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U.K. property funds with about 18 billion pounds ($23.4 billion) of assets froze withdrawals as investors sought to dump real estate holdings in the aftermath of Britain’s vote to leave the European Union.

“It’s reminiscent of Bear Stearns’ subprime funds before the Lehman debacle,” Bill Gross, a fund manager at Janus Capital Group Inc., said on Bloomberg TV. “The system doesn’t allow liquidity to flow into the proper places. If these property funds are just one indication, perhaps there will be others to follow. I think it’s something to worry about.”

Henderson Global Investors, Columbia Threadneedle Investments and Canada Life suspended trading in at least 5.7 billion pounds of funds on Wednesday. Aberdeen Fund Managers Ltd. cut the value of a property fund by 17 percent and suspended redemptions so that investors who asked for their money back have time to reconsider. Legal & General Group Plc said Thursday it is adjusting the value of its 2.3 billion-pound property fund by an additional 10 percent.

Investors are pulling money from U.K. property funds as analysts warn that London office values could fall by as much as 20 percent within three years of the country leaving the EU. During the financial crisis of 2007 and 2008, real estate funds were similarly hit by redemptions and forced to halt withdrawals, contributing to a slump in property prices of more than 40 percent from their peak in Britain.

Wednesday’s moves brings the number of U.K. firms curbing redemptions to seven since the June 23 vote. Henderson said Wednesday it had temporarily halted its 3.9 billion-pound U.K. Property PAIF fund along with feeder funds due to “exceptional liquidity pressures” and the recent suspension of other funds. Columbia Threadneedle halted its 1.39 billion-pound PAIF and feeder funds and Canada Life froze four funds totaling 450 million pounds.

“The problem with open-ended funds is you do start to have panic selling, so you really have no choice but to suspend the fund,” said Jason Hollands, managing director at investment firm Tilney Bestinvest. “There’s an inevitability to this now.”

‘Penal Consequences’

Aberdeen, which marked down the value of its 3.2 billion-pound U.K. property fund, said it was halting withdrawals for 24 hours as of noon Wednesday so clients who asked for their money back have time to reconsider their orders.

“Shareholders wishing to redeem will do so at a price which is subject to the above dilution adjustment in order to reflect the current market environment and the fact that short-term trading in the property market has relatively penal consequences,” the firm said.

With the real estate tremors echoing the last financial crisis, the growing fear is that failure to control aftershocks from the Brexit vote will propel the economy into recession. The pound sank to a fresh 31-year low as the fallout continued to reverberate through financial markets.

“We can’t ignore what’s happening from a redemption request perspective or the closing perspective,” Wayne Bowers, chief executive officer of the international asset management arm of Northern Trust Corp., which manages about $900 billion of assets, said in an interview in Sydney. “You can’t brush that under the carpet. Then you’re looking at other assets that are under, or are potentially under, similar pressure.”

Cash Levels

Investors pulled money from real estate funds in the lead up to the vote, depleting cash levels. Standard Life Investments was the first money manager to halt withdrawals on Monday, followed by Aviva Investors and M&G Investments. About 24.5 billion pounds is allocated to U.K. real estate funds, according to the Investment Association.

There’s “a loss of confidence in the valuations being used” by fund managers, said John Forbes, an independent real estate consultant and former tax partner at PricewaterhouseCoopers LLP who specializes in property funds. “The retail funds had cash and balances in liquid shares” to manage normal levels of outflows, he said.

Aberdeen said its funds had invested in 79 U.K. properties across sectors including retail and industrial.

“The portfolio was positioned defensively prior to the referendum with one of the highest levels of liquidity of all similar funds and having sold all its quoted property companies investments in the week prior to the referendum and holding this as cash,” the firm said.

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There has been and still is the idea that ‘diversification’ is a risk management tool, and to a certain extent, it is. However, diversification linked to leverage, changes that assumption into something very different.

Diversification, of uncorrelated markets, or securities, say Nike common stock and London mortgage securities, would seem prima facie, unrelated or uncorrelated. However a trader who holds these same securities as another trader, now correlates those securities as any trader who holds them becomes linked to every other trader who holds those securities.

When leverage forces you to sell, you sell what you can, not what you should.

Now when selling what you can, that may very well be Nike, and now you have a rush for the exits in Nike, of every trader on margin, who holds London mortgages [or whatever]. In times of stress, all markets and securities are correlated by the traders who hold them. Diversification is a chimera.

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Well I didn’t think it would actually happen, but the UK did actually vote to leave. Of course this is what should have been allowed to happen when the Confederacy wanted to leave the Union.

A referendum is not legally binding, but it would be political suicide not to secede now that it has been put to the vote.

Markets are in turmoil, but, they will settle. There is a buying opportunity here. Maybe not today, but somewhere in the next few days/weeks.

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Many people have heard of the “Marshmallow Test,” Walter Mischel’s famous experiment testing the patience and self-control of preschoolers in the early 1960s. The children were seated next to a table with a marshmallow on a plate, and told if they could wait 15 minutes without eating it they would be able to get another marshmallow. The videos of these cute kids trying to resist the lure of a single marshmallow are as wonderful to watch as they are instructive in how difficult it is to defer gratification; only a third of the children were able to wait long enough to get the second marshmallow.

Interesting for sure but hardly Earth-shaking information. The study would gradually fade into scholarly oblivion and that might have been the end of it for the Marshmallow Test. Then in 2006 Mischel published a follow-up study that tracked the original subjects 40 years later—and those results blew the cover off the ball.

The follow-up study revealed that the children who were able to wait for a second marshmallow ended up with dramatically higher SAT scores, higher GPAs in college, greater earnings during their working life—even lower body-mass indexes—than those children who could not wait. The attributes of patience and self-control were not merely useful in gaining an additional marshmallow, but rather harbingers of a better, richer and more fulfilling life. The Marshmallow Test became a common metaphor for that insight.

In retrospect the lessons seem obvious and self-evident. Given the fact they are ignored regularly by so many people, one would wonder which is more notable—the lessons or the irrational behavior? Of course I am not talking about 5-year-olds. I am talking about full grown adult investors who understand the value of patience and deferred gratification, but are simply incapable of putting into action what they know in their heads.

Being a patient investor does not mean you are absolutely certain about the future or that you have to ignore current events. Being a patient investor means that you are discerning enough and willing enough to accept the kinds of risks whose actualization and ultimate repair exist over time periods that exceed the patience of most other investors, and therefore can be exploited for substantial and recurring profit. Experienced investors commonly refer to this as “time arbitrage.”

Because of the growing popularity of behavioral economics, we now understand that we stand in the way of our own success far more often than we realize. Less well-known, but an equally persistent and powerful enemy to our patience, is a side effect of some of the impressive and useful technology most of us rely upon daily to connect to each other and the world; the same technology that has greatly improved our productivity and our lives.

Tech Effect

I was an early adopter of technology. I bought my first PC in 1983, quickly saw the benefits of email, wireless and the Internet, was the first on my block to get a broadband connection, and became completely paperless before the end of the 20th century. I can say with total confidence that I could not run my business with anywhere close to the flexibility, efficiency or effectiveness that these incredible tools have afforded me—and without question my personal life is better as a result of advances that even to this day amaze me.

Yet with every benefit there’s always a cost—and this particular cost was one I could never have imagined.

I’ve always been an avid reader. About four years ago I noticed that my normal capacity to spend long hours of uninterrupted reading was just not there anymore. I assumed it was because I was getting older. About the same time I read Nicholas Carr’s book “The Shallows.” Carr related that his ability to concentrate wasn’t what it used to be and his long reading spells were becoming non-existent.

He wrote: “The very way my brain worked seemed to be changing…. I began worrying about my inability to pay attention to one thing for more than a couple of minutes…. [M]y brain, I realized, wasn’t just drifting. It was hungry. It was demanding to be fed the way the Net fed it—and the more it was fed, the hungrier it became.”

What Carr was discovering was something that neuroscientists had been observing for years. The brain has plasticity: It can be trained to change—and not necessarily in positive ways. Carr noted that “the more we use the Web, the more that we train our brain to be distracted—to process information very quickly and very efficiently but without sustained attention.”

A 2009 study by Ball State University revealed that Americans spent over eight hours of their day looking at television, a computer monitor, tablet or smart phone—often a few of them at the same time. Carr wrote: “The shift from paper to screen doesn’t just change the way we navigate a piece of writing. It also influences the degree of attention we devote to it and the depth of our immersion in it.” Blogger Cory Doctorow labeled it an “ecosystem of interruption technologies.” The natural result of our spending so much of our waking hours in “screen time” is that our brains are creating new pathways, ones that allow us to feel comfortable and competent in an environment that provides us with quick answers, endless variety and limitless distraction.

Is there benefit to this? Without a doubt. I did my research for this column with incredible efficiency—accessing research, news articles, opinion pieces and data in a few hours; something that previously would have taken days, even weeks. But if I hadn’t taken the time to read Carr’s book—putting it down, letting the ideas settle and then coming back to them—my understanding of the nuances of his arguments, or how they connect to other ideas, could never happen.

Unless we retrain our brains to become accustomed to deeper kinds of thinking, today’s online, on-screen, always connected world will continue to reinforce our brains’ very happy existence in the shallow end of the intellectual pool.

Investment Obstacle

An implication of Carr’s argument for us is clear: It will be increasingly difficult for investors to build the kind of foundation robust enough to withstand the powerful challenges markets inevitably pose to our deepest held convictions. And with our attention spans cut so short, the odds of time arbitrage or any long-term strategy hitting our radar screen seem increasingly remote.

Even if Carr’s argument turns out to be completely baseless, we’re not off the hook. The media regularly bombard us with this recurring and repetitive message: “What is happening right now is really important—and you need to do something about it!” The world we live in incents us to keep our attention squarely on the issue du jour.

Anyone who has been physically active knows that you can’t run a marathon unless you seriously train for it—the strength, the endurance and the aerobic capacity require time and effort to build. And while I can attest to the fact that at some point in the race, it becomes mind over matter, you can’t run a marathon without the physical preparation.

Similarly, the intellectual preparation needed to have the kind of robust patience necessary to execute and sustain a “buy and hold” strategy involves much time and effort—but as we know instinctively and empirically, the effort is worth it. Especially when the all-too-common alternative is the “buy and hope” gambit—and we know how that turns out.


With that in mind, here are what Herring calls the Ten Golden Rules of Argument.

1. Be prepared

Make sure you know the essential points you want to make. Research the facts you need to convince your opponent.

Also, Herring advises: “Before starting an argument think carefully about what it is you are arguing about and what it is you want. This may sound obvious. But it’s critically important. What do you really want from this argument? Do you want the other person to just understand your point of view? Or are you seeking a tangible result? If it’s a tangible result, you must ask yourself whether this result you have in mind is realistic and whether it’s obtainable. If it’s not realistic or obtainable, then a verbal battle might damage a valuable relationship.”

2. When to argue, when to walk away
I’m sure you’ve had an argument before and later felt that it was the wrong time and place. “Knowing when to enter into an argument and when not to is a vital skill.”

Think carefully before you start to argue: is this the time; is this the place?

3. What you say and how you say it

Spend time thinking about how to present your argument. Body language, choice of words and manner of speaking all affect how your argument will come across.

One clever thing to do here, that shows you’ve done the work, is to address the arguments against your position before they arise.

4. Listen and listen again

Listen carefully to what the other person is saying. Watch their body language, listen for the meaning behind their words.

As a general rule, Herring writes, “you should spend more time listening than talking. Aim for listening for 75 percent of the conversation and giving your own arguments 25 percent.” And listening doesn’t mean that you’re thinking about what you’re going to say next.

This is often where a lot of arguments, and discussions for that matter, veer off course. If you’re not listening to the other person and addressing their statements, you’ll just keep making your same points over and over. The other person won’t agree with those and the argument quickly becomes frustrating.

5. Excel at responding to arguments

Think carefully about what arguments the other person will listen to. What are their preconceptions? Which kinds of arguments do they find convincing.

There are three main ways to respond to an argument: 1) challenge the facts the other person is using; 2) challenge the conclusions they draw from those facts; and 3) accept the point, but argue the weighting of that point (i.e., other points should be considered above this one.)

6. Watch out for crafty tricks

Arguments are not always as good as they first appear. Be wary of your opponent’s use of statistics. Keep alert for distraction techniques such as personal attacks and red herrings. Look out for concealed questions and false choices.

7. Develop the skills of arguing in public

Keep it simple and clear. Be brief and don’t rush.

8. Be able to argue in writing

Always choose clarity over pomposity. Be short, sharp, and to the point, using language that is easily understood.

9. Be great at resolving deadlock

Be creative in finding ways out of an argument that’s going nowhere. Is it time to look at the issue from another angle? Are there ways of putting pressure on so that the other person has to agree with you? Is a compromise possible?

10. Maintain relationships

This is absolutely key. What do you want from this argument? Humiliating, embarrassing or aggravating your opponent might make you feel good at the time, but you might have many lonely days to rue your mistake. Find a result that works for both of you. You need to move forward. Then you will be able to argue another day.

Another approach to end arguments is to simply ask the other person to explain their thinking.

How to Argue goes on to explore putting the rules into practice in particular situations where arguments arise.

The perceptual ambiguity of wine helps explain why contextual influences—say, the look of a label, or the price tag on the bottle—can profoundly influence expert judgment. This was nicely demonstrated in a mischievous 2001 experiment led by Frédéric Brochet at the University of Bordeaux. In the first test, Brochet invited fifty-seven wine experts and asked them to give their impressions of what looked like two glasses of red and white wine. The wines were actually the same white wine, one of which had been tinted red with food coloring. But that didn’t stop the experts from describing the “red” wine in language typically used to describe red wines. One expert praised its “jamminess,” while another enjoyed its “crushed red fruit.”

The second test Brochet conducted was even more damning. He took a middling Bordeaux and served it in two different bottles. One bottle bore the label of a fancy grand cru, the other of an ordinary vin de table. Although they were being served the exact same wine, the experts gave the bottles nearly opposite descriptions. The grand cru was summarized as being “agreeable,” “woody,” “complex,” “balanced,” and “rounded,” while the most popular adjectives for the vin de table included “weak,” “short,” “light,” “flat,” and “faulty.”

Nothing really need be said. These types of errors crop up so frequently, in so many areas of life, it is truly amazing that we get anything done.

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