Compass Wealth matters

 The stock market often appears to be a complex and risky place in which to invest money. The latter is of course correct: there is risk in almost any action, even inaction carries risk of some sort. Therefore a huge industry has been created over the past century, where experts (fund managers) offer to take care of your money and invest it wisely. According to  a Boston Consulting Group Study  in the asset management industry now manages over $100 trillion dollars. Fund managers operate in a very wide range of disciplines, such as Global Equities, Asian Bonds, Australian Commodities, American Tech, Growth stocks, Cautious Investing and so on. Their primary claim is that they possess the skill and knowledge to "beat the market" over a given time period. So what does "beating the market" actually mean? You hear in the news how the stock markets of the world performed on a certain day. On good news they tend to rise, on unexpected bad news they tend to fall. This perf...

 An Initial Public Offering (IPO) is where a company or Government raises capital from members of the public (and institutions) by offering the chance to buy shares in a firm or State-owned enterprise. Cash in exchange for some ownership and control of the business. Back in the 1980's Prime Minister Margaret Thatcher expressed her desire to make Britain "a share owning democracy", as she sold a number of State-owned enterprises. There were political and (pressing) economic reasons for her doing this and the legacy is a contentious one. However this may be the first major example of a Government actively encouraging the public to participate in IPOs. There were huge advertising campaigns that anyone living in the UK at the time will remember. Such as the sale of British Gas with the " If you see Sid, tell him " series on television. Thousands of people then invested in the stock market for the first time. Similar privatisation campaigns occurred in other Western ...

  With concerns around climate change and human welfare growing, investors are increasingly looking for investment options that do not harm society or the planet. These investments are generally referred to as Environmental, Social & Governance (ESG).  The managers of such investment funds seek to meet an investor's desire to help by typically ensuring that they do not invest in certain industries. The likes of munitions, fossil fuels, and gambling are typically excluded.  This process is known as "negative screening". So it excludes those investments that fail to have the correct criteria. However commentators and investors are increasingly querying this approach.  For example, what about the impact of supply chains? Should you not also exclude a firm or even an industry that relies on the use of an excluded industry's product? If the manufacturing of a device entails a huge amount of oil to be burnt, then shouldn't the firm producing the device also be exclu...

  If there is one asset class (type of investment) which seems to defy all price predictions, it is oil.  Every time an expert publishes a seemingly rational article, events seem almost bound to turn out differently. Oil is not alone in this of course. Many try to predict the price of gold without success. However in the case of oil is not just the size of the error, it is also the direction that the experts seem to get entirely wrong! Conventional wisdom gets turned on its head time and again.  Whether it's prices hitting $140 per barrel in 2008, and apparently heading to one hundred and seventy (by December of that year they'd fallen almost 60% to $55); or US Fracking putting a lid on prices at $50 per barrel in 2017 (by June 2018 they were at $77); or predictions by the US Energy Information Administration that prices in 2020 would be around $59 per barrel, near where they had been through most of 2019: by April they'd gone negative for the first time in history! So ...

 Crypto currencies have made headlines from time to time and supporters offer a variety of reasons as to why they are important. Investment is just one of them. But is it valid? Bitcoin was among the first (if not the first) cryptocurrency and is by far the most famous version. A cryptocurrency is a "digital asset". It exists only in cyberspace.  The coins are "mined" using extremely powerful computers, and ownership is recorded on a database known as a blockchain. Incidentally the energy consumption involved in the mining process is huge: equivalent to the electricity consumed annually by Switzerland ( article )! So what are the benefits of Bitcoin?  Purchasing power One of the main benefits of the currency is that there is a finite number of coins. A total of 21 million coins can be mined. That is all. (the good news for the environment is that we are almost there, with around 90% now in  circulation , and once all are extracted, the energy consumed by the sector ...

Investment portfolios: a new normal? Risk-free return, or return-free risk? 11th December 2020 Over the past century academics and practitioners have increasingly espoused theories that have become part of almost every investment doctrine one could name. Theories that have tested and refined over time but now essentially taken as simple fact. One of these relates to the construction of an investment portfolio, where the asset allocation is dependent on an investor's attitude to risk. As Investopedia explains: Over the decades, this has been borne out repeatedly. Equities are the most volatile asset class but produce the highest overall returns. Money is the most stable but the returns are the lowest. Bonds fall in between these two. Increasingly, however, people are querying whether this is still accurate.  Equities certainly still produce the highest returns, money still the lowest, and bonds in between the two. But what about the associated risk? Since the dawn of Quantitative Ea...

  Debt: the new normal. Is it ok? If not, what can be done about it? “Neither a borrower nor a lender be; For loan oft loses both itself and friend.”  That famous line by Polonius in Shakespeare's Hamlet would seem prudent advice in most ages. However in today's world, we find our economy awash with debt as never before. The reasons for this are numerous.  One could argue that it starts with perhaps perverse tax incentives, whereby companies are essentially encouraged to borrow by being able to offset interest costs against their profits. The original rationale for this was the belief that borrowing would only occur in order for the company to grow. This therefore makes sense: a tax regime that encourages growth is of course a good thing.  But when investor demand for debt is such that a major cash-rich firm borrows to fund a dividend payment, as Apple has repeatedly done ( Apple ), then many would argue that something has gone very wrong with the system. Then of cou...