On Target Newsletter

In this issue:

  • Behavioural finance

  • Safest places

  • China’s threat to the US

  • Good writing a career booster

  • American living standards

  • Media bias

  • European shares China

  • Waste recycling

  • EU and US

Avoiding Biases that Damage Your Prosperity

In managing our lives, and in particular our money, we make mistakes because we’re humans, not machines or pieces of code. They’re mistakes rooted in the ways we behave. Increasingly those ways are explained by scientists in the field of what is known as behavioural finance.

One example is the way that bias affects our decisionmaking. We tend to value things more highly when we own them. A research study found that participants willing to buy a lottery ticket for $1.28 would only sell a ticket they already owned for $5.18. This is clearly not rational, as the odds of winning are the same for both tickets. Wikipedia lists hundreds of such “cognitive biases” from the “ambiguity effect” to the “Zeigarnik effect.”

Joe Wiggins, fund manager at Aberdeen Standard Investments, has just produced what he calls his “toolkit” for investors to understand what behaviours prevent us from making the right choices, and how we can improve our investment performance.

“An understanding of our own behaviour should be at the forefront of every decision we make,” he says. While we cannot remove the biases in our decisionmaking, we can seek to understand them. And “we can build more systematic processes that prevent these biases adversely influencing the decisions we make.”

He offers six simple steps to improve your moneycraft decisionmaking:

► Have a long-term investment plan.

► Automate your saving.

► Rebalance your portfolio periodically.

► But… don’t check your portfolio too frequently.

► Don’t make emotional decisions.

► Don’t trade – make doing nothing your default action.

Start saving early, Wiggins advises. A study by CLSA research based on an assumption of annual growth of 7 per cent found that an investor who started saving at the age of 21 and stopped at the age of 30 would end up with a bigger pension pot than a saver who started at 30 and continued saving until retiring at 70.

Have a written long-term investment plan you can refer to during times of market

stress. “How you think you will act during a sustained stock market decline can be different from what you actually do. In a cool, rational state you may plan to add money at more attractive prices. Without a clear plan, amid the stress of losses and negative news stories, you might instead sell.” John Bogle, founder of Vanguard, said in The Clash of the Cultures: Investment vs Speculation: “Time is your friend, impulse is your enemy.”

Your saving should be automated. (This can be done for example via greater contributions to a pension scheme, life assurance plans, bank debit orders regularly adding to mutual fund holdings).

Rebalancing a portfolio back to target weights, Wiggins says, “removes the need for human judgement. It cancels out market noise” and “can become a source of return when noise temporarily takes prices further away from fair value. It ensures that your portfolio does not stray too far from its desired allocation. You will consistently sell assets that have outperformed and reinvest in those that have lagged.”

Don’t check your portfolio too frequently – once a month, once a quarter, or even just once a year. “The more frequently we check our portfolios, the more short-term we become. This can make us too risk-averse. Viewing our portfolios on a daily basis creates the urge to trade, often at the worst possible times.”

Making an investment decision when you’re in an emotional state – excitement or fear – is fraught with problems. “If emotion is overwhelming your thinking, postpone the decision. If the idea is a good one today, it is still likely to be tomorrow.”

Don’t trade. The more we are bombarded with news, information and opinion, the greater the temptation to react. This can lead to investments being whipsawed between the latest fad or fashion.“Doing nothing is the hardest decision to make for an investor, but it is often the correct one.” However, that “does NOT mean sitting on cash… it means doing nothing that takes you away from your long-term investment plan.”

The things that damage your competence

Here is Wiggins’ check-list of main behavioural biases that are major impediments to effective investment decisionmaking:

► We are more sensitive to losses than gains and overly influenced by short-term considerations. One study showed that investors who received the most frequent feedback took the least risk – but made the least money.

► We seek to conform to group behaviour and prevailing norms. It plays a key role in fuelling financial bubbles and crashes.

► We overweight the importance of recent events and overstate their importance in determining future outcomes.

► We are poor at assessing risks and gauging probabilities. We over-estimate the odds of winning a lottery, but tend to ignore low-probability risks such as floods, earthquakes.

► We over-estimate our own abilities. The vast majority of people believe they are above-average drivers! Investors make decisions based on forecasts of economic data, politics and markets despite the difficulty of predicting the future.

► We are persuaded by simple, compelling stories. They allow us to make sense of highly complex issues, but leave us vulnerable to making poor investment decisions.

“By asking ourselves some key questions before we make a decision, we can aim to reduce errors of judgement and deliver better investment outcomes.

The 7 Safest Countries to Visit or Live In

by Jovana Andjelkovic of Nomad Capitalist

Although the news cycle would have you to believing otherwise, year after year the world is becoming a much safer place to live and travel.

Annually the Institute for Economics and Peace, in collaboration with the Economist Intelligence Unit, publishes the Global Peace Index, ranking 163 countries on “three domains of peacefulness.” Scrutinizing topics such as domestic and international conflict, level of societal harmony or discord, terrorism and militarization, the institute assigns a country three scores that are then combined for the overall ranking.

At Nomad Capitalist we’ve coupled the GPI marks with the data from the biennial Travel and Tourism Competitiveness Report from 2017, produced by the World Economic Forum, to curate a list of seven countries that are true gems for travellers and expats alike.

Contrary to popular belief, not all of them are in Northern Europe. Yes, Iceland seems to top the list every year. But there are plenty of other off-the-radar places that offer perfect conditions for a good life or a good visit with little risk to your personal safety.

Here they are…

7. Georgia

If this nation on the cusp between Europe and Asia is not on your bucket list, revise it. Beckoning visitors with a Black Sea coastline to the west and Caucasus mountains to the north, this once-Soviet republic has come a long way since its independence in 1991.

Following a stifling 70 years of Soviet central economic planning, a period of civil war and political turmoil, the small country of 3.7 million has staged one of the world’s most impressive economic turnarounds. Georgia’s economy grew by an average of 6 per cent annually from 2003 to 2015, while poverty declined rapidly.

Today it boasts the lowest crime rates reported in Europe, a thriving restaurant scene in the capital city of Tbilisi, and a scenic wine trail in the Kakheti region that’s been touted as a wine region to watch by Wine Enthusiast magazine, Conde Nast Traveler and Anthony Bourdaine.

6. Oman

It may be in the Middle East, a region synonymous with turbulence and turmoil, but the sultanate of Oman shares little with its conflict-ridden neighbours Yemen, Saudi Arabia and Iran. Not an obvious destination, this wealthy nation – it generates most of its revenue from oil — is an outpost of calm.

Economic growth has been impressive. The economy is 13 times as large now as it was in 1980. Oman has a GDP per capita that is basically half that of the United States’: $24,700. With a low 12 per cent corporate tax, zero personal income tax, and an openness to foreign workers, Oman is an attractive place for entrepreneurs.

With strict religious, moral and legal codes, crime rates are very low.

Situated on the edge of the Arabian Peninsula, it is one of the countries in the region with the most dazzling and diverse landscape. The verdant south is speckled with fruit plantations and Bedouin towns steeped in tradition.

The capital city of Muscat is vastly different from nearby Dubai or Abu Dhabi. With very few high-rises and plenty of old-school white-washed architecture, it has laid-back charm.

5. Slovenia

This small Eastern European country is hidden in plain sight. Situated between buzzier, more fashionable neighbors Italy, Austria and Croatia, this is the among the richest of the Slavic countries.

Slovenia is not only part of the Eurozone and the European Union, but feels just as advanced as its neighbours to the west. Banks, while not perfect safe havens, are efficient. Real estate isn’t as cheap as in Budapest, but is affordable and of good quality.

With an opening to the Mediterranean, a stretch of the Alps, delicious wines and food, it won’t be staying under the radar for too long. In 2016, its capital Ljubljana was awarded the coveted “Green Capital of Europe” title by the European Commission. You can easily see why when exploring the city’s plentiful green spaces, a car-free historic centre and the many cafes on the banks of the Ljubljanica River.

Slovenia boasts one of the lowest crime rates in the world, and with theft constituting almost all what crime there is. The Overseas Security Advisory Council has given it the lowest danger rating. With its beaches, ski resorts, golf courses and bucolic countryside, Slovenia certainly deserves your attention.

4. Hong Kong

With safe streets, efficient public transport, first-rate education system and a plentitude of restaurants, this “Asian World City” is flourishing by all measures.

In 1997 Hong Kong’s sovereignty was handed over from the British to China, kicking off a 50-year period of autonomy and rendering Hong Kong a “Special Administrative Region” of China with its own constitution, currency, passports and official languages.

Hong Kong consistently ranks among the lowest in the world for terrorist incidents and natural disasters (which places it above Japan on the safety scale in our books). If anything were to happen, Hong Kong boasts extremely reliable police and emergency services. In 2015 it established a Cyber Security and Technology Crime Bureau.

A competitive economy consistently draws expats and businesses to its shores. Hong Kong has been growing very fast in the past decades, which is very visibly represented by its impressive skyline. While many European countries suffered from economic downfall, Hong Kong is still growing, although not in an explosive way. It’s the kind of growth that belongs to a stable and predictable place.

3. Singapore

Thanks to its strict laws and high penalties for minor offences – think graffiti, drinking water on the subway, or spitting gum on the street — this island-has some of the lowest crime rates in the world. In 2016 the country reported a 135-day stretch without any crimes whatsoever. Many of Singapore’s stores and restaurants don’t even bother locking their doors after hours.

Some may find the strict laws and surveillance (there are networks of cameras covering all public housing blocks and car parks) a downside to living in this prosperous nation. But that is a personal choice.

Singapore is consistently ranked by the World Bank as the best country to do business in, thanks to standards for trading across borders, dealing with construction permits and protecting investors. And it’s ranked the second most free economy in the world (behind Hong Kong) according to the Heritage Foundation’s Index of Economic Freedom.

Asia is the epicentre of 21st century growth, and Singapore is at the heart of it. It’s THE place for the new wealthy in countries from India to Indonesia to store their wealth. It’s also one of the least corrupt countries in the world, despite being located in a region where corruption is sometimes a part of life.

Singapore is a top destination for affluent expats. Nearly one in five Singapore residents is a millionaire; over half of its wealthy people have taken less than 10 years to accumulate the majority of their wealth.

2. New Zealand

Remote and beautiful are the words that come to mind when thinking about this South Pacific two-island nation marked by volcanoes, glaciers, lakes and national parks. Roughly the size of the United Kingdom, but with a population of 4.5 million compared to UK’s 64 million, this “Middle Earth Mecca” is guaranteed to leave you gasping at the views, not at sights of conflict or violence.

New Zealand is one of the prime places in which people are choosing to create a bolthole — a place where they can escape to while the rest of the world is rioting, creating chaos and threatening to start nuclear wars. It’s a kind of safe haven far away from everything else.

It has an excellent passport, it’s in a cool location down in the Southern Hemisphere, it’s detached, it’s independent, it’s a great place to store gold, it’s not part of any big alliances like the EU, and it’s a safe haven.

Ranked as one of the most peaceful and least corrupt countries in the world, New Zealand’s status is protected by laws that prevent abuse to freedom of expression and a reliable police force that won’t act arbitrarily. There isn’t even dangerous wild life here, so you can camp and hike to your heart’s content.

1. Iceland

Icelanders were the first in the world to elect a female president (in 1980) and an openly gay prime minister (in 2009). As Iceland is renowned for its egalitarian society, laid-back culture and virtually no corruption, it’s no surprise it has consistently topped the world’s safest countries’ list since 2008.

Police officers don’t carry guns. Although gun ownership is legal, obtaining a firearm is a difficult process that involves lots of paperwork and restrictions. Scoring low on homicides, number of people in jail and terror acts, Iceland is also the only NATO member without a standing army, navy or air force.

It consistently performs well in general wellbeing relative to most other countries in the Better Life Index. Living standards in Iceland are very high, even when compared to other European nations.

The country ranks at the top in jobs and earnings, and above the average in income and wealth, wellbeing, health status, environmental quality, personal security, civic engagement, education and skills. Most of the population is employed, with 86 per cent of people aged 15-64 in a paid job.

Life expectancy is high at 83 years on average. The country has a strong sense of community and high levels of civic participation, with 98 per cent of Icelanders believing that they know someone they can rely on in time of need.

If you’ve never been there, go see this tranquil paradise.

Jovana Andjelkovic is a staffer at Nomad Capitalist, the offshore strategy consultancy. The company has offices in the US and Hong Kong. Email: help@nomadcapitalist.com

The Chinese Threat to American Dominance

China remains behind the US in most key areas of technology, but it is catching up fast, says the well-known American economist and commentator David P Goldman.

He told a recent New York conference that early in 2018 the US banned exports of American components to the Chinese telecommunications equipment maker ZTE. The dominant Chinese player in the field, Huawei, immediately undertook a crash programme to devise substitutes for the US chips that powered Chinese-made handsets. Now, according to Japanese experts, the Huawei chips are equal to or better than Apple’s.

America’s campaign to persuade its allies to keep Huawei away from the rollout of 5G (fifth generation) is failing as many of them have rejected Washington’s demands. Goldman says Huawei is “the highest quality as well as the lowest-cost provider of 5G systems. It spends $20 billion a year on research and development, double the combined outlay of its two largest competitors.” Half of its work-force is engaged in R&D.

China is outspending the US in quantum computing, including $11 billion to build a single research facility in Hefei. By contrast, the US allocated only $1.2 billion for QC over the next five years. China has developed successful quantum communication via satellite and has constructed a 2,000-kilometre network between Beijing and Shanghai. 

In recent years China has landed a probe on the dark side of the moon and built some of the world’s fastest supercomputers, as well as missiles that can blind American satellites, and surface-to-ship missiles that can destroy any vessel within hundreds of kilometres of its coast.

Its investment in education parallels its investment in high-tech industry. Today China graduates four times as many STEM (science, technology, engineering and mathematics) bachelor’s degrees as the US, twice as many doctoral degrees, and continues to gain.

China’s Belt & Road Initiative is intended “to Sinify the economies of the Global South, from Malaysia and Indonesia to Mexico and Brazil,” Goldman says. Huawei is often the spearhead of the BRI, building mobile broadband networks that prepare the ground for Chinese e-commerce and e-finance companies. China wants to integrate the labour of countries with a total population of 2 billion into its economic sphere.

Use Good Writing to Advance Your Career

David Ogilvy, who was known in Britain as “Father of Advertising,” used to say that the better you write, the higher you’re likely to go in business. Because people who think well, write well. But good writing is not a natural gift, he argued. It can be learned. Here are hints for doing so…

► Write the way you talk – naturally.

► Use short words, short sentences and short paragraphs.

► Never use jargon words like reconceptualize, demassification, attitudinally, judgmentally. They are hallmarks of a pretentious ass.

► Never write more than two pages on any subject.

► Check your quotations.

► Never send a letter or memo on the day you write it. Read it aloud the next morning. Then edit it before sending.

► If it is something important, get a colleague to improve it.

► Before you send your letter or your memo, make sure it is crystal clear what you want the recipient to do.

► If you want action, don’t write. Go tell the guy what you want.

Easy-Money Policies: a Mixed Blessing

Since the beginning of 2010, real hourly wages in the US have grown by only 6 per cent, but real housing prices have grown more than 20 per cent while inflation-adjusted stock-market valuations have doubled, Rana Foroohar reports.

This is one consequence of easy-money policy, which has done much more for boosting asset prices than economic growth.

This has been happening against a background of growing inequality, which has been expanding at a record rate because of a skills and jobs mismatch, an ageing work force, declining geographic mobility, greater corporate concentration, and technology-driven labour market disruption.

“You can’t fix these things with low interest rates and quantitative easing alone. You need fiscal policy.” That’s something decided on by elected officials, not technocrats. But polarized governments, in Europe as well as the US, have been unable to deliver it.

“The belief among some Democrats in the US is that they could circumvent contentious political debates over tax and spending by empowering the Fed to use its balance sheet to fund, not financial asset inflation, but real growth-creating investments in education and infrastructure.”

Reluctance to Invest Tax Benefits

In the US they haven’t delivered the boom in capital investment that tax cuts were supposed to. “American executives seem determined to do almost anything and everything else with that tax bonanza except build new factories,” says the FT’s US editor Gillian Tett.

The effective average tax rate for S&P 500 companies has plunged from 30 per cent before 2017 to just 15 per cent. And ultra-low interest rates have encouraged firms to borrow much more. “The net result is that corporate America is arguably sitting on more financial firepower than at any time in living memory.”

It hasn’t been expanding capex but instead boosting payouts to shareholders (dividends and buybacks) and doing many more mergers and acquisitions.

Why has capex flatlined?

This may just reflect its changing nature. “It is possible that today’s technology-focused investments are delivering more productivity bang for the buck than traditional investments, thus requiring fewer dollars. Or it may show that executives have always been privately uneasy about the longer-term growth outlook.”

The Media Problem Isn’t Lying, It’s Bias

It’s interesting to see how mainstream media all too often treat major news stories that don’t suit the worldviews they want to promote.

Recently there was an horrific terrorist incident in Italy. An ethnic Senegalese bus driver protesting about migration policy kidnapped 51 12-year-olds, bound their wrists with zip ties. poured petrol down the aisle of the bus, and set fire to it. Fortunately armed police who intervened were able to rescue all the children unharmed.

How did the New York Times report the affair? It buried it with a few paragraphs hidden away in its world news section.

Lionel Shriver in The Spectator asks us to imagine the same story, but with roles reversed… “A white, right-wing, native Italian Salvini supporter kidnaps 51 black immigrant children from North Africa, has the kids tied up, attempts to burn all the children alive, and very nearly succeeds. Where does the Times put this story, and how hard is it to find?”


Justice: It’s hard to believe that the European Union’s unelected bureaucracy, never reticent about seeking to interfere in the way its member-nations are governed, are so timid when it comes to dealing with the incompetence and corruption of their own.

Latest example is the European Banking Authority’s decision to bury its investigation into regulators’ failure to prevent the €200 billion Danske Bank scandal facilitating recycling of dirty Russian money. Its investigators found four breaches of EU law. Instead of taking legal action, the agency opted for a cover-up of one of Europe’s biggest money laundering scandals, closing the investigation without implementing any of its recommendations.

Stepping on the gas: FullerTreacyMoney research reveals that the six major economies together (the US, China, Japan, the UK, France and Italy) have increased the fiscal stimulus provided by their governments by $800 billion over the past 12 months compared to an increase of just $200 billion over the previous year. China accounted for the big change.

“The willingness of the Chinese government to run deficits, global central bank willingness [to] at least maintain the size of their balance sheets, and the strength of the Dollar, represent the most important factors in the supply of liquidity for the continued expansion of asset prices,” says Eoin Treacy.

Europe: Its economy is deteriorating again after a brief uptick. Central bank economists have cut their growth forecast for this year to 1.1 per cent from the 1.7 per cent level they expected three months ago.

Michael Levitt comments in The Credit Strategist: “There has been virtually no meaningful structural reform in Europe, and politicians who attempt it like France’s Emmanuel Macron suffer severe and often violent political pushback.

“Europe remains economically moribund, with poor demographics and sorry fiscal policies. All the free money in the world isn’t going to stop its inevitable economic decline.”

Singapore: Its government seems to be gearing up for an election later this year with voter-friendly policies.

► In its latest budget it announced S$1.1 billion of handouts to lower-income families.

► Last year it tightened further its squeeze on residential property. The Additional Buyers’ Stamp Duty is now 20 per cent for foreign buyers, 12 per cent for Singaporeans’ second properties, 25 per cent for companies buying multi-unit buildings.

►There’s also a tight grip on the number of foreign workers allowed in – an increase of only 10,900 jobs (excluding domestics) or 1 per cent last year.

American politics: A massive battle over US government finance is about to unfold. A new budget needs to pass Congress by September 30. Without an agreement between the warring parties, the government will be forced into a shutdown (again). Adding to the developing problem is that the US Treasury is bumping up against the ceiling on how much it’s allowed to borrow. Lifting the figure also requires approval of Congress.

Another bout of nasty politicking is coming down the track.

Electric vehicles: A new study by the Ifo Institute in Munich shows that as they replace diesel-fuelled cars they’re unlikely to do anything to curb CO2 emissions, due to the significant amount of energy used to mine and process the materials for car batteries, and to generate most of the electricity needed to power them.

Moneycraft: Fewer than a quarter of American college graduates are able to answer simple questions about credit and interest even though most of them have student loans and use credit cards, according to a new study by consumer banking firm Sallie Mae.

IPOs: Commenting on the current “speculative binge,” Ned Schmidt of The Value View of Gold Report says it seems that the more unprofitable the basic business, the higher its stock should be priced. “We have been through this before, and it seems to always end badly.”

Australia: It has the highest level of foreign trade dependency on China of any developed nation. Last year almost 31 per cent of its exports were shipped to China – twice as much as went to Japan, the second most important foreign market.

Zimbabwe: China is preparing to establish an army base in this African country and station elite special forces there, reports the newsletter Spotlight Zimbabwe, which is written by Zimbabweans living elsewhere.

How to do it: The three simple rules for intelligent investing, says the well-known British commentator John Kay, are – pay less, diversify more, be contrarian.

Lifestyle: Those who read books are likely to live up to two years more than those who don’t, according to a study by academics at Yale university.

Wise words: 

If the markets were always efficient… I’d be a bum on the street with a tin cup. 

Warren Buffett.

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