Lenses

A chart of the monthly FTSE 100 price looks something like this:

Click to enlarge, Monthly FTSE 100 Price

This is the chart that you’ll see on all the mainstream media channels and it shows that the FTSE 100 still has about 32% to fall if it’s going to match the worst of the global financial crisis (GFC).  This sounds like a long way until one thinks about a big failing with this type of chart.  It’s unit of measurement…  The FTSE 100 is priced in £’s and they’re constantly being devalued via inflation.  So, let’s take out a different lens and try and look at the chart in real, inflation adjusted, terms.

Firstly, let’s correct for the consumer price index (CPI):

Click to enlarge, Real (CPI) Monthly FTSE 100 Price

That shows that instead of falls of 32% being needed it’s actually closer to falls of 16% for parity with the worst of the GFC.

Now let’s correct for the retail prices index (RPI):

Click to enlarge, Real (RPI) Monthly FTSE 100 Price

Now we’re talking about 8% falls for parity with the worst of the GFC.

So then the million pound question becomes, from a financial perspective is COVID-19 going to be worse or better than the Global Financial Crisis?  My answer to that is I have no idea so here’s what I’m doing.

Over the past few weeks, we’ve gradually built up just enough food and other supplies to see us through 14 days of self-isolation just in case we need to do the right thing by our friends, neighbours and acquaintances.  This included 1 packet of toilet paper, 1 bottle of ant-bacterial soap, no hand sanitiser and no baby wipes.  This stock piling of toilet paper, soap, hand sanitiser, baby wipes and other important items by some is just sticking the middle finger up at others saying ‘I’m alright Jack’ in my view.  My local supermarket shelves are now empty in these areas.

We’re also pseudo social isolating by just minimising our contact with people generally while also still living well. Practically, this means we’re still spending plenty of time in the great outdoors but doing no travel (international as well as no local buses and trains – one of the great things about being walking distance to facilities), no dinner parties and no visits to local restaurants.

On the financial side I’m yet to hit any of my rebalancing bands, which I’ve set at “If any asset allocation gets more than 25% away from nominal I will either sell or buy as appropriate to reduce back to nominal” so have done nothing financially, yet.  Right now from a rebalancing perspective it looks something like:

• I’m overweight gold by 17% of nominal.
• I’m overweight bonds by 3% of nominal.
• As it’s looking more and more like we’ll eventually end up in an Asian location I’ve been gradually starting to shift my home bias from the UK to our likely new location.  That means I’m now underweight that location by 17% and overweight the UK by 24%.
• After the recent delisting of Hansteen I’m also 17% underweight property.
• I’m also 6% underweight international equites.

That said, I am about to take some action but it’s driven by one of my other investing pillars which is to always try to minimise tax while not letting the tax tail wag the investment dog. In this case it’s capital gains tax.  As we approach the end of the 2019/20 tax year I am still yet to use any of my £12,000 annual tax free capital gains tax allowance.  I’m still to finalise the plan but it will likely take the following form:

• Sell some of my UK HYP from my trading account before the end of the tax year
• Sell some of my gold from my trading account before the end of the tax year
• Immediately buy equities in my trading account to continue my home bias gradual shift while holding back £20,000.  The proxy I’ll use for this is Vanguard’s FTSE Developed Asia Pacific ex Japan UCITS ETF (VAPX)
• As soon as the new 2020/21 ISA window opens buy £20,000 of VAPX.

This won’t rebalance things fully but I’m not doing this to rebalance merely to minimise taxes at this point.

Are you or have you taken any action, either financial or non-financial?