Jeremy Grantham is an expert in stock market bubbles. In the 1980s he spotted the Japanese bubble. He also, rightly, refused to rush into the tech bubble that popped dramatically during the dotcom crash.

Now, with all eyes on the astronomical valuations AI firms are commanding, does he think a bubble is emerging?

In the latest episode of MoneyWeek Talks, Grantham told MoneyWeek editor Andrew Van Sickle that historians a century from now will be writing about this moment in the same way they write about the South Sea Bubble, one of the first and most significant financial crashes in history.

Grantham points to SpaceX. He said: “The SpaceX prospectus is actually unbelievable. Mining asteroids and colonies on Mars and moving through space and a projection of revenue streams, 90% of which seem to relate to AI.

“And it’s not clear that their version of AI, which is at the moment having its bottom kicked around the block by Anthropic and the rest of the boys is going to be even around. Forget 90% of this colossal income stream of the biggest enterprise in the history of man.

“And of course, they’re running at huge losses at the moment. What an act of faith, I mean, give me a break. Talk about tulips.”

That is not to say that Grantham is opposed to the transformative nature of AI, though. He sees that it is impressive. However, he is cautious about the state of the industry at the moment.

He cited the example of the railroad boom, which he sees as a similar crucial technological advancement that hugely boosted productivity. But the market crashed still.

“People don’t realise that the more obvious and important the idea, the more likely you are to attract too much capital and have a market bust.”

“The railroads transformed our lives. They added enormous productivity. And yet they were so obviously going to do that, that everyone built too many railroads, and everyone lost their money. That will happen in AI.”

He added that looking at the history of the Magnificent Seven and comparing it to their future plans shows two different worlds.

“Looking back, you have seven monopolies. Amazon dominates retail sales, Tesla gets a leap ahead in EVs and so on. They each killed off their junior competitors, bought the exciting up-and-coming competitors, and bestrode the world.”

But the future looks drastically different. Instead of seven monopolies, there is one ultimate goal that they are all aiming for – alongside other firms snapping at their heels. That goal is artificial intelligence.

Grantham says the firms believe that whoever gets there first will have a license to make more money than anyone has ever made at anything in history.

“They’re all saying the main risk is not spending enough. ‘We will spend our vast cashflows’, ‘my 200 billion is bigger than your 107 billion’ – it’s like a kind of gorilla fest in that sense and they all pile into the ring to fight to the death.

“There can only be one. They’re going to fight until someone survives. Now, if you think this is like the seven distinct monopolies, you’re crazy.

“This could be the most vicious fight to the end that we have ever seen, starting now. And there are plenty of signs of it already. In that sort of fight, they do not make lots of money and the stocks get crushed. And then they emerge from the wreckage, like the internet.

“The railroads rose from the ashes, and this will rise from the ashes.”

Listen to MoneyWeek Talks for our full interview with Jeremy Grantham. You can watch the podcast on YouTube, or listen to it wherever you get your podcasts.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Stepping away from a professional boxing career just a few years after winning gold at the Commonwealth Games might seem a strange decision for some – but not Delicious Orie.

Orie, who retired from the sport last May, has now embarked on a career in the financial world, which offers him something boxing couldn’t – fulfilment.

Orie spoke to MoneyWeek on the latest episode of the MoneyWeek Talks podcast, which can be viewed on YouTube and most podcast platforms.

He said: “I was no longer fulfilled in the sport of boxing. I signed a very good professional contract, and I was going to earn good money, money that I know I’ll probably never earn again. And I didn’t feel anything.”

Instead, Orie, now based in the West Midlands, is training to be a financial planner and help people reach their financial goals. Ultimately, the decision to make the switch was all about making peoples’ lives better.

Orie says: “One of the things I absolutely loved about boxing was the capability of me to be able to travel the world and speak to so many different types of people and understand people’s culture, appreciate the way they perceive life.

“So I thought, 'Right, as an investment manager, is that something that I’ll be able to get?' Because I value that so much…with the very limited research I did, over time I found out that investment management might not be that thing I’m looking for.

“So [I did] a little bit more research and I came across financial advice where you’re able to have that connection to the investment management world, but at the same time have that connection to people and enrich peoples’ lives, financially. So I thought, 'Right, that’s what I’m going to do’."

How boxing and early childhood experience has shaped his financial career

Despite leaving the sport, boxing nurtured plenty of skills in Orie that transfer to the financial world – namely discipline, drive and "obsession".

It was this drive that prompted his decision to complete his initial financial planning exams in five months, a process which can take up to two years for some.

He says: "When I stopped boxing, I thought, 'Right, let me just take it easy'. Since I was 18, I was constantly pushing myself and my body to the next level. I was addicted to it.

“When I stopped boxing, I was like, 'Right let me be present', only to realise that probably about two months after I stopped boxing, I cannot do normal things…I have to consistently push myself to a point where it feels a little overwhelming.”

His early childhood helped pique his interest in financial literacy too.

Describing himself as a business “nerd” growing up, he adds: “I loved business at the time…I’m not talking business in the sense of making money, more in a sense of understanding the inner workings of business and why business and trade happens."

He adds: “I think it stemmed from, as a child, as a family, we didn’t have much, and you sort of question that as a kid.

“You think to yourself, 'Why is that my mum would work 50-hour weeks, 60-hour weeks, and I could barely afford lunch?’”

Why financial literacy gives you ‘control’ over your life

Although he walked away from a lucrative career in boxing, Orie’s biggest regret isn’t hanging up his gloves.

He says: “People were saying, ‘You’ve walked away from potentially multi-millions of pounds’, and I could look them in the eye and say ‘yeah’, and genuinely feel so clean within me.

“Like, ‘Yeah I know I did’, so do I regret boxing? No. What do I regret? I would say investing. Not investing early enough.”

He adds: “If there’s one message I can give and send to the younger generation, [it’s] open up a junior ISA or something. Just do the most random job, do some pot washing, open up a bank account, under your parents or whatever, just put some money in…£10 a week, £20 a week. I promise you, it will pay dividends, huge dividends when you’re 30, 35 years old.”

That’s not the only piece of wisdom he has for the younger generation either. Orie is passionate about spreading the message that financial literacy gives you agency over your life.

“I say this to the younger generation – a pound of debt that you get into is a piece of your future that somebody controls…if you are not in control of money, money will control you,” he says.

“And this [applies] from somebody who’s a high net-worther to somebody who is just about scraping by, it doesn’t matter where you are on that spectrum.”

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

The world is in the midst of an oil crisis. The war in Iran has thrown the markets into turmoil, with the price of oil soaring to around $100 a barrel.

The oil shock has repercussions that are far wider than just the price of petrol. In this episode of MoneyWeek Talks, editors Kalpana Fitzpatrick, Andrew Van Sickle, and Cris Sholto Heaton make sense of what is happening now, explain where the crisis could go next, and what you should do to protect your portfolio. Tune in now on YouTube or on most podcast platforms.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Inheritance tax is a tricky topic. Taboos around speaking about money and the emotion that comes with thinking about death create a perfect storm for misunderstanding it. But with such complex rules around inheritance, it is a topic well worth talking about – and sooner rather than later.

Lisa Conway-Hughes, a certified financial adviser and founder of LCH Wealth, speaks to Kalpana Fitzpatrick on MoneyWeek Talks about how the inheritance tax regime is changing from April 2027. She reveals her biggest trick to help protect your pension. Tune in now on YouTube or on most podcast platforms.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

What force will shape the world in the next 20 years? The answer is China's drive to financialise, according to Diana Choyleva, founder and chief economist at Enodo Economics.

In this episode of the podcast, Diana speaks to MoneyWeek's Cris Sholto Heaton about how the AI race differs in China versus the West, the transformation of the country's equity market, and the breakdown of globalisation.

You can watch this episode on our YouTube channel or subscribe to it on any podcast platform.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Charles Jillings, co-fund manager of Utilico Emerging Markets Trust, discusses the outlook for emerging markets and the long-term investment opportunities in infrastructure and utilities.

In this episode of MoneyWeek Talks, Andrew Van Sickle speaks to Charles about how emerging economies are dealing with Donald Trump's tariffs, the after-effects of the war in Iran, and why countries like Brazil and the Philippines are overlooked markets.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

What is stopping the UK from investing? It's a mixture of three main factors, according to Henry MacLeod, co-head of digital distribution at BlackRock.

In this episode of MoneyWeek Talks, Kalpana Fitzpatrick speaks to Henry about the state of investing in the UK, how we can debunk myths about risk, and whether AI can help you become a better investor.

Watch the full episode on our YouTube channel or on any podcast platform.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Europe has lagged behind the US for years now, but what would it take for the continent to recover?

Daniel Avigad, manager of the TM Lansdowne European Special Situations fund, speaks to MoneyWeek's Andrew Van Sickle about opportunities in European equities, solving the continent's growth problem, and the consequences of populism.

You can watch the episode on our YouTube channel or subscribe to MoneyWeek Talks on any podcast platform.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Vietnam is one of the most exciting emerging markets, according to Dominic Scriven, founder and chairman of Dragon Capital.

In this podcast, he spoke to MoneyWeek's Cris Sholto Heaton about the challenges and opportunities that lie ahead for Vietnam, the current climate for investors and how his Vietnamese language lessons led to him founding the largest asset manager in the country.

Watch the full episode on our YouTube channel or tune in to MoneyWeek Talks on your preferred podcast platform.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Improving the relationship between money and mental health is one of Clare Francis's missions in her work at both Barclays and the Money and Mental Health Policy Institute.

It is also a personal story – Clare lost her husband to suicide in 2011. Ever since, she has been driven to improve how we deal with our mental health when it relates to money.

Clare, savings and investments director at Barclays, spoke to Kalpana Fitzpatrick about money and mental health, why Brits should start investing, and how to build long-term financial resilience.

Watch the full episode on our YouTube channel or tune in on any podcast platform.

Alongside her role at Barclays, Clare is a trustee of the Money and Mental Health Policy Institute, a charity whose mission is to help people with mental health problems protect themselves from financial difficulties and get out of debt.

This episode contains mentions of suicide. If you or someone you know needs support with their mental health, you can contact the Samaritans.

You can call them for free on 116 123, email them at jo@samaritans.org, or visit samaritans.org to find your nearest branch.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Former Lioness Jill Scott shares her investing journey and discusses how she is working towards the ultimate goal of building wealth for her future.

In this episode of MoneyWeek Talks, Jill tells Kalpana Fitzpatrick that while she has always had an eye on the ball, she has not focused enough on her finances. But now, as a retired professional footballer, she has turned her attention to investing and shares how it has been a real eye-opener for her.

Plus, she has some great life tips to motivate us all to hit our life goals. This episode is the inspiration you need to get up and get going.

Watch the full episode on YouTube or any podcast platform.

• Find out more about eToro's Loud Investing initiative
• eToro on YouTube

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Which funds should you consider putting your money into this year? Fidelity's Tom Stevenson reveals his top three picks for 2026 to put in your ISA or self-invested personal pension (Sipp).

In this episode of MoneyWeek Talks, he tells Kalpana Fitzpatrick why he recommends these funds and how you can work out what's right for you.

Plus, he shares his views on why keeping exposure to UK and US equities matters in a well-diversified portfolio.

Watch the full episode on YouTube or any podcast platform.

Tom Stevenson's top funds for 2026

Coming up with fund recommendations following three strong years for the stock market is challenging, Stevenson told MoneyWeek on the podcast.

This is especially the case because you don’t want to catch the top of the market and recommend people buy funds just as the market turns for the worse.

That means looking outside the more traditional places is more important.

Stevenson explained: “We saw that the US stock market, which had led markets higher for many years, started to fall behind a bit last year, and other markets picked up the baton.

“We saw strong performances from European shares, but also from emerging markets, and the UK market which also did well last year – that was the context in which I was thinking about which funds to recommend this year.”

The investing trends seen in 2025 are expected to continue into the year ahead, Stevenson said. He anticipates more investors will look to diversify their holdings out of the US, which has been a strong market but also an increasingly expensive one.

Stevenson predicts investors will instead start to put more money into other markets around the world that may provide better value – ones that are cheaper, but still have good growth prospects.

Dodge and Cox Worldwide: Global Stock Fund

Stevenson’s first pick capitalises on his prediction that more investors will diversify their holdings out of the US.

He chose the Dodge and Cox Worldwide: Global Stock Fund as, unlike other global funds which have a very high exposure (around 70%) to the US, this one is much less exposed – US stocks only account for around 50% of it.

He told MoneyWeek: “Given what I said about this rotation out of the US continuing this year, that's one of the reasons why I like this fund. And it's also got a bit of an emphasis away from the types of shares which have done really well, specifically the sort of technology and AI stocks which have driven very high valuations in the US.

“[The fund] actually invests in other sectors. It's got a very wide range of companies all around the world, from Taiwan to the UK to Europe, as well as some in America. That's my number one pick.”

Fidelity Special Situations

Stevenson’s second pick is Fidelity’s Special Situations fund, which is mostly focused on UK stocks.

Why invest in a UK fund? Stevenson said it’s because the UK market is undervalued – and very different from the US.

He said, unlike the tech-focused US, the UK is “more in sectors like pharmaceuticals, banking, mining – quite old economy sectors, if you like, which have actually started to do quite well.”

“And the main attraction of the UK, for me, is that it's very cheap compared to the US. So as investors are moving out of the US and looking for other opportunities, then they're going for markets like the UK, which is, which is really, really cheap – I think the Fidelity Special Situations Fund is a really good way of accessing that.”

Lazard Emerging Markets Fund

Even though emerging markets have underperformed the American market, Stevenson believes they could make a comeback in 2026.

“We've seen in the past that you get long periods in which either the US does well or the rest of the world does well. We've had a really long period in which America has outperformed, and I think we're now getting to a stage where that rotation is happening and emerging markets look attractive.”

Stevenson added that there are more good, long-term reasons to invest in emerging markets too. He said they tend to have higher growth rates, and young and growing populations.

Furthermore, emerging markets tend to be most attractive when the US dollar falls back. As interest rates come down in America, Stevenson thinks “the dollar is likely to continue to fall, and so we think that's a good backdrop for emerging markets”.

The fund picked to capitalise on this is the Lazard Emerging Markets Fund, which Stevenson says has a good track record of investing in these markets.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Investing can get a bad rap for being inaccessible. But it doesn't have to be that way, says Yana Shkrebenkova, CEO of Revolut Trading.

MoneyWeek's digital editor, Kalpana Fitzpatrick speaks to Yana about how fintechs can make investing more accessible, the importance of financial education, and why women may be better investors than men.

Watch the full episode on our YouTube channel or any podcast platform.

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Ever wondered what your relationship with money is? Well, it could be a little more complex than you think – childhood experiences, the wrong influence, or simply not understanding how it works could be holding you back.

Financial psychotherapist, Vicky Reynal, talks to Kalpana Fitzpatrick on how you can change your money mindset, avoid arguments over money and how to come out of the guilt trap when it comes to spending your money.

This episode is therapy! Watch it on YouTube or any podcast platform.

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

Is passive investing damaging the economy?

In this episode of MoneyWeek talks, Andrew Craig, founder of Plain English Finance and author of How to Own the World and Our Future is Biotech, talks to Kalpana Fitzpatrick about the dangers of over-relying on passive investing.

He argues that while passive investing has a place and is perfect for anyone who is just getting started on their investing journey, active investing plays a critical role not only delivering returns but also in helping the UK economy thrive.

Craig also tells Fitzpatrick that young investors starting out could be damaging their wealth by confusing trading with investing.

“The problem is, they get their fingers burnt when trying to trade and then they do not invest,” he says.

Watch the full episode on YouTube or any podcast platform.

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

More on investing

• What’s the difference between active and passive investing?
• How to approach active ETFs

Vietnam: Asia's new tiger economy
In this episode of MoneyWeek talks, Thuy-Anh Nguyen, director and product specialist at Dragon Capital, gives Andrew Van Sickle the inside track on Vietnam. Having grown up in Hanoi in the late 1970s, she has first-hand experience of the country’s extraordinary transformation from a war-torn planned economy to one of the world’s most dynamic emerging markets. By 2005, MoneyWeek was highlighting Vietnam as Asia’s other Communist dynamo. Now it is growing faster than China.

Thuy-Anh tells Andrew how liberalisation triggered a growth spurt, what Vietnam did to ensure the economy maintained momentum, and how it dealt with the Donald Trump administration’s tariffs earlier this year. We also explore some of the key holdings in Dragon’s investment trust, Vietnam Enterprise Investments Limited.

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

More on Vietnam

• Vietnam: a high-growth market going cheap
• The best ways to invest in Vietnam – Asia’s communist dynamo
• Vietnam, Asia’s new tiger economy, is roaring. Investors take note

MoneyWeek editors Budget 2025 special episode
In this special Budget episode of the MoneyWeek Talks, MoneyWeek editors Kalpana Fitzpatrick, Andrew Van Sickle and Cris Sholto Heaton chew over what was announced and what it means for savers, investors, workers and homeowners. We gave the Autumn Budget a big thumbs down — but why?

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

More budget news

• Budget 2025: the winners and losers
• Autumn Budget 2025: what was announced?
• Autumn Budget quiz: How closely were you following Rachel Reeves’s tax-raising speech?
• The Autumn Budget as it happened: updates and analysis from the MoneyWeek team

The state pension triple lock is estimated to cost the government around £15.5 billion by 2030, putting the policy under intense pressure with many industry experts calling for it to be scrapped. From April 2026, pensioners will get an above-inflation state pension boost of 4.8%, thanks to the triple lock.

The mechanism is considered generous and expensive. For a desperate chancellor, Rachel Reeves, who needs to plug an estimated £20 billion deficit, removing the triple lock could be an easy way to free up cash.

But Steve Webb, who was the pensions minister when the triple lock was introduced in 2012 under the Conservative–Liberal Democrat coalition government, argues that it helps tackle pensioner poverty and it is right that the policy stays put.

Speaking on the latest episode of MoneyWeek Talks – which can be watched on YouTube or downloaded on any podcast platform – Webb says: “I became pensions minister in 2010. But in the previous 30 years, the state pension had been falling in value relative to what people earn, so it just went up with inflation most of the time.

“But the problem with that is if you earn and earn and then stop earning, then the thing you fall onto when you stop earning needs to be connected to some proportion of what you were earning. Otherwise, you just fall off a cliff and your standard of living crashes. So, the state pension needs to be pegged to a proportion of what people are earning and for 30 years, [prior to the triple lock] that had not happened.”

Webb, who is now a partner at consulting firm LCP, argued that before the triple lock, the state pension was getting worse relative to what people were used to before they retired.

“So, the point of more generous indexation post 2010 was to undo 30 years of damage.

“I’m not embarrassed or ashamed; I am proud of the fact that the state pension has been over-indexed, so we link it now to the best of growth in wages, growth in prices or 2.5%. This has nudged up the state pension a bit, relative to the average wage.”

The UK state pension is the least generous in the G7 group of the world's most advanced economies, with UK retirees receiving around 22% of average earnings from the state pension, much lower than continental neighbour France (with 58%) and Italy (76%). Webb says he does not think the triple lock system will last forever, but for now, it is there to do a job.

The triple lock: a boost for pensioners

In April 2026, 13 million pensioners will benefit from an above-inflation rise to the state pension, thanks to the triple lock. For those getting the full new state pension, it’s worth £550 a year. The increase is an extra £120 compared to what it would have been if it had been uprated by inflation only.

The rate of the full new state pension is expected to increase to just over £240 a week.

The full basic state pension is set to rise by around an extra £440 a year.

“There is an argument that the triple lock is a sop to the grey vote, this is all about older people, and that young people should not have to pay for this, but they [young people] need a good state pension, don’t they?” Webb says on the podcast.

In a report earlier this year, the Office for Budget Responsibility pointed out that public finances are exposed to inflation shocks and earnings growth – that, with an aging population, means state pension spending, after health, was the second-largest source of upward pressure on government spending.

Labour has so far pledged not to touch the triple lock in this Parliament, but its future could still be at risk in the coming years. Plus, we have seen many U-turns on policies from Labour, raising fears the triple lock could well one day be on the cards as Reeves continues to face cost pressure.

In case you missed it, the first podcast episode of MoneyWeek Talks with Rishi Sunak is also available to watch or listen to now.

We need a cultural change, not a policy change, to get people to invest more, Rishi Sunak, former prime minister, tells MoneyWeek.

In the debut episode of MoneyWeek Talks, the new podcast which is available on all platforms and to view on YouTube, Kalpana Fitzpatrick talks to the former UK prime minister about why everyone needs to get to grips with maths to ultimately be better with money.

“In government, there is a lot of focus on various policies, but something I have come to realise is that the government can change a lot of policies, tax incentives and regulation, but actually that doesn't move the needle – what you need is cultural change.”

He suggested people were more likely to start investing if they had more confidence with numbers, and stressed that everyone, of every age, has the ability to be strong with numbers.

Current chancellor Rachel Reeves is reportedly entertaining the idea of reducing the tax-free incentive for cash ISAs in the hope that more people will put their money into stocks and shares ISAs instead. While nothing is confirmed and is unlikely to be until the Autumn Budget, Sunak, who was chancellor between 2020 and 2022, feels more education is needed to get people to start investing and use stocks and shares ISAs.

"There’s a professor at Stanford [professor Lusardi], and she is one of the world's experts on financial education. And what she figured out almost 20 years ago, there are three foundational questions you can ask people to see how financially literate they are.

“One of them is about compound interest, the second one is about inflation and how it affects us and the third is about risk and diversification," Sunak tells MoneyWeek.

The Richmond Project

Sunak is now on a mission to get everyone confident in numbers and believes it will help overcome barriers to financial literacy and boost the economy.

Earlier this year, Sunak and his wife, Akshata Murty, launched The Richmond Project, a charity dedicated to boosting numeracy skills and helping everyone feel comfortable with numbers so they can apply those skills in everyday life.

Everyone can be a numbers person, he says. “We want to break those barriers down”.

While financial education is now set to be part of the curriculum as part of citizenship classes from September 2028, Sunak argues that it all starts with good maths and numeracy skills – with that foundation, people can make better decisions around picking the right mortgage, budgeting and investing.

Tune into the podcast series on our YouTube channel.

Artificial intelligence and financial advice

Last month, tech giant Microsoft and AI start-up Anthropic appointed Sunak as a consultant.

Commenting on whether AI could boost numeracy skills and help people with their finances, Sunak said he thought there was a huge role for AI in boosting access to financial advice, but stressed that, without the confidence to grasp financial concepts and understand that what you are being advised on is correct, getting to grips with numeracy is essential.

Follow the MoneyWeek Talks podcast on your preferred platform.

Millions of taxpayers are being dragged into higher tax bands due to frozen thresholds.

The number of income taxpayers rose for the sixth year in a row during the 2025/2026 tax year to 40 million, HMRC data shows.

That is an increase of 1.3 million income taxpayers or 3.4% on the previous tax year.

Frozen tax thresholds mean that as workers’ wages increase with inflation, they will be dragged into higher tax bands – a process called fiscal drag.

Income tax thresholds have been frozen since the 2022/23 tax year, after then-chancellor Rishi Sunak announced income tax brackets would not be adjusted yearly with inflation, as had been the norm, for four years.

Another Tory chancellor, Jeremy Hunt, subsequently extended the freeze for a further two years until the 2027/28 tax year.

In the 2025 Autumn Budget, Labour chancellor Rachel Reeves extended the freeze on income tax thresholds until the 2030/31 tax year.

By the time the extended freeze ends, income tax bands will have been the same for almost a decade, meaning millions of UK taxpayers will have paid thousands more in income tax than if thresholds had increased in line with inflation.

Claire Stinton, senior personal finance analyst for Hargreaves Lansdown, said: “You may have had a pay rise, job change, or taken on more hours in recent years, but not felt much difference in your monthly pay packet. That’s because more of your earnings are being swallowed by tax. And it’s not stopping anytime soon, with income tax thresholds due to be frozen until 2031, meaning more people will be dragged into the tax net and across tax bands in the coming years.

“The impact of crossing into a higher tax band goes beyond paying more income tax. It can also reduce your access to tax-free allowances and trigger higher tax rates on savings and investments, creating a ripple effect across your wider finances.”

We look at what ‘fiscal drag’ is, why successive governments have imposed it, and how much it is going to cost you.

What is fiscal drag?

Fiscal drag is simply the term used to describe what happens when a government does not adjust their income tax thresholds according to inflation and wage growth data.

This means that a higher number of taxpayers are dragged into paying tax for the first time, or at a higher rate, despite the purchasing power of their money not increasing at the same rate.

For example, in Autumn 2022 (when tax bands were first frozen), the tax-free personal allowance was £12,570.

According to the Bank of England’s inflation calculator, £12,570 in 2022 was worth around £14,650 in April 2026 when adjusting for inflation.

Normally, tax bands are adjusted for inflation, but, because they have been frozen, people today who earn the equivalent of £12,570 in 2022 (which is £14,650 in April 2026) are now paying tax on the £2,080difference that has occurred thanks to inflation.

Therefore, people are being dragged into paying tax despite not earning more money in real terms. Given the tax rate doesn’t rise, but the amount of tax raised increases, it is sometimes called a ‘stealth tax’.

How much will extended fiscal drag cost you by 2031?

With the freeze on income tax thresholds extended for an extra three years, taxpayers will be feeling the pain of fiscal drag even more profoundly – and higher earners will be bearing the brunt of the hit.

Taxpayers could be as much as £1,292 worse off thanks to the three year extension, research by AJ Bell suggests, compared to if the freeze ended in 2028 as planned.

But this will not be spread equally. Someone with a yearly income of £15,000 will only have to stomach an extra tax bill of £259 over the three year extension period.

Meanwhile someone on £47,000 will likely have to pay an extra £1,292 as their income is dragged into the higher rate of income tax.

How can you protect your money from fiscal drag?

While there aren’t many direct ways of avoiding fiscal drag apart from refusing to let your wages increase, there are some clever ways that you can mitigate its impact on your money.

First of all, it is important to get an idea of what your pay will look like for the year ahead so that you can plan accordingly.

Once you have established this, you can start to consider whether it is worth it for you to implement measures so your income stays below the tax bracket you would otherwise enter.

This can be in the form of increased pension contributions or looking into salary sacrifice. Those who are set to breach tax thresholds may also want to utilise the tax wrapper that comes with a cash ISA or stocks and shares ISA.

Make the most of your ISA allowance

Using the ISA tax wrapper can protect your savings and investment income from the taxman.

Stinton added: “Shelter your savings and investments in ISAs to ensure there is no tax due on interest, dividends, or growth. So should you find yourself going up a tax band, you’ll sidestep a potentially higher tax bill.”

This is especially important as the tax rates on savings and investment income rose in April 2026.

The maximum you can save in an ISA in any given tax year is currently £20,000, but this is set to change in April 2027. The overall £20,000 limit will remain, but you will only be able to save a maximum of £12,000 in a cash ISA. This new rule won’t apply to over-65s.

Put more into your pension

A way to reduce your taxable income is by putting more of your salary away into your pension.

Camilla Esmund, senior manager at interactive investor, notes that while this will leave you with less money in your pay packet at the end of each month, you will get upfront tax relief on your contributions – and you’ll still be able to enjoy the cash when you retire.

Consider salary sacrifice

Salary sacrifice offers another way for you to reduce your salary and therefore avoid the negative effects of fiscal drag.

Salary sacrifice could be used to put more in your pension, get childcare vouchers, buy a bike through the bike-to-work schemes, and could be spent on other technology schemes.

The amount you can salary sacrifice into a pension without having to pay National Insurance is set to change in April 2029 though when a £2,000 per year cap will be introduced.

Plan your income

Another way to avoid the worst of fiscal drag is to carefully plan when your income enters your account.

For example, you could opt for a fixed term savings account that pays interest annually, instead of an easy access option which pays more frequently. You could then have the fixed savings interest pay out once you’re in a lower tax bracket.

When we talk about government spending and the public finances, we often hear the word ‘deficit’ being used. But what is a deficit, and why does it matter?

What is a budget deficit?

Traditionally, when a government needs money, it can get it in two ways: it can raise the money through taxation, or it can borrow the money in financial markets, by issuing government bonds (known as gilts in the UK).

If a government spends more money in a given year than it raises through tax revenues, that means it is running a deficit. In other words, the deficit is the government’s annual overspend.

The “national debt”, on the other hand, is the total overspend. So when a government runs a deficit, it’s adding to the national debt. When it runs a surplus (that is, it raises more in taxes than it spends), it’s reducing the national debt.

Both the deficit and the national debt are often expressed as percentages of GDP. Generally speaking, borrowing money is seen as more sustainable when the deficit is low as a percentage of GDP.

The latest figures from the Office of Budget Responsibility (OBR) suggest that the UK budget deficit is going to hit 7.1% of GDP in the 2022/23 tax year, the seventh year of the past 15 where the budget deficit has been above 7% of GDP.

Why does a large deficit matter?

In theory, the main risk of a country running too big a deficit for too long, is that markets will start charging more for the country to borrow. In extreme cases, investors might shun the currency too, causing it to crash in value.

And that’s just what happened earlier this year when Lizz Truss and Kwasi Kwarteng unveiled their economic plan for the country.

They hoped to stimulate growth by slashing taxes and ramping up infrastructure spending, but the markets didn’t like the sound of the unfunded tax cuts. The resulting chaos nearly lead to the collapse of the UK’s financial system (the Bank of England had to step into stabilise markets) and ultimately cost Truss and Kwarteng their jobs.

Still, in practice, many countries have been running large deficits since the 2008 financial crisis, and yet borrowing costs have mostly fallen since then.

That has led to a situation where, increasingly, some economists have been questioning whether deficits matter at all.

Can the government just print more money?

Proponents of Modern Monetary Theory (MMT for short) argue that as long as a country controls its own currency – which for example, the UK and the US do, but Italy doesn’t – then the government can never run out of money.

It need not tax or borrow, it can simply print what it needs. As a result, governments can spend what they want, for as long as inflation remains under control.

As interest rates (and inflation) have jumped over the past year, MMT is being tested to destruction, and as we’ve seen in the UK, while governments might want to keep spending, it’s not clear if the markets will let them.

The term “moral hazard” was first widely used in the insurance industry in the 18th century. Put simply, it refers to a situation in which a person or institution engaged in a risky activity does not bear the full negative consequences of their decisions. This lack of consequences encourages them to behave more recklessly than if they were fully responsible for their actions.

Here’s an easy example. Let’s say you’ve insured your mobile phone. As a result, you don’t bother to buy a protective case for it. After all, if it drops on the floor and breaks, the insurer will pay. That’s moral hazard.

For a much more dramatic real-life example, consider the role moral hazard played in the financial crisis of 2008. In the early 2000s, the US housing market was booming. Investors lined up to buy bundles of US mortgages, which they saw as a low-risk way to get higher interest payments than they could get from US government bonds. They bought these mortgage bundles from the banks. The banks, in turn, made the bundles out of individual mortgages they’d bought from mortgage lenders.

Because there was so much demand, mortgage lenders paid their salespeople big bonuses to sell as many mortgages as they could. But because they were immediately selling the mortgages on to the banks, the mortgage lenders didn’t worry about how creditworthy the borrowers were. They just cared about their commissions. And because the banks were selling the mortgage bundles on to investors, they didn’t worry about the quality of the loans. They just cared about their fees.

In short, the people who issued the mortgages made a profit, and thought they had offloaded the risks to someone else. Then house prices fell, some homeowners stopped paying their loans, and the entire financial system nearly collapsed.

That’s moral hazard, too – when profits go to one group of individuals or companies, but losses are borne by the taxpayer as a group.

And moral hazard is still rife in the financial system. For example, central banks constantly step in and print money to prevent economic shocks from spreading. But that encourages investors to take more risk than they otherwise would.

Which just sets us up for a worse crash in the future.

On that cheery note, may I suggest you subscribe to MoneyWeek magazine.

Most of us probably know what “contagion” means in a biological sense – particularly after 2020 brought it home to us in a very visceral manner. But it’s also a term that crops up in financial markets. And just as “contagion” almost always spells bad news in the real world, it’s also not a term you want to hear in market news.

Global economies and financial markets are arguably more interconnected in the modern era, than at any other point in history. This has lots of benefits. But this interdependence also means that problems which erupt in one corner of the globe can have unexpected consequences elsewhere.

As a result, a financial crisis which at first seems contained in one market or sector, can spread – just like a virus – and potentially overwhelm apparently unrelated markets elsewhere. In other words, there is the risk of “contagion”.

How does financial market contagion generally spread? Debt is a major source of contagion, and also one of its main vectors.

It’s simple when you think about it. Say a friend owes you £100. You need to get it back so that you can go to the pub that night. But when you go to collect, it turns out that he used it to take a punt on a dodgy cryptocurrency and now has no money. As a result, you can’t go to the pub, and the landlord doesn’t get your £100. That’s contagion.

To take a real-world example, the 2008 financial crisis spread globally because ownership of debt linked to US mortgages was far more widespread than most investors had realised. When US house prices fell and that debt collapsed in value, it caused panic as investors sold indiscriminately, unsure of who they could trust.

But while falling US house prices may have been the trigger for the crisis, the real problem was that financial institutions generally were over-leveraged. In other words, they had borrowed too much money, so it only took a small drop in the value of any assets they owned to render them insolvent.

This then fed into a wider crisis because bankrupt banks sold assets and stopped lending money to anyone else, which in turn caused pain in the wider economy.

To learn more about contagion and financial crises, subscribe to MoneyWeek magazine.

Tax comes in many different forms – VAT, capital gains tax, inheritance tax, income tax – and different people pay it at different rates. Typically, the more you earn, the more tax you pay; this is what’s known as a “progressive” tax system.

Your marginal tax rate is simply the tax rate you pay on each extra pound of income you earn. For example, take income tax rates in the UK. As of the tax year that started in April 2025, there is no income tax due on any money you earn up to £12,570. Then, for every pound you earn above that, you will pay 20%. This is your marginal tax rate.

Then once you earn more than £50,270, your marginal income tax rate goes up to 40%. Once you earn over £125,140, it goes up again, to 45%, so for every pound you earn, you keep 55p and 45p goes to the tax office.

So far, so straightforward – as you earn more, you pay more tax.

However, years of government tinkering designed to raise more money without upsetting too many voters has left us with a very complicated tax and benefits system. As a result, different taxes kick in at different income levels, while certain benefits are clawed back. These interactions sometimes create huge spikes in marginal tax rates for certain groups.

For example, child benefit is clawed back once one person in a household starts earning above £60,000 a year. This could result in a marginal tax rate of more than 58% on earnings above £60,000 – or even more in the case of families with more than one child.

Similarly, once someone earns more than £100,000 a year, their personal allowance – the amount on which they pay 0% income tax – starts to be clawed back. This creates a marginal tax rate of 60%.

Taxing marginal income at these levels seems counterproductive. However, a cleaner, more transparent tax system might make it clear just how much we have to pay. And governments tend to lack the political nerve to embrace that sort of transparency.

Traditionally, economists and central bankers worry about economies either overheating or falling into recession. If the economy is growing faster than its productive capacity allows, inflation will be the result. In this case, central banks will raise interest rates to make borrowing more expensive and thus slow the economy down.

If the economy is growing more slowly than its productive capacity allows, recession will be the result. In this case, central banks will cut interest rates to encourage more lending and spending, pushing the economy out of recession.

That’s the theory, anyway. However, there’s another more unusual combination which gives us the worst of all worlds. Stagflation occurs when economic growth is weak and unemployment is high, but inflation is also high.

The term is a combination of the words “stagnation” and “inflation”. It was coined in the 1960s by British politician Iain Macleod and became popular during the 1970s when stagflationary conditions took hold in the UK, the US, and several other developed economies.

Economists argue about the exact causes. One contributing factor was high oil prices, which drove up both prices and costs, squeezing profit margins. Meanwhile, clumsy attempts by governments to control prices actually exacerbated inflationary pressure by making it harder for production to rise to match demand.

Stagflation is difficult for policy makers to tackle. High inflation makes it hard for central banks to cut interest rates with the aim of stimulating the economy. Yet raising rates to tackle inflation will only exacerbate weak growth.

The 1970s stagflation also gave rise to the “misery index”. This was created by US economist Arthur Okun as an informal way of measuring the amount of economic pain the average American was feeling. The misery index simply adds the unemployment rate to the inflation rate. The higher it goes, the grimmer the situation.

Stagflation is also pretty miserable for investors. Squeezed profit margins are bad for stocks, but rising inflation is bad for bonds. That leaves few places to hide.

The term is being muttered again now because supply chain disruption in the wake of the Covid-19 pandemic is driving up prices. Meanwhile, unemployment remains stubbornly high.

Here’s hoping we don’t see a repeat of the 1970s.

To learn more about how to protect your portfolio from stagflation, subscribe to MoneyWeek magazine.

The term “metaverse” sounds like something out of a science fiction novel. There’s a good reason for that – it is.

The term was coined in Neal Stephenson’s 1992 novel Snow Crash.

Like the similar term “cyberspace”, it describes a three-dimensional, immersive version of the internet in which human beings do business, play games, and socialise, represented by digital avatars.

And just as the term cyberspace did, the metaverse has made the leap from comics and sci-fi films to the boardroom and the business sections.

In July, Facebook founder Mark Zuckerberg said that within the next five years, he expects it to be described not as a social network, but as a metaverse company.

Meanwhile video game platform Roblox, whose users can sell their creations to each other for Robux – exchangeable for real world currency – became a multibillion-dollar company when it listed in the US this year.

This is not a new vision by any means. Virtual worlds such as Second Life, where individuals can establish businesses and buy digital property for real money, have been around for a few decades. But usage has largely been limited to enthusiasts.

The key difference today – according to proponents of the metaverse – is that not only has technology advanced considerably, but the pandemic has driven new demand for remote interaction.

For example, Facebook has unveiled technology enabling workers to meet and interact in a virtual office by donning virtual reality headsets.

Some dismiss this as little more than a 3D Zoom call – others argue that it offers a more natural way to interact in the working-from-home era.

Either way, it represents a big opportunity for a company like Facebook to collect even more data on its users.

But there are plenty of competing visions for the metaverse.

Many entrepreneurs in the crypto world favour the idea of an open, decentralised metaverse built on the blockchain, as opposed to one dominated by a single company.

As with its previous incarnations, the metaverse may turn out to be more hype than reality.

But with technology advancing all the time, it’s likely that at least some aspects of it will become everyday parts of our lives.

See you in the matrix!

To learn more about emerging technology and investment, subscribe to MoneyWeek magazine.

What makes the pound in your pocket – or your bank account – money? Why are people willing to accept currency in exchange for goods and services?

These days, there is nothing physical underwriting the value of the pound or the dollar, or any other currency for that matter. Such currencies are popularly known as “fiat” currencies. Put simply, they are backed by the strength of the economies and the governments that issue them and that demand taxes be paid in them.

However, this wasn’t always the case. In the past, commodities of various sorts were often used as money. The most popular such commodities have been the precious metals, and gold in particular.

The “gold standard” describes a monetary system where paper currencies are exchangeable for gold at a fixed rate. Put very simply, the idea behind the gold standard is that it prevents countries from living beyond their means. If a country needs to hang on to enough gold to back its currency, then it makes much harder for governments to manipulate the money supply.

However, the rigidity of the gold standard also has drawbacks. An inflexible money supply in theory makes it harder for central banks to adjust for economic conditions. Perhaps more pertinently, history shows that when the gold standard has proved overly restrictive, governments simply abandon it. For example, most countries abandoned the gold standard between the First and Second World Wars.

After the Second World War, the world went back onto a form of the gold standard. Under the Bretton Woods agreement, the US dollar was backed by gold, and the rest of the world’s currencies traded at fixed exchange rates against the dollar.

However, in the late 1960s, mounting US spending – partly on the Vietnam war – threatened to cause a run on America’s gold reserves as foreign countries lined up to swap their dollars for gold.

As a result, in 1971, president Richard Nixon severed the link between the dollar and gold. By 1973, most major currencies were free floating and the US dollar was no longer tied to the yellow metal.

Of course, the monetary system is constantly evolving. As the prospect of fully digital currencies becomes reality, we may see another shift in the near future.

To learn more, subscribe to MoneyWeek magazine.

The financial world has a habit of coining new definitions for old words, and then constantly referring to these new usages as if everyone should know what they mean.

One relatively recent such coinage is “tapering”.

“Tapering” relates to central bank policies.

Since 2009 and the great financial crisis, central banks have been printing money to buy assets such as government bonds.

This is known as “quantitative easing”, or QE. The aim – or at least, one of the aims – of QE is to reduce the cost of borrowing across the entire economy. This makes it cheaper for those with debts to pay their interest bills.

It should – in theory at least – also make it more appealing for companies to borrow money to invest in expanding their businesses. This in turn should help to boost economic growth.

However, another side-effect of QE has been to drive up asset prices across the board, from bonds to shares to property prices.

As a result, investors tend to like it when central banks add more QE, but aren’t so happy when they reduce it.

It’s not entirely clear who actually coined the term “tapering”, but it sprang into widespread use after May 2013.

That month, Ben Bernanke, who was then the head of the US central bank – the Federal Reserve – indicated in a speech that the central bank was starting to consider reducing the volume of assets that it was buying via QE.

So “tapering” simply describes a reduction in the amount of QE a central bank is doing.

Markets didn’t like this idea, fearing that less QE would spell lower asset prices. The ensuing period of turbulence became known as the “taper tantrum”. This resulted in the Federal Reserve taking several months longer than expected to slow down the pace of QE.

The term “taper” is becoming relevant again today because central banks are now looking at stepping back from the emergency monetary policy they launched during the coronavirus pandemic.

Whether we will see a repeat of the 2013 “taper tantrum” or not, remains to be seen.

To learn more about monetary policy and markets, subscribe to MoneyWeek magazine.

There are two main ways for companies to return cash to shareholders.

Dividends tend to be preferred by income investors; a dividend is a cash payout to shareholders, typically issued on a half-yearly basis.

The other method is to use a share buyback. This means just what it says – the company buys back its own shares.

It’s easy to see why shareholders like dividend payouts. But how do buybacks benefit shareholders? Well, when a company buys and cancels some of its own shares, the remaining shareholders are left holding a greater proportion of the company.

Let’s say a firm has one million shares in issue, and the share price is £10 per share. It made one million pounds profit last year. So it has earnings per share of £1.

Let’s say it wants to return the whole one million pounds profit to its shareholders via a share buyback. It buys back 100,000 shares at £10 a share and cancels them. This leaves 900,000 shares in issue.

That means earnings per share has increased from £1 to just over £1.11, because there are now fewer shares. In turn, assuming that investors keep valuing its earnings on a constant basis, the share price would rise to just over £11.

Fans of buybacks argue that they are more tax-efficient than dividends. For managers, buybacks are also more flexible than dividend payments. Shareholders tend to react more negatively to a dividend cut than to a reduction in buyback levels.

Critics argue that executives have an incentive to use buybacks to meet performance targets linked to share-price growth. So they may curb investment or borrow too much to fund buybacks.

Timing can also be a problem. Some studies suggest that larger companies in particular have a bad habit of buying back shares near the top of the market, when they’re expensive, rather than nearer the bottom, when they’re cheap.

Even if you couldn’t care less about investing, you’ve probably heard of the FTSE 100. The FTSE 100 is the best-known stockmarket index in the UK. In effect, it sums up the fortunes of Britain’s biggest listed companies into one single number, by combining them all into one hypothetical portfolio.

Why is this useful? It gives a representative snapshot of how strong or weak the market in big UK companies is at any given point in time. But more importantly, it serves as a useful benchmark.

If you invest with a fund manager who says they will put your money into big UK companies, then how do you know if they are doing a good job or not? One way to tell would be to compare their performance to that of the FTSE 100. If they manage to beat the index over the long run, it suggests that their stockpicking skills are adding some value for you. If not, then why pay them to manage your money?

There are many different ways to construct an index. Most indexes, including the FTSE 100, are based on market capitalisation – that is, the share price of each company multiplied by the number of shares outstanding. In other words, the companies deemed most valuable by investors carry the most weight in the index.

The best-known indexes tend to be the ones that represent individual countries’ stock markets. Other indexes you may well have heard of include the Dow Jones or the S&P 500 in the US, and the Nikkei in Japan. However, there are literally thousands of different indexes available, and there are many different ways to build them.

As passive investing – which aims to track an index, rather than beat it – has boomed in popularity, index providers have become huge businesses. As investor demand for index funds that track specific themes, or specific investment styles has grown, index providers have created custom indexes to back these investment products.

Some fear that the boom in indexing may distort the flows of money into financial markets in disruptive ways. However, there is no doubt that index funds can be a very convenient and cheap way to build a diversified long-term investment portfolio.

To learn more about index investing, subscribe to MoneyWeek magazine.

Many people reading this might be asking "What is an option?" In this article, we'll take a look at these financial products.

An option is simply the right to buy (a 'call' option) or sell (a 'put' option) a quantity of any asset by an agreed expiry date for a fixed ('strike') price. 

What is an option?

Options can be used in a portfolio as a way to manage risk and potentially increase returns. By buying a put option, an investor can protect their portfolio from potential losses if the value of the underlying asset decreases. 

On the other hand, buying a call option can provide the opportunity to profit from a potential increase in the underlying asset's value. Overall, options can offer flexibility and customization for an investor's portfolio strategy.

As with insurance policies, the buyer of an option pays a non-refundable premium to the seller for the right to either exercise the option before it expires or abandon it. So, someone who holds gold and is worried about the price falling but doesn't want to sell in case they are wrong could buy a three-month 'put' option instead.

Should gold fall over the three months, it can be delivered to the option seller at the higher fixed strike price rather than the market price. Should gold rise, the buyer can abandon the option, hold onto their gold and just suffers the option premium cost.

The risks of option trading

It's crucial to understand that options trading carries inherent risks. If the underlying asset's value moves in an unexpected direction, options can expire worthless, resulting in a loss of the premium paid. 

Additionally, options are complex and require a thorough understanding of the underlying asset and market conditions. Before incorporating options into a portfolio strategy, you should carefully consider the potential risks and rewards, as well as the risk of potential margin calls. 

Margin calls are triggered when a trader's account value falls below a certain level, requiring the trader to deposit additional funds to maintain the required margin level. In options trading, margin calls may occur when an option holder's account cannot cover the potential losses of an option position.

In popular fiction, zombies are the walking dead.

You probably already knew that. But you may be surprised to hear that economics has zombies too.

A “zombie company” is one that makes just enough money to stay afloat, and to pay the interest on its debts. However, it doesn’t make enough money to expand or invest, or to reduce the level of its debts.

In other words, it’s neither alive nor dead – it’s just shambling along, dependent on the ongoing indulgence of its lenders to survive.

This leaves it highly vulnerable to the slightest economic shock.

What makes a zombie company? It has to be reasonably mature. Young firms are often loss-making, but that’s because they are at the “invest and build” stage of development.

The company also has to be chronically loss-making rather than in temporary difficulties – in other words, there is no obvious way out of its situation.

A 2018 study from the Bank for International Settlements (which is basically a central bank for central banks) found that the percentage of zombie firms around had risen from just 2% in the late 1980s to 12% by 2016.

The biggest factor driving this rise was the long-term slide in interest rates seen in recent decades.

Lower interest rates enable struggling companies to reduce their interest payments, allowing them to shuffle on for a bit longer. A low interest-rate environment also means investors are more willing to lend to such companies, simply to make any sort of return on their money.

However, this desperate “reach for yield” simply enables the survival of more zombie companies. Eventually this can be a big problem for the economy as a whole, as it makes the overall economy more fragile.

Some argue that zombies also impair the vital process of “creative destruction”. If low quality companies plod on rather than going bankrupt, it means that they crowd out younger, potentially more dynamic companies that don’t have the same access to resources that they do. As a result, the economy becomes less efficient and productivity falls.

To learn more about the debate around zombie companies and what to do about them, subscribe to MoneyWeek magazine.

Government spending is funded in two ways. One is taxation. We all pay taxes to pay for public services such as healthcare and to fund benefits such as the state pension. But government spending often exceeds the amount of tax raised in any given year. So the government plugs the gap by borrowing the money.

But unlike you or I, the government doesn’t go to the bank to borrow. Instead it goes to financial markets. In effect, the government offers to write IOUs to investors, who are mostly big institutions such as pension funds.

In exchange for lending money to the government for a fixed period of time, these IOUs entitle investors to an annual interest payment. This payment is usually fixed.

So the UK government might say that it wants to borrow money for ten years. In exchange, it’ll pay lenders £20 a year for every £1,000 they lend – a 2% interest rate.

These IOUs are called bonds. Bonds are mostly issued by governments and big companies. When companies borrow money in this way, the IOUs are called corporate bonds. When governments do it, the IOUs are called sovereign bonds.

When the UK issues sovereign bonds, they’re called gilts. For the US, it’s Treasuries. For Germany, it’s bunds.

Once issued, these bonds can be traded freely in financial markets. So the interest rate – or yield – on them will rise and fall.

The yield – which represents the return an investor expects to receive in exchange for taking the risk of owning the bond – will vary depending on a wide range of factors.

A credit-worthy country such as the US or UK will generally be able to offer a lower yield – in other words, borrow at a lower interest rate – than a country with a long history of defaults, such as Argentina.

Countries who can issue debt in their own currencies are also at an advantage. Nations with poorer credit histories sometimes issue debt in US dollars to increase the confidence of lenders. However it means that if the local currency falls against the US dollar, the cost of paying the interest on the bonds can shoot up.

To learn more about what influences sovereign bond markets, subscribe to MoneyWeek magazine.

• This video is also available as an extended audio podcast – listen here, or on whichever platform you get your podcasts.

Transcript

MSW: Hello, and welcome to this special MoneyWeek podcast, special because it’s not just a podcast. You also get to see Gillian on video. I am Merryn Somerset Webb, editor-in-chief of the magazine. And with me today is someone that I think an awful lot of you know very well already, Gillian Tett. Gillian is the chair of the Editorial Board of the Financial Times and also editor-at-large for the Financial Times and, as many of you will know, a very prolific author.

And her most recent book – and the thing we’re mainly going to talk about today, although I can’t promise you we won’t go off on a few tangents – but what we’re mainly going to talk about is this book, Anthro-Vision, How Anthropology Can Explain Business and Life. It’s the life bit I’m really after. Gillian, thank you so much for joining us today. Welcome.

GT: Well, it’s great to be on your show, Merryn. Thank you.

MSW: Can we start by just telling us a little bit about the book? Why this book, and why now, crucially?

GT: Well, the book was written to answer a question that has often been hurled at me during my career as a financial journalist, which is what the heck is anthropology and why should anyone bother? And I understand why people ask that because I’ve spent the last few decades working as a journalist for the Financial Times, writing about economics and finance and business, and these are areas of life that have traditionally scorned anthropology as a hippy, weird, Indiana Jones-style discipline, if they knew anything about it at all.

And the reality is that certainly when I was a student three decades ago, what anthropologists did seemed to be completely divorced from the world of economics, finance and business.

But I passionately believe that today, as we try to make sense of where the world is going, if you’re an investor or an executive or a policymaker, as we try to build back better, to use that ghastly cliché, many of the lessons anthropology has been very quietly preaching for years are incredibly relevant today. And they’re also relevant for anyone who is trying to make sense of what’s happening with money.

MSW: Well, it’s interesting because you are known for… well, known for a lot of things, but one of the things that people think, of you, about most is this fact that you were one of the few people who quite early on realised that there was a problem in the financial system pre-2007. And I think that you used your background as an anthropologist to give you some insight early on into how that was going to unfold.

GT: I am absolutely convinced that it was my training as an anthropologist that enabled me to foresee the financial disaster of 2008. And the reason is very simple. What anthropology does is train you to look at the world in a holistic, joined-up way and to pay attention not just to what people talk about but also what they don’t talk about. As an anthropologist, you don’t just listen to the noise. You also listen to silence. You ask yourself the whole time, what are people not talking about?

And you also pay a great deal of attention to the rituals and symbols and cultural practices that define our lives and shape our social boundaries and essentially express the kind of world view that we all hold inside our heads because we inherit it from our surroundings. We’re all creatures of our own environment.

But for the most part, we can’t actually see how our environment shapes us and embeds all these assumptions in our lives because – there’s a wonderful Chinese phrase, a fish can’t see water – our assumptions are so familiar that we take them for granted. And this matters hugely for finance and business and investing.

And what happened in my case in terms of the run-up to the 2008 crisis was that I went to an investment banking conference in the South of France back in 2005 and people there were talking about credit derivatives. It was a bunch of bankers and financiers. And I tried to use my anthropological training to look at what they were not talking about. And that enabled me to see many of the risks which later turned out to be so damaging for the global financial system as a whole.

MSW: OK. So having seen that, was there any way to use your anthropological experience to get a sense of what was going to happen in the way that we managed this pandemic when it first arrived? So that was our last great crisis, 2007. And now we’re... we’re not in the middle of it, but hopefully towards the end of this great crisis. And obviously I’m guessing that even your anthropological skills couldn’t assume the pandemic coming when it came. But did it give you some insight into how policy and behaviour would unfold after it?

GT: Well, actually, as it happened, about a year before the pandemic started, I wrote a column saying that policy leaders were missing the risk of a pandemic, an epidemic, and that it was incredibly alarming and worrying. And the reason I said that was because one of the themes that came out of the financial crisis is that we all tend to hand over extraordinary amounts of power to tiny groups of geeks, tiny tribal groups of geeks, who have control and mastery of knowledge, which is often wrapped up in jargon in a way that causes everyone to avert their eyes.

And that’s really about recognising that we’re all tribal and we need to just accept that and think about what that means for risk management. And the kind of tribalism we saw in the financial world pre-2008, where you had a tiny group of financial geeks who knew all about credit derivatives but nobody else did, was replicated in Silicon Valley basically from 2008 onwards. I also wrote pieces saying that I could see the techlash coming precisely because of the similarities of the patents. It’s also been replicated in the world of medicine and finance.

And the reality is that lots of people who know about epidemics, epidemiologists and others, have been saying for years that there’s going to be a global pandemic. This is another problem which was hidden in plain sight. And as with finance and the tech sector, Silicon Valley, what’s happened is that not only have the geeks been very bad at transmitting their concerns but wider society has tended to ignore it precisely because it seems to geeky.

And I guess one key message I’d say for investors, who are most of your readers and watchers, is that we cannot afford to ignore geeks or to look to ignore the kind of tribal patterns in the information ecosystem which prevents us seeing risk coming down the tracks.

MSW: But then we find ourselves possibly in a different situation now whereas that we’re listening incredibly carefully to the geeks, certainly in the UK, all the time. We do absolutely nothing but listen to the geeks and talk about relying on the science, without looking at the wider implications of policy at all. So you can flip too far back the other way. Maybe a couple of years ago, we weren’t listening to our scientific geeks nearly enough when it came to pandemics. But right now, we’ve gone the other way.

GT: Well, I wouldn’t say we’ve gone the other way at all. I have a separate issue which is that one thing the experience of COVID in the last year shows crystal clearly is that if you just listen to hard science when you’re trying to deal with policy problems, you actually can’t fix anything usually.

Because something like a pandemic is not just about the medicine. It’s also about changing human behaviour. And one of the reasons why the pandemic spun out of control so badly in the early months was because people weren’t paying enough attention to human behaviour and how to change that when it came to things like lockdowns. And that was a tragic mistake.

I hope that changes with the vaccine distribution, because again, you’re not going to get vaccine herd immunity unless you manage to change behaviour and look at culture in places like America. Because we’ve had Joe Biden come out and say he wants to have 70% of the population vaccinated by July 4th. In fact, what’s happened is you had a huge uptake initially. It’s slowed down in the last month or two, sorry, last week or two, because basically the unvaccinated are now mostly people who actually don’t want to be vaccinated.

So culture matters, alongside science. And that’s true of most policy problems we face today. And again, it’s something that investors need to think about. When you see a government standing up and doing what someone like Gus O'Donnell, the former head of the British Civil Service, had called for and combining behavioural and medical or data science, when you’ve got that combination explicitly championed, then you actually have reason to feel a lot more comfortable and optimistic about a proper solution coming down the tracks.

MSW: But don’t you think the populations should feel slightly wary of the idea, this new idea that governments can learn how to control behaviour? By the way, it makes me feel slightly nervous that there are whole units of government sitting around, thinking about how to influence the behaviours of large groups of the population.

It might work in some ways to reduce pandemic risk, etc. But nonetheless, the idea that, let’s figure out how to control the behaviour of large groups of people as a part of government policy, as has always been part of government policy but increasingly so, is mildly worrying, or not?

GT: Well, I think there are reasons to be concerned about the whole question of government population interplay at the moment. The starting point would have to be to recognise that there is actually a very big zeitgeist shift going on right now.

And going back to this point about a fish can’t see water, investors and policymakers and business leaders at any one point in history find it very hard to imagine the assumptions that they hold very deeply at the moment, which tend to be the ones that have been broadcast to them for the last ten or 20 years, they find it very hard to imagine that’s going to change. And they might know theoretically that 50 years ago or 100 years ago, the zeitgeist was different, but we all tend to assume that whatever we believe at any point in history is the natural, evident way to behave.

And so basically, ever since Thatcherism came up, and Reaganism three, four decades ago, there’s been this very strong free market consensus that’s come to seem almost natural. I used to go to Davos back before 2008 and Davos was driven by a holy trinity of ideas, which was a belief in free markets, globalisation and innovation. And that was just taken for granted and it was assumed that history would only go in one line, one straight line, and that the world would only become more globalised and more in thrall to innovation.

Now, what’s happening at the moment, I would argue, is actually you’re seeing that pendulum swing, and ideas that were very much more dominant 50, 60, 70 years ago are creeping in. And you can see that in almost every area of our lives, whether it’s the degree to which central banks are now involved in affecting market prices.

Whether it’s even in a country like America, you’ve now got, after COVID-19, a full-on drive to try and get business and the private sector integrated to deal with social problems, Dharpur, things like that. That idea has been replicated all over the place now behind the scenes. Whether it’s discussing ways for the government to be more involved in many corners of life in the UK. So, that’s underway.

The question of whether governments could or should be using behavioural science to understand and influence people I’d actually put a bit differently. Because if you accept that this is underway anyway, I’d rather have government trying to read what the population thinks and does and potentially nudge it, to use that very fashionable phrase, nudge it in intelligent ways rather than not.

And I’ll just give a tiny example to show what I mean by that. There’s a lot of evidence from the world of medical anthropology, which is the sphere that blends medical and social science, that if you want to solve a pandemic or any public health challenge, you’d do much better if you work with communities in a bottom-up way, rather than top-down.

Most of what went wrong with the UK government’s efforts and the mandatory orders was very little sense of community awareness or bottom-up sensitivities, even though the UK has this incredible network of local NHS units.

And if they had actually tried to take a much more behavioural science-driven approach into the pandemic, thought about messages, gave people a lot more agency, control over how they managed their own risk budgets, I think they would’ve done a better job... which actually did do a very bottom-up approach to the pandemic and actually has stressed the idea of giving people agency over their own risk tolerance in a way that frankly I think has been far more effective. I know this podcast isn’t about that, but it’s something I feel strongly.

MSW: No, I think it’s a really interesting idea, that if you give people agency over how they manage their own risk, they tend to use it very sensibly. And I think you’re beginning to see that in the UK now perhaps in that suddenly, when I look around me, I see fewer and fewer people really paying any attention to the minutiae of the regulations.

They’re all managing their own risk as they go about their daily lives. And I think it’s going to be, for that reason, very difficult to bring back any new full lockdowns in the UK, now that that shift has happened. But you’re right, that’s not what this podcast is.

GT: But, you see, I would actually extend this to an area where this podcast is focused on, which is investing and long-term financial planning, because again, I believe strongly that giving people more agency over their pension choices, about their longer term financial plans is again a much more effective way. And that’s one area where financial science can absolutely blend with behavioural science when policymakers and financial institutions think about these issues.

MSW: OK, interesting. Well, listen, I tell you what, let’s move onto the chapter of your book that I found… Well, I found them all pretty compelling actually, but the one I found most compelling and I think might be most relevant to our readers. And that is the one on ESG. It’s called Moral Money, which is an area you set up the FT to follow the growth of the ESG movement. So, Moral Money are what really drives sustainability. And you had, I thought, quite an interesting take on this.

GT: Well, first of all, the reason why I set up Moral Money with colleagues was because again, I was trying to listen to the social silence and what people weren’t talking about, or rather, what journalists were ignoring. And dialling back three, four years ago when the world was dominated by discussions about Donald Trump, I noticed that a lot of activity was happening around the ESG space, which you can dismiss as mere PR spin and greenwashing and stuff, but was still actually taking up a lot of time and energy and activity.

And anthropologists know that the kind of ritualistic, ceremonial stuff that people do can’t just be discounted as an empty, meaningless gesture because there’s a reason why people are doing that. And the interesting thing to ask is not whether the ritual is real but why people felt the need to engage in the ritual.

And the reason why people felt the need to engage in PR releases about ESG, that ritual, was because essentially, what was going on I’d describe as a shift from tunnel vision. By that I mean that in the late 20th century, the Western world developed a lot of amazing tools to make sense of the world which were really marked by the fact that they were bounded and defined by the box or the tunnel that was used to look at the world.

So economic models are defined by what you put into the model, the inputs, and they don’t really look at the context. Balance sheets, corporate balance sheets, same thing. You basically define what’s on the balance sheet, it’s a bunch of profit and loss statements, money flows, and everything else is chucked into the footnotes. Big data sets only collect the data you ask them to. And anthropology is passionately committed to trying to look at the context and trying to look at things holistically, trying to look beyond the edge of the model.

And essentially, what I think has been going on is that people have been using these bounded tools which are often brilliant, but when the world started to become a lot less predictable and more unstable, from 2007 onwards, they instinctively began to realise that actually a lot of really important stuff was either in the footnotes of the corporate accounts or external to the model and called externalities.

And the really important stuff included things like environmental risk, like social upheaval, like reputational risk, all of which could suddenly rear their heads and stun or wrongfoot anybody who just relied on that bounded model. So one way to see what’s happened with ESG is that really, in the last decade, companies and investors have been groping for ways to get more lateral vision, frankly, a more anthropological vision on life, and trying to do that in all kinds of ways.

And ESG, in a way, is simply a movement to say we realise that tunnel vision tools don’t work. We need to broaden the lens, be aware of consequences and context at all costs and try to find ways to not just think about that to make the world better but, above all else, to defend ourselves.

Because at the end of the day, ESG dresses itself up in terms of saving the world, some of the people who are involved in it really do want to save the world, but for the most part, it’s actually now about risk management and about not so much not doing harm to the rest of the world but not doing harm to yourself.

MSW: Yes. So not being seen to do harm to the rest of the world, and therefore not doing harm to yourself.

GT: Sometimes it’s about not being seen to do harm to the rest of the world and it’s just for show. And it goes back to this point about ritual mattering, symbols mattering, or rather, that you need to ask why someone feels the need to embrace a symbol, in this case ESG.

But in some cases, there’s genuine harm. Anybody who had ignored sexual harassment issues would’ve suffered as a result of hashtag MeToo. It’s not just symbolic sometimes. Anybody who ignores questions around, say, stranded assets in the oil and gas sector and fossil fuels would’ve suffered a nasty shock, when you’re seeing what’s happened to energy companies’ share prices over the last couple of years.

MSW: But is what’s happened to energy companies’ share prices over the last couple of years about the existence of stranded assets or about the pressure on them to stop doing their core business and shift over to a different business.

GT: It’s a combination. And that’s really where anthropology says, OK, the subjective and objective matters, both of them. Economists are trained to just look at objective facts, hard facts, things they think are eternal truths. You can argue about whether they are or not.

Anthropologists try to look at webs of meaning, interpretation, symbolism, how people imagine things. The reality is they both interact enormously every day. And if you just look at one and ignore the other, in both directions, you miss how the world works.

And what’s happened with energy companies is a classic example of that because frankly, there are hard facts about energy usage and fossil fuels and stuff like that, but what’s actually as important in determining share prices is how that is subjectively perceived. And that involves reading the zeitgeist.

And at the end of the day, that is why investors ignore the lessons of anthropology at their cost, because anthropology is about smelling and interpreting the zeitgeist. And you can’t do that… Sorry, if you don’t do that, you may miss what’s actually driving a lot of asset prices.

MSW: You have a very interesting… At the beginning of your chapter on ESG, you have an interesting story about talking to Bernard Looney from BP and how you felt that something changed in him when he started listening.

GT: Well, the thing that struck me about Bernard Looney when I chatted to him was that I’d worked on the Lex column back in the early part of the noughties and spoke a lot to energy executives then because I was writing about energy companies for the Lex column in the FT and, I promise you, most of them could not have been more scornful about environmental activists then. They were pretty scornful about anthropologists as well, but they absolutely dismissed what they were saying. And there was a sense of extreme arrogance in the energy sector then.

And when I spoke to Bernard Looney last year, what absolutely stunned me was that he told this story about how he’d been at an AGM back in 2019 with BP up in Aberdeen and saw protestors demonstrating and saw some of them wiggling their way into the AGM to ask questions.

And instead of actually just dismissing them and saying, what a bunch of weirdo hippies, he actually said he wanted to go and talk to them, and then subsequently, as he tells the story, spent many hours listening to what they said, trying to see the world through their eyes, which by the way is the 101 of anthropology, trying to walk in someone else’s shoes as best you can.

Now, he’s telling that story because it makes a great yarn. Again, going back to symbolism and ritual and ceremonial displays, he has a lot of vested interest to try and convince the world that he’s putting BP onto another path. So yes, it may just be PR spin. I’m keenly aware of that. But the very fact he feels the need to even engage in that PR spin and actually spend time listening and talk about having listened to environmental protestors shows how the world has changed.

I actually think, from what I can tell, that actually the act of listening has made him more aware of the zeitgeist and how it’s changing. And it’s one reason why BP did try to get ahead of the curve in terms of introducing or announcing measures on climate change responses much earlier than many rivals like Exxon. But it’s an interesting story about how CEOs can listen if they want, or often don’t. And I think that’s the kind of symbolic exercise that, again, investors discount at their peril.

MSW: Yes. Now, the great leader of the ESG world when it comes to finance is BlackRock’s Larry Fink, right, leader of the biggest fund management company in the world. Now, Larry writes a letter every year, telling everybody what he expects them to do, etc.

Do you think that that’s the right role for the fund management industry, inside this whole world of moral money, for there to be a big man leading a big company, telling global companies how they should behave? Or does that lead us down a difficult non-democratic road?

GT: Well, there is a very interesting question there about two things. And you have to break it down. Firstly, should asset owners, should people who are invested in companies express a view about how that company is run? Absolutely. That’s the bedrock of capitalism. And without that, you don’t actually have proper capitalism, unless the owners have skin in the game to then talk about it and try to influence it.

The second question then is who should talk on behalf of the shareholders? Should it be the original tiny mom-and-pop shareholders, the ultimate asset owner, or should it be the intermediary, the asset manager? At the moment, you don’t actually have a particularly effective system for quickly collating the views or even votes of the ultimate asset owner and so much of that power is essentially outsourced to the asset manager.

Sometimes they use that power well, sometimes they don’t. Sometimes they outsource that to things like the proxy advisors as well. And I think there are very big questions about whether you think the proxy advisor should have so much power or not and whether there are ways to actually get individual shareholders more engaged, exercised or even more aware of what’s going on.

One of the things that Larry Fink talks about is that additional technology will enable greater democratisation and take the power and influence out of the hands of asset managers like himself, put it back into the ultimate asset owner’s. That’s what he claims he wants. Let’s see whether it happens or not.

But if you accept that at the moment, asset managers are the people who are most engaged as opposed to the ultimate asset owners, should they be talking about things like climate change, ESG? Absolutely. Because if they think that there is something coming down the tracks which is going to affect the value of the assets, like environmental risk or like government responses to environmental risk which is a key issue here, they absolutely should be talking about that and using lateral vision, not tunnel vision, to assess the value of things.

MSW: I…

GT: But to give you one tiny example, Larry Fink has been banging on about TFCD now for a year or two. TFCD is the Task Force on Climate-related Financial Disclosures. It’s one of the ultimately geeky areas that I happen to be obsessed with because Moral Money was created precisely to educate FT readers about this kind of geeky stuff that people either dismissed because it sounded so irritatingly do-gooding or so full of jargon, they couldn’t understand it.

So TFCD is one of a series of accounting standards which are trying to get companies to disclose what’s happening in terms of the environment. Now, Larry Fink has been talking about that for two years. Most other people haven’t. In fact, very few other Western business leaders have been talking about TFCD.

Guess what? That was a mistake on the part of everyone else because the G7 came out, finance ministers, a few days ago and said basically, TFCD is probably going to be mandatory. Or they actually said they threw their support behind making TFCD mandatory. A lot of people went, uh, what? A lot of people went, really? Can’t imagine that. But actually, you know what? The UK said it’s going to do it within the UK jurisdictions. Several other countries are doing it as well. I think there’s a good chance America will do it.

And so anyone who ignored that kind of stuff is now facing a need to scramble to get up the knowledge curve as fast as they can. And I suggest you read Moral Money to understand what’s going on, at the Financial Times, because we are writing obsessively about this stuff. But that’s one example of where ignoring the zeitgeist can cost you.

MSW: Gillian, there’s one more thing I wanted to ask you about that I’m hoping that you may be able to throw some light on from an anthropological point of view, which you haven’t discussed in the book. But it’s about this business in the US, and in the UK as well at the moment and various other countries, of there appearing to be a major shortage of labour. So in the US, suddenly, we’re seeing that there are 6-7 million fewer people in the workforce than there were at the beginning of the pandemic.

And there’s lots of discussion about why that is. Is it to do with childcare? Is it to do with fear? Is it to do with unemployment benefits? Is it to do with people just wanting to change lifestyles completely? And I just wondered if you had any thoughts on that because it’s interesting to all of us whether that’s a short-term dynamic related to the pandemic or whether, in fact, it represents some kind of inflection point in the way labour operates across the US, and possibly the UK too?

GT: My main thought is that this is a classic example of why people like the Federal Reserve and the Treasury urgently need to do some anthropological studies in addition to their top-down economic studies. It reminds me a lot of what was happening during the sub-prime mortgage boom where essentially, economists had these lovely models about how default waterfalls were supposed to happen in the US private sector and in some consumer debt.

And the assumption they’d been going on forever was that basically if a household was going to default, they would default first on their credit card, then on their auto loan and then lastly on their mortgage debt. That was the assumption because that had been the assumption in place for the previous few decades, and that was embedded into every single model out there for rating agencies and the Federal Reserve.

Of course, what actually happened on the ground was that really starting at the turn of the 21st century, the waterfall flipped over and people began to default first on their house, then on their car and then on their credit card if they were under stress. And the reason was that it became very easy and less culturally punished to default on a house, to walk away from a house. You needed to have your car to basically survive in America and you can always sleep in your car. And if you don’t have a credit card, you can’t do anything, including digital activity.

Now, anybody who’d gone out there as an anthropologist and looked at what was happening on the ground or spoken to real-life people or even done what happened in The Big Short, which is to get out of your ivory tower and go and meet some real consumers, in the movie, The Big Short, these were strippers who’d taken out sub-prime mortgages, could’ve seen that. But you couldn’t see that with your top-down economic model.

And when it comes to the labour market today, that’s another classic example where, yes, you can devise these wonderful models of how the labour market is supposed to work. Yes, the Federal Reserve is now using those to determine what’s going to happen to interest rates.

And, in fact, one of the crucial reasons why the Fed is not raising rates right now, and I know this from talking to them, is because they keep saying, we’ve got 6 million people unemployed in the economy and therefore there won’t be wage pressure, or whatever it is. I can’t remember whether it’s 6 million or whatever. But whatever, they keep saying because we haven’t got full employment, there won’t be wage pressure.

To which I’d say, for heaven’s sake, think back to 2005 and 6 and realise that sometimes you need to work out whether the actual underlying root cause of what’s happening in the economy has changed or not and whether something has happened culturally and in the social fabric which means that your economic models don’t work so well anymore.

And I suspect in this case, there’s… I don’t know because I’ve not done the research and I’ve not seen anyone doing any research yet. But I can guess that those attitudes towards work have changed. Concepts of community support may have changed. There are things happening which aren’t actually in the models.

MSW: And you can see that because there is wage pressure, however…

GT: There is wage pressure. And again, another thing that economists can’t capture is the fact that you’ve got… How information networks work is critical. So economists develop their models on the basis of rational expectations and assume that each individual in a model is a complete individual, isolated individual, like an atom in a test tube, and that they have access to knowledge, and have access to knowledge in an equal way and the velocity of that knowledge is constant, a bit like the velocity of money.

The reality is that knowledge moves through information networks. People are influenced by other people in their community. They’re not completely discrete individuals. And the patterns of information flows have actually shifted quite radically in recent years through this thing called the internet or social media.

And I have not seen any studies looking at how, say, people tweeting about price rises influences consumer expectations and could play into a different dynamic going forward, which once again, to avoid… I know I keep hammering home this point, but you have to look at the context of economic models and look beyond the model. And that’s really what anthropology does.

MSW: Gillian, that’s a brilliant place to end. Thank you so much. MoneyWeek readers, all other watchers, go out and buy it. It’s brilliant.

GT: Thank you.

MSW: If you’d like to hear more from Gillian on a variety of subjects, of course, please do read the FT, look for Moral Money, and you can follow Gillian on Twitter, @gilliantett.

GT: Thank you, Merryn, for listening and talking. And thank you to anyone who is interested. And if any of you out there have got kids who say they want to study anthropology instead of accounting, don’t get…

MSW: Make sure they…

GT: Yes, don’t get too irritated. You can actually find a job afterwards.

MSW: Brilliant. Gillian, thank you so much.

When it comes to saving money for the long term – that is, ten years or more – investing your money usually delivers better returns than simply saving it up as cash in the bank. This is why any workplace pension you have, for example, will at least partly be invested in the stock market, and most of the rest will be in bonds.

The majority of us don’t have the time, patience or enthusiasm necessary to do the research required to buy and sell individual shares for our own portfolios. This is why most people hand their money to a fund manager to do it for them – the fund manager gathers the money together and invests it in a portfolio of shares. This is known as “active management”. So far, so good.

When you invest money with an active fund manager, you want to know that they are using their skill to deliver you the best return they can. In the jargon, you want to know that they can deliver “alpha”.

So if your fund manager is investing in big UK-listed stocks, for example, you would probably want to compare the returns the fund gives you with those of the main London index, the FTSE 100. You’d use the FTSE 100 as a “benchmark” – a figure that you’d expect the manager to beat over time.

This is where we hit a snag. Because the reality is that a majority of active fund managers struggle to beat their benchmarks – whatever they are – over any decent length of time. That’s partly because they also charge relatively high fees, which they have to earn back before you see any return yourself.

This is where passive investing comes in. Passive funds don’t try to beat a benchmark, they just try to track it. So a passive fund investing in UK stocks might just buy all the stocks in the FTSE 100 in the same proportion as the index. 

Because this isn’t very labour-intensive and can be automated, the fees are lower too. So most of the time, an investor will get a better return, and pay less for the privilege, by opting for passive rather than active management.

Commodities – that is, raw materials ranging from oil and copper to cotton and grain – are not typically a large part of a private investor’s portfolio.

Commodity prices are highly cyclical. When prices rise, commodity producers boost supply to take advantage. As supply rises to meet demand, prices fall again in turn, and so on.

Over the very long term, commodities prices tend either to be flat or falling in real terms, because technological improvements lead to more efficient ways of using and extracting raw materials.

However, there are periods during which demand rises strongly because of a major change in the global economy. Supply then struggles to keep up as producers adjust to this structural shift.

This leads to a prolonged period of rising prices and investment in supply by commodity producers, until supply has finally grown enough to meet or surpass demand.

This is known as a commodities “supercycle”.

The most recent example came in the early 2000s, when China opened up to world trade, and became a significant force in the global economy.

China’s rapid economic growth saw surging demand for all commodities, as the country pumped money into building roads and railways, and expanding its cities.

That boom lasted – with a brief pause during the global financial crisis in 2008 – right up until 2011, with oil peaking at well over $100 a barrel and copper at more than $4 per pound.

By that time, China’s growth was starting to level off.

However, more importantly, commodity producers such as mining companies had invested so much money on finding more raw materials, that the new supply overwhelmed demand, and prices dropped again.

Today, there are signs that we might be seeing another commodities supercycle, as governments around the world spend heavily to help their economies recover following the pandemic.

The price of copper in particular has shot up, as it is used widely in “green” technologies.

The best way for private investors to get exposure to a commodities boom is through the resource producers themselves – by investing in miners, for example.

However, it’s worth bearing in mind that all such booms come to an end eventually.

To learn more about investing in commodities, subscribe to MoneyWeek magazine.

“Gearing” – also referred to as “leverage” – is a very important concept in investing. It refers to the use of debt to fund an investment.

This can apply to a business itself. For example, a company might borrow money to invest in new technology. The higher level of debt means the company has a higher level of gearing, but it also applies to investments in shares or other assets made by investors. For example, a hedge fund manager might borrow money to invest in a market or company that he or she has a high-conviction view on.

Why would anyone borrow money to invest? The easiest way to understand this is to think about using a mortgage to buy a house.

Say you buy a house for £200,000. You pay a deposit of £50,000. You take out an interest-only mortgage of £150,000 for the rest. A year later, house prices have gone up by 10%. You sell for £220,000. You pay the bank back the £150,000. You get £70,000. That’s a £20,000 profit, or a 40% return. So prices only rose by 10%, but the power of gearing meant you made 40%.

The danger is that gearing works the other way too. If house prices had fallen by 10%, you’d still have had to pay the bank its £150,000, and you’d have been left with £30,000. So you’d have made a 40% loss.

The same mechanic is at work when investors borrow money to invest in bonds or shares, or even currencies. It’s what individuals are doing when they spreadbet – they’re using borrowed money to bet on asset price movements, which is why so many spreadbetters lose all their money.

There are lots of detailed ratios you can look at to measure the extent to which gearing is being used, both by companies or investment funds, but the key point is this: debt can boost your returns if things go your way. But it also increases the overall riskiness of any investment you make.

All else being equal, a highly-indebted company is a riskier investment than one with no debt. Always bear this in mind when considering any candidates for your portfolio.

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Many concepts in investing sound far more complicated than they are. “Pound-cost averaging” – also known as “drip feeding” – is no exception. It simply means investing a sum of money into the market at regular intervals rather than in one go. So if you have £1,200 to invest this year, you might invest £100 a month; if you have £12,000, you invest £1,000 a month.

The advantage of investing like this is that it can reduce the risk – and pain – of buying just before the market drops. For example, if you put all your money in UK shares this month and the market drops steadily over the year to end up down 20%, your portfolio will also be down 20% (ignoring dividends).

But if you invest equal amounts monthly, you buy in at a lower price each time and so reduce your average cost. So your portfolio may end the year down by around 10% rather than 20%. In turn, that’s less painful, which may make it easier to hold your nerve and wait for the recovery. If markets rise rather than fall over the same period, you will of course make smaller profits than you would have, if you had invested a lump sum at the start.

Critics of pound-cost averaging point out that most major markets have risen substantially in the last few decades. As a result, pound-cost averaging has not delivered the best long-term returns. However, a useful lesson to learn about investing is that the best strategy is not the one that’s best in theory, but the one you can actually stick with in practice.

In an ideal world, we would calmly stick to our plans through thick and thin. But it’s easy to panic in a crash when you see your portfolio’s value falling. Following the pound-cost averaging route – rather than committing all of your money at once – may help you to stay invested during a crisis, rather than pulling your money out at exactly the wrong point.

A disciplined approach to investing small amounts can also help you to overcome the fear that might stop you entering the market at all until the best of the recovery is over.

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Cryptocurrencies such as bitcoin and ethereum have divided investor opinion. Some people think that they represent the future of money and a huge technological advance. Others think that the whole thing is a scam, a bubble, or just hopelessly idealistic.

But one thing is clear: governments are increasingly keen on the possibilities that might arise from issuing fully-digital currencies themselves. Hence the growing interest in central bank digital currencies, or CBDCs for short.

A CBDC is simply a government-backed digital currency. A digital pound – or “Britcoin”, as it’s been nicknamed – would be similar to the paper pound, in that the central bank would control its issuance.

This is perhaps the most important difference between CBDCs and cryptocurrencies. Cryptocurrencies are decentralised. The whole point of bitcoin is that it represents a form of money that cannot be created at will by a government or a central bank. Instead it derives its value from a network of freely-participating individuals.

There are some benefits to CBDCs. In theory they should cut down on transaction costs. And in developing markets in particular, they should make it easier for everyone to get a bank account.

However, there are also some serious disadvantages. Bitcoin is anonymous, but transactions made using CBDCs would be easily tracked by the authorities. This gives rise to privacy concerns.

CBDCs might also replace cash altogether. That would make it easier for central banks to impose policies – such as negative interest rates – that effectively operate as a tax on savers. So the next time the economy is deemed to require monetary stimulus, the central bank could effectively force people to go out and spend their money.

This might sound like something from a dystopian science-fiction novel, but most governments around the world are now working on CBDCs. The Bahamas already has the “sand dollar” which was launched last year. Among major economies, trials of a digital yuan are well advanced in China. And in the UK, the Bank of England and the Treasury are now looking into the idea of “Britcoin”.

So even if cryptocurrencies aren’t the future of money, there’s a good chance that they’ve helped to bring forward the end of cash.

To find out more about the monetary system and central banks in general, subscribe to MoneyWeek magazine.

The first thing to understand about hyperinflation is that it’s not just really, really high inflation. High inflation – in the sense of broadly rising prices for goods, services and wages – can certainly be very disruptive. For example, in the 1970s, at one point prices in the UK hit were rising by more than 20% a year. It’s a decade well known for civil unrest and financial turmoil.

However, hyperinflation is on an entirely different level. One technical definition of hyperinflation is when prices are rising at a rate of more than 50% a month. At that rate, prices will have risen by roughly 130 times by the end of the year.

As you can imagine, keeping track of price changes in that situation is virtually impossible. In short, what hyperinflation really represents is the point at which faith in a country’s currency and economy has been destroyed. The currency is effectively worthless.

The most famous example is from the 1920s and Weimar Germany, with its images of people pushing wheelbarrows full of money. More recent examples include Zimbabwe in the late 2000s, and even more recently, Venezuela. How does this happen?

Hyperinflation is often associated with money-printing. However, it’s more accurate to say that money-printing can be a symptom of hyperinflation rather than the underlying cause.

There are several factors involved, but two stand out as crucial. One key factor is the destruction of a country’s ability to produce as many goods and services. For example, political corruption and mismanagement resulted in the collapse of both Zimbabwe’s farming industry and Venezuela’s oil industry. Weimar Germany, meanwhile, happened in the wake of the devastation of World War I.

Another key factor is that a country has high levels of debt or other obligations that need to be paid in a foreign currency. These debts are clearly unaffordable and yet the country cannot just print money to get rid of them. Instead, the value of the domestic currency collapses as the economy’s reduced productive capacity is channeled into paying these debts.

This is not to say that hyperinflation couldn’t happen in a developed economy like the UK or the US, who issue debt in their own currencies. But it would imply a devastating economic and civil collapse, rather than simply too much quantitative easing.

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Inflation is a very loaded term for economists, with plenty of debate around exactly what causes it and the best way to define it. But when most people hear the word “inflation”, they think about rising prices.

Understanding what’s happening to prices is very important. Measuring price inflation can help us to spot where potential problems might be building up in the economy. For example, rising prices might indicate shortages or bottlenecks. Falling prices might imply a collapse in demand. However, even then, getting a proper view on what’s happening to inflation depends on exactly which set of prices you are trying to measure.

Two of the most important such indicators for the economy are “producer price inflation” and “consumer price inflation”. So what are they and what do they measure?

“Producer price inflation” is all about prices at the manufacturing level. It covers changes in the cost of raw materials used by producers of goods. And it also looks at changes in the prices of the goods produced. In other words, it looks at changes in manufacturer’s input costs, and also in what they charge for the finished goods when they leave the factory. This is why it’s sometimes referred to as “pipeline inflation” – it’s a measure of price changes that are currently further up the supply chain from the consumer.

“Consumer price inflation” on the other hand, looks at changes in the price of a basket of goods consumed by the average household. So for example, the producer price indexes would cover what it costs to make a jacket, and the price at which the manufacturer then sold it to a supermarket. Consumer price inflation would cover the price the supermarket charged customers for the jacket.

Most of the time, the key question is whether rising costs will end up being passed on to consumers or not. If so, then that will create inflationary pressure in the wider economy. But if producers and shops can’t pass on their higher costs – usually because there is too much competition in the market – then their profit margins will feel the squeeze, which can be bad news for investors in the companies affected.

To find out more about inflation and what causes it, subscribe to MoneyWeek magazine.

When investors buy shares or other financial assets, they can borrow money with the aim of boosting their returns. However, if things don’t go their way, they may face a “margin call”, and be forced to sell their holdings for a large loss.

Before we explain what a margin call is, we need to look at why someone might borrow money to invest in the first place. The easiest way is to compare it with using a mortgage to buy a flat.

Say you buy a flat for £100,000. You put down a 10% deposit – £10,000 – and borrow the other £90,000 from the bank. A year later, house prices have gone up. You sell the flat for £110,000. The price of the flat has gone up by 10%. But you have made a 100% profit. How? Once you repay the £90,000 to the bank, you are left with £20,000. You only put in £10,000 of your own capital. So you’ve doubled your money.

Of course, it cuts both ways. If house prices had fallen by 10% – heaven forbid! – the flat would have been worth just £90,000. All of the sale proceeds would have gone to the bank, and you’d have lost your original £10,000 – a 100% loss.

So borrowed money amplifies movements in the underlying asset price. This is why it’s known as “leverage” or “gearing”.

When an investor borrows to bet on shares, they also put down a deposit. In this case, it’s known as “margin”. The “margin” is there to protect the banks who lend the money.

A “margin call” happens when the margin available to cover any losses falls below a certain level. At that point, the banks demand the investor puts up more “margin” in the form of cash or other collateral. If they fail to do so, the banks may have to sell their holdings to reduce their own risk.

Day traders and spread betters often get margin calls. But it also happens to institutional investors, such as hedge funds. The risk with such margin calls is that if one heavily leveraged seller is forced to sell their shares, this might trigger margin calls for other investors, resulting in a domino effect.

This is why central banks have been known to step in when “systemically important” institutions have suffered margin calls in the past.

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If you invest in a company’s shares, you are entitled – through ownership of those shares – to certain rights. The right that shareholders tend to be most interested in, is the right to share in the future profits of the company. Owning a share will entitle you to a chunk of any dividend payouts, for example. However, there’s another important right – that is, the right to have a say in the running of the company.

Shareholders usually benefit from voting rights – that is, the right to attend Annual General Meetings, and to vote on certain corporate actions that will affect shareholders. For example, a shareholder will usually have the right to vote on big changes such as takeovers or mergers, or the right to vote in elections for board members.

However, in recent years, some of the world’s most exciting companies have sold shares which offer fewer voting rights than other types of share in the same company. Big tech companies in particular often split their shares into different classes when going public.

For example, social media giant Facebook has “class A” shares and “class B” shares. Normal investors buy and sell class A shares, which have one vote per share. The class B shares are owned largely by Facebook founder Mark Zuckerberg, and come with ten votes per share. In 2017, social media company Snap took this a step further. The shares it sold to the public when it listed in New York, came with no voting rights whatsoever.

Meanwhile, here in the UK, food delivery company Deliveroo plans to have two classes of share when it goes public shortly. The shares available to investors will carry one vote per share, while those owned by the founder will have 20 votes per share.

Founders argue that these different levels of voting rights insulate them from the short-termism of being a public company. In other words, they can pursue long-term strategies without the fear of being pushed out of their own companies due to a short-term run of weak performance.

For now, shareholders seem content to put up with the inequality, in order to be able to share in the fortunes of these stocks. Whether that will last, should these companies face harder times, remains to be seen.

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If you’ve ever spoken to a financial adviser or read an investment magazine, you’ve probably come across the term “60/40 portfolio” before. But what exactly is a 60/40 portfolio, and why have they proved so popular over the years?

The term “60/40” refers to a style of asset allocation. Asset allocation is simply the process of splitting any money you plan to invest between different types of assets. The goal of asset allocation is to deliver the best possible expected return for your money, while avoiding taking more risk than you feel comfortable with.

In the case of a 60/40 portfolio, 60% of your money goes into riskier assets – typically shares (or equities as they’re sometimes called). The other 40% goes into less risky assets – typically government bonds, which are just IOUs issued by governments.

Please note that when we talk about risk in this context, we’re referring to the longer-term volatility of your portfolio, rather than the risk of losing all your money. In other words, it’s a measure of how bumpy a ride you have to put up with along the way. Over the long run, financial theory suggests – and history backs this up – that if you are willing to take more risk, then you should get bigger returns.

With a 60/40 portfolio, the idea is that you get a smoother ride than you would with a portfolio that was 100% in risky shares. But you also get better returns than if you were 100% in boring old bonds.

You would also make sure to rebalance your portfolio at least once a year. So for example, if bonds had gone up a lot and now accounted for more than 40% of the portfolio, you would put more money into equities, until you were back to a 60/40 allocation.

The 60/40 portfolio has worked well for some time. However, past performance is not necessarily any guide to future performance. With bond yields now at or near record lows, and concerns about inflation rising, some investors are now questioning whether the 60/40 portfolio will continue to be a good bet in the decades to come.

To find out more about that and about asset allocation in general, subscribe to MoneyWeek magazine.

There are two main approaches to investing in asset markets. One is to look at what are known as “the fundamentals” – for example, you might look at a company’s accounts to see how profitable it is, and to work out how much you should be willing to pay for it. You might also look at the wider backdrop – is the economy growing or weakening? What impact might that have on the sector? However, there is another popular way to invest that ignores all of this entirely – that’s “technical analysis”, often referred to as “charting”. This involves looking at price charts to forecast the likely direction of the price of an asset.

As far as hardcore technical analysts are concerned, all of the information you could possibly need to make an investment decision is already reflected in current prices. In other words, anything you can glean from “the fundamentals” has already been priced in. However, while there is always a flow of new information coming into markets, investors react to this new information in predictable ways. And because markets are cyclical, this results in recurring patterns of buyer and seller behaviour, which in turn will show up as recurring patterns on the charts. Being able to identify these patterns as they occur gives technical analysts an insight into what might happen next.

In effect, technical analysis is built on an understanding that markets are driven by human greed and fear as much as they are by things like profitability and balance sheet strength.

Technical analysts employ a whole range of indicators and different types of chart. The simplest approach focuses on the idea that prices tend to “trend”, moving up, down or sideways for long periods of time. So, for example, the path of least resistance for a stock that is moving up is to keep moving up. So a technical analyst might, for example, use moving averages – that is, plotting a line which takes the average of the asset price over a set number of trading days – to identify trends, and to measure how powerful they are.

Technical analysis may not sound very scientific, and like any other market approach, whether it “works” or not depends on who you ask and when you ask them. But its main purpose is to enable short-term traders to define clear entry and exit points for trades, which is something that fundamental analysis simply cannot do.

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When it comes to influencing economic growth in a country, the authorities are considered to have two main levers. These are monetary policy and fiscal policy.

Monetary policy is managed by central banks who aim to meet economic goals set by governments. They do this by influencing the amount of money circulating in the economy. For example, most central banks, including the Bank of England, are asked to target a specific level of inflation. This is usually around 2%. By the way, there is no specific rationale behind the 2% target; it’s just generally viewed to be roughly the “right” amount of inflation for most developed economies.

The central bank influences the cost of borrowing by raising or cutting interest rates, or printing money to buy government bonds and other assets. In theory, when it’s cheaper to borrow money and less rewarding to save, people and companies will invest and spend more. That boosts growth, which should eventually drive up inflation. If inflation gets too high, the central bank raises interest rates. That raises the cost of borrowing and encourages saving over consumption, which should slow growth and choke off inflation.

Fiscal policy, on the other hand, refers to the tools used by governments to influence the economy. Governments can raise and lower taxes. They can also direct spending at specific industries or groups of people. Fiscal policy is more targeted and arguably more powerful than monetary policy. But clearly, it is also more political. It creates winners and losers in a much more explicit manner than monetary policy.

One core feature of economic management in the late 1990s and the run-up to the 2008 financial crisis was an increasing reliance on monetary policy to smooth over ups and downs in the economy. In effect, governments delegated macro-economic management to their central banks. Nobody really complained because most economies seemed to be pottering along merrily. However, the 2008 financial crisis shattered that illusion. Since then, economic growth has been weak, while at the same time soaring asset prices have fueled a perception of growing inequality. Faith in monetary policy has been eroded.

Meanwhile, fiscal policy – such as subsidising wages – is now being used to tackle the effects of pandemic lockdowns. This is likely to last long beyond Covid, and has some serious implications for investors. To learn more about this huge political and economic shift, subscribe to MoneyWeek magazine.

Investors often use the price/earnings, or p/e, ratio, to judge whether a stock is cheap or not. It’s easy to calculate, hence its popularity. We’ve covered it in a previous video, but to sum up, you simply divide the share price of the company by its earnings per share.

A low number – below ten, say – suggests that you aren’t being asked to pay much for each pound or dollar of earnings the company makes. That might be because the stock is cheap. But it might instead be because investors expect earnings to fall in the future. A high number indicates that a stock may be expensive, or perhaps that investors expect earnings to grow rapidly.

However, the basic p/e is very flawed. Using just one year of profits means that a company – particularly one in a cyclical business, such as housebuilding – can look cheap because profits happen to be peaking at that point, and are set to fall hard when business turns down in line with the wider economy.

So in the 1930s, value investors Benjamin Graham and David Dodd suggested that analysts should instead take the average of earnings for the previous five to ten years. This should give investors a better view of whether a stock is really cheap compared to its average performance over an economic cycle.

Professor Robert Shiller of Yale University popularised this idea of the cyclically-adjusted price/earnings ratio – or Cape, for short – in his book Irrational Exuberance, which was published in 2000. That’s why it’s also sometimes known as the Shiller p/e.

Shiller and his colleagues found that investing in markets when the market-wide Cape was low tended to deliver strong returns over the following 20 years. Buying when the Cape was high, tended to lead to weaker returns. Shiller’s findings gained particular attention because his book was published just as the dotcom bubble burst, and US markets – which had never been more overvalued on a Cape basis – collapsed.

However, despite this apparent prescience, it’s important to note that Cape is not a tool for market timing. The US market has been expensive on a Cape basis for several years now, for example. Instead, it is a useful measure to look at when trying to find markets that have the potential to outperform in the long run.

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When most investors put money in the stock market, they go “long”. That is, they buy shares in the hope that the price will go up. Short selling is the opposite of this – it’s a method of profiting from a share price going down.

Here’s how it works: a short seller borrows the shares from someone who already owns them (usually a fund manager) – the fund manager is happy to lend the shares to the short seller, because they get a fee in return for the loan. The short seller then sells these shares in the open market. If things go according to plan, the share price falls and the short seller can then buy the shares back at the lower price, return them to the lender, and pocket the profit.

So, for example, say you want to bet that the share price of Dodgy Widgets plc is heading for a fall. You borrow 10,000 shares from a friendly fund manager, and sell them at £1 a share. So you now have £10,000, but you owe the fund manager 10,000 shares. Thankfully, Dodgy Widgets issues a profit warning later that month, and the share price falls to 80p per share as a result. You buy 10,000 shares back for £8,000. You return the shares, and keep your £2,000 profit (less your borrowing fee).

Professional short sellers try to hunt down companies with weak business models, and bet against them. Managements don’t like being challenged in this way, so short sellers are often maligned. But in fact they provide a valuable service, and sometimes help to reveal the truth about an overhyped or downright fraudulent company.

Shorting is also far riskier than being “long”. If you buy a share, then the worst that can happen is that the share price goes to zero, and you lose all of the money you invested. But with short selling your losses are technically unlimited, as there is no ceiling on how high a share price can rise.

In our previous example, if Dodgy Widgets hadn’t warned on profits, but instead said that it was set to make much more money than expected, sending the share price higher, then our short-seller would still have to buy the shares back in order to return them. In this case, they would be looking at a hefty loss.

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What is a Spac?

Spac stands for “special purpose acquisition company”. The key difference between a Spac and a normal company is that the Spac has no business of its own. Instead, its sole purpose is to raise money via an initial public offering (IPO – ie, joining the stockmarket) and then use that money to buy an existing private company or companies.

For this reason, Spacs are also known as “blank cheque companies” in the US. In the UK, they’d more commonly be described as “cash shells”.

Spacs have been around for some time, but they have erupted in popularity (and controversy) in recent years. For example, in 2009, only one Spac came to market, and even in 2019, the number was only 59 (according to data from Statista).

By contrast, nearly 250 Spacs were created in 2020, raising $83bn. And in 2021, that number surged to more than 600 Spacs, raising more than $160bn, according to industry website SpacInsider.

Big names that have gone public via the Spac route include Virgin Galactic and US sports and gaming group DraftKings.

So what is a Spac and how does it work?

A Spac is usually put together with the aim of buying a company (or companies) in a specific sector. The founders may be experts in the area, although as the popularity of such vehicles has rocketed, many are now associated with celebrities or other well-known figures, with everyone from US cook Martha Stewart to former president Donald Trump backing Spacs in recent years.

Once it has listed, the Spac generally has two years to find a deal or target to spend the money on. If it doesn’t then it has to return the cash to shareholders. Investors in Spacs can range from members of the public to big private equity firms and hedge funds.

What are the advantages?

Spacs have numerous benefits compared to traditional IPOs – at least, for the companies involved. The main advantage is time – Spacs allow private companies to go public much more quickly than via a normal IPO process. Another selling point is that being bought by a Spac saves on the hassle and paperwork of an IPO, and it’s also less costly.

As Martin Szydlowski, assistant finance professor at University of Minnesota Carlson School of Management, points out, Spacs “avoid the use of an underwriter, making it cheaper”. Spacs are also less tightly regulated, particularly in terms of the information they have to disclose to investors.

What are the biggest risks?

For an investor, Spacs come with plenty of risks. Perhaps the biggest is that investors do not know what their money is going to be spent on, so they are often taking a leap of faith when investing in a Spac.

Spacs also have a record of disappointing. According to one study by the European Governance Institute, “Spac share prices tend to fall by about a third of their value within a year of their mergers,” notes Rana Foroohar in the Financial Times.

This view is echoed by Szydlowski: “In the last decade, Spacs have been performing poorly in the stockmarket, leaving investors with substantial losses and alarming regulators… Some research suggests Spacs release excessively optimistic projections of future value, which influences retail investors who overvalue the shares.”

Partly as a result of this, Spacs have been coming under greater regulatory scrutiny. For example, the US Securities and Exchange Commission’s chair, Gary Gensler, warned in December 2021 that he wants to introduce tougher rules for the sector early next year.