Taking Risks
In this article in The Times yesterday Carl Mortished was arguing that we need more risk-takers. He ends with these two paragraphs.
The solution to our economic problems is not to tie everything down but to unwind the screws, loosen the bolts. We want true risk-takers, those people who centuries ago might finance a ship destined for a spice island. Someone truly prepared to risk the shirt on their backs, who fears that his “monstruosity” might bite off his own head.
Financial capital is now fleeing Britain, heading to the Far East. A long queue of companies is chasing the money, including our own Prudential, which is floating a business on the Chinese stock market. The true venturers are over there, not in Britain.
He is absolutely right.
So am I still taking risks?
Yes!
For a start I’m going round the world. Not much you’d think, but I’ve lost my wife and youngest son in recent years, five weeks ago I had a small stroke and the medics have said I’ve got a leaky heart valve and the heart rhythm is up the creek.
So take risks and enjoy life. Live the quiet life and you’ll never understand what it’s all about.
Zopa and the Election
I am an inveterate analyser of data. After all it’s what I’ve done since I was about seventeen and I successfully explained the shape of the response I got when a small ferrous inclusion in a copper wire passed through an electromagnetic coil.
That was forty-five years ago.
So can all the data I’ve got from Zopa be used to explain how people feel about the election and show how Zopa is affected by what is going to happen on May 6th?
Here’s a graph of my returns since the start of the year.
Zopa Returns - 2010
The four lines on this graph are.
- The rate at which money is lent out in the A* Rate.
- The return on money in Zopa over the last six months. This takes account of any bad debts.
- The return on money over the last year. Bad debts as before.
- The return on money over the last year, adjusted for arrears. Bad debts are accounted for and if arrears are greater than a year ago, they are counted as bad debts.
Taking the last three it would appear that things have changed since the election was announced, as they have all dropped and then recovered slightly. This is solely due to an additional bad debt, caused by the death of the borrower. No system can take care of that very sad event.
Probably the best measure of the return is to look at it in the middle of the month. Today is the 13th, so the return on money over the last year is 5.42%, 5.35%, 5.38% and 5.18% for the last four months. So it has dropped 0.2% because of that bad debt. If that is eliminated then the return for April 13th would actually be 5.37%.
So the election has done what you’d expect and had no affect, as most deals were done whilst the date of the election was not known.
But look at the A* borrowing rate.
If you look at the graph, you’ll see that the rate often drops around the 5th to the 10th of each month. This is probably because most loans are paid around the turn of the month and the effect of that money being reinvested is to drop the loan rate slightly because of the supply of money being increased.
But this month it has dropped further than normal after creeping up slightly for the last month or so. Perhaps the rate has increased because of high demand for money.
Could this be that as reported retail sales have been high this month and people are borrowing at a rate they trust to finance it? Or are they worried about the new government increasing VAT?
But really there is no hard and fast evidence that Zopa is being seriously affected by the election.
I shall return to this as the elction approaches.
Harry Markopolos – 2
I bought the book from Waterstones yesterday and I have read the first few chapters on the train home from London.
Brilliant!
He spotted what Madoff was up to in 2000, but the SEC wouldn’t listen and took no action. He also alleges that others felt the same about Madoff, but were happy to take the money.
My respect for Harry grows.
Reading his book, just increases my distrust for financial advisers. I think it is why I like Zopa. There the money is under MY control and I live or fall by my decisions. I know nothing about stocks and shares, so I keep clear of them.
Harry Markopolos
Harry Markopolos is the sort of man I like.
In 2000, he was asked if he could find out how Bernard Madoff made such high returns. So he reverse-modelled Madoff’s results and concluded that he was either running a giant Ponzi scheme or he was illegally trading clients money.
He stuck at it and in 2005 to sent a document to SEC regulators stating.
Bernie Madoff is running the world’s largest unregistered hedge fund. He’s organized this business as “hedge fund of funds privately labeling their own hedge funds which Bernie Madoff secretly runs for them using a split-strike conversion strategy getting paid only trading commissions which are not disclosed.”
No action was taken and we all know now that he was right as in December 2008, Madoff confessed and he is now spending the rest of his life in jail.
Harry has just written a biography called No One Would Listen; A True Financial Thriller.
I shall be buying.
As to Madoff, he just proved that if something is too good to be true, it probably is. It’s just that when people do what Madoff did, no-one listens to the Harrys of this world.
The Banks Hidden Charges With Zopa
Not on Zopa!
Everything they do is detailed on your statement.
But take this week.
I wanted to put £500 into Zopa on Monday, so I did the transfer then. Only three days later has it turned up in my Zopa account. It used to be done straight from my debit card, but then one of the banks said that doing it that way, they didn’t get their pound of flesh.
So effectively they have my money for three days. At my rate of return on Zopa, that’s about forty-five pence.
Why?
I suppose they have to make their bonuses some way. My old mate, David, once told me that in the 1980s banks made a third of their profits on this sort of overnight money.
Has anything changed?
The Budget
Today we have the budget.
It is very much a waste of time, as the election is not even around the corner, but here in a few weeks.
But I have a more fundamental problem with budgets. If you run a business, you take financial decisions on a day-to-day basis and not at one fixed point in the year.
So is the system we have rather outdated in a modern world were a crisis can hit you overnight?
I don’t think we want to have budgets every month, but we need to have a system that on the one hand is more responsive to events and on the other takes the variations out of such things as fuel prices.
What would I do?
- I’d tax all energy heavily and use the money saved to take millions out of the tax system. It couldn’t be done overnight, but increased yearly it would have profound and positive effect on everybody’s lives.
- I’d also abolish Vehicle Excise Duty and replace it with a car transfer tax of say £30 or so to make sure all vehicles were very traceable.
- I’d also tax aircraft fuel. It is ridiculous that it is tax-free.
- I’d have a top tax rate of 50%, but anybody you employ for whatever purpose would be allowable against that tax. So if you have an idea, you could perhaps employ a student to do the leg work on it for say six months and then claim that against your tax. Childcare, gardening and all those other things would also be allowed.
- I’d abolish Inheritance Tax. I’ve had letters published in the Financial Times on that one. Two pence on Income Tax would raise the same and rich never pay Inheritance Tax anyway.
- I’d increase the tax on tobacco. Although, I doubt it would raise much money.
- I’d subsidise patents and IPR. The costs at present strangle innovation by individuals.
- But the biggest savings will come from getting rid of projects that no-one actually wants, like aircraft carriers, Joint Strike Fighter, Trident replacement, identity cards, bureacracy, extravagant pensions for civil servants etc. It is a long list!
I’ll add to this as the day goes on.
The aim though is to be tax neutral and perhaps even raise a bit more.
If you take high energy taxes, then this would raise more tax than you think, as there are large numbers of people who don’t pay tax and always seem to have large 4x4s. We’d be taxing the Black Economy which is a lot bigger than anybody thinks.
We should aim to have taxes that you can’t avoid or taxes that by avoiding them you create jobs and commercial activity.
The Communication Wall
Sometimes you think of ideas, sometimes they just grow on you. This is probably not my idea, as someone has probably already thought of it, but who cares, I’ll post my thoughts on it.
Where is Technology Going?
In fact I’ll concentrate on three pieces of technology.
The first is screens. As I watch this I’m watching the television on a 50 cm. screen. Not very big, but I know, although I don’t know where it will come from, but that in a few years time, I will be able to have a screen perhaps four metres to two or even bigger.
It will also have all the following features :-
- Low power, as a screen that size mustn’t act like a space heater.
- High pixel density, so that small details will be shown well. I would suspect a density about the same on the average laptop.
- Touch screen.
- It might also have other features like being curved and flexible.
How will it be driven? This leads to the second point.
It would probably be driven by Windows, although it might be bigger than 10,000 x 5,000 pixels. But the way computing power is going, that will not be a problem. Remember too, that Windows has the ability to run media displays, do e-mail, show web pages etc. already.
The third piece of technology is apps, such as you see with things like iPhones.
If it is Windows, then these would be easy to write.
I know that I’m biased against Macs, but once the screen is developed it could work with either system. Or Linux too! But it needs to be a generally available computer operating system, that people are happy working with.
You also have to take into account that in a few years or even possibly months, all video and audio content will be instantly downloadable. So if you want to watch Two for the Road, then you just select it and play it over the Internet.
A Few Basic Apps
The screen and its computer driver would support the following :-
- TV and video. Obviously multiple video screens would be created in different areas of the screen.
- It would have an e-mail or SMS address or several, so that you could send messages to the screen, or in fact an area of the screen. How many wives have telephoned their husbands to not forget to put the casserole in the oven? The message would be flashing in his area of the screen.
- It would have the ability to just touch the screen and write a message there, just like you can on a whiteboard. But the computer would remember everything that is written.
- Obviously, you could also use a remote pointer and keyboard to control everything, but when you touch the screen, you would also have the option of a keyboard.
I hope you get the idea.
The Domestic Wall
This is where I started.
All of the clutter of TV’s, video-players, umpteen remote controls would be reduced to a large screen, decent speakers for sound and a pointing device with a keyboard. As I said earlier, all video/audio content would usually be over the Internet or from the hard disc of the computer. Sad to think that albums with all their glorious artwork would be gone, but wouldn’t every audio download have a video feed to go with the sound.
As you could have multiple TV screens, you could monitor several channels at once. I do this sometimes with say cricket on one channel and football on another, whilst listening to the radio. You could click and change at will. Also, if like me you have CCTV cameras here watching horses, then these would be small screens at the edge of the wall.
Or you could show a film or sport on the whole screen.
Then there is the communication aspects.
- E-mails or SMS messages could be sent to the wall.
- Replies could also be sent quickly, just using your fingers.
- Notes could be written for all and sundry.
- All messages would get remembered.
And why not use it as a giant and funky photo-frame when it is not being used? Or to introduce subtle and beautiful lighting effects into the room.
Once you get the basic system going then you can add apps, that do specific tasks.
Imagine a shopping app for Waitrose!
You might have a simple scanner, that is wirelessly connected to the screen. You need two cans of tomatoes, so you just scan one tin, the appropriate number of times. This would build the basis list on the wall, which can be added to so that your on-line shopping never misses what you need.
The Business Wall
This would be basically be similar, but with more emphasis on messages than TV and video.
But who knows?
After all, because apps would be developed, that would handle various business applications, the world is the system’s oyster.
One thing I bang on about to clients is the need to communicate. I’ve found that if the company’s performance database is easily available, then the productivity often improves, as managers spend more time managing, than repeating the same messages again and again. Junior staff too have better information and make better decisions.
The trouble is there are too many managers who believe in mushroom management.
What Next?
Someone develop the screen and the rest as they say will happen!
John Lewis/Waitrose: Shops of Choice for Champagne Socialists?
I heard an actor on the radio a couple of weeks ago, going on about the evils of capitalism. It might be alright for him to pontificate about large salaries, but he showed little knowledge about how market forces work. In other words if we had a hundred percent tax on all salaries over say £50,000, we’d lose anybody of talent. Well not all, as surely black-marketeers and tax fraudsters would have a field day.
But he did put in a good word for John Lewis and its Waitrose subsidiary, as they are partnerships in which all employees have stakes.
So does this explain why in this recession, they have done so well? Perhaps, those of the left feel that they must spend their money where it doesn’t go to shareholders.
Keep it Small on Zopa
Over the last few months, I’ve been trying to reduce the size of the individual loans I make on Zopa. I now have a limit of forty pounds and the average loan is just above that figure for the over a thousand contracts I have. When I started I had a limit of two hundred pounds and a couple of those loans went into default, which meant I had some bad debts. There was also the problem then of liquidity in that there wasn’t the same number of Zopa borrowers and it was sometimes difficult to lend the money out. Now, if I put say a thousand pounds into the market, it gets lent out within a couple of days. Note that my low limits on each individual loan, do not give Zopa any extra costs, as they only check the borrower once and the other is just data processing.
There also appears to be a big difference in how Zopa checks borrowers. They have said that their checks are more stringent, but they also appear to be much faster. Perhaps, this is because they are now bigger and have more staff, but they must have better systems too!
This leads to an interesting theory. As Zopa and others like them get bigger, then the markets will get much more fluid and responsive. Money will get lent out quickly in loans split into hundreds of small ones. This will mean that larger lenders like me, will have thousands of loans which will spread their risk and thus, they will get a good return.
Do I have any evidence to back this up?
Possibly!
My rate of return over the last year is 5.39% before tax and taking it since October 2008, it is 5.55%. These are not bad returns in these troubled times.
But if I look at my returns over the last six months, the figure is 5.85%. It would appear that my policy of restricting the amount I lend to individual borrowers is having an effect, as I started this policy in the summer of last year.
When looking at loans in arrears, I have less outstanding now than I did a year ago. Partly, this is due to the smaller amounts lend, but mainly this is due to Zopa‘s better systems.
But I am not a hundred percent optimistic. We have an election coming up and who knows what that will bring.
But I certainly feel that if you want a better return on your money, that Zopa and their ilk are a better proposition than something like an Icelandic bank.
Do I have any regrets about Zopa?
Not really! But one of my borrowers died. It just goes to show how that in this world there are much more important things than money. My heart goes out to their family and friends.
The Anonymous Widower 