Report on Q1 2013

Report on Q1 2013

26 Mar 2013

I will review the success of my own advice every quarter because it looks like a good discipline and it feels like the chance to brag or whine, both of which could be satisfying.

First, the share tips. My first ever post in November suggested that Enterprise Inns was probably worth more than 67p and suggested 120p as a possibility. Today’s price of 109p (+63%) is a nice slice of beginner’s luck. Then I suggested that Marks & Spencer could not justify a share price of 400p unless it was a takeover play. The takeover talk faded and the shares fell. Then the takeover talk restarted and it popped up to 400p again. My opinion is that it is too messy to be a plausible target but never say “never”.  In January I recommended ICAP at 327p. It had a decent jump on news of slightly better trading but then fell back when it was linked with the Libor “scandal”. So it is basically unchanged and still appears to yield 7%, albeit now with a “known unknown” risk. Then I tipped Home Retail Group, which jumped while I was writing about it. I’m chuffed to say that it has jumped again. It was 122p when I started writing about it, 140p when I published and is above 155p now. So far, so good: I expect it to go further.  Then in February I recommended Go-Ahead at 1367p. That has also lived up to its name and has risen by 8% including its half-year dividend. Obviously these triumphs are not unconnected to the fact that the FTSE rose by c.8% in the quarter.

Now, the other posts. The student sub-prime loans are designed to blow up in 20 years, which is when my “model” student will start to reduce his outstanding debt. The guilty should be out of sight by then. Interestingly, RPI (now 3.2%), which is the driver for the increase in interest on the loans that students took for the first time this year (RPI +3%), will no longer be designated as a national statistic” according to the United Kingdom Statistics Authority. When I say “interestingly”, what I really mean is that I have no idea what this means, but I advise anyone who borrows £54,000 over three years to continue to expect to owe c.£57,500 when they leave college.

In January, I came to the conclusion that the UK housing market is not a good investment: though it could at least hang on in there, for as long as interest rates stay low. In January, national (England and Wales) rose by 1% year-on-year.

On the subject of interest rates, in February I called an end to the bull market in gilts. So far, I was wrong. Despite a sovereign credit rating downgrade and a warning by Liam Fox about the size of the national interest bill, UK government bonds are still being treated as a de facto haven. This worries me because, as I wrote, today’s gilt yields “are consistent with an economic slump that lasts a generation”. What concerns me more is that bond markets seem to have a better predictive history than equity markets.

In March I protested about the re-emergence of share buy-backs. The merited surge of popular support for my view has yet to materialise.

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