20 Apr 2020

Just as I failed to forecast the 30% fall in stock markets, I also never expected the reaction to Covid-19 to begin to diverge along traditional political lines. Life is just one bloody surprise after another these days. It turns out that people on the right, among whom for this exercise I number myself (though see below) think that national lockdown and uniform loss of personal liberty is a dangerous and irrational reaction to a pandemic that primarily targets the old and medically vulnerable. The economic cost is probably both huge and beyond the understanding of the people who are taking medically-driven decisions. People on the left are more likely to worship the NHS and to think that protecting it is worth any cost. They think that complaining about job losses and more trivial inconveniences is in extremely bad taste and that “we’re all in it together” is the right spirit. Though we’re not all in it together because the virus discriminates against some groups that the left favours, including, of course, frontline medical workers and ethnic minorities. The numbers say that the real victims of viral discrimination are the elderly and particularly elderly men. Unfortunately their care is not funded by the NHS and even a 99 year old man walking around and around his garden is not raising money for them. These are not groups that appeal much to the left because, on average, they tend to vote the wrong way. Remember the calls for a second Brexit referendum in 2019 because it was felt that enough Leave voters might have died to reverse the decision? These are all relatively (I use that word carefully) mainstream views. Criticisms of China and the WHO, though contentious, fall under the same heading. But there are plenty of extreme conspiracy theories. Round up the usual suspects. “Since the beginning of the COVID-19 pandemic, there has been a significant rise in accusations that Jews, as individuals and as a collective, are behind the spread of the virus or are directly profiting from it.” Moshe Kantor, president of the European Jewish Congress. Some people seem to think Covid-19 is our punishment for screwing with God’s planet, which...

2 Oct 2013

The FTSE rose by 3.9% in the quarter (Q1 +8.7%, Q2 -3.0%) meaning that year-to-date it is +9.2%. I didn’t recommend a single new share in the quarter. This is partly because I was away in France, but is also because no compelling new ideas turned up. City analysts are expected to come up with recommendations (usually ‘Buy’s) regularly but real people don’t have to. To some extent, this reflects my current view of the stock market. The most likeable companies are generally priced accordingly. As I mention repeatedly, value is always relative and shares must always be compared to other asset classes. On that basis, there is not so much to worry about. UK house prices are creeping higher from unaffordable levels, encouraged by the government’s reckless Help to Buy scheme. (I heard the PM complain that the average income is unable to buy the average house. You might think that the solution is to raise the average income or lower the average house price or preferably both, but the answer from our government is to play “let’s pretend” and to forward the problem into the future, as usual). With growing numbers of people hooked up to the life support of the 0.5% Bank Rate, the chance of regular savings accounts bidding for your money are also about 0.5%. The only practical rival to equities in Q3 was, surprisingly, government bonds. On 10 September I recommended one. UNITED KINGDOM 1 3/4% TREASURY GILT 22 was trading at 92 then. This is an investment to tuck away for the long term but in the short term it has risen to 93.78, which, for a gilt, is pretty exciting. Shortly before the end of Q2 (12 June), I suggested a yield portfolio of twelve shares. From that date, they have returned 6.1% (including dividends) against 2.3% for the FTSE. So my implied caution has worked out quite well. The only stinker was Ladbrokes, thanks to a profit warning derived from its concerning failure to manage its online business. That having been said, its cash flow remains good and it has pledged to maintain the dividend. Today (167p) it yields more than 5% so I am,...

12 Jun 2013

Investment is betting on probabilities, not on outcomes. How can we judge if the probability of an event is over-priced or under-priced? Do not try to guess the probability of an outcome with a view to pricing it. Do ask when the price is telling you about the probability – then ask yourself if this is reasonable. For obvious reasons, investors are now very interested in dividend yield but they also have reasons to be worried about the stock market. Commentators seem to be evenly split between those who are looking down and suffering vertigo and those who say that equities continue to offer attractive value compared to what else is on offer. According to my own investment rules, you will find me in the second camp for as long as that proposition continues to be true. Dividend yields are as reliable a measure as any for judging what the market thinks of a company. Then, as the quotation from my fourth investment rule (Probability) says, we can ask ourselves whether this is reasonable. Below is a table of current dividend yields from shares that I follow. There is a wide range which, if the market is efficient, should tell us that we can choose between relatively safe companies with relatively low yields and relatively risky with commensurately high returns. Before I discuss any individual stocks, I will characterise what these various yields imply.     Price Yield BG 1165 1.4% Fuller Smith & Turner 925 1.5% Domino’s Pizza 670 1.5% Travis Perkins 1520 1.6% Experian 1175 1.9% Regus 165.00 1.9% Home Retail Group 152 2.0% Diageo 19.15 2.2% Interconti Hotels 1835 2.2% Smith & Nephew 755 2.3% Rentokil 88 2.4% Millennium 549 2.5% Cranswick 1120 2.7% Stage Coach 287 2.7% Kingfisher 344 2.8% Hays 90 2.8% BT 312 2.8% Synthomer 194 2.8% Sage 348 3.0% Rexam 505 3.0% Micro Focus 659 3.1% Unilever (€) 31.4 3.1% Reed 736.0 3.1% Tate & Lyle 811 3.2% Greencore 130.00 3.3% St Ives 160 3.3% Greene King 750 3.4% Debenhams 92 3.6% Morgan Crucible 277 3.6% M&S 448 3.8% Pearson 1173.0 3.8% UBM 690.00 3.9% Mitie 253 4.1% Costain 254 4.2% Tesco 343 4.3% Marstons 142 4.4%...