The English Investor

A life update from the English Investor – Q1 2019

Lifestyle

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No, I’m not dead. Or at least, I found my way back. A bit like Jon Snow.

The first quarter of 2019 turned out to be an absolute nightmare. People say that what doesn’t kill you makes you stronger. It might be true but note that there is an intermediary step when you have to pick yourself up and actually get stronger. That’s the hard bit.

So what happened? Winter came. Allow me to update you…

The English Investor is now single

I constantly debate how much I should share on this blog. On the one hand, this blog is not about personal relationships. It’s not therapy either. On the other hand, when life events have a direct impact on your finances, then a lesson or two might be learned. As a bonus, it adds some authenticity.

Calling off my engagement is one of the hardest things I’ve ever had to go through. I found it especially hard because I genuinely think that I wasn’t at fault here. Trust me, I wished I had messed up somewhere and deserved the blame. It would have made things more bearable.

I won’t go into the specifics but let’s say that the whole “Convert to a new religion before the wedding or I will pack and leave” ultimatum did not go well. It’s no secret that I’m Christian and that I have a set of core values. My fiancee knew that but for some other reasons – which turned out to be inaccurate – she thought she could force me to change my mind. Or force my hand.

The ask surprised me but I was even more shocked by the reaction that followed when I first asked to think about it, and then when I refused.

I think you get the picture for now… However, I had not realized where the financial implications and I’m still processing those.

1 – No big sum of cash to splash on a wedding

The first saving is obvious and it’s one that I would have preferred to avoid. The immediate consequence is that you don’t have to spend a fortune on your wedding day.

However, things are drastically different on how far advanced you are in the planning.

If you have only started to look for venues but haven’t booked anything, then you are good. The same applies to catering, dresses, flights, flower arrangements etc. One would say I was lucky as we had not committed to anything.

It’s another story when you have incurred significant expenses because you are further along in the planning. You will have to review the terms of the contracts you signed to see if you can get reimbursed or recoup some of the expenses. In most cases, this is unlikely to be a possibility. From there, I believe the fair thing would be to share the loss 50/50 but others might disagree.

2 – What to do with the engagement ring?

This is one of the most sensitive issues because it is a very emotionally-charged one. You spent time and money on ensuring the ring would be perfect.

The first issue is to actually get back the ring. You would think that your partner would acknowledge that things did not work out and therefore it is only fair to give the ring back (especially if it represents a hefty sum). That’s what happened to me and I was “lucky” in this respect. However, when a relationship falls apart, people do not always stay calm and carry on. Things may even turn a bit nasty.

Unfortunately, English law is not on your side. The Law Reform (Miscellaneous Provisions) Act of 1970 clearly states:

“the gift of an engagement ring shall be presumed to be an absolute gift; this presumption may be rebutted by proving that the ring was given on the condition, express or implied, that it should be returned if the marriage did not take place for any reason.“

Good luck proving that. You might have better chances if you can show that the ring stayed in the family for generations. Given where the burden of the proof lies, it will be an uphill battle to meet the standard. You might be safe if a prenuptial agreement was signed in the meantime and the said agreement explicitly provided that the ring would return to its original owner.

Let’s assume that you managed to keep the engagement ring.

Here comes the real question: what do you do with it?

This is actually a fairly important question when you spent $50,000 on the rock.

If the engagement breaks down rapidly, then you might be able to return the ring. For instance, you have a month to return the ring at James Allen for either an exchange or a full refund.

If you don’t qualify, then you can either sell it or keep it. If you sell it, get ready to probably lose at least a solid 20% to 30% of its retail value. I haven’t tried to sell it so this is only an estimate.

Alternatively, if you can afford it, just do nothing for a while to think about it. You may never use it again and therefore selling it might be the only option. However, it is not absurd to see the engagement ring as (i) an asset that could potentially appreciate in the future and (ii) a means to transfer money from one place to another in a fairly discrete manner (subject to declaration requirements imposed by customs).

As far as I’m concerned, I intend to keep the engagement ring in the short-term and then reevaluate my options in a couple of months. I do not need the money for now.

3 – Figuring out the living arrangements

If you are engaged, you are probably living with the other person under the same roof. One of you therefore has to move out. In my case, it was straightforward. Once I had responded to her ultimatum with a negative, she had moved out of the apartment within 24 hours…

You should also be mindful of how to deal with utility bills. I personally got completely screwed. Three months after her departure, I am still discovering massive electricity bills which were supposed to be paid by her. The same applies to water charges or council tax.

There are only two approaches: swallow your pride and pay for everything or give your ex-partner a call to settle things amicably. Going to court for £700 is not an option.

Work almost crushed The English Investor

Ending an engagement is already traumatic. It doesn’t help when you get completely crushed at work and you need to pull yourself together to keep your head above water.

A rare sighting of myself in the past few weeks

It is already bad enough to lose your fiancee. You don’t need to lose your job also. I realized this very quickly and decided to remain uber-focused at work. It was not easy – it still isn’t – but the effort is paying off. I’m probably in much better standing than I was a couple of weeks ago (not that I was getting fired or anything! people just seem a bit more appreciative).

Important deadlines coming up for your finances

As you may be aware, the end of March means that the new tax year is almost here. The new tax year starts on 6 April 2019. This means you only have a few days left to:

Use the full ISA allowance: you can set aside £20,000 each tax year in a cash account or in a stocks and shares account. Interest paid or dividends/capital gains are tax-free. Your allowance does not carry forward so if it’s unused, you lose it for good.
Maximize pension contributions: the next few days may be the last ones for people subject to the tapered annual allowance to tap any unused carry-forward allowances. I have almost maxed out mine. Starting on 6 April 2019, I will only be able to contribute £10,000 to my pension pot.

The beginning of the year turned out to be incredibly challenging. I hope things will be a bit smoother going forward. Not everything ended up in a disaster. Rockstar Finance featured my blog post on the dangers of lifestyle inflation! Hopefully, more will follow!

When a company in your portfolio gets acquired

The English Investor

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When a company in your portfolio gets acquired

Investors love when a company produces great financial results. This means that the company is performing well and maybe even generating a profit. Shareholders can usually expect a dividend and the share price to trend upward.

But beyond a solid company, investors absolutely adore a company that gets acquired. The acquisition of a publicly listed company will command a premium to the existing share price. While every acquisition is different, it’s not rare to see a premium of at least 30% based on the average share price of the last couple of trading days.

It’s a bit like winning the lottery overnight. The stock price of the acquired company skyrockets by 30% in a matter of seconds.

This happened to be me this month with the acquisition of cancer drugmaker Celgene.

If you are willing to review your portfolio when the stock market crashes, you owe it to yourself to do the same when an opportunity to capture profits presents itself.

The Acquisition

Last week, Bristol-Myers Squibb decided to purchase Celgene in a cash and stock deal valued at $74 billion. The merger is subject to various regulatory approvals and is expected to be completed in the second half of 2019.

Under this tie-up, Celgene shareholders will receive one Bristol-Myers Squibb share and $50 in cash for each share held (or $102.43 per share at the time of the announcement). Based on Celgene’s Wednesday close (January 2), this represents a premium of over 53.7%. As a result, the day following the announcement, Celgene shares surged more than 28%. However, Bristol-Myers Squibb shares tumbled more than 11%. They have since then regained some ground.

According to Refinitiv, the financial data provider, the merger is the largest healthcare deal on record.

What are my options?

Option 1: Do nothing

The first option is to acknowledge the announcement and then ignore the share price volatility. This is the default scenario where you have decided to hold your Celgene shares until the closing of the acquisition.

If I choose this option, on the closing date, my broker – Interactive Brokers – will surrender my Celgene shares in exchange for an equal number of Bristol-Myers Squibb shares. As there is a cash component, my broker will also ensure that I receive $50 for each Celgene share I hold. This cash will simply be deposited in my account.

Even if your account base currency is in pounds, which is my case, the $50 will not be converted. Your broker would have to consult you to do so unless you had already agreed to separate terms when the account was opened. Indeed, exchanging dollars for pounds is a financial decision. This is yours to make and your broker will not risk liability for any potential losses if you are unhappy with the exchange rate or if the pound happens to plummet later down the road.

A few things to consider…

This option implies the following:

Overall, you are happy with the deal and you want to see it through
As there is an exchange of shares, you need to take a view on the company whose shares you will receive. If you are happy with the company’s prospects, you are likely to accept the share exchange and hold the shares of Bristol-Myers Squibb
As for the cash component, you need to decide if you want to leave it in your account, reinvest it or make a withdrawal
There is always a risk that the transaction will not close. If that happened, the share price of Celgene would probably collapse. You must consider this too.

Although this option appears to be the simplest, this is not necessarily true. There is actually a lot of work involved to determine whether you are happy to hold the stock of a new company. Remember to do your due diligence.

Option 2: Sell the Celgene stock

The second option is to sell the Celgene shares prior to the closing of the transaction.

There are few reasons to do so:

Capture the premium as soon as possible (even if it’s not the full premium). You are likely to do so if you believe that there is limited upside in holding through closing. In this volatile market, this is not an unreasonable plan.
Avoid the execution risks. The transaction might not close, which could be detrimental to the Celgene share price. Remember that this deal must clear regulatory approvals.
You are not keen on holding Bristol-Myers Squibb shares. Even if the transaction did not close, you are happy to exit the Celgene trade and this is a good opportunity to do so.

Working out the math

As discussed, there are multiple factors to take into account. However, the most important one will be the share price of both Celgene and Bristol-Myers Squibb. After all, the goal is to make as much money as possible.

The first question to answer is whether you made money. And in Celgene’s case, it’s not that obvious.

I purchased Celgene a while ago and then averaged down when concerns emerged that some of its recent trials were producing disappointing results. Celgene’s blockbuster cancer treatment – Revlimid – faces increased competition, which is why it is critical for the company to produce new revenue-generating drugs.

Graph Celgene stock price — Source: Yahoo Finance

The best case scenario

My average cost per share stands at $111.75. On January 2, 2019 – a day before the announcement – it cost $66.64 to own one Celgene share. On the same day, the share price of Bristol Myers Squibb was at $52.43.

Therefore, one share of Bristol Myers Squibb at $52.43 and a cash payment of $50 value Celgene at $102.43 a share. This quick addition is consistent with the announcement made by both companies.

No need to be a math genius to see that my average cost per share is higher than the Celgene valuation. All things being equal, I bear a loss of $9.32 per share. It could be worse, actually, it has been a lot worse. For full disclosure, I only own 13 shares, which will amount to a loss of $121.16 ($9.32 * 13).

This is the best case scenario. In a rational market, nobody will value a share above $102.43 because that’s the price tag announced by both companies. If Bristol Myers Squibb announced that this would be the price – absent any other purchasers – there is no hope of reaching a higher price. Once the acquisition closes, Celgene will no longer exist as an independent entity and there will not be any listed shares to trade on a public stock exchange. Bristol Myers Squibb set a ceiling for Celgene’s share price.

A quick note: not to contradict myself but there is a scenario where I could recoup all my losses. If the share price of the Bristol Myers Squibb share I receive increases by at least $9.32 in the next few months, or years, then I stand a chance to recoup my losses. That’s a big increase and is unlikely in the short term.

The worst case scenario

As of February 9, Celegene share price stood at $87.91. Yes, there was a surge in the share price after the announcement of the acquisition. However, you will have certainly noticed that $87.91 is still a far cry from $102.43. As things stand, the Celgene share price is currently undervalued by $14.52.

In my case, this does not even include the $9.32 loss per share that will occur even if the transaction closes. Therefore, as of this post, I’m nursing a loss of $23.84 per share, or a total of $309.92 (($9.32 + $14.52) * 13). This is starting to be a bit more painful.

Is this free money?

If you do not have any shares in Celgene, now might be a good time to jump in. As explained above, the share price is undervalued by $14.52, which is a hefty 16.5% discount.

If only things could be that easy. The market is unlikely to price the full premium because there is still uncertainty. The main uncertainty relates to the closing of the transaction. As you know, the merger is subject to certain regulatory approvals. If both companies fail to obtain such approvals, then the merger might be abandoned. Alternatively, divestments of valuable divisions may be required in the presence of anti-trust considerations.

One useful indicator is the amount of the breakup fee. When both the acquirer and the target believe that there is a significant chance that the deal will go through, a high breakup fee might be set. At a minimum, a high fee guarantees that both companies will do whatever it takes to close the transaction.

In this transaction, both companies set the breakup fee at $2.2 billion. This is obviously incredibly high. If either company walks away from the mega-merger, it will have to pay $2.2 billion to the other. Markets may take comfort and view this as an indication that the deal has a higher chance of going through.

A caveat – Contingent Value Right

To simplify the analysis, I have ignored a third component in the Celgene acquisition. In addition to receiving (i) a cash payment of $50 and (ii) one Bristol Myers Squibb share, Celgene shareholders will receive (iii) one Contingent Value Right (or CVR) for each share owned.

This CVR is a right to receive a $9 a share cash payment which will be triggered by the achievement of certain regulatory milestones. The Celgene CVR is based on receiving FDA approval for three drugs currently in Celgene’s pipeline: ozanimod (by December 31, 2020), liso-cel (JCAR017) (by December 31, 2020), and bb2121 (by March 31, 2021).

In other words, if it turns out that the Celgene pipeline of drugs acquired by Bristol Myers Squibb proves to be more valuable than anticipated, Celgene shareholders will share the upside and receive an additional $9 per share.

If you believe that those trials will be successful, then add $9 for each share to the above-mentioned calculations. I decided to not factor those in because I have no idea whether those trials will turn out to be any good. As a result, I prefer to exclude potential profits that might never see the light of day. This is a more conservative approach.

Remember to do the math and look into the company acquiring the business if there is a share component in the transaction. In doing so, you should be in a position to make an informed decision as to what you want to do.

The English Investor Top Resolutions for 2019

Lifestyle

The English Investor

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The English Investor Top Resolutions for 2019

Intuitively, I’m not the biggest fan of New Year resolutions. If you need to make important changes in your life, why wait January 1?

And yet, I do also believe that, if you don’t write down your goals, it’s easy to lose track of them. Measuring progress every now and then is critical in achieving anything.

It’s also useful to take the time to assess where we are, review the progress we made and determine if we’re happy with it. If this time of self-reflection comes once a year as a New Year ritual, that’s better than nothing.

Lastly, how ambitious should one be? Being complacent will not move the needle. But hoping for too much without a clear path can become depressing. I believe you should try to overshoot slightly.

After all, achieving a goal knowing that it was achievable will dampen the sense of achievement. You’re following me, right?

Top Financial Resolutions for 2019

Resolution #0: Cover the basics.

Maximum pension contributions and ISA contributions up to the maximum allowance for each product. In my case, my employer and I can only contribute a total of £10,000, which goes quickly. I will also contribute the full allowance for my ISA (£20,000). This is resolution ) because I see it as mandatory. Nothing else can happen until I achieve this. Let’s say that it’s the bare minimum to get closer to financial independence.

Resolution #1: Save $100,000 in cash.

It’s not just the nominal amount that makes this goal very ambitious. Assuming I can find a venue on time, I am getting married next year. I anticipate that my spending will increase significantly because of my wedding so it is important that I build-up my cash buffer asap!

Now, it’s worth clarifying a few things here. Yes, this amount will take into account the £20,000 I intend to contribute to my cash ISA. And yes, the target amount is in US dollars because the same amount in pounds would be unfeasible to me. Finally, this is the amount to be saved, not the amount to be held in cash at all times. Based on whether I make any investments and how much I will spend on my wedding, the cash amount actually sitting in my bank account is likely to be less than $100,000.

Resolution #2: Keep lifestyle inflation in check.

I’m keenly aware of the dangers of lifestyle inflation. As I’m writing this, I am somewhere in the air using the complimentary wifi provided by Emirates for business class passengers. In this case, I had anticipated this expense for a long time. As a result, my budget included the cost of this extravagant flight and I don’t feel too bad about it. If I had not planned this properly, buying a business class ticket would have been a prime example of lifestyle inflation.

Budget it. If whatever you budget compromises your financial goals, then you cannot afford it. Period.

Resolution #3: Take more risks.

I tend to be conservative. It’s probably due to the fact that I’m a lawyer, a very conservative breed of people. The reality is that there can be no win without risks. Also, when you clock close to 100 hours at work in a week (yes, it happened a few times), you tend to be a lot more conservative because earning that money was painful.

I’m not quite sure how I intend to take more risks. This is something I’m still trying to figure out. I do love start-up investments as they tend to be exciting projects and you can capture significant tax relief along the way. Yet, there are still incredibly risky and the investment is illiquid for at least 5 years or so. Not the best idea when you believe that the macro picture is about to get worse.

Another possibility is property. However, the government murdered the buy-to-let. Managing a decent rental yield is, therefore, a lot harder. Purchasing a home for myself is a better idea but the London housing market is falling. Timing the dip is tricky but I can imagine London property prices soaring significantly in the next 12 months, absent a reversal of the 2016 referendum.

Resolution #4: Diversify my income streams.

I have one income stream that accounts for over 50% of my taxable income. That’s too much. As nothing is eternal, it makes sense to seek and grow other income streams. It can take years for an income stream to reach its full potential so starting early is a requirement.

Purchasing property is the easiest way of adding a new income stream as the rent provides you immediate income to service the mortgage. Also, house prices tend to trend upwards in the long-term (20 years +) so the equity is likely to appreciate. At least, that’s the theory. However, property is very location-centric and what can be a good investment in one place can be a terrible one a few blocks away.

Resolution #5: Make one small Venture Capital investments.

As part of taking more risks, I intend to make one small VC investment. Besides crowdfunding, it is my understanding that it’s hard to invest with less than £25,000. That’s probably a bit much for me in 2019. I will be closer to budgeting £5,000 to £10,000 depending on the risk profile of the investment.

I know investing such a small amount won’t turn me into the next VC angel investor. Based on the number of start-ups that fail within three years, I might even lose the entire investment. What I’m looking for here is to improve and fine-tune the limited experience I have in this field.

I know the theory on how to value a company, what to look for and how to be comfortable with the risks. But the theory is one thing, and practice is another. Spending £25,000 on a cool project is not something that I would do lightly. The business case must be strong and there must be some prospect of generating a profit in a few years down the road.

Finally, I want skin in the game. Readers are not stupid. If I preach something and then don’t follow suit, how can I be credible? In addition to the credibility issue, I feel it’s a lot more interesting when the investment is real. Practice is usually a lot more entertaining than theory!

Top Blogging Resolutions for 2019

When I started The English Investor, I just wanted to share my views on a few topics. With over 6 years of leveraged finance, I think I know a few things that could be useful to others.

I soon realize that blogging can truly be a full time job. From mastering WordPress to promoting posts and interacting with readers, you could spend the entire day blogging.

Therefore, I decided to step up my game. The intention is not to be a pro and do this full time. I intend to continue to practice law. For compliance reasons, I would rather stay anonymous for now. Maybe this will change in the future. So here are my top resolutions when it comes to blogging.

Resolution #1: Post twice a week.

This might not seem to be a very ambitious goal. But writing a comprehensive post really does take time. I will always choose quality over quantity, hence the twice a week schedule.

It’s not just about the number of times a week or the quality of the posts. It’s about regularity. I want to stay engaged with readers and I feel it’s probably significantly harder to do so when nothing gets published for four consecutive weeks.

Resolution #2: Redesign the blog.

I can neither paint, nor draw. It should not come too much as a surprise that I’m quite bad at website design. When I launched the blog, I was excited to publish content. The reasoning was the following: if there is no content, people have no reasons to show up and stare at an empty but beautifully designed website. If there is content and it sucks, then nobody will come back and having a nicely designed site is still useful.

But I know the design is hurting your eyes so I will do my best to fix it one way or the other. I want to modernize the layout of and improve the site/s navigation (i.e. how to discover older posts and engage with other readers).

Resolution #3: Double traffic on the blog.

As you can imagine, the first few months were very slow. However, traffic picked in the past month without heavy promotion, which I find encouraging. If I’m a bit more regular in posting and stick to my schedule, I see no reasons why traffic wouldn’t pick up.

Resolution #4: Stay true to the original vision I had for this blog.

I want traffic to increase because I believe that some of those posts could be useful to some readers. They might save some money when claiming tax relief or become more aware of the need to set up a financial safety net.

But I don’t want traffic to increase at all costs. If this means writing posts on the best interest rate available, then I’m not interested. I also don’t want to promote affiliate links of products that I’ve not tried and approved myself. It’s fine to share my experiences and help you to get a decent deal on something. It’s another matter to turn this blog into an advertising platform for affiliates.

Resolution #5: Send love to the mailing list.

The mailing list was originally supposed to be the easiest and quickest way to be notified of new blog posts. While this works well, the set up makes the email a bit impersonal. I want to improve the way emails are delivered to readers. I also want to add more exclusive content that is only available to readers who bothered to subscribe.

Some last minute resolutions

Resolution #1: Be happy with my loved ones.

It’s always hard when loved ones are involved because the standard is so high. You are not trying to keep someone happy for a day or even a week. You are trying to keep everybody happy every day and every week. It never stops and it can sometimes be difficult to manage.

By taking a step back and assessing the situation, I hope that I can make the right choices for me and the ones I love.

Resolution #2: Play more guitar.

There is one John Mayer riff in “Come when I call” that I really want to master. That should be achievable.

Resolution #3: Be a rockstar at work.

Talking about guitars… It’s time to be a rockstart at work.

With more companies entering seeking a restructuring of their debt and capital structure, it seems increasingly likely that the good times are over. 2019 will continue to be volatile, especially if the yield curve continues to flatten.

To make sure that I don’t get the boot first at work, I need to be versatile and to perform at the best level I can. Firms that are listed will have paid attention to their falling share price and the rates increases of the Fed (two more scheduled for 2019!). Those firms could reduce their spending and investments as a result, and this includes paying bills for non-essential legal services.

If you find a better opportunity, quit your job and seize it. Be my guest. But if you are simply dissatisfied with your job and were thinking of quitting, do me a favor: don’t. Make sure you figure out your game plan first.

Happy New Year 2019! I wish you the very best.

Yours truly,

The English Investor

The English Investor end of year review – 2018 edition

Investments

The English Investor

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The English Investor end of year review – 2018 edition

My fiancee and close family members sometimes tell me I can be difficult to satisfy. It might be an unintended consequence of being a lawyer: I am trained to spot issues, no matter how small the issue. Bearing this in mind, I’m happy to report that 2018 was overall a good year.

I’ve never been into introspection. Somehow, I believed that if you spend more time counting what you achieved, you’re wasting time that could have been used to work on the next big thing. I know it’s not true but old misconceptions are hard to shake off.

This year will be the first that I “officially” review. In what is a new exercise for me, I will relive in this post the highs and the lows of 2018. I want to focus on the following life categories: day job, finances and business, family and personal relationship and miscellaneous items.

Let’s get started!

A review of 2018

Day job – 7.5/10

As most of you know, I’m a leveraged finance lawyer by day and a blogger by night. I work in one of those Magic Circle law firms where it is not uncommon to work 80+ hours a week.

This year, I transitioned to a more senior role. It was a significant step-up for me and I had to learn a lot, quickly. I’m still figuring it out but I feel much more comfortable now than 12 months ago.

I’ve also reached that level where it’s “survive or die.” I suspect that at the end of 2019, my boss will tell me if I have a chance of getting promoted (or if I’m on track to get a promotion). The overwhelming majority of my income comes from my current employment. Therefore, I need to continue performing given how high the stakes are.

Financial markets were choppy this year, which directly impacted the debt market. Issuing debt is the bread and butter of my job, so when something is wrong, I know. In particular, the volatile environment negatively affected the high-yield bond market. The loan market fared better but pricing is still tightening.

Finally, I am seeing more and more companies seeking a restructuring of their capital structure. This does not bode well as yields have only slightly increased in Europe. The European market is far behind the US market when it comes to monetary policy tightening. This means that European companies (especially the ones rated below investment-grade) face an uphill battle to refinance existing debt.

For those reasons, business was slow in the second half of the year. I expect challenging conditions for 2019. More than ever now is the time to perform at work so that I am not the first one to be shown the door! So a great year from a personal standpoint but I am increasingly concerned with the market backdrop.

In spite of a reasonably slow second semester, I received a full bonus, which was appreciated. My pay increase was minimal – and disappointing – but that’s the only negative point here.

Finances and business 7/10

Pension and retirement plan

Last year, I started to dive into the daunting world of pension and retirement. I’m about to turn 30 and retirement seems far away. Unlike many FIRE proponents, I do not intend to retire early, even if I’ve reached financial independence. I want to continue to try cool things.

I guess I’m lucky to be considered as wealthy enough by Her Majesty’s Government. As a result, I was hit with the full force of the tapered annual allowance introduced by George Osborne. I can now only contribute £10,000 each year to my pension pot. If I go above this threshold, I have to pay hefty taxes.

I, however, realized that I still had approximately £35,000 of carried forward from previous years. This carry forward mostly comes from the 2015/2016 tax year, which was the “transition year” following a number of changes to pension rules.

I aggressively saved into my pension pot throughout the year and even recently sacrificed a portion of my bonus (approximately £13,000), which allowed me to pay less tax on this amount. I used the salary sacrifice scheme to make this contribution. As a result, my employer saved on national insurance contributions and they were kind enough to contribute those savings to my retirement account. Always ask your employer if they will pass on any national insurance savings so that you ensure that you are not contributing above your allowance.

This was my last year to use my carry forward and I’ve now used the full allowance that I had. I do not have many options when it comes to pension contributions in light of the existing pension rules. One of my goals for 2019 is to find other ways to build retirement income other than the traditional retirement account.

Cash

It’s no secret that I favor cash in those volatile times. While it might be an obvious play with plummeting stock markets, remember that I missed out a good chunk of the bull run. Sure, I was still in law school when the recovery started and paying rent on time was more important than investing in equities.

Excluding my retirement account, over 90% of my net worth is in cash. My priority is to build enough cash reserves for a significant down payment to purchase an apartment or a house. As I witnessed through my job a tightening of credit conditions, I avoided splashing large sums as major indices reached new highs. I estimate that my cash position increased by approximately £70,000 this year.

With stocks plummeting and the London housing market falling apart, there will be opportunities in 2019. I would not be surprised if I end up deploying substantial amounts if the conditions are right.

Yolo account

My Yolo account went on a rollercoaster ride. And it lasted all year long! My returns for the first half of the year were spectacular and the second half was abysmal.

As I’ve previously explained here, my Yolo account is how I cope with Impulse Investing. This is where I make those crazy risky bets and where I win or lose big. Only play with an amount that you can afford to lose.

Blockbusters this year included my long position on Facebook (FB) for their Q1 results and then shorting that same company for their Q2 results. I had also a good long position on Lam Research (LRCX).

On the other end of the spectrum, my multiple positions on Micron (MU) proved to be utter disasters. This play easily cost me a third of the portfolio. I thought that a P/E ratio 5 and overblown concerns on the slowdown experienced by the semi industry offered an opportunity. Unfortunately, markets did not care about the attractive P/E (it’s at 3 now with the recent drop) and Trump intensified his anti-China rhetoric, which did not help.

It was a valuable experience but I wished I had been slightly more conservative with some of my positions. I added more Micron options when I started to lose money, which had been a winning strategy with Facebook. Unfortunately, it only made things worse and I will keep this in mind for next time.

At least, I managed to avoid the meltdown of this quarter, which means that my account is only down 2% over the year. I might even make this back by December 31!

Benchmark vs YOLO account 2018 graph — My performance is in blue. Ups and downs…

In August 2018, I purchased a domain to start The English Investor and in September, I started to publish posts in earnest.

Having worked over 6 years now as a corporate lawyer specialized in leveraged finance, I was eager to share my take on a few financial topics. The ultimate aim is to provide value to readers and help people in reaching financial independence by avoiding some of the mistakes that I made.

Nonetheless, I was concerned by how over-crowded the personal finance blogosphere was. Many blogs out there continue to preach Financial Independence / Retire Early (FIRE) in a volatile environment where any of many factors could trigger a recession. It just seems to be a bad idea right now to retire.

Launching a blog seems easy and in some way it is. A computer and an internet connection is all you need. Yet, most blogs close down within 3 years. Mastering the technical aspects is one challenge. Maintaining a regular publishing schedule is an even bigger one.

One of my key issues is how long should posts be. I find anything below 1,500 words to be too short. But with a full-time job, it can be challenging to write quality posts that are consistently above 2,000 words. This is an area where I’m still learning.

While I’m not focusing on monetization, I was elated to see that I had already made £10 from Google’s Adsense!

I intend to ramp up my work on The English Investor in 2019 so make sure to check it out!

Venture Capital

As an additional-rate taxpayer, I’m always looking to find tax-efficient investments. I only made one very small investment this year in a company called Graphene Composites. This year will be the first one during which I claim EIS/SEIS tax relief.

While the company seems to be doing well, the investment is so small that I won’t lose sleep over it. It’s unlikely to have a major effect on my net worth. Nonetheless, the investment process was a valuable experience and I intend to continue with more significant amounts next year.

Real Estate

There is not much to report. I really wanted to purchase property as an investment but the UK property market lacks direction and London house prices are decreasing. It’s just not worth it to take the risk with the Brexit uncertainty. There will hopefully be more political clarity in a couple of months and then will be a better time to invest.

My view is still that a Corbyn government is a bigger threat to real estate investments than Brexit due to expected tax hikes. Given the current state of our politics, a general election is not out of the question.

Family and personal relationships 8.5/10

I got engaged last October and I’m obviously very happy that she said yes! Nothing else this year will top this. Now, the real work begins with wedding planning (and yes, we have not made much progress).

Shopping for a ring was stressful because I spent quite a lot. I tried to follow many rules, including this one from Sam at Finacial Samurai, but in the end, I just settled with an amount I was comfortable with.

I spent a bit more also in the hopping of securing a quality product that would not depreciate over time. Quite the contrary, short of a complete collapse in diamond prices, I hope that this engagement ring will hold its value when facing the test of time.

There were still a few difficult moments with family over the year. At times, it can be stressful, especially when I hate fighting for a protracted period of time with close relatives. Things happen and, while we patched things up all right, I will be consciously making an effort next year to anticipate and avoid those situations.

Miscellaneous items worth mentioning 7/10

There were a couple of important events this year too.

I achieved a childhood dream when I became admitted to the United States Supreme Court. Yes, I also went to law school in the USA and now you know why I tend to spell words with an American spelling. Given that I’m not a litigator, I probably won’t argue a case anytime soon. But you never know. One day, an opportunity might present itself. Also, as part of the swearing-in ceremony, I got to meet Chief Justice Roberts and Justice Ginsburg. That made me VERY happy.

I’m a huge guitar fan and I’ve had issues this year maintaining a regular schedule to practice. The music school I went to had to move location and it’s been a bit of a challenge to find a new tutor. Definitely, this is something to fix for 2019.

Finally, I’ve been trying a few things when it comes to exercising. I had a phase where you could find me quite often at Psycle (Mortimer Street) or Barry’s Bootcamp. In 2019, I intend to go back to the gym with a PT as I’ve only seen mixed results so far.

Conclusion

2018 was overall a good year. It could have been a great year but it didn’t quite reach that level, which is a bit frustrating because the potential was there. My engagement was the high of the year and I definitely made progress in maximizing the value of my retirement pot.

Some of the things that happened in 2018 laid the groundwork for 2019. I anticipate taking more aggressive financial steps in 2019, especially if markets continue to fall. With a wedding to get ready and deteriorating credit conditions, things are about to get real!

Flight canceled? what to do when things go wrong

The English Investor

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Flight canceled? what to do when things go wrong

You know when you hear those horror stories about passengers stranded at the airport because their flight got canceled? Well, that was me this week.

We were literally about to take off on Friday when Gatwick Airport closed the airspace following a new drone sighting. I personally fail to understand how a drone can shut down Britain’s second largest airport but that’s my problem.

Our flight was already delayed for at least two hours. The additional 45-min delay caused by the airspace closure meant that the cabin crew could no longer continue working without breaching their flight time limitations. Therefore, the airline – Aer Lingus – canceled our flight.

Needless to say that this proved to be incredibly frustrating when we realized that the airspace had just reopened and that the other planes were starting to take off again.

The crew disembarked the plane and here we were left with figuring out how to make it to our final destination in time for Christmas.

I want to first give you a brief summary of your legal rights. More importantly, I want to give you tips on how to avoid long queues and improve your overall rebooking experience.

Flight cancelled: what are my rights?

Your basic rights: rebooking a flight and assistance

If the airline canceled your flight at very short notice, the airline has a responsibility to ensure that you arrive home or to your final destination. Therefore, you have the following options: hop on the next flight available, get a refund or return to your original point of departure (which would be home for most of us).

Passengers have a right to assistance. This includes meals and refreshments, hotel accommodation and transportation to the hotel.

Am I entitled to additional compensation?

If your flight is canceled at very short notice, you are entitled to additional cash compensation.

€250 for flights of 1,500 kilometers or less;
€400 for flights between 1,500 and 3,500 kilometers;
€600 for all other flights.

The additional compensation comes with strings attached. Mainly, if the airline proves that the cause of the cancelation or delay was “an extraordinary circumstance”, then the airline does not have to compensate you. Nonetheless, you are still entitled to be rebooked on the next available flight with meals and refreshments (or hotel accommodation if applicable).

Extract from Aer Lingus' cancellation notice — Source: https://www.aerlingus.com/media/pdfs/LEGALCANCELLATION.pdf

If you need more information about your legal rights, you can find my comprehensive post here. It covers delayed and canceled flights. There is also good advice from Citizens Advice, especially if you are getting nowhere with the airline.

Tips and tricks to beat the queues and get rebooked on the earliest flight

As soon as the airline officially announces that your flight is canceled, you need think quick. There are at least 200 other frustrated passengers who want the same thing as you: get on the next flight as soon as possible. There are no chances that the airline will be in a position to accommodate the same request for all passengers. The number of available seats will be limited. You should be competitive as this is a race.

Tip #1: Call the airline’s reservation center ASAP

The first task is to book a seat on the earliest flight. If you are lucky, there might be another flight later that same day.

There are two ways of doing this: go to the airline counter or call the reservation center. If this is a short-notice cancellation, you are probably past security and maybe already in the plane. Calling is likely to be the easiest option.

If you have already boarded the plane, you need to disembark first. I often find that poor cell reception and loud passengers make it difficult to hold calls. Also, as soon as people realize that you are rebooking flights, they will mimic you and do the same.

If you are in the terminal, check out quickly if the airline has a help desk. If there is one, start queuing as you are unlikely to be alone. While in the queue, start calling the reservation center.

The airline’s customer care team is likely to be incredibly busy. Do not drop the line. I waited over half an hour to get someone on the phone with Aer Lingus. At some point, I spoke with a representative and asked to be rebooked on the next flight. During the call, these are the details that you need:

Flight number;
Departure time of the flight;
The last four digits of your ticket number;
Oh and obviously, your name!

Name and flight number will be sufficient details in most cases but you never know. Time is precious at this stage and the airline’s representative should not be wasting time finding your booking.

I was quick enough to get the first flight out at 8:35 am the following day from Gatwick. Not quick enough, however, to get the last flight leaving around 9:30 pm on that same day.

One final note: do not purchase new flights. The airline will find you another flight, even if this means scheduling a new flight. You are unlikely to get the airline to reimburse you the cost of the ticket you just purchased.

Tip #2: Queue only if you have no other choice

It is highly likely that you will have spoken with a customer care representative from the airline before reaching the front of the queue. By then, you should have been able to rebook your flight.

I had already rebooked my flight with Aer Lingus when I managed to get my suitcase and headed back to the main terminal. There, I started queuing and, trust me, things were not moving at all. There were only two Aer Lingus representatives behind the counter for over 300 passengers.

I wondered if I should continue queuing. I had rebooked my flight but I was curious to see if I could get an even earlier one. Most importantly, I could not check in online for tomorrow’s flight and could not download my boarding pass.

In light of the ongoing chaos, I was not going to take any chances. I wanted to confirm my new booking and get my boarding pass. As a bonus, I thought having the boarding pass might speed things up in the morning. Finally, I would require accommodation and I thought that the airline might help. For those reasons, I decided to queue.

What will the airline’s representatives tell you at the counter

Let me save you some time: if you have your boarding pass for your new booking, don’t stick around. It’s great to know your rights and get a free bottle of water but that’s about it. Once I arrived at the counter – after a three-hour wait – the representative (i) told me that no earlier flight was available, (ii) printed my boarding pass, (iii) gave me three meal-vouchers valid for only 24 hours and (iv) told me that I had to find (and pay) a hotel and a taxi by myself. I could then claim compensation for “reasonable” expenses and hope that the process would be completed within the next two months. Reassuring…

If I didn’t have that issue with my boarding pass, I would have left the terminal. Skipping a three-hour queue would have allowed me to find a hotel quicker. Most hotels were fully booked and I only found a room with a bit of luck.

Tip #3: Keep all your receipts

It goes without saying that all claims must be backed up. To do so, you will need to justify your expenses and provide a copy of the receipts.

The airline will only reimburse reasonable expenses. What’s reasonable is up for debate. I suggest that you do things as you were going to pay yourself. There were only two rooms at the Sofitel in Terminal Nord. It was close but expensive. At almost midnight, I did not have a lot of choices so I just paid up and will claim the full amount.

It’s also worth calling the hotels directly. Most hotels – including the Sofitel – appeared fully booked online. I called a few and they were indeed fully booked. But the Sofitel had those two rooms and yet, they appeared fully booked online. As the Sofitel was next to the North terminal, I saved money on transportation expenses and time in light of the long taxi queue.

Tip #4: Claim by mail

Airlines will sometimes provide the option to claim compensation online. If such an option exists, then great, you should use it.

This does not prevent you from also writing a nice letter, which will explain the background and will include a copy of the receipts.

The advantage of doing so is to send the letter by registered post. The airline cannot claim that it has not received the letter. This also gives you proof of when you sent the letter. The clock starts ticking and the airline will probably want to compensate you as quickly as possible to avoid further issues.

It’s also easier to submit a copy of the letter to the regulator if you do not make progress with the airlines. With online submissions, it’s always more difficult, even with a screenshot.

Tip #5: claim for everything, even if in doubt

Don’t be generous with the airline! They are the ones that canceled the flight and they should sort out the mess.

As a bare minimum, claim for all expenses in relation to accommodation, transportation and meals/drinks. Even if you obtained meals vouchers, claim for the difference if you went above the allowance.

If your relatives incurred expenses such as staying at a hotel close to the airport while waiting for you, you can try to claim for those expenses. However, I would warn you that you are unlikely to be successful in this instance.

Now on financial compensation: this can get tricky. The airline may try to claim that extraordinary circumstances caused the cancelation or the delay.

The recent drone sightings that caused disruptions at Gatwick Airport were deemed to be an extraordinary circumstance by the Civil Aviation Authority. Therefore, passengers affected by the drone sightings cannot claim financial compensation.

The @UK_CAA is offering advice to passengers impacted by the disruption at Gatwick Airport.

Please visit the following website to find a leaflet on your rights as a passenger: https://t.co/9hxLyyJBvB.#Gatwick #Gatwick_Airport pic.twitter.com/ljUaFDKcMo
— UK Civil Aviation Authority (@UK_CAA) December 20, 2018

In my case, it was the crew’s flight time limitations that resulted into the cancellation of our flight. Therefore, I will still try to claim for financial compensation. Sure, the drone sightings contributed to the delay, but that was not the official cause of the cancelation.

A canceled flight sucks. It’s an inconvenience at best, especially a few days before Christmas. With quick thinking and basic reflexes, you can mitigate the damage and beat other passengers in rebooking an earlier flight.

And yes, I really hope they catch the operator of those drones…

How to claim EIS and SEIS tax relief

Guide
Taxes

The English Investor

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Earlier this year, I made a small investment in a company called Graphene Composite through the crowdfunding platform Crowdcube. Graphene Composite (GC) is a nano-materials technology company that combines graphene, aerogels and other materials to produce a range of composites that are extremely light, and yet extremely resistant. There are many applications for this technology. The most obvious one might be the production of a light bulletproof vest that fits in a school bag.

As a new player in the crowdfunding scene, I invested a small amount, which is less than £10,000. GC used the Enterprise Investment Scheme to raise funds in this round, which meant that investors were potentially entitled to tax relief.

If you need a refresher on the various investment schemes available to start-ups and early-stage companies, look no further! Here is a description of the main venture capital schemes.

How do I claim tax relief on my investment?

Step 1: Wait for your EIS3 or SEIS3 form

You cannot claim tax relief until you have received an EIS3 or SEIS3 form. You will notice that there is a delay between the moment your investment is completed and the moment you receive the form.

The company you invested in will issue the form but cannot do so until it has been trading for at least 4 months. Then, you must remember that the company is a start-up and resources are scarce. There is probably only one finance director in a position to issue the certificates to a large number of investors.

As a result, it may easily take 12 weeks for you to receive the form. Be patient and do not stress out. Remember that you do not need to receive the form prior to the end of the tax year to claim tax relief.

If you do not hear from the company or the crowdfunding platform within 6 months of the closing of your investment, then reach out to them to sort out the matter. There might be a simple explanation for the delay.

Note: if you invested in an EIS/SEIS fund, then you may receive multiple certificates. Typically, there will be one certificate for each company the fund invested in.

Step 2: What tax relief can you claim?

After you receive the certificate, it is time to determine what tax relief you want to claim. This involves understanding the various schemes and their respective benefits. There is Income Tax Relief and Capital Gains Tax Relief.

Income Tax Relief

Below a summary of the income tax relief available for the various schemes.

For EIS and SEIS, you can either claim relief in:

the tax year you make the investment;
the tax year before you make the investment (if you choose to treat some or all of the investment as being made the previous year).

Note: the tax year(s) in which an investor can claim tax relief is based on the year in which the EIS/SEIS shares are issued. Therefore, the date of the certificate is irrelevant.

Obviously, you can only claim tax relief against the amount of Income Tax to be paid in the UK.

It is incredibly important to claim income tax relief as soon as possible. First, the sooner you claim, the sooner the money will be in your account. Second, you cannot carry forward unused Income Tax Relief to future tax years. Third, failure to claim Income Tax Relief may cause issues in claiming Capital Gains tax relief in the future.

Capital Gains Tax Relief

The table below summarizes Capital Gains Tax relief.

To claim Capital Gains Tax relief on a typical EIS investment, you must have claimed Income Tax Relief and held the shares for at least three years.

There are rules that also apply in specific circumstances. You should consult a tax advisor. For instance, you may be able to defer capital gains tax if the proceeds of an asset disposal are used to invest in a company that qualifies for EIS (deferral relief). Also, when you sell an asset and invest the gains into a company that qualifies for SEIS, you will not have to pay Capital Gains. There are conditions to obtain the tax relief so do carefully check the rules to ensure that you qualify.

In most instances, you will claim Income Tax Relief as soon as you receive the EIS3/SEIS3 certificate. Unless the amount of tax relief received is greater than the expected amount of income tax to be paid, which is highly unlikely to happen, there really is no reason to wait.

Step 3: submit the tax relief claim

There are three options to submit the tax relief claim.

Option 1: outsource the claim to your accountant

If you are starting to make significant EIS/SEIS investments, chances are that you have an accountant to file your tax returns. While filing a self-assessment form when the only source of income is your salary can be straightforward, it is harder when you add EIS/SEIS investments and income from rental properties.

If you are lucky to have hired someone, then all you need to do is scan and email form EIS3/SEIS3 to your tax advisor. The form EIS3 will be annexed to your tax return.

The tax advisor will incorporate this in your tax return. If your advisor has already filed your self-assessment, do not worry. He or she will amend the tax return and re-send the entire filing for your review. You may be asked to provide your bank details if HMRC owes you money as a result of the relief.

Option 2: claim tax relief online

The second option is to claim online when completing your self-assessment.

Log in online on the HMRC sign-in webpage
Section 3 “Tailor your returns”: answer yes to the question on other other tax reliefs, which includes venture capital
Section 4 “Fill in your returns”: submit the total amount of all EIS/SEIS investments for which you want to claim tax relief. Provide details for each investment. Details should include names of companies, investment amounts, dates on which the shares were issued, name of the HMRC office that approved the EIS/SEIS scheme. This should be sufficient but feel free to include other references.

You do not have to submit the EIS3/SEIS3 form. You must however keep it in a safe place if HMRC wants to see it.

Option 3: claim tax relief on your paper tax return

The third option is to claim tax relief through your paper tax return. Old school but it still works!

Download Form SA101 (the “Additional Information” sheet)
Box 2 “Other reliefs” section: write the total amount of your EIS/SEIS investments for which you want to claim tax relief

Box 21: give details for each EIS investment. The details are the same as if you were filing online. You should therefore at least include the names of the companies, investment amounts, dates on which the shares were issued, name of the HMRC office that approved the EIS/SEIS scheme.

Option 4: fill out the EIS3 Form and send it to HMRC

One other way to claim for tax relief is to complete the EIS3 Form (also application to SEIS3 Forms) and send it to your local HMRC office. You will need to fill out pages 3 and 4 of the form.

I have never used this method to claim for tax relief. Actually, for a while, I wondered why this option was given as most people would usually claim as soon as possible.

There are, however, specific situations where sending the EIS3 Form itself might be more relevant. This is not tax advice and those situations tend to be more complex, and therefore would require tax advice.

Claiming tax relief against a previous year: if you want to carry-back some of the relief because you did not receive the EIS3 form on time in the previous tax year
PAYE adjustment: if you receive the EIS3 form early in the tax year, you may be able to receive the tax relief through an adjustment of your PAYE code
Deferral relief: if you want to claim deferral relief and income tax relief (a more unusual case)
No self-assessment: if you are not required to file for self-assessment, then you will need to send the completed EIS3 form.

Step 4: receive the tax relief

The tax relief claimed will reduce the amount of tax that must be paid to HMRC. Assume you owned £5,000 in taxes. You invested £1,000 in a qualifying EIS scheme and are therefore entitled to receive tax relief in an amount of £300. After applying the tax relief, you only owe £4,700.

If you owe no taxes or have already paid too much income tax, then HMRC will repay the excess directly into your bank account or by cheque. Personally, I am only familiar with the bank account repayment option.

None of the above constitutes tax advice. You should consult a professional. Hopefully, this will be a useful guide and will help you in asking the right questions!