New Sunday Times Feature - Diary of a Private Investor

[Brendan Burgess]

You answered a different question. I was asking how typical was it that 9 stocks out of 500 accounted for the whole return. You answered by excluding 25% of the stocks or 125.

It would be hard to pick 10 stocks out of 500 and not have one or two in the top 25%.

It would be easy to pick 10 stocks out of 500 and miss out on all the top 9.

A randomly selected portfolio of 10 stocks is twice as likely to feature in the bottom 20% of stocks (whose value went to zero) than the top 10% of "super performers".

I am now completely confused.
Do I need to pick shares from the top 2% (9/500)?
Do I need to pick the 10% of super performers?
or Do I need to pick the the top 25% who account for all the growth?

They are very interesting questions. I am not concerned about picking a few of the shares that will do well this year. My holding period is indefinite so I would like some of the shares which outperform in the long term, knowing that I will pick some of the duds.

 

[Sarenco]

Hi Brendan

To be clear, I didn't actually say that 9 stocks accounted for the entire 2015 return - I said that if you excluded the top 9 performing stocks, the return of the S&P500 would have changed from modestly positive to modestly negative. In other words, the return on the majority of individual stocks that constitute the index was not zero - it was negative.

I set out the figures that I have showing the impact of excluding the top 10% and 25% of performers over an extended time period. I'm afraid I don't have comparable statistics showing the impact of excluding the top 2% of performers but the point is that there is a wide distribution of returns across individual stocks that make up the market.

You can't capture the market return by simply picking a sufficient number of stocks from the top 25%, 10% or 2% of performers. The only way to reliably capture the market return is to buy the entire market.

Hope that makes sense.

 

[Brendan Burgess]

The only way to reliably capture the market return is to buy the entire market.

Hope that makes sense.

It does. But I am aiming for a good return. I am not aiming to capture the market return. If I get a real return of say, 4%, while the stock market earns a return of 8% due to Google and Microsoft, that is a bit disappointing for me, but it's not the end of the world.

I would be much more worried about losing money over the longer term because I had picked an unlucky selection of bad ones whereas the market as a whole performed normally.

Brendan

 

[joe sod]

In the Sunday Times article the author says that he made a mistake investing in commodity stocks like tullow oil and barrick gold. But I'm wondering if he had invested in shell a blue chip major rather than tullow oil would he have done the same thing. The fact that oil companies and commodities are highly cyclical is now very much to the fore. But back in 2009 - 2012 when oil prices were high airline stocks like Ryanair and aer lingus were on the floor and trading at fractions of their current valuations having fallen substantially from their 2007 levels. Then everybody was advised to stay away from them due to the highly cyclical nature of their business. I think aer lingus floated at 2.50 euros and fell as low as 65 cent in 2012. Lots of people have mentioned the stellar performance of Ryanair but are people forgetting the highly cyclical nature of airline stocks. I'm just trying to compare investing in airline stocks and investing in commodities and is, it basically the same thing.

 

[mtk]

Great thread and article with real insight ....... the devil is in the detail I think

Is it in pension ( ARF?) wrapper or not ?
Tax implications and provider /broker charges

What is the approx size of the author's portfolio?
To compare man. charges of a "fund" etc. vs self directed charges
Dealing costs depend on volume (as well as frequency)

 

[Colm Fagan]

I'm in bed now, having struggled through the day with a bad cold, but I'll try to give answers to some of the questions/ comments (all very welcome, I should add).
1. Is it a pension wrapper or not?
There's a combination of an ARF, an AMRF, and a non-exempt portfolio. Strategically, I look at the portfolio as a single entity, but naturally try to hold the high dividend stocks in the ARF/ AMRF and the low dividend stocks in the non-exempt portfolio. More often than not though, the decision on which "pot" to take money from when an investment opportunity arises is wherever there is spare liquidity. Obviously too, I have to ensure there's enough liquidity in the ARF at the end of each year to pay the "pension" mandated by regulation. My stockbroker is the administrator (or whatever the term is) for the ARF/ AMRF, but it's on an execution only basis. I make all my own investment decisions. I think the charge for what they do is exorbitant, especially as it's expressed as a percentage of assets under management, but I probably wouldn't get it any cheaper elsewhere.
2. What is the approx size of the portfolio?
That's a closely guarded secret! Suffice to say that it is into 7 digits but nowhere near 8. On the question of dealing costs, I used to deal fairly frequently a couple of years ago, but much less often now, and each deal is a significant size. At present, six stocks account for around 80% of the total portfolio. As per the article, I'm trying to diversify a bit more, but not too much.
3. Made a mistake buying Tullow Oil and Barrick Gold, but what if I'd invested in Shell say?
It would make no difference. The point I was trying to make is that I've realised that I'm useless at predicting future trends for currencies, commodities, etc. and have decided to stick with stock-picking for companies whose success depends on providing real goods or services, the demand for which is reasonably predictable (probably not in cyclical industries). On that thinking, I wouldn't go near an oil major or minor again.
4. Emotional investment in a share is a greater threat to rational decision-making than the endowment effect?
I can see the similarities but I definitely see myself in the description of the endowment effect, and it is different from emotional investment. Some of the literature on this "condition" is fascinating. Definitely not something to be dismissed as theoretical nonsense.
5. Concentrated or diversified portfolio?
The answer depends on what you're trying to achieve. I don't give a sugar about matching or beating the market or pooled fund returns over either the long-term or short-term. I'm simply trying to get a good "real" rate of return in the long-term, provided of course that I'm satisfied that dividends and "normal" turnover of investments will be sufficient to meet my "income" needs (real or forced by regulation) and that I won't have to cash investments at the wrong time. Some of my friends have challenged the 6% real return target as being unreasonably high, but I think it can be achieved. I reckon I have a better chance of reaching the target with a concentrated portfolio of good quality companies, bought at reasonable prices, and which are well diversified in terms of risk exposures - and that doesn't necessarily mean industry sectors; it means internal and (more importantly) external risks that could hit their businesses. One example of such a risk I'm facing at present is China. Two of the companies in my portfolio, with very different businesses, both have high exposure to China, albeit one is at the retail level and the other at the wholesale level.
I'd better tuck in with my Lemsip now!!

 

[Fella]

Hi Colm ,

I bought the paper to read your diary , it's enjoyable reading. Are you going to be recommending shares to buy?

You seem to be investing a long time well I'm guessing that seen as you have 7 figures invested, what would you do if you where starting out again ?
What advice do you have for someone who is beginning to invest ?

I'm 34 and have 250k in equities mostly made up of investment trusts now, they have dropped a bit seen as I only started recently , I don't see myself needing that money until retirement , what's the best way to grow it in your opinion?
Do you recommend people see a financial advisor or trust in themselves?
I don't max out pension as I am a low tax payer.

Thanks

 

[Gordon Gekko]

Hi Colm

Get well soon. Why do you think that you can pick winners more effectively than (say) the fund managers of Morgan Stanley Global Brands or Finsbury Growth & Income Trust?

Regards

Gordon

 

[galway_blow_in]

In the Sunday Times article the author says that he made a mistake investing in commodity stocks like tullow oil and barrick gold. But I'm wondering if he had invested in shell a blue chip major rather than tullow oil would he have done the same thing. The fact that oil companies and commodities are highly cyclical is now very much to the fore. But back in 2009 - 2012 when oil prices were high airline stocks like Ryanair and aer lingus were on the floor and trading at fractions of their current valuations having fallen substantially from their 2007 levels. Then everybody was advised to stay away from them due to the highly cyclical nature of their business. I think aer lingus floated at 2.50 euros and fell as low as 65 cent in 2012. Lots of people have mentioned the stellar performance of Ryanair but are people forgetting the highly cyclical nature of airline stocks. I'm just trying to compare investing in airline stocks and investing in commodities and is, it basically the same thing.

ryanair was on the floor from 2009 to 2012 due to the fact that ireland and europe was in a deep recession and equities were in a profound bear market across europe until draghi replaced the truly awful trichet as ECB president , had nothing to do with the price of oil , bar ryanair and perhas IAG , no major airlines stock price is doing well right now , the major american airlines got nothing out of low oil prices since mid 2014 , ditto with easyjet , you might think that low oil prices automatically corellate with higher stock prices for airlines but thats not the case

 

[Sarenco]

Finsbury Growth & Income Trust?

Actually Finsbury Growth & Income (FGT) is an excellent example of the sort of high conviction, low turnover portfolio favoured by Brendan and Colm.

As at 31 December 2015, FGT had a grand total of only 24 holdings. Its portfolio manager employs the sort of fundamental stock analysis favoured by the likes of Warren Buffett and rarely adds new holdings to the portfolio or exits a position once acquired. The portfolio has a significant sectoral bias in favour of defensive consumer stocks (Diageo and Unilever are major holdings).

Over the past ten years, FGT shares have generated total returns in excess of 10% per annum and shares in the trust have outperformed the MCSI World Index (TR) by over 40% over this period.

Obviously past performance is not indicative of future returns and it seems improbable that this (if any) level of outperformance will continue into the future. It should also be noted that FGT employs a moderate level of leverage, which can obviously enhance returns in good times.

A highly-concentrated portfolio of this nature would not be my cup of tea but I could think of any number of worse options for an equity investor.

 

[Colm Fagan]

A few comments on various points:

Will I recommend shares to buy? Definitely not! The column tells what I am doing and why. I leave it to others to decide if they agree or not with my reasoning. I am not qualified to give financial advice and I have no aspirations in that regard.

“I’m 34 and have 250 K in equities”. Lucky you! When I was 34, even 44, I hardly had two brass farthings to rub together and was up to my neck in debt, but that’s neither here nor there.

Finsbury Growth & Income Trust? I don’t know much about this particular company, but it is an investment trust and one key difference between an investment trust and a unit linked fund or unit trust is that the share price of an investment trust is determined by the balance between buyers and sellers, while for a unit trust it is equal to the net asset value. For investment trust, the share price can vary significantly from the net asset value, either upwards or downwards (normally downwards). That’s an additional uncertainty to be borne in mind. I see that in FG&I’s case, the share price is marginally greater than the net asset value. I have been a long-term investor in another vehicle of this nature, where the share price is at a discount of 12.5% to the NAV. That particular company has delivered a shareholder return of an average 13.5% per annum over the last 15 years; I’ll probably write about it in one of my future columns. I much prefer to be invested in a vehicle where the share price is at a discount to NAV than where it's at or above NAV. My worry about FG&I is that the share price could fall to a substantial discount from NAV if anything were to happen to the main man.

Does a guy in his attic in Ireland think he can pick winners better than Morgan Stanley’s top analysts? First of all, I have nice little office at home, thank you, so I don’t have to retreat to the attic! Seriously, I don’t think I can pick winners better than the top professionals (but the truth is that many of them are little more than juniors, with no real experience of business). Nevertheless, my record stands up well against the average professional fund manager. The private investor has a lot of advantages over the professional that often go unrecognised. I don’t have the time to go into what those are at the moment; they will probably form the subject matter for another “private investor” column. More importantly, and this might qualify as a political statement, I think professional fund management is a form of socialism, where a plethora of financial institutions and financial advisers separate the ultimate owners of businesses, i.e. you and me, from the people ultimately responsible for using wisely the money we have given them, i.e. the directors and managers of those businesses. I want to cut out the middleman; I want to feel a genuine sense of ownership of the companies where my money is invested; I want to understand more about its products and services, its sales volumes and margins, its long-term strategy. Ultimately, the value I place on the share is derived after putting all these considerations into the pot. I can compare that derived value with whatever the market is offering at the moment and thus decide whether to buy, hold or sell the share. I lose all that immediacy and ability to assess the reasonableness of the market value when I put my money in a unit trust or investment trust.

 

[Dan Murray]

Just a few comments.....

Firstly, I think it's great that Colm has been prepared to actively engage with the AAM community.....even from his sick-bed. In the interests of debate, I’d like to offer my $0.02

Articles like this can serve to educate the less financially savvy, me fein included. Due to Colm’s stature, he will be recognised as a thought leader and consequently is likely to influence thoughts and actions, generally. For these reasons, I would be a little concerned about some of the potential takeaways from the most recent article. Colm could reasonably argue that he never actually said some of the points that I am about to be make……my counter argument is that these points could be reasonably be inferred - Anyway, here goes….

1. The lack of diversification.

Is it really advisable to have 90% plus of one’s retirement savings in equities?

[My own view is that almost irrespective of the average return achieved, the typical human is really not emotionally equipped or designed to deal with the inevitable gyrations of the equity markets with their life’s savings. I think this is especially true in advanced retirement (and I may well be further along this road than Colm and others!) And would you even want to be concerned about market movements in advanced years?]

Also, is it really advisable to hold such a concentrated portfolio within one asset class? or perhaps more bluntly, is it really advisable to hold a concentrated portfolio of equities below a certain level of financial IQ?

[If you want a brutal example, go to the AGM of AIB/BOI even to this day! I feel sorry for these folk in part because I believe “they knew not what they were doing”. Since Einstein Neary infamously assured us all of the robust good health of our banks, in spite of the banks’ collapse, the ISEQ is now considerably higher. And yes, I get it that the ISEQ is not in itself the paragon of diversification.]

2. The target return

The most I can earn from genuinely risk-free investments is around 2% a year- if I’m lucky. I need to earn more than three times that to have a reasonable income in retirement: 6% per annum plus inflation is my target...

I think I misunderstood this when I read it first time round.

I think what Colm is saying is that he needs a 6% return (and that his target is higher again, 6% plus inflation).

Here, I wonder……

• 6% nominal is attainable but already ambitious in retirement…….why would you strive for heroic returns (i.e. 6% plus inflation)?
  
  
• If an ordinary Joe plans his retirement on the basis that his fund needs to deliver a 6% return in retirement, then it is probable that sooner or later, we will have a hungry old fogey or two out there.

To me, needing a 6% nominal return in retirement (when inflation expectations are as muted as they are) is kind of a failure in some element financial/lifestyle planning.

Also, and again a personal take, but taking more risk that you need to (by targeting a 6% real return) is akin to the Mexican Fisherman fable.

 

[Colm Fagan]

Dan
Excellent points, and well made. If I were in your shoes and someone else were in mine, I would probably have said something similar! Anyway, I'll try to provide responses of equal calibre to the questions - not necessarily disagreeing with you - but it will probably be this afternoon at the earliest before I can get round to it.
Colm
PS: Once again, just in case any of the readers are confused, it was I, not Brendan, who made the 2% and 6% comments in the box.

 

[Colm Fagan]

Coming back as promised with a more detailed reply to Dan Murray’s thoughtful contribution:

I take Dan’s point that people could take wrong inferences from what I wrote. Dan himself picked up on the subtlety of me needing to earn 6% for a reasonable income in retirement rather than expecting to earn 6%. The problem I always face when writing the column is that there is never enough space to say all I would like to say, in particular to expand on subtleties such as this. If I had the time to expand on what I wrote, I would say that I can survive if I don’t get the 6% plus inflation but it will mean having to cut back on my (and probably more importantly my wife’s!) lifestyle; it might also mean having to downsize our home sooner than I would have intended, dipping more heavily than planned into the money that our children might have thought was part of their inheritance, et cetera. Dan is also quite right that needing a 6% return in retirement is indicative of a failure of financial/lifestyle planning. For a variety of reasons, I ended up without any entitlement to a DB pension and had to make up a significant pension shortfall in a short number of years. Let that be a lesson to all you youngsters!

On the other side of the return equation, some of my friends rightly noted that my estimate of 2% a year from risk-free investments was optimistic. I won’t bother going into the detail of how I justified it, but it serves to illustrate that you need to be extremely wealthy (or lucky enough to have a secure DB pension) if you want to ensure an adequate risk-free income. On the “optimistic” assumption of a 2% risk-free return, one would need to have €500,000 set aside for each €10,000 of annual income. Each of us can do our own sums on how many times €10,000 we need. Either way, you need to have a big pile set aside. Of course you can enhance your income by dipping into capital but the problem with that is that, once you start dipping into capital, you won’t be getting any more interest on that part of your money, so you need to dip deeper each successive year for the same income. There is always the worry that you will last longer than your capital. (This is the cue for my life assurance buddies to talk up the merits of guaranteed annuities - but then, what about the risk of future inflation?)

Dan also takes issue with my decision to have 90% plus of my retirement savings in equities, asking if it is advisable to hold such a concentrated portfolio within one asset class. I definitely disagree with him here. Calling equities “one asset class” is far too simplistic. There is as much variation within what are broadly called “equities” as there is between the traditionally recognised separate asset classes of equities, bonds, property, commodities, et cetera. There was a lot of thinking behind the statement in my column that “less than a dozen companies provides sufficient diversification if the companies chosen are financially and strategically resilient and if there is little overlap between them in terms of risk exposures - a tall order, I know.” Of course, their market values will move in tandem – it’s in the very nature of the stock market - but don’t confuse that with how the underlying businesses are affected.

One very important point in my article was that dividend income and normal turnover of investments are sufficient (or at least have been sufficient up to now) to meet voluntary and compulsory cash withdrawals. That means that short-term market value movements don’t worry me.

My approach to equity risk and how I view short-term movements in market values can best be illustrated by the example of my largest single holding. It’s a UK company. I made my first investment in it 20 years ago at £4 a share and a dividend yield of slightly under 3%. Not once in that 20 year period has the company come back to shareholders looking for more capital and the dividend has been paid faithfully every year. In that time, the dividend was cut just once but was restored to higher than its previous level within two years. The dividend is now over four times what it was when I first bought the shares and the share price itself has also increased more than fourfold, so the dividend yield is now also slightly under 3%. If I had gone to sleep 20 years ago and woken up now, I would be a happy man, without a care in the world. What was there to worry about in that 20 year period – dividends arrived faithfully every year and are now four times their starting level and the share price has quadrupled for a total return of over 10% per annum (as an aside, it is well above the target of an average annual 6% plus inflation)?

Yet, in the last 12 months alone that company’s share price has gyrated between a low of £16 and a high of £26.50, a difference of an incredible 65%. If short-term movements in market values worried me, I would have had three heart attacks in that period, but they don’t worry me - at least not for that particular company. There are others like it. The gyrations don’t worry me because I know that the company is sound and will deliver in the long-term. Yes, sometimes I may be a bit annoyed with myself for paying more to increase my holding than I would have paid if I had bought the extra shares a few weeks later or for selling a few shares in order to reduce my holding for a price lower than might have been possible at a different time, but all of these transactions are at the margin; the real story is the Rip Van Winkle return after a 20-year sleep. It's more difficult, if not impossible, to get to that state of equanimity when you hold shares through a unitised investment vehicle.

Of course there is long-term risk but, as stated in the article, I try to reduce that by investing in companies that are strategically resilient and strong enough to weather a severe recession. Yes, it is hard work, but I enjoy trying to identify companies that meet my criteria - sad, I know. The workload is reduced by the fact that the portfolio is concentrated and has been built up over quite a number of years. As an aside, I haven’t had as much time to research possible additions to or deletions from the portfolio in recent months as I would have liked; writing the column and contributing to this and other fora take up some of the time that would otherwise be spent in research.

Finally, I don’t think that a target return of 6% plus inflation is overly heroic for an equity fund. I arrived at 6% by looking at what I thought the companies in which I am invested should return in the long term. I was then relieved to see that the figure tallied well with long-term realised returns on major equity indices.

 

[Brendan Burgess]

Is it really advisable to have 90% plus of one’s retirement savings in equities?

[My own view is that almost irrespective of the average return achieved, the typical human is really not emotionally equipped or designed to deal with the inevitable gyrations of the equity markets with their life’s savings. I think this is especially true in advanced retirement (and I may well be further along this road than Colm and others!) And would you even want to be concerned about market movements in advanced years?]

This is one which I think needs to be dealt with as it reflects the popular view, which I think is very wrong. Many people seem to think that as you approach retirement, you should get out of equities and into cash. This may have had some sense when people had to buy an annuity on retirement. I would argue that it makes no sense now.

(Eamon Porter has an excellent article on it here
"Should the elderly be less conservative investors?")

Most people who manage their own pension funds have the option to switch from a pension fund to an ARF on retirement, so the actual level of the stockmarket at age 65 is no longer very relevant.

But where should a 65 year old who owns their own home free of a mortgage invest? Their investment timeline is probably 20 to 30 years and the best return over 20 to 30 years is most likely to be the equity market. So they should be 100% in equities. Of course there is a risk that they will outlive their fund. But the risk is much higher if they put the money on deposit or in bonds.

Those who have an annuity pension should definitely invest their free assets in the equity market. They have automatic diversification/protection against a long-term collapse in the equity market.

And, of course, owning shares directly is the most tax-efficient. There is no payment of tax every 8 years. And on death, there is no CGT. OK, there are collective investment vehicles which are treated like shares, but you have to pay for research to get these funds and you have to be absolutely sure that the tax treatment won't change compared to the treatment of shares.

You might change your strategy when you go into a nursing home and your funds and life expectancy is limited. So if a nursing home is going to cost €80,000 a year and I have only €300,000 left, I probably would put it in cash, assuming I was only going to live another 3 or 4 years. If I invested in equities, a crash in the stockmarket would see me unable to pay my nursing home fees.

Brendan

 

[Brendan Burgess]

Colm

I would suggest that you should also incorporate the value of your home into your retirement planning.

If your fund does not achieve the required 6% and it bombs out before you die, you will have your mortgage-free home to fund a few more years.

You can either trade down or raise some form of life loan.

Of course, your "investment" in your home is very financially efficient. The income, i.e. rent saved, is tax-free. There is no CGT. And it's ignored for means tested benefits. And you don't have to sell it to avail of nursing home care.

Brendan

 

[Sarenco]

There are good reasons to always hold at least a proportion of your assets in fixed income instruments:

• Dry powder. When stocks plunge in value you have the resources available to buy stocks at their now reduced price.
• Liquidity. Avoids the need to crystallise a loss by selling shares after they fall in value simply because you need to put food on the table (or because the taxman effectively requires you to make a withdrawal).
• Diversification. When stocks suffer a sharp fall in value there is tendency for bonds (particularly safe government bonds) to rise in value - the "flight to safety" effect.
• Emotional. Most people can't handle the market volatility associated with stocks without knowing that the value of at least a proportion of their portfolio is relatively stable.
• Time. Beyond a certain age, people simply don't have the time to wait for a rebound in stock prices following a significant drawdown.
• Risk. Stocks are inherently risky. If you have sufficient assets or income to meet your needs you may simply have no need to take the risks associated with holding a significant proportion of your portfolio in stocks.

People can certainly take different positions about the precise proportion of fixed income investments that they should hold at any given age depending on their need, ability and willingness to take risks but most people naturally become more risk adverse as they get older.

 

[Ceist Beag]

There are good reasons to always hold at least a proportion of your assets in fixed income instruments:

• Dry powder. When stocks plunge in value you have the resources available to buy stocks at their now reduced price.
• Liquidity. Avoids the need to crystallise a loss by selling shares after they fall in value simply because you need to put food on the table (or because the taxman effectively requires you to make a withdrawal).
• Diversification. When stocks suffer a sharp fall in value there is tendency for bonds (particularly safe government bonds) to rise in value - the "flight to safety" effect.
• Emotional. Most people can't handle the market volatility associated with stocks without knowing that the value of at least a proportion of their portfolio is relatively stable.
• Time. Beyond a certain age, people simply don't have the time to wait for a rebound in stock prices following a significant drawdown.
• Risk. Stocks are inherently risky. If you have sufficient assets or income to meet your needs you may simply have no need to take the risks associated with holding a significant proportion of your portfolio in stocks.

People can certainly take different positions about the precise proportion of fixed income investments that they should hold at any given age depending on their need, ability and willingness to take risks but most people naturally become more risk adverse as they get older.

This perfectly illustrates to me why it would be extremely risky to have 90% of your savings in equity. I'm looking to set up a portfolio this year and to me a mix of bonds, cash savings and investments (index funds) makes most sense given my limited knowledge and time that I can contribute to managing the portfolio.

 

[Dan Murray]

Firstly Colm - thank you for such a lengthy and comprehensive rubbishing of my post - only kidding - very interesting thread with strong inputs also from Brendan, Sarenco and Ceist Beag.

I will reflect on all the points raised but am unlikely to revert for a few days as I'm off shortly to the Cotswolds to do my own fundamental analysis in advance of The Festival in March. I mentioned "a few days" because whilst we get back on Sunday, if past performance has any indicative qualities whatsoever, I'm likely to be picture no sound for a further day or two. I'm sure Sarenco will diagnose the various heuristics such behaviour represents!

In passing, went to see The Big Short last night - very interesting and very, very funny. Strong buy.

 

[Colm Fagan]

Hi Dan,

Enjoy the Cotswolds, and while you’re enjoying yourself, think of me, stuck at home minding grandchildren!

Actually, after the discussion of recent days, I have decided to sit all five of them down for a serious chat. I’m going to tell them that they are my equivalent of junior bondholders: if grandad’s investments fail to generate a return of 6% per annum over inflation for the rest of his days, then they get nothing when he kicks the bucket. The three-year-old may have some difficulty following it all, but she’s intelligent so she’ll probably understand. Come to think of it, she’s probably the one who will ask if Trichet will come to their rescue. I’ll have to tell her that no, he won’t; he will only be prepared to force the Irish taxpayer rescue their parents, the senior bondholders, if returns fail to beat 4.5% per annum over inflation.