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Large Vs Small investing in Ireland in 2020 and beyond….Blog 164

informed decisions blog

Large Vs Small investing in Ireland in 2020 and beyond….Blog 164

11th January 2021

Paddy Delaney


I hope that you had an enjoyable Christmas holiday – and are raring to go. This week in the first piece of 2021 I wanted to share a couple of things that had been knocking around my brain since our last post at the end of December;

  • How the differing macro equity sectors performed in 2020
  • Just how variable these rates of returns are from year to year
  • Two cracking books I read that prompted me to do things differently from now on

A mixed bag of topics this week, but that’s what happens when I don’t get to ‘vent’ for two or three weeks!

Investing in Ireland – Does Past Performance Matter??

I don’t put much credence on ever looking backwards. I’m a believer in only reflecting on the past in order to try glean some bit of learning that might help us on the future. This is an approach that is adaptable in all aspects of life and particularly so in our financial planning.

You don’t need me to remind you of the journey that us equity investors went on during 2020. The significant market decline in Feb/March, followed by the sustained and record-breaking recovery up to the end of the year. The financial media got lots of mileage from Tesla, Bitcoin and the Big 4 (Pod187) price surges. You probably will not have seen any reference at all to broader Indices – it was news about Tesla & Co that proves to be better click-bait.

And that is an important aspect here – with much of ‘smart-money’ particularly in recent years heading to broader macro index approaches, does the daily price movement of Tesla & Co stocks really have much of a bearing on those of us who don’t wager a large % of our portfolios on these companies? Not really is the answer to that by the way! So, what is of interest?

What is (or should!) be of interest is that our portfolio is positioned in line with our plan – that the blend of equity sector to Bond to Geographical split is hitched firmly to our long term need for returns/income etc. What is important to track is that your overall strategy is in line with those goals on an on-going basis – if the goals change dramatically then the strategy to achieve them might need to be tweaked – otherwise leave things as they are! Note here that I say it should be of ‘interest’, not ‘concern’ (read Blog 163 for more on this topic!).

What definitely should fall into ones’ Circle of Influence is to ensure that whatever underlying funds you have chosen within your strategy are performing at least in line with it’s peers. This is an area that even many advisors don’t or can’t do. At Informed Decisions we commit to getting our clients the returns of the market – in line with whatever portfolio we have chosen together to achieve their plan. What is rather shocking is that not all equity funds are equal! Every year in analysing the performance of like-for-like index funds across multiple globally recognized passive fund providers we see large variances in the performance. Tracking error is so seldom spoken about but is undoubtedly costing investors dearly. I have a fair idea why even the more independent of advisors pick certain fund providers and often they do so quite blindly, and at their clients expense. There’ll be a piece on this coming in due course!

Investing in Ireland – Performance of Different Sectors in 2020

Many believe that to truly get the returns of the global market an equity investor might consider holding (in their own unique proportions) the three major components of all great companies across the world; Large Cap companies, Small Cap companies, and Emerging Market companies. Oh, and purely to offer some liquidity when the equity portion is down, and to navigate periods of temporary equity declines; a slice too of Global Bonds.

In 2020 how did these four very different components perform. Assuming you were invested in a fund which did actually deliver these returns of these sectors properly, you achieved the following between 1/1/2020 and 31/12/2020:

  • Large Cap +5.5%
  • Small Cap +6.2%
  • Emerging Market +8.2%
  • Global Bond +4.8%

By way of example, if you held 25% of each of these over the course of 2020, your portfolio was +6.1% over the course of the years (despite being down by about 26% in March!).

Owning a broad and diversified blend of equity sectors has ensured that investors achieved the returns of the market – in a hugely diversified and prudent way. Without having to pick and chase returns the smart money, as it has done since indexing began, delivers what we need. 2021 of course may be very different, just as we did in December 2018 (do you remember??) we could see markets down by 25% on Christmas Eve – but if we are deliberate in how we invested and it is aligned to our broader finances, you need not be concerned.

Two Books – A New Mindset!?

It isn’t directly relating to investing in Ireland but reading is key! It seems that many people will tell you about all the books they read as an indirect way to suggest that they are smart! I read a reasonable amount of books (not really as many as I would like to), but often find that I dip in and out of books – often re-reading ones that were particularly interesting. I have yet to master the buffet-esque approach of devoting 80% of working life to reading and developing knowledge, maybe some day! I go through phases where I will read finance-related books, then a phase of personal development/effectiveness, then onto to random fiction stuff from the likes of Wilbur Smith (chewing-gum for the brain as someone once described it!). Over Christmas I re-read two books that I had previously read before I formally commenced Informed Decisions nearly three years ago now; The E-Myth and The Power of Less. A few thoughts on each.

E-Myth: This is a classic, as in has sold millions of copies – and is often referred to as the must-read for any business owner. Many listeners are business owners and many of you will be familiar with this book. What I loved about it was the planful approach the book recommends we take to our business. If you own a business, it is an opportunity for you to create your ideal life essentially. This may sound like nonsense to some, but if you view it this way, it is absolutely bang-on. Beginning with the end in mind, that is exactly what the author Michael Gerber, invites you to do; what is your ideal work/life look like; income, hours, impact, type of work, who you’ll serve, how you’ll do it. This to me is the only logical way to go about developing a business, and having read this book has given me new frameworks to approach the business and way we’ll grow it. I’m a fan of taking notes while I read this type of book, and have 3 pages of hand-written frameworks that I’m completing to help develop the processes, systems and goals for the business, and importantly to guide the execution of these aspects.

At 2 ¾ years Informed Decisions is at a relatively early stages – but I do work with some really successful business owners that have created businesses that work for them and enable their ideal lives (that’s success!). An open invite to active Tribe Members; I would love to chat on the podcast with any listener that has applied some of these frameworks to design and build their business. Open invite – if you are a Tribe Member drop me a message and we’ll do it!

The Power of Less: There is no denying that our lives are full, rammed, packed with everything! Work, admin, content, information, disruption, media, exercise, thoughts, concerns, goals, emotion, noise. It is only when we stop and reflect on our days that we recognise how truly full our lives are. Compared to the lives of people only a couple of generations ago we’re incredibly busy. A simple barometer is to consider how often do we actually do nothing!? For most of us, not often.

This book (I got a copy on amazon for €0.99 a few years ago!) is not about smashing your phone, selling the house, leaving the kids and moving into the woods but it does give us practical and actionable steps to manage the interruptions and control how and what we let into our focus. The single biggest take-away I have got from reading it is the power of Focus. As with many business owners and family people I’m often spinning twenty plates. I have recognised the difficulty, limitations and damage of such an approach and have taken practical steps to focus on one thing at a time.

One thing I am trialing at the moment for example is to check and work on emails once per day – only once. The logic here is that when we are working on a piece of analysis or planning for a client, that is all we are doing for that portion of the day. It allows us start and finish something in one sitting. When scheduling calls or video meetings the author Leo Babauta suggest they should be grouped together in slots on particular days of the week. Simple concepts which take some effort and thought but which will (hopefully) allow more effective and productive use of the remaining time for people.

1 Thing?

Again, not related to investing in Ireland at all! Finally, I suggested earlier than unless your investment portfolio is broken don’t try fix it. But in speaking about fun and games, if you reflect on your Christmas break and to you it was a time of pleasure and doing things that you love doing, here’s a question for you to take a pen and paper to do some notes on perhaps; What 1 change could you make to your work/life/approach that would enable you to do and engage in more of those things throughout the rest of January? The reason I ask is because just as many of us do with regards to retirement, we tend to look forward to Christmas as a time when we will finally do fun and enjoyable stuff….but really what is to stop us creating more of that fun stuff now??

Until next week, thanks.

Paddy Delaney.

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