Ordinary investors miss out on opportunities

If not, you are reading the wrong publication.

Pound cost averaging is all about the benefits of snapping up more of an investment when it is cheaper, and less when it is more expensive.

Institutional investors forever rebalance their portfolios to ensure that a stock that has massively outperformed does not dominate, and to benefit from the uplift they get.

These are all fundamentals.

But oh, should retail investors want to have a conversation about selling their holdings or get more information about taking profits, it is like they have caught the plague.

Everyone wants retail investors to behave rationally, but no one wants to give them the information to do so.

They suddenly become the untouchables; fear of contagion is rife.

Heaven forbid retail investors should behave in as ruthless a manner as institutions.

The rise and the democratisation of investment, largely driven by technological advances, has been one of the great achievements of financial services in the past two decades.

Yet, despite improvements, retail investors are in an underprivileged world.

They do not have the same access to information as the institutions or financial advisers.

They can not see Morningstar data, or details from the rating agencies. They also do not make a profit no matter what.

The rise and the democratisation of investment, largely driven by technological advances, has been one of the great achievements of financial services in the past two decades.

Fund managers keep their 1 per cent or so every year no matter how their fund performs; they do not have to worry so much about taking profit.

But also, there is no requirement on them to reveal what they do with the money.

One who I spoke to recently reminded me how they had quietly sold out of Woodford very early on, though of course we, the ordinary public, did not know that.

Retail investors just are not blessed with the same access to information.

There is a peculiar logic at play here. Everyone wants retail investors to behave rationally, but no one wants to give them the information to do so.

So they are left without information, and more prone to acting irrationally.

It is inevitable that at some point these funds will run out of steam, and the market will stutter.

It is almost like the industry wants them to be the necessary idiots. And so ordinary investors taking profits are demonised.

That is why it is so hard to get companies to publicise when they make changes to their best-buy lists, it is the fear of creating a market.

We are 12 years into a bull run; some investment houses have enjoyed spectacular runs and made fans of so many investors.

It is inevitable that at some point these funds will run out of steam, and the market will stutter.

So it is at the top that someone should think about repositioning their portfolios.

There is also an inherent conflict of interest here.

Fund managers get poorer when retail investors take their money out.

News of retail investors taking their money out also destroys confidence in individual funds and in the sector in general. 

So taking profits/making redemptions is bad news for the entire industry, even though we can all agree taking your money out is the only way to get rich.

The devil you know

I have become well-used to speaking to financial advisers on Twitter – for better or for worse.

But every now and then as a journalist you delve into a world that you never thought you would enter, and this happened to me the other day when I wrote a piece about tax breaks for small owners who buy electric cars.

You can get a 100 per cent first-year capital allowance on cars with CO2 emissions of under 50g/km.

On top of this, from April there is no benefit-in-kind tax to pay, which all in has seen this labelled the ‘free car bonus’.

I wrote a very straight piece about the tax breaks and looked at some of the sums.

But I did not anticipate the anti-electric car lobby who attacked me over the brake dust produced and the lack of green energy at charging points.

What a monster I am.

IFAs may not like everything I write, but sometimes its better the devil you know.

Antiquated systems

Pity your local vicar or imam.

They are among one of the professions that cannot do a digital tax return.

The antiquated way in which they are paid through different stipends and congregational contributions means the HM Revenue & Customs system has not caught up with them.

So they still have to do much of their return in paperwork.

It reminds me of a friend’s former employer who still allowed their staff to do expenses on paper despite having a perfectly good computer system.

“The vaguer the better,” he was told on his first day.

James Coney is money editor of The Times and The Sunday Times

@jimconey