There are now 3 example available to subscribers: adventurous and cautious growth and one suitable for a regular income withdrawal.
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I will add an ethical portfolio next.
Education
It’s not cricket!
Talking about India – ups and downs
I am a follower of cricket and of course the highly regarded Indian cricket team is touring in the UK at the moment. England came out top of the one day international series but it was a good fight. India is also seen as a rapidly developing emerging investment market and has been a destination for large flows of investment funds in recent years. Of course, Brits know that Indian businesses can be large operations with multi national subsidiaries these days owning chunks of British industry, including such gems as Jaguar Land Rover.
Why I don’t buy individual listed shares
ASOS
I notice today that shares in the on-line retailer ASOS fell 11% or so when it announced it was only going to grow sales by 25%. This is classically what happens when a share is priced on the basis of future profits growth, not current earnings. So although ASOS sells clothes, its shares are valued more like a tech company.
A little basic analysis
Bloomberg, the market data and analysis business, is estimating that profits at ASOS might make GBP100 million this year. Not bad, but not much on a market capitalisation of over GP4 billion. The price to earnings ratio published in over 70! Norms are in the range 10 to 20, by the way.
I also read that the company will spend about 3 times the profits estimate on new warehousing capacity (not in the UK, of course, because of Brexit). I did not quickly find out where it gets the money to pay for that.
A graph of the share price shows that investors who bought in after the last price crash would have done very nicely, but in my view the valuation is propped up by momentum not any recognised sign of good value or dividend prospects. You get a 1% or so yield for taking a huge risk.
Many of the shares will be held in large blocks by investing institutions and if they sell off the momentum reversal will see the price fall like a stone. A 50% loss is more than feasible, although I have no way of knowing that will actually happen. I am just using this as a classic example.
But maybe…
Some might think that the past results, the quality of the management, the changes in shopping patterns or similar mean that the share price has further to go. In the near term, that could be right. I would prefer that call to be made by a professional fund manager with access to all the latest data and maybe the opportunity to talk to the company’s top management. Best of all, I would like my fund manager to have bought the share after the last price collapse and now sold out on a large gain!
11% down?
Personally, I could tolerate my portfolio falling 11% over a few weeks in the event of a global stock market correction – what is called systemic risk, because I know that will be reversed over time and I can live on my reserve assets. But losing 11% in a day and maybe much more permanently is not a risk I think anyone should take without having plenty of other resources. I will be sticking to my portfolio of diversified funds.
Christmas is coming soon – in my opinion
What! I hear that reaction as the UK weather simmers away at heat wave levels.
I am referring to the comment I posted on social media in the very early hours of the day when the Brexit referendum vote result was known – “The turkeys have voted for Christmas”.
In religious calendar terms, we are now in Advent and the first window on your calendar reveals the resignation of the entire Brexit department ministry.
What I meant by my comment was that the people who had the strongest grievance with the EU (for example, over open borders and immigration or the Common Agricultural Policy or social rights legislation), are not in fact the editor or owner of the Daily Mail nor Tory MPs who went to Eton, but actually ordinary working people who can’t get to see the doctor in East Anglia, or farmers in Wales or Dorset who don’t understand why the EU “dictates’ how they ought to farm, or Labour party members seeing wages suppressed by the employment of Eastern European workers. These people would be worse off because of the certain economic consequences of breaking up the Single Market and also in my judgement at risk of being worse off because of the substitution of US style capitalism for the more socially balanced European version.
I think the fact that the ‘turkey farmers’, the big international employers, are now telling bluntly how difficult it will be to operate out of the UK without a customs union is some evidence that my assessment was correct. There are other proofs that are beyond the scope of this post.
As I have written before, the long term interests of the UK (or at least England) might just be best served by Brexit (although I would not bet on it). As J M Keynes said – in the long run we are all dead.
To be clear (I could not resist using Mrs May’s word whisker), I do NOT believe that the EU does not need substantial reform, as do most of the members of the European parliament (except curiously the right wing parties who one assumes are all expecting it to disintegrate completely!). The Commission is far too powerful, agricultural policy is at times bonkers and the bureaucracy needs trimming. Unlimited immigration has undesirable social consequences: that is self evident (ask any Italian if you want another viewpoint). But equally the idea of the EU has huge merit in economic, social and peace keeping terms. So I would personally have preferred a more Maggie Thatcher approach – use British clout to get genuine reform from within.
Since I posted my highly pessimistic reaction to the vote, things have got worse. Many billions have been withdrawn from UK investment funds. The Conservative party looks to be heading towards the disintegration that John Major staved off with difficulty (ultimately assisted by one A Blair!) and which David Cameron naively tried to fix with the referendum proposal. Instead of UKIP, we now have the UKIP wing of the Tory party.
This represents political risk at the highest level for investors because this time the consequences of the politics are hard wired to the economics and the business effects. Boris may want to abuse business, but big business runs the capitalist world – not him. His ignoring business suggests to me he may be descended from King Knut.
I am not entirely pessimistic for investments in the UK in that what I am expecting is disruption, some specific negative consequences but then a rebalancing of the flows of business capital. Jobs will leave the UK for Eastern Europe (I can already see that from where I sit now) and that will reduce immigration from the more developed places like Poland, Czech Republic, Hungary and the Baltic States as the better educated citizens of those countries get jobs at home. Possibly some deals will be done with the US that might not have been done before, but I would expect that to be a matter of the UK buying more stuff from the US, not better jobs for UK workers – anyone who has worked on employee benefits for US owned businesses knows well that they screw every ounce of value from their employees.
Very close attention needs to be paid to portfolio composition and stock selection. Places like Japan and India that have large internal markets and are not hugely impacted by UK and US politics might be safer investment havens than would commonly be the case!
I will no doubt return to this subject over the coming weeks.