Showing posts with label opportunity of a lifetime. Show all posts
Showing posts with label opportunity of a lifetime. Show all posts

Friday 2 December 2011

“Investing is simple but not easy.”


Why? Because stock markets are in business to discount the future; not act as a means of recording the present or the past.
Obviously, the credit crunch is very bad news for thousands of people who will lose their jobs and homes before the economic cycle turns up again – as it will, unless this really is the end of the world. But, much less obviously, the current crisis also presents opportunities for people who remain in work and do not need to spend everything they earn.
If that sounds somewhat hypothetical, then bear in mind what has happened since I made similar points in an article that appeared in last Saturday’s newspaper under the headline: ‘Why not buy before share prices rise?’
That piece was written on Thursday last week as the FTSE 100 index closed at 5127. As I write this, it’s trading at 5541 or 414 points higher.That’s an increase of just over 8pc in one week.
You may very well say that paper gains are neither her nor there and, as a long-term investor, I would agree. But they are better than starting with a loss – and 8pc is more than most deposit accounts will pay in two years at current interest rates.
Here’s what that article said: “After the FTSE 100 index of Britain’s biggest shares suffered its longest losing streak in nearly nine years, it might be profitable to remember that the best time to invest is when you least feel like doing so.
That is the counter-intuitive message of the graph on this page, which shows how most investors do the exact opposite. They chase shares and equity-based funds when stock markets are expensive and shun them when they are cheap.
They buy with both hands at the top of the cycle and then sell out at the bottom. Needless to say, that is also the exact opposite of the way to make a profit; which is to buy low and sell high.
It ain’t rocket science but it isn’t easy to put into practice either. Humans are herd animals and it is difficult to buy when everyone else seems to be selling, even if you suspect that predictions of the end of the world will prove exaggerated, as they always have done in the past.
Or, as the multi-billionaire Warren Buffett puts it: “Investing is simple but not easy.” Tom Stevenson, a director of Fidelity Investments – and late of this parish – blames the media: “People seem to react to the overall market mood, particularly as expressed in the media. When the market is moving higher, the headlines are positive and this results in positive net sales.
And vice versa. During the 1999-2000 technology bubble, retail investors were sucked into the market in vast numbers when share price rises went exponential in the final throes of the mania.”
Many of today’s worldly-wise media bears were raging bulls back then. Now some of the shrewdest stock pickers in the world say the pessimists of today are as wrong as they were a decade or more ago when they were optimistic about the outlook. More specifically, Mr Buffett has become one of the biggest shareholders in IBM after a lifetime of avoiding technology shares.
At the risk of moving from the sublime to the ridiculous, this came as particularly good news to your humble correspondent because I had picked up some technology shares for my self invested personal pension (Sipp) in August. Back then, the FTSE 100 had fallen by 15pc in a fortnight and it seemed like a good opportunity to buy into an investment trust I had been following for more than a year.
So I bought some Polar Capital Technology shares at 301p and – even though the FTSE has fallen by more than 7pc in the last month – Polar Technology was trading around 325p this week. Of course, I have no idea where these shares or the FTSE will be next week or next year – but I have no intention of cashing in my Sipp next week or next year.”
Now, as then, that remains true. But, as mentioned earlier, it is better to start with a gain than a loss. Polar Capital Technology is currently trading at 329p, which is good news for my pension in a week of bad news for most people’s retirement plans.
Many may consider it in the worst possible taste to say such things and to refuse to join in the chorus of doom and gloom. But I think it’s more interesting to take an opposing view; even on something as serious as the credit crisis. And, as the facts above demonstrate, it can be more profitable too.

Wednesday 17 June 2009

Stock market: opportunity of a lifetime or priced for a depression?

Stock market: opportunity of a lifetime or priced for a depression?

By James Bartholomew
Published: 10:45AM GMT 09 Mar 2009

These are the two messages investors are hearing simultaneously these days: the first is: "Watch out! The recession is getting to look more like a depression. Safety first. Avoid shares and anything with the slightest risk."

The second is: "Shares are ridiculously cheap. This is the opportunity of a lifetime. Do you want to look back at this time and reflect that you funked it? Buy now!"

So investors are pulled one way and then the other. Let us not pretend it is easy. If possible, one wants to have one's cake and eat it – to finesse the problem by having exposure to shares but, at the same time, owning ones that might hold up even if things worsen.


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The trouble is, lots of people are trying to do the same, so anything that looks pretty safe gets a much higher rating than companies that could get into trouble.

The safest ones are often in sectors where it will take a lot to destroy demand. People are always going to want to eat, and will probably want to drink, too. We are going for "the bare necessities of life".

Fortunately, the stock market is so low that, even among such safer companies, shares are clearly good value for the long term. It would be easy to make a little portfolio of relatively reliable companies with modest, but perhaps sustainable, dividend yields. It could include Associated British Foods at 622p on a prospective yield of 3.3pc, British Sky Broadcasting at 452p on a yield of 3.9pc and, say, Tesco at 310p on a yield of 3.7pc.

I prefer to go for smaller companies where I believe share prices are cheaper and potential gains bigger. I have been buying back into REA Holdings, which has a palm oil plantation. Palm oil is used, among other things, as a basic foodstuff.

I have also held onto my stake in Staffline, which provides "blue-collar" labour for a variety of industries, but especially food processing. Staffline produced its annual results this week and they were a perfect illustration of how results announcements have changed.

Press releases of results often start with "Highlights". Twelve months ago, companies shone light on their growth and expansion. "Highlights" were full of bold ambition. Now, the greatest boast a company can make is that it is safe and won't be closed. On Tuesday, Staffline announced its "gearing" – borrowing as a proportion of the shareholders' net assets – had fallen from 28pc to 24pc.

In the old days, companies were criticised if they borrowed so little. They were accused of "failing to make full use of their capital base". Now, low borrowing is absolutely the fashion (except for the Government).

Staffline went on to trill about how the cost of its interest payments had tumbled by a quarter and that these payments were covered a wonderful 10 times by profits. The message was "we have been prudent, we are safe and our bankers are happy". The shares rose 15pc.

Many people feel big companies are safer than such small ones and I don't blame anyone wanting to feel safe. But small companies, as a generality, are much cheaper than large ones at the moment. They also have greater scope for growth. And, after Royal Bank of Scotland, surely no one is confident that size guarantees safety.

I don't hold any particular torch for Staffline, but it is a good example of what I see among plenty of small companies. Its share price, as I write, is 27p, a mere 2.5 times the earnings per share last year. That is seriously cheap. Over the long term, a rating of at least four times that would be normal.

A broker forecasts that its profits will fall this year but only by a little. The historic dividend yield is terrific at just over 10pc. Yes, the dividend could be reduced next year but probably not by much.

It does seem like the opportunity of a lifetime and one might be tempted to fill one's boots with the shares of companies like this.

The only thing that holds me back is the echo of the other message: that the economy is sliding down so fast and unpredictably that one should keep at least some cash in reserve.

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4961165/Stock-market-opportunity-of-a-lifetime-or-priced-for-a-depression.html