assets and liabilities and evaluating the fair value.
  • They are seeking opportunities to buy high quality shares with strong historical earnings growth and good future potential at undervalued prices relative to long-term fundamentals.
  • Most investors put quarterly and annual report dates into their calendar and enjoy reading them – regardless of the content.
  • You won’t sell based on one, two or even four bad quarters but you will reassess the fair value of the stock and only act after thought, analysis and careful consideration.
  • They look to hold a stock for more than 5 years.
  • Investors are calm about their decisions because they are based on sound fundamental analysis. They are willing to be patient and wait for the price to reflect the businesses intrinsic value.
  • Investors avoid investments that do not offer an acceptable risk-adjusted return and may risk the principle.
  • They continue to buy when their stock choice has fallen by 10%, 20% or even 50%.
  • Investors consider market gyrations and are ready to poise if the market is out of kilter and speculators are panic selling. They will consider the market and economy but it will have little effect on their investing decisions.
  • Investors observe financial ratios such as price/earnings, price/book, ROE, EV and dividend yields.

Price is what you pay - investor warren Buffet

Next time we will look at whether you are an active investor or a passive investor. If you scored highly on the speculator front then this blog will certainly aim to guide you away from such behaviour. It’s so important to take advantage of this advice now whilst time and compounding is on your side.

Speculating £1,000 today and losing it all is costing you £117,000 if you had placed it into a low-cost index fund which tracked the market at 10% with reinvested dividends for 50 years…

Not a difficult decision when you look at it like that.

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Guru Lessons – 9 quotes from Warren Buffett to make you rich

Guru Lessons – 9 quotes from Warren Buffett to make you rich

Warren Buffett has guided my own financial principles and people who emulate him will no doubt become wiser and richer.

Buffett is one of the richest men in the world and started from nothing, just like you and me, so his words carry the weight of gold in the investing domain.

Here are some of his top quotes.

Investing is easier, when you know what you’re investing in

“Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”

Buffett doesn’t do tech investing (although he is getting warmer to the idea with his trades in Apple and IBM) because he doesn’t believe that they fall in his circle of competence. Who blames him? How many people get that Taptica drives revenues through PPC and other online advertising devices? It doesn’t mean that tech is a bad investment, just make sure you understand how the business makes its money!

Rising stock prices equates to less of a discount

“If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. … Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”

Remember, a market crash is like a great big fire sale. Think about going to your favourite store which is holding a sale with 50% off all items and you have £100 to spend. What happens? You get double the amount of items.

News agencies tend to misunderstand that lower prices today equates to higher returns tomorrow. Instead, they strike fear and can paralyse an otherwise intelligent population.

Are you an investor or a speculator? 

“Consciously paying more for a stock than its calculated value — in the hope that it can soon be sold for a still-higher price — should be labeled speculation (which is neither illegal, immoral nor — in our view — financially fattening).”

fundamental analysis is key here. Don’t worry, I’ll teach you my methods of evaluating a stock throughout this blog. However, If you are investing in Tesla because EVs are taking off then you wouldn’t have noticed how fundamentally overvalued it is. In fact, it’s due a major correction. The price may rise further but only because other speculators are more ignorant than you.

Debt is financial suicide 

“I will guarantee if you run up big credit card debts, you will be in trouble probably the rest of your life in terms of your financial situation. On the other hand, if you get ahead of the game, even on a modest scale, so that money is coming in from investing and people owe you money or equities owe you ownership, you’ll be way ahead of the game as opposed to you owing your creditors every month. So my advice to you is: if you can’t pay for it, don’t buy it.”

If, like many other Millennials, you are already in debt then fear not because there is a way out but it will require a little dedication and discipline. I’ll aim to create a debt guide for you guys in due course. Just remember, interest rates can only get higher which will make your situation worse so act now.

Imitate the habits of the people who you admire

“Chains of habit are too light to be felt until they are too heavy to be broken. … At your age you can have any habits, any patterns of behavior that you wish. It’s a matter of what you decide.”

Beautifully articulated, no further comment.

Trade regularly if you want to lose your returns 

“Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to ‘time’ market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. Indeed, borrowed money has no place in the investor’s toolkit: Anything can happen anytime in markets. And no advisor, economist, or TV commentator — and definitely not Charlie nor I — can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.”

I owned a fundamentally strong portfolio when Brexit happened, I owned the same portfolio when Trump happened. According to economists my portfolio should have been obliterated in both instances. Instead it gained 27%. Stop trying to time the market – a position is only a loss if you sell it. Just make sure you have enough personal cash on the sidelines for a market downturn and a portion to buy the bargains of course!

Make money whilst you sleep, literally!

“Our portfolio shows little change: We continue to make more money when snoring than when active. … Inactivity strikes us as intelligent behavior. Neither we nor most business managers would dream of feverishly trading highly profitable subsidiaries because a small move in the Federal Reserve’s discount rate was predicted or because some Wall Street pundit had reversed his views on the market.”

If you picked 5 of your favourite stocks based on sound quantitative and qualitative reasoning for the next five years and never looked at them until year 5 I can assure you that you’d be presently surprised when you reviewed them 5 years later. I found an old dummy trade account that I opened in 2012 with £100,000 – 3 years later it had a value of £250,435 sitting in it. It’s now worth £390,890. A 58% CAGR and exactly the same stocks.

Investment managers don’t beat markets

“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds. … My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion.”

Who needs to look for the next Amazon when you could have it by investing in the whole market and still beat most of the managers around! Admittedly, Buffett has historically beat the market so purchase some Berkshire Hathaway B shares too! (Only buy them when they are trading at a P/B ratio of 1.20)

“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.”

 Prosperity always prospers

“Who has ever benefited during the past 238 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. In my lifetime alone, real per-capita U.S. output has sextupled. My parents could not have dreamed in 1930 of the world their son would see.

“Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to emigrate (though I can think of a few for whom I would happily buy a one-way ticket). The dynamism embedded in our market economy will continue to work its magic. Gains won’t come in a smooth or uninterrupted manner; they never have. And we will regularly grumble about our government. But, most assuredly, America’s best days lie ahead.”

So stop worrying and think of the bigger picture. We are advancing quicker than we can comprehend and productivity, the key driver to economic growth, will only boom with technological advancements such as robots, free energy and artificial intelligence. Trust me on this.

Forecasters are fortune tellers in suits

“We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie [Munger] and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

You may assess the long-term market forecast because an overvalued market will impair your long-term return. You should continue to scour the market for undervalued issues in any circumstance. You’ll naturally find fewer opportunities in an overvalued market and will therefore buy less. If someone tells you that there will be a crash tomorrow, rejoice and prepare yourself for the bargains.

Buy his book which I rated 5 ⭐️ here.

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Should I go to university?

Should I go to university?

Woah, heavy question and fraught with variable answers based on your personal situation but this blog post will focus on whether going to university is a worthy investment.

Investing in a degree is investing in yourself and your future earnings potential. It’s clear that people with a degree can expect an earnings premium and are generally recruited to higher positions than those that do not. This premium has been calculated by Statisticians Jaison Abel and Richard Deitz to be around £240,000 over a lifetime.

For example, people with degrees earned an average of £12,000 a year more than non-graduates over the past decade. The mid-point salary of graduates aged 22 to 64 was £29,900, compared with £17,800 for non-degree holders. If you are a graduate and aren’t earning anywhere near that then learn how to get a pay rise.

Image result for university gif

My personal circumstances

If I consider the cost of my education to be £12,000 (the size of my student debt pile excluding living expenses) and the opportunity cost of the three years that I spent at university where I could have been working to be £37,400 (£17,800 non-degree salary x 3 years minus living expenses). My graduate degree has cost £49,400 in total. If I earn £240,000 more due to my degree over my lifetime then that’s a 380% ROI or 10% per year over 40 years. That’s a fantastic rate of return!

Fees were just £3,290 when I started university and interest rates are BOE base rate plus 1% or 1.25% as of writing. I was pretty lucky.

What about today?

Would I have gone to university with today’s fees and interest rates? With fees at £9,250 and interest rates of Retail Price Index (RPI) + 3% (6% as of writing!) My gut feeling says no. But let’s run the numbers.

Debt pile: £27,750 (£9,250 x 3 years)

Opportunity cost: £40,400 (£18,800 non-degree salary in 2017 x 3 years minus living expenses).

Total cost: £68,150

ROI: 252%

That’s a 6.3% ROI per year over 40 years which isn’t bad but the stipulation comes with that spiky interest rate. Central bankers will target Consumer Price Inflation (CPI) to be around 2% per year. RPI will be similar if not slightly more. Historically RPI is about 1% above CPI so real ROI after interest repayments is 0.3% or rounded down to nothing. Don’t believe me? Here is a BBC article which says the same thing independantly.

So, I shouldn’t go to university, right?

Wrong, it’s not always all about money. My degree has allowed me to open doors to opportunities that I would never had access to and has allowed me to compound my wisdom exponentially. I have always had a natural acumen for business but studying it alongside a language expanded my mind in so many ways. The return on investment may be 0 but the return on your life will be immeasurable. It also focuses your mind on where you want to go and what you want to do.

Image result for Graduate money gif

Life without a degree

Remember, if you are reading this then you probably aren’t the average non-degree person. You don’t have to earn £18,800 – your potential is limitless. Look at Bill Gates if you don’t believe me. If I hadn’t gone to university then I would have invested more time to self learning. I may have built some kind of business. That’s equally as exciting and leaves a lot of what if statements.

Personally, I’d say no to university at the current prices.

 microsoft party time bill gates developers steve ballmer GIF


Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

How to get a pay rise

How to get a pay rise

Pay reviews are upon us!

Your lifetime savings are significantly impacted by every pay rise that you receive. £25,000 today at an average pay rise of 2% means that you’ll be earning £41,000 in 25 years. This means that your wage has kept up with the economy at best and you have had no real inflation adjusted wage increase. A millennial’s tendency towards loyalty means that they are grossly underpaid in their roles, but they do nothing about it. Let’s get this straight – you can!

Before you start thinking about your pay rise you need to think about your worth. There are two perspectives here, your self-worth and the value you add to your company. The below five steps will increase your chances of getting that meaningful pay rise.

Image result for pay rise GIF

1. Calculate your fair market value

What is market value? Market value is the value that employers would pay if you were to get a new job at the market average rate.

How much do you think other companies would pay you to do your job? If you’ve been in your job for 5 years with the same company and have only received a 2% pay rise per year because the company “is experiencing tough times” then the market has probably moved on! Trust me, your skills are commodities and they follow simple supply and demand dynamics so some positions have wage growth of +12% per year.

If you have a position which is sought after then you have no doubt been head hunted and approached by recruiters. I tend to log these interactions and gather the required information from the recruiter. Ask them what the salary range is, what perks could you expect. Print it out and save it for your pay review (if you have a structured one, if not I’ll come to that shortly).

If you don’t have a sought-after position then worry no more because calculating your market value has never been easier. You can gather lots of information from web-based tools such as or even by looking at recruitment sites. The key to an accurate reading here is having a job title which matches your position and to make sure you select location. A great tool for this is Here you can add your skills and experience which will give you a far more accurate reading. Recruitment firms relevant to your industry will publish detailed salary reports. After amassing all of the above information pick the value which is in the 50th percentile and save it for the right moment.

2. Calculate your value to your company

The market value can diverge markedly from real value. It’s the same as anything. It’s more subjective and difficult to calculate but it will be along the lines of the below calculations.

The cost of hiring a new employee is exceptionally high – especially employees on a salary. I know that my recruiter received 20% of my salary to place me. Depending on your job it can cost between £2,000 – £25,000+ to replace you. This is not a value that you can ask for but it will certainly add to your leverage and arsenal especially if you know that it would cost £10,000 to recruit a replacement and train them up. Remember, time is money to the employer and if you are a good egg, they might find it difficult to find someone similar.

What value do you generate? If you can quantify the value added eg; £300,000 of sales or billed time then you can demonstrate your worth in quite an obvious and simplistic way. What about them cost savings you spotted? That market opportunity you saw? The customer lead that you sourced? If you know that you have demonstrable areas where you add value then you could even link a bonus to this. Let’s be honest, sales people should push for at least 15% commissions. If you can’t sell your worth to your company then you don’t deserve to be in sales!

If you are in law or accountancy then how much are they charging the customer for your time? They are basically subletting your time – so make sure you get a decent rate on their return!

Image result for pay rise GIF

3. Be realistic and not greedy

It will be hard for your boss to justify a pay rise of higher than 10% unless of course you are trading at a greater discount to fair value than 10%. If you are worth £25,000 but you are only being paid £20,000 then you can certainly go into your meeting armed with points 1 and 2.

I’m going to ask for 9% this year. Why? Well firstly, I think that the productivity I have achieved is greater than my current pay. I have also accomplished all the personal development tasks that my employer set at the start of the year. I value this as a fair 6% increase. Secondly, inflation is going to be 3% this year. I will not accept my hard work to be eroded away by inflation. I know that my company is charging more due to cost increases so, why shouldn’t I?

4. Time it right

Timing the right moment to ask for a raise can be awkward, I know.

You can get this right from the start by asking for a pay review every year as you start your new job otherwise it can become very difficult to work out when to ask. If your employer knows that you expect a pay review it won’t come as a surprise to them and they may have a considered response.

If you don’t have a structured pay review then you need to consider timing as it’s quite important. Let’s be honest, asking for a pay rise after a mistake or a poor quarter isn’t ideal. You want to ask when you are on a high and value is considered highest. Also, asking on a Monday morning is usually a bad time to ask as everyone hates Mondays. Ask on a Friday after lunch and you’ll notice it is much more relaxed.

Managers understand that you have a life too and if you play on their heartstrings a little then it can go a long way. Perhaps you are saving for a deposit or starting a family? Drop it into the conversation.

5. Just Ask

The amount of people who want a pay rise and the amount of people who actually ask is astonishing. Especially amongst millennials. According to research only 12% of people directly ask for a pay rise.

Guess what, you are valuable and your employer clearly wants you otherwise you’d be gone already. All you have to do is be honest and get what you want in life. If you are going in armed with the right data then you’ll be just fine. If they don’t accept and you consider yourself undervalued, time to move on. Loyalties are nothing in this world, especially in business. At least you’ll get the market rate – minimum!

P.S don’t forget to review them on! Save us all the wasted time.


Image result for pay rise GIF

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Money makes the world go round

Money makes the world go round

Welcome to Money Generation XYZ

This is the blog which will enable you to compound your wisdom at an annualised rate of 24%. I have studied the theory of making money since I was 13 and have put this theory into continual practice. This relentless pursuit in understanding how the financial markets work, how to analyze businesses and how to make money make more money allowed me to emerge from the financial fog richer in both knowledge and wealth.

I now want a platform to teach others

Why pursue money? One thing I have learned is that money really does make the world go round. We are absolutely controlled by finance. Central bankers don’t pull levers for no reason, they pull interest rate levers to make you spend or save, politicians pull fiscal levers to guide your financial decisions. This is not some grand conspiracy, we are all participating in a finely tuned machine and it is beneficial to society and the advancement of humanity (most of the time). Who wants to be at the mercy of the above? We need to take back control.

My desire is to be a free financial spirit

Making money has been a pursuit since childhood. It started when I began collecting coins. I managed to hijack collecting coins by purchasing a job lot of coins off eBay. I’m impatient like that. Who’s got time to wait for your parents to bring you a dollar from America anyway? I then moved onto selling multi-pack sweets individually on the playground. Fast forward twelve years – I am a successful Ebay and Amazon seller, a Finance Analyst and a side hustler.

Having a 9-5  job is rather like coin collecting – too slow

If I collect an average UK wage of £27,600 with a 2% pay rise each year and save 27% of that income after all expenses (my FY17 personal savings rate) I’ll be earning £60,000 and I’ll have saved circa £480,000 by the time I was 65. Sounds great, however that means I save £11,700 on average per year. Average UK house prices will have grown from £216,000 to £631,000 (assuming that house prices follow the 100 year annualized historical increase of 2.79%). Notice the key word here? Average.

Freddos will cost 65 pence!

£480,000 buys me 1,920,000 freddos today however in future I’ll only be able to purchase 738,461 freddos with the same amount. This is called the time value of money and this is a fundamental axiom of making money. It is why people who have worked all their life are still working. I’ll teach you all about it on our journey where I intend to hijack the art of collecting paychecks by earning more on the side through investing and money-making projects. I think you should too.

This blog needs to act as a sanity check

My fear is not failing to make enough money, it’s that I’ll never know when to stop. Afterall when is  enough, enough? We all admire Warren Buffet but he isn’t free. Warren Buffett has been shackled to the complex of money-making all of his life and I get the impression that he regrets the opportunity cost of his time with his family. Just read The Snowball: Warren Buffett and the Business of Life for more on that.

That’s where you come in. You can be my guide, you can tell me when enough is enough.

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.