Berkshire Hathaway 2017 Annual Report

The Berkshire Hathaway 2017 Annual Report has just been released (download from here).

Below is a word cloud generated from the Chairman’s (Warren Buffett) Letter to the shareholders in the report.

BRKH annual letter 2017 word cloud 3


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Chinese New Year 2018 – year of the dog

This coming Friday, 16 February 2018, will be the start of the Chinese New Year.

The following chart plots the average performance of the S&P 500 Index for each animal year since 1950. For example, Ox years started in 1961, 1973, 1985, 1997, 2009; and the average performance of the market in those (Chinese) years was +14.0%.

NB. The Chinese calendar is based on the lunar year cycle and so performance has been calculated for each lunar year – not the corresponding calendar year.

Chinese calendar and S&P 500 [2018]

The Chinese New Year starting this Saturday will be the Year of the dog!

This is very good news for investors, as since 1950 dog years have the strongest average returns of the S&P 500 Index of any of the Chinese zodiac animals. Over the last 50 or so years the average lunar year return for dog years has been an impressive 16.8%.

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Political leader market returns

The following table shows the stock market returns for political leaders since they came into office. The table is ranked by the final column – the compound annual growth rate of the market returns.

For example, Shinzo Abe has been prime minister of Japan for 62 months, over that time the Nikkei 225 Index has risen 111.2%, which is a CAGR of 15.7%.


Political Leader Country In Office (months) Stock Market Return (%) Stock Market CAGR (%)
Michel Temer Brazil 18 41.4 27.2
Donald Trump US 13 18.7 17.7
Shinzo Abe Japan 62 111.2 15.7
Narendra Modi India 45 38.4 9.2
Angela Merkel Germany 149 139.5 7.4
Xi Jinping China 64 41.0 6.8
Lee Nak-yeon South Korea 8 4.5 6.6
Malcolm Turnbull Australia 29 16.2 6.5
Theresa May UK 19 7.1 4.4
Mariano Rajoy Spain 75 17.1 2.6
Vladimir Putin Russia 70 -16.4 -3.1
Emmanuel Macron France 9 -4.5 -6.1


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London Stock Exchange holidays in 2018

The LSE will be closed on the following days in 2018-

Date Holiday Note
January 1, 2018 New Year’s Day
March 30, 2018 Good Friday
April 2, 2018 Easter Monday
May 7, 2018 Early May Bank Holiday
May 28, 2018 Spring Bank Holiday
August 27, 2018 Summer Bank Holiday
December 24, 2018 Christmas Eve
December 25, 2018 Christmas Day Closes at 12h30
December 26, 2018 Boxing day
December 31, 2018 New Year’s Eve Closes at 12h30

The above and other significant trading dates can be seen in the online Almanac Diary and can be added to your own online calendar.

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The psychology of drawdowns

How do investors measure unrealised losses?

One way is to compare the current price with the price paid for an investment. So, for example, if you pay 100 for an investment and its current market price is 90, then you are sitting on a (unrealised) loss of 10%.

But if, after buying the investment at 100, the price had risen to 120 before then falling back to 90, then there is the temptation to anchor the price at 120 and regard the current price of 90 as a 25% loss.

This 25% loss is referred to as the drawdown, which is defined as the percentage loss from a previous peak. The concept is common in trading but can also be useful for investors to understand.

The following table shows the drawdowns for the FTSE All-Share Index for the period 1969-2017.

FTSE All-Share Drawdowns [1969-2017]

The first thing to notice about the chart is that there are an awful lot of drawdowns! In fact, because the market doesn’t make new highs every day it is usually in a drawdown state. And this can have a psychological effect on investors.

If you look at a typical long-term chart of the stock market, and many individual shares, you will usually see a line that starts at the bottom left and increases (moderately steadily) to the top right.

This is a Good Thing – stocks go up in the long-term!

However, that chart does not necessarily reflect the actual experience of being invested in the market over this period. For this, the drawdown chart above may more accurately represent the feelings of investors. This is because investors’ portfolios are underwater for most of the time, i.e. the portfolio value is below its peak value (which will most likely be a recent strong memory for the investor).

The table below breaks down how long the market spends at various drawdown levels. For example, for 16% of the time from 1969 the market had a drawdown of 5%-10%, and it was in a drawdown state of over 20% for 27% of the time. And, while a drawdown of just up to 5% may not seem very much, in practice it is 32% of the time that investors are likely to be feeling slightly disgruntled having “lost” money.

FTSE All-Share Drawdowns [1969-2017] 02

So, while the data shows us that stock markets increase over the long-term, the direct personal experience of investing may be for investors largely that of a prevailing sense of loss. This sense of loss is something that investors have to learn to live with.

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Tax paid by FTSE 100 companies

The following chart shows the tax paid by FTSE 100 companies last year. For example, the top payer was Vodafone, which paid £4,008 million tax.


FTSE 100 companies tax paid last year [2017]


  • In total FTSE 100 companies paid £29 billion in tax last year.
  • The top six payers paid over half the total tax paid.
  • The bottom 30 payers paid just 5% of the total tax paid.
  • The average tax paid by the 100 companies was £300m, while the median tax paid was £108m.
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Analysis in the new 2018 edition of the Almanac

Almanac cover - 2018 (small 2)

A previous post listed some of the strategies included in the 2018 edition of the Almanac, listed below is some of the additional updated analysis included in next year’s edition.

  • Holidays and the Market
  • Intra-Day Volatility
  • Very Large One-Day Market Falls
  • An Average Month
  • An Average Year
  • The January Effect
  • January Barometer
  • FTSE 250/FTSE 100 Ratio
  • Monthly Seasonality of FTSE 100
  • Monthly Seasonality Worldwide
  • Seasonality of GBPUSD
  • FTSE 100 Index Quarterly Reviews
  • Chinese Calendar and the Stock Market
  • Correlation of UK Markets
  • Company Profile of the FTSE 100 Index
  • Diversification with ETFs
  • Sector Quarterly Performance
  • Sector Profiles of the FTSE 100 & FTSE 250 Indices
  • Announcement Dates of Company Results
  • The Dividend Payment Calendar
  • Correlation Between UK and US Markets
  • Correlation Between UK & World Markets
  • The Long-Term Formula
  • The Market’s Decennial Cycle
  • Ultimate Death Cross
  • Politics and financial markets
  • Gold seasonality
  • UK Bank Rate Changes
  • UK Interest Rate Cycle
  • Trading Around Christmas and New Year

Order your copy of the 2018 edition of the Almanac now!


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Strategies included in the new 2018 edition of the Almanac

Almanac cover - 2018 (small 2)

The newly published Almanac 2018 includes analysis of the following strategies:

  • Bounceback Portfolio – a strategy that buys the worst performing shares in a year, and then sells them after three months into the new year; the strategy has out-performed the Index in 13 of the last 15 years.
  • Construction Sector 4M Strategy – exploits a seasonality anomaly of the construction sector that greatly out-performs the FTSE 100 Index.
  • Sell in May – this extraordinary effect remains as strong as ever: since 1982 the market in the winter months has out-performed the market in the summer months by an average 8.2 percentage points annually.
  • Sell In May Sector Strategy – how to exploit the Sell in May effect with sectors.
  • Summer Share Portfolio – a portfolio of seven stocks that has out-performed the market in nine of the last ten years.
  • Sell Rosh Hashanah, Buy Yom Kippur – the US equity market tends to be weak between these two Jewish holidays; is there a similar effect in the UK market?
  • Santa Rally – does a Santa Rally exist for shares and, if so, when does it start?
  • Day of the Week Strategy – a strategy exploiting the day of the week anomaly that out-performs the FTSE 100 Index.
  • Tuesday Reverse Monday – do market returns on Tuesdays reverse those on Monday?
  • Turn of the Month Strategy – all the market’s gains occur in the six days around the turn of the month.
  • FTSE 100/250 Monthly Switching Strategy – on the back of research into the comparative monthly performance of the two indices, a strategy of switching between the two markets is found that greatly out-performs either index individually.
  • FTSE 100/S&P 500 Switching Strategy – the strong/weak months for the FTSE 100 Index relative to the S&P 500 Index are identified; and a strategy of switching between the two markets is found that produces twice the returns than either market individually.
  • Monthly Share Momentum Strategy – a monthly re-balanced momentum portfolio of FTSE 100 stocks beats the market.
  • Quarterly Sector Strategy – The strongest/weakest sectors for each quarter are identified; and the Quarterly Sector Strategy continues to beat the market. Is this strategy even easier than the World’s Simplest Trading System mentioned below?
  • Quarterly Sector Momentum Strategy – a portfolio comprising the best FTSE 350 sector from the previous quarter, and re-balanced quarterly, out-performs the FTSE All Share Index by an average of 2.0 percentage points per month. A variant – buying the worst sector of the previous quarter – has performed even better.
  • Low/high Share Price Strategy – a portfolio of the 20 lowest priced shares in the market has out-performed a portfolio of the 20 highest priced shares by an average 39 percentage points each year since 2002.
  • World’s Simplest Trading System – a simple trading system based on moving averages with an impressive performance.

Order your copy now!

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History of Bitcoin

The chart below plots the price of Bitcoin from July 2010 to November 2017. The price on the Y-axis is plotted on a logrithmic scale (as the price has grown exponentially).

History of Bitcoin chart

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The new Almanac for 2018!

The new edition of the Almanac, Harriman’s Stock Market Almanac 2018, is at the printers now and will be available from 27 November 2017. Order your copy now!

Almanac cover - 2018


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