June 2019/Q2 review

We live in extraordinary markets. Time for a quarterly look back at my portfolio.

What’s been going on?

In the last three months:

  • Theresa May has finally thrown in the towel. Her replacement, either BoJo or Mr Hunt the Culture Minister, will take over on 22 July, barring upset. This follows a European parliamentary election, in which nothing very surprising occurred.
  • Huawei has been in the news a lot. As has Mr Trump.
  • The conservatives won an Australian election, against the odds.
  • Neil Woodford, a person in the UK, suffered a run from depositors.

The markets

June saw some of the most benign market movements I can remember. I don’t have a clear sense of why. Here’s the outcome for the month:

Taking a slightly longer view than one month, one of the most notable features of Q2 was the fall in the pound from $1.31 to $1.26, on the back of UK political nonsense. Equities rose in April, fell in May, and more than recovered in June; FTSE moved in Q2 from about 7279 to 7426, and S&P 500 from about 2830 to about 2930. Bonds rose much more smoothly, up over 2%.

My portfolio

The June market movement, weighted for my target allocation, was up 4.0% (with FX pretty much flat). My portfolio rose by almost exactly this.

What’s extraordinary about this year so far is that markets, as a whole (as weighted by my allocation), have risen over 15%. In six months. These returns are pretty extraordinary. But you wouldn’t catch it in the mainstream media, what with the Woodford/etc woes to read about instead.

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Doubling: party!

A startup I used to know for had ‘doubling parties’. Every time the business doubled in size, there was a party. For the first party they had a glass of prosecco per person… by the 7th or 8th party, the bash was a pretty major affair.

The big picture I cling on to on my investing journey is Doubling. I want my portfolio to double as fast, and as many times, as possible.

Closely connected to Doubling is the Rule of 70 (strictly, 72). The Rule of 70 is mental shorthand for doubling: it says that if you compound growth of X% per period, you will double in 70/X periods. I.e. if you grow at 7% per year, you will double in 10 years. More to the point, if you grow at 10% per year, you will double in 7 years.

I started my rigorous portfolio tracking at the beginning of 2013. I unitise my portfolio, so I am tracking ‘underlying’ growth, stripping out deposits and withdrawals. One question I’ve been keen to answer is: how long will it take me to achieve my first Double?

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Does this house really believe it should be included in the FIRE net worth?

I had some fun this week teaming up with Mr YFG to debate whether your primary home is one of your FIRE assets or not.

The great housing FIRE debate

Or did I? The mighty Monevator was kind enough to host the post and the comments following the post are excellent, and flesh out the debate brilliantly. And as they highlight, everybody’s milage will vary. In particular, one needs to be careful to define whether the net worth calculation is the FIRE net worth calculation.

One of the things I enjoyed about writing that post was having to argue the opposite case from what I normally would say. Hats off F Scott Fitzgerald and Charlie Munger.

To set the record straight, my actual approach is to exclude the value of my residence (the Dream Home) from my FIRE calculations. What I try to explore in my blog, is the challenge of FIRE (Financial Independence, roughly) without needing to change my lifestyle. For me, London epitomises this challenge – it has an excellent lifestyle, but it is expensive. So the FIRE dynamics are particularly challenging here, at least compared to the ‘frugal’ approaches followed by some in the FIRE community.

Clearly, if one is prepared to sell up and reorganise one’s housing arrangements, in Cyprus if need be, then one’s house is just one asset among many. But if, like me, you are happy where you are, and want to know when working becomes optional without having to move neighbourhoods / sell assets / disrupt the pets, then it is easier to focus on your investment income (and decumulation potential) and your spending (and potential spending).

So, my own calculations about investment income and spending assume I need to continue to fund the (considerable) expenses of living in the Dream Home, and that I need to do so from other assets. No Rent-a-Room for me.