What a year 2008 turned out to be in financial terms, with almost every class of assets falling in value, sometimes substantially.
It was hard to know where to run to for cover. People were even keeping cash under the bed and buying a safe (sales up 40 per cent in the year) as their chosen refuge for looking after their money.
I was, therefore, very interested when a client explained to me at a recent review meeting that his best performing asset during 2008 was his nearly new Bentley.
Given my, albeit limited, knowledge of the fall in prices of super cars, I imagine that he must have had some disastrous other investments that I did not know about for his Bentley to come out on top.
However, after a review of performance of his assets during the year, and a reminder of the philosophy that when you buy is more important than when you sell, all became clear.
My client had bought his 18-month-old Bentley at the beginning of the year for £93,000. A lot of money, but these things are £145,000 brand new and there was only 1,800 miles on the clock.
I quickly worked out that the first owner of the vehicle, having lost £52,000 in 1,800 miles was driving around at £29 per mile, excluding the cost of petrol, insurance, road tax and so on. My client has put another 3,500 on the clock but reckons the car is still worth £85,000, a fall in value of “only” 8.6 per cent.
His equity portfolio, held within his SIPP (self-invested personal pension), had fallen by almost 30 per cent. Fortunately the portfolio was in collective funds rather than direct equities where it could have been a lot worse.
We have seen major bank shares lose 90 per cent of their value and a severe correction in the BRIC economies (Brazil, Russia, India, China) so the performance of the client’s equity portfolio was starting to look acceptable.
His country home set in a few prime acres had held up relatively well with an estimated fall in value in the order of ten per cent. But his other property assets had failed to avoid the heavily publicised downturn in residential property values. His buy to let residential portfolio, including some new apartments in the centre of Birmingham, had shed in the order of 40 per cent of its value. With a number of these apartments vacant and producing no rental, the income stream was looking shaky and set to fall further.
The two commercial properties in his SIPP had fared rather better. They had been downvalued by 15 per cent, but had the benefit of a good rental income on long lease with secure tenants.
As the banking crisis unfolded, this client followed the “flight to safety” by buying UK government gilts which benefit from falling interest rates and the apparent security of lending money to the UK government.
Although this has produced a positive return so far, it has only been for part of the year and gilts appear now to have run out of steam. His exposure to corporate bonds created a loss in the order of 15 per cent but this sector is now expected to recover sharply as yields are in the order of eight per cent per annum and corporate debt looks less likely to default.
The client also managed to avoid the disasters in the hedge fund industry by deciding not to invest in something that he didn’t fully understand and often seemed too good to be true.
His pals at the golf club are suffering from a double whammy of some severe losses and lack of accessibility as a number of hedge fund managers imposed withdrawal periods of six months or more.
The height of concern during the year came in September and October and coincided with the banking crisis where the client’s substantial cash deposits were close to being sucked into the black hole of bank balance sheets.
Fortunately, having avoided Icelandic banks and the like, the client’s deposits are now secured by Messers Darling and Brown (up to £50,000 per bank account) and the client sleeps rather more soundly at night.
The fall in interest rates has hurt although he smartly tied into some fixed term bonds of 6.5 per cent. However, a clear trick was missed when the US dollar was at $2 10c to the pound in the early summer, an obvious peak even at the time, but no-one gets everything right.
Those shopping trips to New York for designer bargains are no longer quite so appealing now the $2 pound has made such a decisive disappearance.
Predicting in the current climate has been a hazardous business. Remember not that long ago some pundits saw no immediate end to the seemingly inexorable rise in oil prices and were even saying oil would reach the forbidding level of $200 per barrel. But the reverse has happened in the past few months.
So, looking back during 2008 it is easy to see why my client is very happy with the performance of his Bentley. Now that the price of oil has fallen from $147 per barrel to $50, my client is happy paying 95p per litre instead of £1.30 and it makes his drive to the golf club even more pleasurable. In this period of austerity and prudence, it is nice to know that sometimes the luxuries in life can offer a sensible purchase, even if only relatively.
* Trevor Law is a director with Montpelier Group (Europe) Ltd, the privately owned independent financial advisers at Barston near Solihull. Email TILaw@montpeliergroup.com