The London South East, Investing Matters Podcast, Episode 17, Nick Britton, Head of Intermediary Communications at The AIC

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Peter Higgins 00:18

Hello, and welcome to the Investing Matters Podcast. Today I have the privilege of speaking with Nick Britton, Head of Intermediary Communications at the Association of Investment Companies. Nick is a former financial and business journalist and Nick joined AIC in 2015. How are you, Nick?

Nick Britton 00:38

I'm very well, thanks very much for having me on the podcast.

Peter Higgins 00:41

Thank you very much for joining us. I'm thrilled to have you on Nick. I know the huge amount of work that you and your colleagues do at the AIC and the importance of it. So I want to start our conversation really, with the educational aspects for you, and then going from uni to Shanghai. Why Shanghai? Let's start there, please.

Nick Britton 01:00

Sure. So I grew up in Bolton, near Manchester. And my parents weren't from there, they both moved there. So I'm sort of a semi kind of Northern, born and bred in Bolton, but my parents are not from there. So I grew up speaking a little bit different to everyone else in Bolton, which occasionally was cause for a little bit of ribbing at school, but I managed to survive that. I then went to university at Cambridge, I studied English.

And after that, really, I felt I wanted to do something completely different, because I felt like I'd lived my whole life, you know, in education, I've been mixing with a certain kind of people. And I felt like I want to go somewhere totally different. And I was quite open minded about where it would be.

So fortunately, I'm very lucky to be a native speaker of English. And at the time anyway, that was like a free passport to go to lots of different countries and teach English.

So I applied for about half a dozen different jobs teach English in, I think, Greece, Turkey, Sri Lanka, Japan, China. And it just so happened that the people in China in Shanghai got back to me first, they were the most desperate. And after a fairly quick sort of half an hour interview, they said, yes, we'd like you to buy your tickets and come to Shanghai and teach English. My parents worried at that point, as you can imagine, but I thought it was great. So I went over there, I'd have fantastic time that I didn't intend to stay for three years, but I did. I met a woman there. Who’s now my wife, and lived in other countries as well before coming back to London. So it was a major decision that was almost entirely the result of chance, rather than any serious thought. But that's kind of defined the direction of my life. Really.

Peter Higgins 02:34

Brilliant. Now, what was your main learning and life experiences from that three years have been a completely different environment? Obviously, you met your wife, and that changed everything for you as well.

Nick Britton 02:44

Sure, you know, I was fascinated by Shanghai right from day one, because it was so different. I mean, if you think you know, Bolton, yeah, I'd seen…..

Peter Higgins 02:52

Oh, I know, Bolton. Yeah, yeah.

Nick Britton 02:55

I lived in Cambridge. And, of course, I've been to London, you know, a few times. But I've never been to the US, for example. So I've never seen really big high rise cities before, for a start. Now, maybe if I'd seen New York or something, I, you know, would have a bit less impact. But I'd never seen that for a start. I'd certainly never seen anything like Shanghai, which was growing so fast at the time, you could go away from Shanghai for a week and come back, and there'd be new buildings in your street.

You know, that's how fast it was growing. The pace of life, the attitude of people was so different. There was excitement about the future, and a sense of the future is going to be better than the past. People are very entrepreneurial, business minded, you only have to talk to somebody for five minutes. And they're thinking, Okay, what's the angle here?

You know, maybe you could come into business with me, that's completely different from what I've been used to. So it was really fascinating. You saw how different culture could be how different people could be. But at the same times, there's similarities and it's hard to it is a bit of a cliche about travel, broadening the mind, but I think I'd recommend it to anybody who's lucky enough to have the opportunity to go and live in a completely different country because I think it does give you a different perspective on things and it makes you sort of appreciate and understand your own country a lot better as well. And I certainly when I feel like I do that because I've lived somewhere else. So it gives you a different perspective on things but I think it's very useful.

Peter Higgins 04:18

Brilliant. Now that perspective obviously you utilise you came back into the country. And then you got various different jobs as a journalist, editor of What Magazine Head of Research at Vitesse Media, which is now Bonhill Group, and they produce reports for Directors’ Pay on AIM, Cash Shells Directory and and lots of other bits and pieces and VCT reports. Now, what was it about that work? And a certain boss that triggered your interest back in investing all over again?

Nick Britton 04:47

Sure. Well, I I'd always been interested in money and in saving, but I hadn't been used to family background investing at all really. And I became interested in it in my mid 20’s. When I started to work as you said was Vitesse Media and talking to entrepreneurs, people who set up companies really, really fascinating people doing research into the AIM markets, starting to research into VCTs. And then going through the global financial crisis, which for somebody just starting out in financial business journalism was obviously devastating for a lot of people, but really kind of fascinating, from a journalist point of view to understand, you know, what was going on there.

And how had the strains machinations with some obscure financial instruments managed to cause you know, almost the collapse of the whole financial system, that I think we're still dealing with the fallout from, and lots of lots of different ways.

So I was hooked really, then on sort of finance and business. And then when I started to get into investments, I became really intrigued because I was already investing myself by that time. And I started to see the connection between what I what I was writing, and the way that the value of my portfolio was going up and down. And I suppose the other thing that really fascinated me about investing, and still does, is the fact that performance is so transparent, compared with an awful lot of other industries or walks of life where it is genuinely very hard to assess somebody's performance in investing, really, it's very easy to see how a certain strategy or manager has performed, and there's nowhere to hide. And I love the way that sort of numbers and personalities come together with economics, and also people's personal finances, which is, you know, hugely important to all of us. So, from then I didn't have a lot of back, the boss you're referring to is, of course, Annabelle Brody-Smith, at the AIC.

I think you set that one up nicely, Peter, and that's what you did there. I know Annabelle has been on the podcast before. So perhaps people heard that interview. But I'd worked with Annabel when I was a journalist. So I was on the other sort of side of the fence.

And she was trying to persuade me to write bad investment companies, which wasn't hard because they really fascinating. And you know, when I'd sort of come to a bit to the end of the road of being a journalist and having enough of it.

This opportunity came up to work at the the Association of Investment Companies, the AIC, where I am now with with Annabelle and I thought, well, you know, it's always, you know, moving from journalism to PR, you worry a little bit about, well, am I selling out? Am I going to have to push clients and products that I really don't believe in, but I thought, well, this if I'm going to do it, and this is a great opportunity, because I'm going to be working with Annabelle, who I know very well, on the team at the AIC, Jemma Jackson as well, of course, moved on to interactive investor was there at the time as well. And so it's a great team. And it's a product that I really believe in, actually and invest in myself.

So I'm not going to feel awkward or embarrassed about doing this job at all, because, you know, we're helping to promote what is a great and also very underrated funds structure here.

So that was this the sub what kind of roundabout route by which I ended up at the AIC in the communications team, working with journalists, but also financial advisors and wealth managers to help them hopefully understand Investment Companies bit better.

Peter Higgins 08:01

Absolutely. So we're talking now around 2015 you joined?

Nick Britton 08:05

That's right. 2015.

Peter Higgins 08:06

So you've been educating everybody since then. But you work mainly with financial advisors, wealth managers supporting them with the use of investment companies and VCs. Now, we've already spoken obviously, as you said with Annabelle, but I just wanted to just cover a little bit the differences between investment funds and investment trusts, just for our listeners to just clarify again and reiterate again, the nuances and differences between the two, if you would please, Nick.

Nick Britton 08:36

Absolutely. So think the first thing I'd say is that investment companies or more commonly known as investment trusts, are actually funds. They are funds.

They're just a kind of fund. But they are different from what's normally referred to as funds, which are open ended funds. So investment if we start off with investment companies, they are companies that are listed on the stock exchange, just like any other company, just like Unilever (ULVR) or HSBC (HSBA), your every investment company is listed on the stock exchange.

But unlike HSBC, it doesn't do any trading business, it doesn't sell products or services and investment company exists just to invest. And by buying shares and that investment company, you get access to that investment portfolio that is invested. Now, obviously, most funds are not like that open ended funds are sort of pools of money that's run by an asset manager to give you exposure to unlike investments, but they're not companies quoted on the stock market. That's a very key difference.

Because investment companies are quoted on the stock market. It has a number of important ramifications for investors. They have boards of directors, independent board of directors who are put in place solely to look after the interests of shareholders. And that's very important. They trade as a share price, which might be higher or lower than the value of the assets in the fund. And that's why we talk a lot in the Investment Trust world. You hear people banging on about discounts or premiums. That's what they're talking about the difference between the underlying assets value, and the share price at which the investment company shares trade. And it does, those things are different. And that's why you get the discount premium. And also investment that companies are able to get, they're able to borrow money to invest.

Most of them don't. But just over half investment companies don't have any gearing, but some of them do. And that's something that can help enhance that returns over time, although it also adds some risk. So those I think, are the main differences between investment companies and other funds.

Peter Higgins 10:28

Excellent. Love that for reply. Thank you very much. Now, as I said earlier, your work mainly with financial advisors, and wealth managers, and so on so forth now, and the use of VCTs. I want to talk about that a bit later on. But please, can you expand really on the sheer scale of the work, the importance, and why the benefits and the positives for investors and the Investing Matters listeners, because obviously, you're working with the Chartered Institute of Securities Investment nationally. So some massive scale of work that you're actually doing to try and get these intermediaries aware to impart the knowledge to everybody.

Nick Britton 11:04

Yeah, well, it's very contrary to say that I've been I'm just one person at the end of the day, and the team with a team, but in terms of the advisor work we do, that's mainly on me, that sort of advisor trading education work.

The reason for that is that traditionally, financial advisors didn't really use investment companies at all, with a few very notable exceptions, because Investment Committee didn't pay commission to financial advisors. So financial advisors, obviously avoided them use open ended funds. Now that the Commission situation changed 10 years ago, it was banned, which means that more advisors have started looking at investment companies, but still, you know, old habits die hard. And most of the advisory industry doesn't use investment companies. And we think that's a shame, because we think there are great advantages to investment companies that could be suitable for a lot of advisors, clients, so they're not going to be right for everybody.

But most advisors would have clients who, you know, we think probably would benefit from using investment companies. So the purpose of the AIC's sort of trading education of financial advisors, is to make sure that at least one of the barriers, which is lack of awareness, understanding is actually addressed and hopefully broken down. And that's why we've trained over 10,000 advisors, not all of that was me, I joined in 2015.

But you know, some of it is me. We work with, as you said, the CISI who were the sort of professional bodies that advisors used to be members of take their exams, maintain their professional standards. We work with them as much as we can we work with individual advice firms, when they want trading on investment companies. We do our own events and webinars and e-learning available on our website.

So any avenue we can really to, to spread the message about investment companies. But it's very important that we do that in a responsible way. And I think one of the good things about working for a trade association is you're sort of isolated from that pressure to sell basically, so we're not doing a sales pitch when we're doing our training, we are presenting a sort of responsible and balanced view of investment companies.

But we are talking about occasions when they might be suitable to use with clients. So that's the sort of ethos of our trading and what we do. And obviously, we tried to reach as many people as possible. And we might talk later about the work we do with private investors, which I'm also involved in.

Peter Higgins 13:18

Brilliant. Yeah, thank you for that. Now, what I've noticed as well, Nick, is that we've had a significant increase in the awareness and the growth of VCTs, please will you share with our listeners, the often overlooked specialist and efficient benefits, and also the risks of venture capital trusts, please?

Nick Britton 13:37

Of course, yeah. So Venture Capital Trusts are a very particular kind of investment company, because they invest solely in small usually unquoted, UK businesses. And when I say small, I'm not talking about the kind of small we're talking about when we say small caps, I'm talking about really small.

So assets of less than 15 million, the kind of companies that wouldn't be quoted on the stock market, unless we're talking about AIM, the kind of companies that might struggle normally to get funding, and that the VCT scheme was set up to help those companies get funding so they could grow, hopefully, you know, hire more staff, and create more wealth for the economy and ultimately tax revenues for HMRC. Now, to encourage people to invest in VCTs, they attract considerable tax reliefs.

So we're talking about 30% upfront income tax relief, which is like if you say, invest 10,000 pounds in VCTs, you knock 3,000 pounds off your tax bill for that year, income tax, tax free dividends, and also taxes on capital gains. So it's a set of tax reliefs, that's quite attractive at one reason, as you said, VCTs have become more popular is because of the way people have been become more restricted in what they can put into their pensions.

And that's the tapering of the annual allowance has led to more demand and more interested bank advisors for VCTs for their clients, but as you also rightly pointed out, they are a high risk investment, investing in these smaller companies, carries obvious risks that don't always succeed. The good thing about VCTs though, is that they put together diversified portfolios of these companies run by professional managers. So if you're going to invest in this part of the market, and it is quite exciting, then VCTs are actually quite a conservative way to do it quite a mainstream way to do it.

They've been around for 26 years, the managers who are running these things have a lot of experience in doing it. And of course, you get the tax reliefs, which gives you a kind of cushion for any loss that you might experience and a tax free dividends as well, in the past have been talking mid to high single digit yields, but typically now, it's to target dividends around 5%. So yeah, a number of reasons just to look at VCTs. But yes, have to stress, they also have high risk, and are often used by people who have maxed out ISA and pension allowances.

Peter Higgins 15:57

Brilliant. Love that response. Thank you very much, Nick, I've got some stats here, which I thought was actually mind blowing. So venture capital trust fund raising was up 11% in the year 2020 to 21 tax year, having raised 685 million for investment in small innovative UK businesses. And then year 2021 to 2022, record levels of fundraising 1.13 billion. So clearly the work that you're doing. And the team in raising awareness and helping these companies to showcase what they're doing regarding VCTs is working.

Nick Britton 16:33

Yes. Well, I certainly hope so. I think also, some of the reason for that big growth is that clearly the year before the tax year, well, tax year ending 2020, we had the COVID pandemic. And that did hit fundraising quite a bit. And since then it's bounced back very strongly, as you said, which is which is nice to see. But they'll always that they'll always be opportunities.

And even though it probably doesn't feel necessarily comfortable to be putting money into small UK businesses at the moment, great businesses are created in tougher economic times. And I believe Microsoft was created in the sort of mid 70s US recession, the last global financial crisis saw the creation of businesses like Zoopla, and Airbnb, for example.

So it can be actually quite good time to invest. But these are long term investments, I should have pointed out earlier, there's a minimum five year holding period to actually get all of the tax reliefs I talked about. And you should probably be thinking about that as a minimum. Rather than necessarily, you're going to be in for five years and then immediately sell out.

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Peter Higgins 18:01

Now looking at the investment trusts and investment companies now, one of the stats I've got here is that private equity and smaller companies feature prominently the top performing Investment Trusts of the past 30 years. Why do you think that these class of investment trusts have outperform? And do you think this could continue this outperformance over the next decade or so?

Nick Britton 18:22

Yeah, great, great question. I love private equity and smaller companies. I've got both of them in my own personal portfolio as we might come on to talk about later. I mean, the great thing about the investment trust structure investment company structure is the fact that it's closed ended. And what that means is, investment companies don't have to sell their investments when people sell their shares. And so it's very suitable for investing in things like private equity. Because if you're investing private businesses that aren't on the stock market, there is no way to sell them quickly. And you shouldn't be trying to do it.

So an investment company is a great structure for that. Equally for small companies, as you know very well yourself. They might be quoted on markets, but they'd be quite illiquid, quite big spreads. Again, you don't really want to be selling those no hurry either. So it can investment company structure is great for investing in those things. And both of those asset classes use private equity and smaller companies.

Obviously, there's quite a lot of academic research that suggests they do outperform over the long term, perhaps a bit more contested with private equity than with smaller companies. But you know, a decent body of research that shows you know, there are good reasons to think that they can deliver very good long term performance. And again, looking at the situation we're in at the moment, there's some very big discounts on private equity investment trusts, that doesn't necessarily mean you're going to fill your boots. Of course, there may be more of this downturn to come, discounts might get always widened even more than they are at the moment.

But historically, if you buy decent investment trusts at a big discount, than over a longer period, you can do very well indeed. So I think those are interesting asset classes to look at although, you know, they can be volatile, and they may well be very volatile over the next 6 to 12 months.

Peter Higgins 20:05

Thank you very much for that for reply. Now, I want to ask them a little bit about your work with private investors. I know and I've seen you at various different shows where you go and you discuss and embrace as little minions as private investors and you share their information. You and Annabelle have done that so well over the years. Tell us a little bit about that work and the nuances of that?

Nick Britton 20:24

Okay, I'm not sure about minions, I was quite star struck actually, when I saw you one of these private investor events. So I think that's the wrong way around.

But, yeah you know, I really enjoy talking at private investor events, even as I said, most of the work I've done at the AIC is with advisors and private investors, I used to edit a magazine called What Investment which is, which was for private investors, I'd more kind of keep sophisticated private investors.

So it's nice to kind of go back to my roots in a way and talk to them. And, you know, often you learn quite a lot from them, because they're bound to know more about the companies they invest in, probably than you do.

But you know, it's interesting to talk to them more about investment companies, and the sort of trends in our industry, maybe areas they haven't looked at, yet. So we do quite a lot of work, talking to private investor events. But we also probably do a lot more work, through PR through the media through getting our message out there through personal finance, magazines, newspapers, websites, podcasts, like this one. And it's something that we're very keen to do. Our website also is has lots of material for private investors at all different levels of knowledge and sophistication. We've got a guide to investment companies, I've worked on that a lot of work on that to try and make it as accessible as possible. Not always easy when you're explaining things like discount control mechanisms, and things like that. But we've done our best to make that as open as we can. So people can go in there with various different levels of knowledge and learn something and understand a bit more about whether investment companies might be right for them.

Peter Higgins 21:55

Yeah, I'm going to say the AIC website is an absolute treasure trove of information. So please share with us where will they find this treasure of the website address, please, Nick?

Nick Britton 22:05

Fantastic. Thanks for the question is www.theaic.co.uk.

Peter Higgins 22:10

Brilliant. Now, I want to talk a little bit, obviously, you're a private investor yourself, ISA, SIPP, etc. And in this segment, I want to ask you really about your own personal style of investing Nick, your own different sort of filters that you've used, and why you've ended up with the portfolio that you have. And then I'm going to ask you a little bit about, you know, what you've done regarding the youngest part of your family as well. So start with yours, please.

Nick Britton 22:34

Yeah, sure. When I went into investing in my mid-20s, I think I made quite a lot of mistakes. But one mistake that I have never made is I don't mean, this is always a mistake, but it would have been for me, is investing in individual stocks. Because I don't feel I have the - and I know this is controversial, very controversial, say on this podcast.

But I feel personally, I don't have the skills, knowledge, time or inclination to do my research into individual companies had lots of people do and good luck to them. And in fact, we need people to do that to maintain an efficient market. But that is not for me.

So I've always preferred to invest in funds, I started off investing in open ended funds and investment trusts, I've moved more to investment trusts investment companies, because of clearly my work, I feel like, you know, I perhaps have some kind of advantage here. And you're dealing with investment companies that my work, so I only invest in investment companies now, my investment style or strategy such that it is really determined by what I'm doing it for. And it's it's largely for my retirement. And you know, despite appearance, it's not a piece of that still quite some time away, unfortunately. So I am, you know, a long term investor, really. And when I say long term, you know, probably got 20 years left.

And that's why a market downturn like this one, whereas it's still nobody really enjoys it, do they, it's not very nice to go and log into your account and see the value of your investments falling that much. But this on a longer term view, you have to be sanguine about that. And you have to be calm about that. And so I'm very long term, I'm 100% equities.

And when I say equities, it's a very broad sense, it includes a bit of private equity, it's very globally diversified. But I haven't really seen the point and investing in bonds, I'm afraid that my time of life, it may be something for me later. So I've gone all in on stock markets, just because, you know, the ample evidence that over time, they do produce better returns than any other asset class investment companies because, again, they long term they do tend to produce better returns of investing in assets like equities, small caps private equity than other types of fund.

So that's what determines most broad approach. And as I say, I've got a number of investment companies give me exposure to you know, across the world, small, large value and growth as well, you know, not all in growth, which I'm pleased about because it would have been quite painful if I had been this first half of the year. And in fact, a lot of the investments that, you know, haven't been doing very well over the recent years, and it's been quite painful to keep putting money into them have really paid off in this first half of the year, which is a great lesson about diversification, isn't it that sometimes investments that you are you really stiff, I've got tired of, actually, they really come up trumps in a period like this.

So that's it really, it's keeping it diversified. I rebalance, I tend to rebalance, not by selling chunks, because I want to keep my transaction costs low. But because I'm still in my accumulation phase, I'm still putting putting money in every month, I rebalanced by putting it into the things that perform the most. And again, that's that's kind of an automatic, it's not an active decision every month, I just look at you know what's most below most of target percentage of my portfolio, and put the money into that.

And that means, of course, that you end up buying things, when they're beaten up to at the moment, or the things I'm buying are the kind of growth, the names that have sort of formed a lot. Whereas in more recent years, I think I was buying with the most value names, which were performing very dully, but that's another thing I find the more you can kind of automate your investment process, and the fewer active what I say you and again, I should stress this is all for me.

It's not necessarily it was definitely not for you. I'm sure it's not right for a lot of your listeners, but it's just what works for me. And I find the fewer active decisions that I have to make the more calm I am. And probably that the better I do. Because whenever I've tried to be sort of clever in my investing in inverted commas, I've pretty much always made less money than if I hadn't tried to be clever and just stuck with my original plan.

Peter Higgins 26:37

Brilliant, I love that reply. I want to go back in a couple of the things that you've said there, Nick. And the first thing you almost said was the mistake and don't do in regarding investing in individual stocks. Now we've had several fund managers and other people in the investment industry on this podcast.

And they're very much in the same sort of boat in the sense of they don't want to make the decision. They haven't got the time. They don't want to spend all that time researching individual stocks. So it's not a mistake. It's the right thing. And it's what works for you. So that's, that's what what you should do.

I wanted to ask about the other aspect of you mentioned about the rebalancing, for our listeners, can you explain what rebalancing means for you? And what that should mean for them? If they're considering it?

Nick Britton 27:18

Yeah, of course. So for me, what I have is, I guess you would call it if you're using some jargon, strategic asset allocation, but to use plainer English, what it is, is just a percentage of my portfolio that I want to have in each investment company, in my case, and I've worked out already what the kind of underlying exposure that's, that's going to give me.

So for example, per country, or you know, growth versus value, whatever, but it boils down to, you know, I want to have X percent of this investment company, why presented that investment company, and then what rebalancing it is normally, if you're a financial advisor, for example, looking after a client's portfolio is that every month or every quarter, you would sell some of the investments that had done well and buy some investments that are done badly. So you brought your portfolio back in line with that target asset allocation.

Now, in my case, because I have a bit of tolerance to kind of go drift away from the asset allocation also, because I don't want to be spending too much money in in trading, buying and selling all the time. I rebalance just by buying the things that have fallen most rather than selling anything, but if they just got too out of line, if one investment shot up by 300%, or something which be a nice problem to have, it's not going to happen this year, I don't think but if it did, I'd have to seriously consider selling some of that to bring it back in line.

So that's what I mean by rebalancing. And I think it's, I mean, everyone goes on about diversification, which is brilliant, I think it's rule number one and investing don't put all your eggs in one basket, but you know, covering a very close number two is rebalancing, selling things that have done well buying things that have done badly. If you do that sort of consistently in your portfolio, then you're really going to add lots of value almost just to kind of mechanically over the long term without having to do too much active decision making.

Peter Higgins 29:00

Brilliant response that. Now, you talked also about automating your investing, and I'm assuming that means a little bit of drip feeding. But could you expand on what that means for you, please?

Nick Britton 29:09

I meant I was referring to really having that sort of target asset allocation, buying things to bring it back. But also, I should probably say that every few years, every five years or so I allow myself to look at that target asset allocation and to look at the different funds in my portfolio and to think well, are they still right? Is the target asset allocation still, right? So for example, in 2020, you know, I had a big overweight to emerging markets, I still got quite an overweight emerging markets, but I took it down in 2020.

And, you know, not a huge amount, but I just took it down a bit. I felt like I don't have enough in the US. I've got too much in EMs. But I try not to do that too often. Because whenever I do that there's a serious risk that I'm actually just going to make exactly the wrong decision at the wrong time. And in fact, that isn't a bad example of that because by having more exposure to the US it actually did very, very well in 2020. But now of course, it really isn't a good example of why I feel like for myself, it's good for me not to make too many of those tweaks and just to stick with the broad plan, a diversification and rebalancing.

Peter Higgins 30:14

Now, obviously, like you said, is doing this off period, it's quite difficult to remain calm. So I'm going to ask you that question about the staying calm element of it, the staying patient, and dealing with the psychology of all the buffeting that the market does to us, you, me and everyone else's investors, how do you deal with it?

Nick Britton 30:31

Well, I think not looking at my portfolio too often, I think if it's one way that I deal with it, I do sort of look at stock prices quite a lot. I've got submit, but I don't. I try not to emotionally engage with that. Because I always remember Benjamin Graham's great metaphor, he wrote a book called The Intelligent Investor. And his sort of metaphor is Mr. Market, which I'm sure you and a lot of your listeners will be familiar with.

But if you're not, Mr. Market is a character who you know, very, very optimistic one day and super pessimistic the next day. So on a good day, he'll offer you, you know, really high price for the companies in your portfolio. And on a bad day for exactly the same companies, he'll want to sell them. And he'll offer to sell them to you for a really low price.

And so Mr. Market gives you the opportunity to sort of buy low and sell high all the time, just because really of his mood swings. But the business is the underlying businesses that he's used to buying and selling haven't really changed that much.

So it's not a bad metaphor for understanding how the market works. Obviously, it's a bit of a simplification, but you're talking about ways to remain calm, and actually keeping that idea that what's moving the stock market up and down is actually just, you know, Mr. Market a lot of the time and if you have a, you know, a five year or 10 year view, you're the owner of the companies in your portfolio, you're one of the owners. And if you're running a business, you don't sort of sell it, you know, one minute because you know, investors or panic, or whatever, you own it for the long term. And I think that's, that's definitely the way I approach my investing. I'm definitely not a trader, and I don't particularly trust my emotions, and my sort of gut feeling on things. I like to have a plan that I kind of worked out as logically as I can and stick to it.

Peter Higgins 32:12

Brilliant love that. You've touched on it a little bit. So I've asked the question. We're currently in a high inflation environment Nick, where the world and the world and everyone else seems to be talking about and using the word recession is often being mentioned in lots of different areas of investment industry at the moment. Do you feel that we're in a situation where you, me and everyone else can prove more resilient in these uncertain times? And why?

Nick Britton 32:38

Yeah, I think, well, I think a recession is going to mean different things for different people, isn't it? And if we're talking about kind of the real economy, obviously, it has lots of pretty terrible impacts on people's lives. And I think, you know, you have to start by thinking about that. I think, in terms of the investment world, what we're looking at the prospect of potentially is an earnings recession, where companies’ profits are going to start to shrink. And that is something that could clearly extend the stock market declines that we've already seen, which up till now have been, as you know, pretty much based on revaluation of companies because of the this higher expectations for inflation and an interest rates.

So I think it's going to be a testing time, we're not necessarily at the bottom of it yet. And it's going to be important to be resilient, as you said, patience, I like the words you've used, you know, focused on the long term, and as calm as we can be, and hopefully, we've put in place strategies that allow us to do that, you know, so we haven't invested money that that we can't afford to lose, or that we need tomorrow or something like that. And if that's the case, then you know, there isn't really any reason to panic, we need to stick to the plan.

But what we're, we will learn a lot through this period, as well, because every one of these two crises and crashes and downturns we learn something else, we learn something from financial crisis, we learned something from, I'm sure you remember March 2020, we had no idea how that was going to play out, in fact, the markets to snap back very quickly, but we had no idea that was going to happen.

And this one will be different again. And each time we learned a little bit more that we can incorporate into our, into our investment decisions into our view of markets and how they work.

Peter Higgins 34:19

Brilliant. Thank you very much. Now, Nick you’re married, I think you’ve got three children?

Nick Britton 34.24

That's right. Yes.

Peter Higgins 34:25

And therefore you've got Junior ISAs now for them. Have you started early? And what are the benefits we share the benefits of why it's important to start investing early for our listeners please?

Nick Britton 34:37

Sure. Well, it's important to start early if you can because of the benefits of compounding and because I'm not Annabelle I haven't come on this call with the fact the right facts and figures but if she'd come on the call should have told you that you know, an investment of 100 pounds investment 18 years ago will be worth I don't know whatever four figure large four figures are now but that is all very true. You know, compounding over time as you can afford to put some money into a Junior ISA, if your kids that don't, that's great. I mean, the Junior ISA aren't actually my main vehicle for saving for my kids, because the Junior ISAs are in their name. And it becomes their money when they are 18. And whereas I'm very happy, you know, if there, if there aren't gives them, you know, 20 pounds, I'm very happy to put it into that Junior ISA for when they turn 18. If we're talking about the slightly more serious sums that might enable them to, you know, maybe help to buy to put down a deposit on a home, I don't think the Junior ISA is the right place for that.

Because you know, the Junior ISA for them, it's their money to do whatever they want with when they turn 18. But if you want to have any discretion over as a parent, clearly, Junior ISA is not the right place for it. So most of my, my wife's savings for them are really in ISAs under our own name. I don't know if that makes me a bad parent. But you know, that's, I think it's practical.

Peter Higgins 35:52

No, it's really, it's really good that you've played that nuance up as well, because it is important to recognise that regardless of how we bring up our children 18 are going to go woohoo we’re off. And then they get to go know what the plan was for this. And they go no, no, it's my money. I'm doing what I want. So it's really good that you've cleared that up.

Nick Britton 36:10

That's exactly my point. You put it much more straightforward than I did. But that is basically exactly what I'm saying.

Peter Higgins 36:16

Absolutely spot on. Now, I'm conscious of the time. I'm going to ask you one more question and we've talked about learning in education here. I'm going to ask this question here Nick. Howard Marks the American billionaire investor and co-founder and Co-Chairman of Oaktree Capital Management wrote the brilliant book Lessons from Market Cycles.

The markets are classroom where lessons are taught every day, the key to investment success lie observing and learning as an educator and individual passionate about all things investing, Nick, what has been your greatest learning to date?

Nick Britton 36:50

Yeah, that's a tricky one, because I might end up reiterating something I've already said. But I think if I can probably give you a concrete example. It's just not trusting your emotions. I think a good example of that would be, you know, people who are nervous of flying.

Because if you sit in the plane, and it's taking off, then everything in your body is screaming that this shouldn't be happening. And this big, heavy thing shouldn't really be able to get into the air. And you know, it's all terrible, you feel terrible feeling in the pit of your stomach. Basically, what your body is telling you is wrong.

You know, it's actually extremely safer than driving a car down the motorway. And I think investing is a little bit like that. It's just you, you are not, you know, physiologically set up really to deal with investing. So you have to recognise those emotions that are not really helping you. If you think that you don't have if you think no, I'm logical, everything I'm doing is rational, then you're probably more vulnerable to making those mistakes than somebody who just recognises their emotions.

I mean, just one example is I invested in had an investment in a biotech fund. And from sheer luck, I happened to invest in this very good time. And it went up in a very short space of time, about 100%. I then sold it, it was fantastic. And I sold it, because I thought, I'm feeling really, really uncomfortable. This thing has gone up 100%, I broke my own rule. I listened to my guts, my emotions, my gut was saying, No, take your profits, it's gone up 100%. So I sold it.

And of course, then it kept on going up quite a long way. And I just thought to myself, Nick, this is exactly what you always tell yourself, you know, you listen to those emotions and go by your gut, you almost always almost invariably, it's actually quite comical.

At any other time I've done that, you know, maybe I felt a bit nervous about the markets or geopolitical events. And I thought, no, I'll just hold this money back, and drip feed it, and again, would have done much better to put it all in straightaway. Because you know, regular investment, I'm not knocking regular investing, because regular investing is great for keeping calm, and keeping to the plan and all those wonderful things we talked about. And also just practically, it's the only option for many people, including myself, because if you only kept money every month, rather than a big load of it at once.

So you know, regular investing is great. But if you do, I think, you know, look at the evidence, then most of the time and we and we do at the AIC every now and again, do these comparisons, most of the time really is shove a lump sum, it's actually better to get it all in.

Of course, you could be very unlucky and invested at the top of the market. But the way markets work is that they usually go up. So delaying that investment has an opportunity cost. So yeah, basically keeping your emotions under control, understanding them, keeping them in check, trying to keep to the plan, is I think the most important lesson I've learned about investing and that I'd like to share with others.

Peter Higgins 39:40

Fantastic reply. Thank you ever so much, Nick, that was brilliant. Thank you. That was Nick Britton, Head of Intermediate Communications at the Association of Investment Companies. Nick been absolute delight having you on the show. And I look for I couldn't get to The AIC party that was last week unfortunately because of the strikes. I hopefully see you Annabelle and the rest of the team next year if I if I'm invited again that is.

Nick Britton 40:05

Thank you, Peter. It's been wonderful. Please, we will always invite to that and please, really hope you can come back. Great to see you there.

Peter Higgins 40:11

All right, thank you very much. Take care and love to the family Nick.

Nick Britton 40:14

Thanks Peter. All the best.

LSE 40:26

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