Holly's Blog: Free lunches and shiny promises
5 Oct, 2018
I am still recovering from this morning’s spinning class. Our usual teacher was away and the insanely jolly man covering her “didn’t do tech”. So no screens. No functional threshold power. No watts or %s or monitors. Just a bit of Erasure, Eminem, Cher and some old-fashioned sweat. Back to basics.
Turning to investments, I’m also a fan of basics. History tells us that it is when we start to fiddle and tinker and try to make 2 and 2 add up to 5 that things go pop. And I note a growing trend towards the shiny, the shouty and the showbiz. This alarms me.
I’m not a fan of peer-to-peer lending
Funding Circle was founded in the aftermath of the financial crisis, when trust in traditional banks was rock bottom. It basically lets small and medium-sized companies borrow from ordinary investors and other firms, rather than the big traditional banks. And investors get a higher interest rate than they would on the high street. Trouble is – smaller companies are riskier and can go pop. And then they can’t pay you back. I don’t go near these businesses or investments because I can’t properly get a feel for how risky it is.
As for its own financials, this week Funding Circle floated on the Stock Exchange and the original price of £4.40 has fallen to £3.40 today. Ouch – that’s an expensive 2 days. And lots of institutional money piled into this company which made about £95m revenue last year, is loss-making and (was) valued at £1.5bn. Isn’t this a bit like buying Lastminute.com at IPO in 2001? The Latin Lover of investments – slick hair but no visible backbone.
I do like the concept, I wish every innovative new business well and God knows I’m no fan of the big banks. But I worry that the jolly website packed with honest looking small business owners glosses over the fact that 90% of start-ups fail. And small businesses struggle. I’d rather invest with bigger firms, which are unfashionably profitable and make things or offer services which I understand. It might be fun to think that we might back the next big Boy Juice maker (that’s craft beer btw) – but this is risky and the very definition of putting all your eggs into at most couple of floppy baskets.
Now this gets grumpier as I turn to the spivs. It makes me mad, the number of timber schemes/shipping pallet schemes/tarted-up monthly income bonds (repeat to fade) which promise returns which are usually at least 10 x interest rates, suggest that these are guaranteed and also claim not to charge any fees. I don’t need to read the small print to know that this is a load of jollocks. This is not alchemy, they are not registered charities and there is no such thing as a free lunch. If someone promises you high returns which are guaranteed and say there are no charges be very suspicious.
Unclear about the charges
FTSE100 and dominant brand St James Place does offer potential investors a free lunch. Literally. Probably wine too. I have no issue with their service, they are at liberty to charge what they want for their products, but I do hate with a passion the lack of clarity about charges and the way that they lock people into products with exorbitant exit charges. I never forget talking to one of our readers who told me he went to a lunch, saw all the expensive cars in the car park, and decided to buy shares in the company rather than their services. Rather unusually he did get a free lunch.
There are plenty of decent firms offering clients solid investments at decent prices. Everyone in our Best Buys (https://www.boringmoney.co.uk/isas-pensions/) tables is one of them. Some might be pricier than others. Some will do marginally better in performance terms. Others will offer better service and websites. But they aren’t peddling ‘weird stuff’, they will tell you what they charge and they are run by mostly decent people trying to do a good job. I’m sick of all those nasty kids on The Apprentice with big over-used gobs. Business is personal and real entrepreneurs have to be trusted and likeable. I’m angry about the spiv rip-off schemes peddled online. I’m cross about the firms who aren’t clear about what they charge. And much like this morning’s spinning class, we need to see past all the flashy machines and marketing gloss and realise that investing is just backing solid, decent companies which make things we understand and have bigger revenues than cost bases. If it gets too thrilling – you’re probably doing something wrong.
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