WHEN I first came to live in Scotland, I learned many new things, including some striking and evocative sayings.
One such was “the cobbler’s bairns are aye the worst shod”, which sums up the failings of a professional who clearly fails to apply in his own life the expertise he provides to others. As an example, think of the doctor who likes his dram and smokes 40 a day, or the joiner whose doors at home are on shoogly hinges.
The reason this comes to mind is that recently I was asked what I did with my own money. It’s a perfectly reasonable question to ask someone who makes a living by managing other people’s investments and giving them financial advice, but I have to confess it rather flummoxed me. I will tell you the answer in a moment, but first of all I’ll try and explain why I found it a tricky question to answer properly, and why I wouldn’t necessarily do for myself what I do for clients.
There are two opposing forces when it comes to running my own money. One is the temptation of knowledge, the other is the weariness of familiarity.
On the one hand, I do know much more than most people about the fantastic diversity of potential opportunities; it would be very easy to spend a lot of time designing and running a very complicated portfolio of exotic investments.
On the other hand, I actually put quite a bit of effort into managing investments for my clients, so when I get home the prospect of extending the working day by managing my own modest pot isn’t quite as appealing as walking the dogs or going fishing. And working in a tightly regulated industry, where every deal you do is – quite properly – subject to prior approval, makes it a real effort to run a highly active portfolio.
And although we take very great care to understand what our clients want and what level of risk they are willing to accept, the client I understand best of all is me. Because of this, I can accept on my own behalf risks that I wouldn’t necessarily impose on my clients; I know exactly what my own pain threshold is, and I know that if something goes wrong it’s my own fault. Many of my clients use excellent independent advisers for general guidance; I only need to consult a specialist for highly technical matters.
So, how well shod are my bairns? Well, in investment terms they wear solid but unflashy shoes that may not look much on the catwalk but which will take them a long way without pinching the feet. Soon after I started working, I set up a monthly standing order into an investment trust savings scheme, and it is a very effective and almost painless way of gradually building up exposure to a diversified equity portfolio.
At the same time, like many of my contemporaries, I had what in hindsight was the great good fortune to be enrolled in a defined benefit (final salary) pension fund. This means that much of the hard work and risk is being borne by someone else.
However, as I moved jobs, I found (again, this is a common experience) that defined benefit schemes were becoming much rarer, and as a result I had to start doing some planning of my own. I do eat my own cooking: as well as shares in the company I work for, I only hold funds which can also be owned by clients.
Some of the money goes into a passive tracker fund, which effectively delivers stock market performance at a very low cost; the rest is in two very different actively managed investment trusts with good long-term records. The way I reconcile the apparent conflict between using tracker funds, which express the view that markets are efficient, and active funds, which claim they aren’t, is to say that I believe that markets are largely but not completely efficient, and also to point out that the lower fees of tracker funds can help to reduce the overall costs of the portfolio.
What else is relevant? I only hold equities, as I have a long-term time horizon, and for the same reason I never worry about short-term performance (anything less than three years), so long as the active funds I hold are taking what I regard as sensible decisions. So there it is; not particularly sophisticated, but it works for me.
• Gareth Howlett is fund manager director at Brooks Macdonald Asset Management