Fools rush in...

Friday, Aug 05 2011 by
15

Well, it's "kiddie in sweetshop" time for me.

Maybe I'm being way premature, and maybe the global economy is falling off a cliff, but I see lots of apparent bargains out there.

There is a fascinating piece on excess cash sloshing around the system, suggesting to me that at some point stocks will be bought heavily:

...Custodian banks are hurting because it’s near impossible for them to return even a zero rate on large deposits of cash. There’s simply not enough Treasury bills out there, which is why they are trading at negative rates causing all sorts of dysfunction at money market funds.

It’s natural, therefore, that they would eventually start charging for a service that is costing them — as Bank of New York Mellon announced it would start doing on Thursday...

...Which suggests the next obvious step for the Fed is to declare an official negative interest rate policy, or a national imposed tax on deposits of a certain sum.

It’s what Switzerland, by the way, has also heavily hinting it will do if the Swiss franc remains “massively overvalued”.

And yes, if you think that’s effectively nothing more than a wealth tax on the extremely rich, you’d be extremely right. Unfortunately, it might just be the incentive needed to get hoarded cash circulating through the economy once again...

 Special Offer: Invest like Buffett, Slater and Greenblatt. Click here for details »

This morning, I have bought:

  • Encore @ 43p [75p's worth of assets + upside, I reckon]
  • Braemar Shipping Services (LON:BMS) @ 400p [7% yield - BMS hardly suffered during the GFC, despite trade freeze up, so I reckon resilient]
  • JPMorgan Indian Investment Trust (LON:JII) @ 377.5p - lowest level since May 2010 - and has the Indian economy gone backwards in that time?

All additions to existing holdings. I have my eye on a few others (Vodafone (LON:VOD) , Rit Capital Partners (LON:RCP) , Medusa Mining (LON:MML) , HG Capital Trust (LON:HGT) ), but they're not quite cheap enough yet...

I would be buying more Halfords (LON:HFD) (7.5% yield that I reckon is sustainable & likely to grow - I'll be writing an article in due course) and Aminex (LON:AEX) but added a little prematurely (with the benefit of hindsight) on Wednesday. The aggregate yield on my high-yield sub-portfolio is now 6.9%.

After my spending binge, cash now stands at 11% of my porty - but it should soon receive a boost when the sale of Caledon completes.

So, what are you buying?

Mark


Filed Under: Portfolio Management,

Disclaimer:  

The author may hold shares in this company, all opinions are his own and you should check any statements that appear factual and not rely on them before making an investment decision. The author is NOT a qualified analyst nor authorised to give investment advice. Whilst the author is a director of ShareSoc, all views expressed are entirely his own and not necessarily those of ShareSoc.


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246 Posts on this Thread show/hide all

dodge1664 18th Aug '11 167 of 246
1

In reply to nigelpm, post #166

Forget the silly graphs

A convincing riposte if ever I saw one. If the facts don't fit, ignore the facts...

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nigelpm 18th Aug '11 168 of 246

In reply to dodge1664, post #167


A convincing riposte if ever I saw one. If the facts don't fit, ignore the facts...


The facts are in my post above.

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djpreston 18th Aug '11 169 of 246
3

Nigel

Glad someone else spotted the Autonomy news. That's one hell of a premium they're talking about (60%?). Then again, that's in line with the Google/mobility deal.

Still think that the UK's leading companies, especially the industrial names (such as Morgan Crucible (LON:MGCR) ) are vulnerable here. Industrial names with strong market positions, geographically diversified and cheap. Can't remember the amount but didn't Smiths (LON:SMIN) knock back a bid for its healthcare division early in the year? Even the CEO admits that its a collection of disparate businesses that have no real strategic benefit. Then again, the same can be said of Imi (LON:IMI). Also, weren't the rulers being run over £SN (J&J or someone else) at c800p??

Nope, M&A seems eminently sensible when the bidder has cash, or can borrow at record low rates and buy a business with a double digit FCF yield (before any "synergistic" - lord do I hate that phrase - cost savings?).

Fund Management: European Wealth
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Isaac 19th Aug '11 170 of 246
3

In reply to emptyend, post #163

For the market as a whole I feel that there could well be (much) lower lows to come - or put another way, for me to reinvest my pension money cash in the market only a few years before I may need to draw on it, it would need to be very much cheaper yet...maybe with a 3 handle on the FTSE again. I'm not bothered about losing 1-2% or whatever pa....I think there is a fair chance it will buy more in the future thanks to deflation (in stock prices, if nothing else ;-))

Fully agree....No point buying now if the markets are going lower....These are dangerous markets and for me it is capital preservation over capital appreciation that is important.

Not concerned about inflation in the short term as it is obvious the Fed and central banks are trying to fight deflation. The question is how low will they let markets go before a massive stimulus ?

Sell the rallies is my view, we are going to see 1011 on the S&P in the coming months IMO.

Markets tend to go a lot lower then most expect.....

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emptyend 19th Aug '11 171 of 246
3

In reply to nigelpm, post #166

Hewlett-Packard Co. (HPQ), the world’s largest computer maker, is in talks to buy Autonomy Corp. for about $10 billion and plans to spin off its personal-computer business, people with direct knowledge of the matter said.

And

Autonomy's shares were among the top 10 fallers in the FTSE 100 on Thursday, closing down 8.3% at £14.29.

I'd not be surprised to see a recurring theme over the next few weeks.

People running around in blind panic and thus providing wonderful opportunities for M&A

Oh yes....I also noted that last night Darron!  ;-)

Yesterday they were down 8%...and this morning they are up 77%. That must be a bit painful for anyone who was short, even as part of a basket trade.

The big takeaways for retail investors should be that the Autonomy deal proves that:

  • M&A discussions can take place without ever getting into the public domain (and stock prices) and
  • The price paid for assets IS NOT automatically a case of "market price plus a premium".

I hope that the scribblers on FT Alphaville take those points on board when they discuss Autonomy shortly - but I bet they won't....they'll just marvel at "the premium" - instead of doing what they ought to be doing which is marvelling at a market which can value assets so far below what an industry player will value them at. I made the same point in a different way in another context only yesterday....;-)

ee

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Isaac 19th Aug '11 172 of 246

Barc leading the markets lower again....

 

These markets are fun to watch......! Not if your leveraged though........

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emptyend 19th Aug '11 173 of 246

In reply to Isaac, post #172

Not sure that "fun" is the word I'd use. Crazy might be.

I bought a few Lloyds (LON:LLOY) back in early May at a price which was a third off their highs earlier in the year. Over the summer months, the shares have halved. If I were to get a big lump of cash in the near future, I think I'd be trebling-up....

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tournesol 19th Aug '11 174 of 246
3

The problem is that many if not most share prices now look like terrific bargains. Which means that those we have all regarded as offering great promise are now surrounded by throngs of other very attractive offers. So the relative advantage/attraction of stocks such as Soco is effectively diminished - or at least dimmed. I mean BP at 389p - hard to argue against that proposition as a rock solid long term.

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tournesol 19th Aug '11 175 of 246
2

I am seriously considering selling a few of the stocks I have retained thus far. I am still showing a healthy profit on CEO and am breaking even on STI so would it be wrong to sell both and add the proceeds to the heap of cash under my mattress?

Cash is very definitely king at present.

T

PS
being hampered by on-going IT probs - IE8 and sharescope are attacking in a pincer movement.....

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Isaac 19th Aug '11 176 of 246
1

In reply to emptyend, post #173

Hopefully people now understand why I was making a big fuss about Soco doing a deal......Like you ee I would be a more aggresive buyer of the bargains out there if Soco did a deal.

I am reluctant to part with my cash I have on the sides until FTSE is a lot lower. I would actually prefer a sale of Soco anywhere between £4.50-£6 & I will then look to drip feed the cash back into a diversified portfolio.

I think the markets will grind lower until we get QE.....the markets are essentially asking the FED for QE based on the equity market drops and rise in Gold........QE3 could come in the Jackson Hole speech later this month which could spark a massive rally,...

The high yield dividend paying stocks have held up really well (excluding financials like Aviva) as people tend to buy these stocks because even if markets go lower they are being paid to wait....

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Isaac 19th Aug '11 177 of 246
3

In reply to tournesol, post #175

RG

The stocks I have'nt sold are the ones that are super cheap like BP. and SLG as they have aleady fallen significantly that it does'nt make sense to sell here and have held onto the likes of Soco as there could be a near term catalyst of a deal being done.

Everything else was pruned a couple of weeks back...I will drip feed if the FTSE goes a lot lower from here...

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emptyend 19th Aug '11 178 of 246
3

In reply to Isaac, post #176

Hopefully people now understand why I was making a big fuss about Soco doing a deal

Not really. Obviously I fully empathise with the frustration of having a potentially "near-cash asset" that can't be utilised yet - but there is no point at all in railing on in public about your frustrations. I've made my own views known in private several times in the last few months and (because I'm sure that close attention is being paid to optimising their own substantial positions) I am certain that management fully understand the position and are doing their level best to get the best outcome for shareholders and themselves. Jumping up and down on bulletin boards cannot help that - and may even possibly hinder.

We are, however, entering a phase of the wider market where capitulation may throw up opportunities....but that phase may last longer than some may think?

ee

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tournesol 19th Aug '11 179 of 246
3

Have sold my holding in Coastal which represented 10 % or so of my portfolio and which has crystallised a very healthy profit since I bought it in the coffee break of an Oil Barrel conference earlier this year

And before I am accused of capitulating - of course I'm not, I'm simply acting in a defensive manner which will preserve my resources so I can redeploy them in due course when we reach somewhere a bit more solid than where we are today

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Isaac 19th Aug '11 180 of 246
2

And before I am accused of capitulating - of course I'm not, I'm simply acting in a defensive manner which will preserve my resources so I can redeploy them in due course when we reach somewhere a bit more solid than where we are today

It's your money, you should do what makes you comfortable.....All our circumstances are different. I am comfortable with my current portfolio...

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arkleseizure 19th Aug '11 181 of 246

Out of curiosity, have any of you guys considered precious metals, as opposed to cash, as a hedge against falling stocks?. Is there unanimity that 1800 usd gold is a bubble?.

Disclosure - the only bit of my portfolio that has done well recently has been the precious metal physical ETFs, the rest - mostly small oilers (SIA TLW NPE etc)- has been savaged. Beginning to regret having so much invested in companies that produce stuff (or will imminently) ...

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emptyend 19th Aug '11 182 of 246
2

In reply to arkleseizure, post #181

Out of curiosity, have any of you guys considered precious metals, as opposed to cash, as a hedge against falling stocks?. Is there unanimity that 1800 usd gold is a bubble?.

I'd guess that most have considered it. Some have bought in - and some have consciously not. I'm in the latter camp.....

......the only reason for buying gold is that it is perceived to be the best store of value in an environment where virtually all the world's fiat currencies (except the Swissie) have doubts about them. I don't think there is particular reason to worry about sterling though (given Coalition government policies) and I don't think that gold is the only decent store of value, although it has certainly done the best so far! This topic was discussed elsewhere when the equity market was bottoming in 2009.

One might fairly argue that the portability of gold has increased its attractions in the light of the 2011 insurrections and rebellions, but I think the biggest driver has been the search for safe havens in the context of a US Governmental system that can no longer be trusted to pay its debts (thanks to the recent brinkmanship) - and IMO this is the core issue behind both the recent rises in gold and the falls in virtually everything else.

Gold is however in dangerous territory. I wouldn't be surprised if some concerted government actions or some good reason to think faith is being restored in the US government (or the Euro...or both) were to lead to a sharp $100+ fall in gold prices, followed by a sell-off back to the $1200-$1300 area.  However, I also wouldn't be surprised if governments completely failed to get their acts together and gold continues to pull in fresh punters.....but I won't be one of them (especially since most of the routes to investing in gold either involve an investment in gold-related paper securities or relatively high bid-offer spreads and holding costs.

ee

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arkleseizure 19th Aug '11 183 of 246
1

Thanks for your considered reply EE.

I am not so sanguine about Cameron's fiscal prudence.

I dont see any real possibility of the US defaulting-defaulting, it will simply print the money to satisfy government bond holders; in this sense perhaps Uganda did not default either on Ugandan dollar debt obligations. Nevertheless gold has become more popular than their dollars in that country. Is it remotely possible for western countries to pay off the enormous debts and satisfy huge social spending obligations (while funding various controversial wars)?. How is the private sector going to generate the wealth for government to take as tax? Banking?, manufacturing? NorthSea oil?.

Is someone who buys a physical commodity ETF more a 'punter' than one who buys bombed out high street bank shares?. (Might LLOY have the same fate as BKIR it if PIIGS have a big haircut on bond values, or in the event of a Euro schism?).

I would hazard a guess that the present rise in gold and silver is the run up to a genuine manic phase, a dot com bubble sequel. Hence my side bet on precious metals. I would still prefer to have normal markets, and get rich from the (anticipated) enormous success of my small oil companies. If gold is a barbarous relic, why should the central bankers worry about it's value?.

I confess I am very much an amateur. I was puzzled by the lack of interest amongst the ex-banker/professional investor types who often post here. In a nutshell 'gold is a curiosity, a dangerous speculative play thing. Stocks are the business'.

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dodge1664 19th Aug '11 184 of 246

In reply to nigelpm, post #168


The facts are in my post above.

How does cherry picking an individual example prove anything? The point is that in aggregate US corporations are actually quite highly leveraged. I suspect that this myth that their balance sheets are in good shape has originated in a report from a commission-hungry investment banker.


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emptyend 19th Aug '11 185 of 246
1

In reply to arkleseizure, post #183

Just two quick points:

I was puzzled by the lack of interest amongst the ex-banker/professional investor types who often post here

I don't think there is a "lack of interest".  I have had gold exposures at various points during the last 25 years, both directly in mining stocks and in the old M&G Gold & General fund. I don't think that most gold investments actually "do what it says on the tin" (and I speak as someone who lost money holding gold exposures during market crashes and during periods of relatively high inflation)....and that brings me on to the second point:

Is someone who buys a physical commodity ETF more a 'punter' than one who buys bombed out high street bank shares?.

Owning ANY sort of paper promise introduces a non-gold risk. Who runs the ETFs? What happens if various market mechanisms and counterparties fail to operate normally - or just fail?

IMO the attractions of gold (and the central reason for the steady run-up over the last 10 years) rest entirely on the fear of an armagedon scenario, in which all currencies lose their value and banks and other institutions see high rates of failure. In such scenarios, one cannot count on "business as usual" - so if that is the trade one is making (and there is a case for it that I can recognise!) then the only good hedge is to physically hold the metal (not via a depository or other intermediary, either).

Gold-related stuff is always seductive though....especially when fear stalks the markets. But I don't think most people have thought their gold-related positions through.

ee

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nigelpm 20th Aug '11 186 of 246
1

In reply to dodge1664, post #184

Haven't you done exactly the same with your graph?

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