Posts Tagged ‘investments’

norway flag

What would you do with £350 billion? – Invest like a Norwegian 

Norway, the land of the Vikings, northern lights and the generous folk who send a Christmas tree every year which Londoners light up and put in Trafalgar Square.

It’s also a land of great natural beauty but not many people. At the last count there were only around 5 million people living in 150,000 square miles which makes Norway the second least densely populated country in Europe.

It is a land of vast natural resources – minerals, wood, water, fish, hydroelectric power and most importantly oil and gas.

Oil was discovered in the North Sea in 1969, and since then the UK and Norway have benefitted from a windfall in oil revenues.

oil platform

In the UK, the oil revenues have been largely spent as we earned them. At first this sudden windfall increased the value of sterling, causing inflation that resulted in demands for wage increases from UK workers. The results of these wage increases were to increase costs for UK manufacturing making UK products uncompetitive in export markets.

mrs thatcher
During the course of the 1970’s and 1980’s, this led to a reduction in the UK manufacturing base, high unemployment and the North Sea oil money being spent by the Thatcher government on UK social costs. Many would say the UK has squandered the windfall from North Sea oil.

Norway saw what was happening in the UK, and decided to follow a completely different track.

viking ship

A nationalised oil company – Statoil was created and by the middle of the 1980s began to generate vast cash inflows.  The government of Norway decided to create one of the first “Sovereign Wealth Funds”, a term that is commonly used today, but hadn’t been invented back then so they unimaginatively called their fund “The Government Pension Fund Global”. Despite this name, the fund is more commonly referred to as “The Petrol Fund”.

This fund was set up to invest the cash flows being created by Norway’s North Sea oil windfall on behalf of the nation, to provide for the future needs of the Norwegian population.

Two of the key aspects of the fund were to invest only in the safest asset classes (initially just safe government bonds but now extended to equities and property) and most importantly to only invest outside of Norway.
This decision was taken to prevent inflation in Norway, and to make sure that no future Norwegian governments would be tempted to spend the money.

This wise decision has certainly served the current and future citizens of Norway well.


Interestingly, this is completely the opposite of the French Sovereign Wealth Fund set up by Mr Sarkozy in recent years that has the objective of investing only in the equities of French companies so as to protect French industries from the threat of foreign ownership. Time will tell which has been the wiser path.

In the last 10 years, the Norwegian sovereign wealth fund has grown to a massive £350 Billion.


To put this into context, this is considered just slightly LARGER than the similar fund belonging to China, and only slightly smaller than that belonging to the United Arab Emirates.

Unlike just about all other sovereign wealth funds which are clouded in secrecy, the Norwegians are very open about their funds and are keen to publish exactly what they do with their money and how effective their investments are.

Also like other Sovereign Wealth funds, the Scandinavians use their fund for political purposes, but these purposes are entirely different from other funds.

white dove

The Norwegian fund carries out extensive research into the ethics of companies and countries where they are investing.  Investments into companies having anything to do with weapons technology or polluting industries are withdrawn. Of course, interpretation of these factors to be politically interpreted as you will notice in the table below that they are one of the largest investors in BP – despite the huge oil spill in the Gulf of Mexico in 2010.

In a world of very volatile investment markets and very low investment returns, it can be hard for an individual to know where to invest their money to make healthy but safe investment returns.

question mark

Imagine trying to do that if you have £350 Billion pounds of your countries nest egg to deal with!

So, here is a chance to see what asset allocations the second largest investor in the world uses.

Firstly – asset allocation – here is how the Norwegians allocate their investments;

60% equities

35% fixed income

5% property

Fixed Income (Bonds)

Let’s look at where they invest their biggest proportion of their wealth into fixed income (bonds).

















European   Inv Bank




With the possible exception of Italy, whose bonds have recently been an area for concern, the majority of the investments from Norway have focused on the developed world, especially the United States. This has certainly been due to the assumption that these are considered the safest assets. It will be interesting to keep an eye on these investments in the future to see if the Norwegians begin to shift their focus more into developing economies. These were previously considered to be a higher risk, but as the debt crisis continues and the risk in the developed world increases, there might be a change in focus.

How about Greek Bonds?

The 2012 Q1 report explained that the Norwegian fund held Greek government bonds to the value of 785 Million Euros – on which they had suffered a serious 50% loss in Q1 2012. It is fair to say that they will probably not be back for more Greek bonds in the future.

Equity Investments

The Norwegian fund publishes details of every equity position that it holds. This list runs into investments of thousands of companies spread all over the world. However, their top 10 Equity holdings are as follows;

Company Country


Royal   Dutch Shell UK


Nestle Switzerland




Apple US


BG   Group UK


Novartis Switzerland


Vodafone UK




Exxon   Mobil USA


Roche Switzerland


It is interesting to note that the largest holdings of the fund are based in the UK and Switzerland.

One final thing to note – when you have such a large fund to invest, currency risk can be a real issue.

The Norwegians keep the bulk of their investments demominated in just four currencies with 80% of the funds investments denominated in either Euros, sterling, dollars or yen.

Managing £ 350 bn is quite a headache for futre generations of Norwegians, but what a great headache to have and one which we all wish we had.

Sadly for the UK,  its a headache we could easily be suffering from but our North Sea Oil money is already spent and so our focus must remain on our debts.


Transform Accounting are Chartered Management Accountants and Tax Technicians able to assist with personal tax returns, sole traders and company payroll whilst specialising in limited companies, consultants, contractors and business start-ups. Fixed fee packages are available as are free initial consultations. Customer references are available on request.

See www.transformaccounting.co.uk or contact by telephone on 01277 365447 or by e mail at info@transformaccounting.co.uk

Essex Small Business AccountantsTransform AccountingThe Essex Accountants

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stock chart

How to Invest for Income – Consider Preferred shares

It can be difficult for investors to find more income in a world where many investments are now paying close to zero percent returns.

Preferred shares are an interesting diversification for any investment portfolio that are often overlooked.

Preferred shares also go by the name of “preferred stock” or “preference shares”.

Preferred stock usually carries no voting rights, but usually pay a dividend. The term “preferred” is applied because this class of shares has rights that are above those of ordinary stock.

There are both advantages and disadvantages to preferred shares.


– A higher yield than an ordinary stock – preferred shares are routinely paying around 6-7% yield

– Preferred shares dividends must be paid in full before any dividends are paid to ordinary shares

– In the event of a corporate bankruptcy, preferred shares are ahead of common shareholders – although in reality if a company is liquidated it is rare for preference shareholders to receive any substantial return of capital

– In a volatile market, preferred shares tend to drop less in value when a market declines


– Preferred share values are similar to bonds in that they are sensitive to interest rates changes . Ie – If interest rates go up, then share valuations of preferred stocks will usually decline (and vice versa). This is due to the fixed nature of the preferred shares dividends

– Unlike bonds, preferred shares do not have a maturity date so the holder will not receive a return of the investment principle at the end of a given time. This means in a period of high and increasing interest rates, the value of preferred shares will continue to decline.

When to hold Preferred Stocks

Preferred stocks should be part of a well diversified income portfolio. These should combine with a laddered bond portfolio of differing maturity dates, risk and yields.

How to invest in Preferred Stocks

There are two choices when investing in preferred shares. Either preferred shares in individual companies can be held, or alternatively ETF’s can be used to hold a basket of preferred stocks with minimum administration. A good example of this is the iShares S&P US Pref Stock Idx Fnd (ETF) which goes by the trading symbol “PFF”.

Accountants Ongar – Transform AccountingEssex Accountants

Disclaimer – The information presented in this article is intended for education purposes and is not intended to be used as the sole basis for any investment decision nor should it be construed as advice intended to meet the investment needs of any investor. The author may hold positions referred to in this article. Please perform your own research or contact a qualified financial adviser prior to making any investment decisions.

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stock chart

Investment tips – Why Position Sizing is key to any investment portfolio

An individual investment portfolio will at any time be comprised of a number of positions, and usually an element of cash waiting on the side lines for investing opportunities.

But when you have a conviction for an investment opportunity, have completed your research and are ready to put on a trade, all investors are faced with the question of how large a position to take in any single investment.

How you size your stock trading position can be equally as important than the actual trades you make.

If your position size is wrong by being too large, even if your investment conviction (ie – the reason why you decided to make the investment in the first place) is right you may get knocked out of your trade too early if you suffer some short term volatility and close the position out.

When it comes to investment position sizing, you have to be in your comfort zone, because if you are not then fear will dominate your trades causing you to miss out on potential upsides if your convictions turn out to be correct.

One thing that many investors do wrong when handling their own portfolio is to put on an individual investment in a bigger position than they are comfortable with and because of that they can be right on the conviction, but if the position goes against them in the short term they panic and get out of the trade prematurely and miss out on the upside.

Getting position trading right is a fundamental key to successful individual investing. A smaller position in a high beta stock means that the investor is more comfortable and feels able to live with short term fluctuations, allowing them to stay with their position longer and to follow the investment idea through with greater conviction.

It is a generally held consensus that portfolios should not exceed 2-5% in any one position.

Of course, the investment world is always made up of conflicting opinions, and every individual circumstance and risk appetite is different.

Many successful individual investors would balance their portfolios with larger positions in lower risk stocks (eg – utilities, world dominating dividend paying stocks etc) and much smaller positions in more volatile but potentially lucrative growth high beta stocks, allowing them to feel comfortable with setting higher stop losses and riding out short term fluctuations.

Small Business Accountant ChelmsfordTransform AccountingEssex Small Business Accountants

Disclaimer – The information presented in this article is intended for education purposes and is not intended to be used as the sole basis for any investment decision nor should it be construed as advice intended to meet the investment needs of any investor. The author may hold positions referred to in this article. Please perform your own research or contact a qualified financial adviser prior to making any investment decisions.

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stock chart

Investor Tips – What’s the best diversified portfolio mix?

As with anything related to investments, opinions can vary wildly and it is often hard to know which is right or wrong.

But conventional thinking tells us that a diversified portfolio is made up a mixture of stocks and bonds with a small element of alternative investments.

The standard investor portfolio should generally contain 10 – 30 different individual stocks and bonds, and possibly a few mutual funds.

But what about the balance between stocks and bonds?

The mix is usually around 60% stocks and 40% bonds.

A mix of 70% stock and 30% bonds is considered more aggressive.

Generally, the higher the percentage of stocks, the more aggressive the portfolio.

Alternatively the higher the percentage of bonds, the more defensive the portfolio.

But what if you don’t have the time to research up to 30 different stocks and bonds?

The use of ETF’s (Exchange Traded Funds) has now made it possible for the average investor to easily purchase a simple bond or stock index whilst paying very low management fees (unlike mutual funds where fees can often exceed 2% per annum, regardless of performance).

This could be done with just two ETF’s – “DIA” represents the Dow Jones Index of America’s leading 30 shares, and this could be combined with the ETF code “TLT” which represents US government treasury bonds.

Just by buying these two investments in a 60/40 ratio, you can achieve low cost diversification in a relatively low risk investment.

Accountant Loughton – Transform Accounting – The Essex Accountants

Disclaimer – The information presented in this article is intended for education purposes and is not intended to be used as the sole basis for any investment decision nor should it be construed as advice intended to meet the investment needs of any investor. The author may hold positions referred to in this article. Please perform your own research or contact a qualified financial adviser prior to making any investment decisions.

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What to look for when reviewing a stock chart.

In the world of investing, there are no guarantees, but by reading stock charts and historical patterns, you can maximise your probabilities of making a good return on your investment, whilst keeping risk under control.
Here are a few tips to bear in mind when you are considering investing in some shares.

1 – Are the shares in an uptrend?

To check if a stock is in an uptrend, we need to review a stock chart.  The most important thing to look for is a stock that is trending steadily higher, though not exploding.
– The ideal stock chart should be steadily rising at a 30 to 45 degree angle – i.e. – moving up slowly and gently.
– You probably would not want to buy a stock that is either flat or going down.

But what about a stock chart that shows the share price is exploding upwards at say a 60 degree angle?
Greed may tell you this is a great buy and you should jump on the bandwagon quick as it is skyrocketing!
However, many times a price crash will follow a parabolic rise, so jump on the bandwagon at your own risk.
Look for a calm, comfortable rising uptrend in price if you want to remain a calm, comfortable investor.

2 – Look for Stability in Price

Stock prices that are very jumpy are often referred to as being “volatile”.
Small jumps either up or down are perfectly normal and acceptable, but share prices that spike up and down wildly are best to be avoided. Ideally, look for stability, not volatility.

3 – Volume Trends

People who carefully study stock charts before making investment decisions (known as chartists) also like to view the volume of shares traded in conjunction with the price movements.
If you look at a typical stock chart, as well as the price section (usually presented by a line chart), there is often a volume section underneath (presented as a bar chart). The higher the bar, the higher the volume of shares traded.

The ideal picture is steadily rising volume, combined with a steadily rising price.

If the stock price is rising, but the volume is decreasing, this should be considered a warning sign that a fall may be on its way as people are becoming less interested in owning the stock.

The worst case scenario is an increasing volume trend combined with a decreasing price. This clearly shows that more people do not want to own the share and are selling as the price declines. Steer well clear of this one.

4 – Moving Averages

A moving average chart plots the average price of a stock over a given period of time.
This period of time can vary, but the most commonly used are the 50 day and 200 day moving averages.

Typically, the moving average is plotted on a chart combined with the share price.

The ideal to look for is a moving average that is trending upwards AND a price that is also trending upwards and above the moving average.
These 4 tips will not guarantee success in investing, but they are a useful technique to help filter out stocks and shares that you should not buy. If followed, you will avoid investing in shares that are in a downtrend or experience major volatility.

Accountant Ongar – Transform Accounting – The Essex Accountants

Disclaimer – This article is for education purposes only and is not intended as a recommendation to buy or sell any security. The author may hold positions referred to in this article. Please perform your own research or contact a qualified financial adviser prior to making any investment decisions.

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