Isaac's Thread - High Yielding Shares & other stuff

Sunday, May 16 2010 by

Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimisim is the best time to sell.

Sir John Templeton


Aviva (LON:AV.)
-Price 326.9
-Forecast Yield 7.71%
- Forward Cover 3.02
-Forward PE 4.3

-Price 530.2
-Forecast Yield 7.04%
- Forward Cover 1.82
-Forward PE 7.6

United Utilities (LON:UU.)
-Price 521.5
-Forecast Yield 6.58%
- Forward Cover 1.7
-Forward PE 8.97

Scottish & Southern Energy (LON:SSE)
-Price 1082
-Forecast Yield 6.5%
- Forward Cover 1.49
-Forward PE 10.3

Severn Trent (LON:SVT)
-Price 1128
-Forecast Yield 6.29%
- Forward Cover 1.42
-Forward PE 11.21

Royal Dutch Shell (LON:RDSA)
-Price 1779.5
-Forecast Yield 6.25%
- Forward Cover 1.81
-Forward PE 8.86

National Grid (LON:NG.)
-Price 618
-Forecast Yield 6.23%
- Forward Cover 1.55
-Forward PE 10.38

Vodafone Group (LON:VOD)
Price 134.5
-Forecast Yield 6.01%
- Forward Cover 1.91
-Forward PE 8.73

British American Tobacco (LON:BATS)
Price 2033
-Forecast Yield 5.58%
- Forward Cover 1.54
-Forward PE 11.66

Glaxosmithkline (LON:GSK)
Price 1167
-Forecast Yield 5.53%
- Forward Cover 1.86
-Forward PE 9.69

Astrazeneca (LON:AZN)
Price 2879.5
-Forecast Yield 5.37%
- Forward Cover 2.58
-Forward PE 7.22



Investment Greats: Ben Graham



Graham's approach is based on the principle that, while markets are not good at pricing investments, over the long term the true value of businesses will be revealed. "In the short run, the market is a voting machine but in the long run, it is a weighing machine".

'Mr Market', as he described the emotional and irrational marketplace, sets share prices that you may not agree with, based on your fundamental analysis of a share's value. When Mr Market's price is sufficiently below your assessment of the share's value, you have the opportunity to buy with what he referred to as a 'margin of safety'.

Allowing yourself this margin of safety is in stark contrast to the 'greater fool theory' (note the lowercase 'f'), whereby people buy shares regardless of valuation in the hope of finding someone to buy them later at an even higher price. It's all about risk and reward.

Risk can also be mitigated to an extent by buying a portfolio of shares, so that even if some companies go bust, the overall return may still beat the market.

Selection criteria

In the mid 1970s, Graham and his colleague, James B. Rea, refined his ideas into ten criteria for selecting a portfolio:

1) earnings yield at least twice the AAA bond yield;

2) price/earnings ratio below 40% of the highest P/E ratio the stock had over the previous five years;

3) dividend yield of at least two-thirds the AAA bond yield;

4) share price below two-thirds of tangible book value per share;

5) share price below two-thirds of net current asset value per share;

6) total debt less than tangible book value;

7) current ratio greater than two;

8) total debt less than twice net current asset value;

9) earnings growth over the previous ten years of at least 7% per annum; and

10) a maximum of two annual earnings falls of 5% or more over the previous ten years.

If you want to trawl for shares meeting these criteria, ADVFN has filters that facilitate this; you can see the results of a recent search I did in this article. Finding shares that tick all these boxes is quite difficult, but tests 1), 3), 5), and 6) were deemed to be the most important.

The following were considered sell signals:

1) share price up more than 50% since buying;

2) share held for more than two years;

3) company stopped paying dividends; or

4) profits fell enough to make it overpriced by 50% or more on the earnings yield criterion.


Books to Read

Investment Strategy:
Security Analysis - Benjamin Graham (HEAVY READING This is the old testament from the 'Dean of Wallstreet')

The Intelligent Investor - Benjamin Graham (HEAVY READING The New Testament)

Value Investing Made Easy - Janet Lowe (Easy read to see if you agree with the strategy)

The Rediscovered Benjamin Graham - Janet Lowe (Easy read with some late interviews that were interesting. I like this book.)

The Warren Buffett Way - Robert G. Hagstrom (Easy read and interesting examples of some of WB's great investments)

Buffettology - Mary Buffett and David Clark (An interesting slant on things. Easy Read)

The Essays of Warren Buffett - Warren E. Buffett (From the annual reports of his company Berkshire Hatherway. Fascinating).

Common Stocks and Uncommon Profits - Phillip A. Fisher (Regarded as an investment classic. Fisher was one of the greatest growth stock investors. Buffett says he's 85 % Graham and 15 % Fisher, which is a real compliment).

One Up On Wall Street - Peter Lynch (Peter has a gift for making it all sound simple. I think this book extols the benefits of understanding brands).

The Real Warren Buffett - James O'Loughlin
(Buffett is so much more than an investor. What he has created in the management structure and culture of Berkshire Hathaway is truly unique).

The Smartest Guys In The Room - Bethany McLean and Peter Elkind
(How it can all go wrong. The ENRON scandle. (A riveting read. You couldn't make this up).

Accounts: Interpreting Company Reports and Accounts - Geoffrey Holmes and Alan Sugden

The Great Crash 1929 - John Kenneth Galbraith
(Easy read. I think it's important to understand bubbles, crashes and investment history statistics. It may stop you being panicked out of a sound investment one day or help you avoid investing during the later stages of a bubble cycle).

The BZW Equity-Gilt Study (Facts and figures going back to 1918 on Equities, Gilts and the Cost of Living Index. Great for looking at corelations).

The Death of Inflation - Roger Bootle (Bootle saw the change coming 10 years ago, while inflation was still raging. He's a genius economist imo).

A Very English Deceit - Malcolm Balen (The South Sea Bubble and an excellent account of how London's financial power house started in the early 1700's. Insurance companies and share traders in coffee shops, no less).


20 years of dividends and still going strong

Here's its pick of 20 UK companies that have at least held their annual dividends since 1990, together with their forecast payouts for financial years 2010, 2011 and 2012:

Vodafone Group Mobile Telecoms 180 8.3 8.9 9.5
Royal Dutch Shell Oil & Gas Producers 2,145 107.2 111.2 118.0
Tesco Food Retailers 403 13.1 14.9 16.0
Schroders General Financials 1,851 34.0 37.0 40.0
Serco Group Support Services 553 7.2 8.0 8.8
Meggitt Aerospace & Def. 349 8.6 9.2 10.0
Cobham Aerospace & Def. 209 6.0 6.6 7.3
Derwent London REITs 1,552 29.4 32.1 35.0
PZ Cussons Personal Goods 360 5.9 6.4 6.9
Spirax Sarco Engineering 1,843 41.2 45.3 49.8
Halma Electronics 340 8.5 9.1 9.8
Close Brothers Group General Financials 858 39.0 39.0 39.0
Brown N Group General Retailers 280 10.8 12.3 13.5
Rathbone Brothers General Financials 1,150 42.0 42.0 42.0
Greggs Food Retailers 480 17.5 18.6 19.9
Daejan Holdings Real Estate 2,781 74.0 74.0 74.0
AG Barr Beverages 1,150 23.1 24.5 25.7
Cranswick Food Producers 850 25.0 27.5 30.2
Oxford Instruments Electronics 617 8.4 8.8 9.3

Filed Under: Income Investing,


As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.

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National Grid plc is an electricity and gas utility company focused on transmission and distribution activities in electricity and gas in both the United Kingdom and the United States. The Company's segments include UK Electricity Transmission, which is engaged in high voltage electricity transmission networks in Great Britain; UK Gas Transmission, which is the gas transmission network in Great Britain and United Kingdom liquefied natural gas (LNG) storage activities; UK Gas Distribution, which includes approximately four of the eight regional networks of Great Britain's gas distribution system, and US Regulated, which includes gas distribution networks, electricity distribution networks and high voltage electricity transmission networks in New York, and New England and electricity generation facilities in New York. Its other activities relate to non-regulated businesses and other commercial operations not included within the above segments. more »

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Severn Trent Plc treats and provides water and removes wastewater in the United Kingdom and internationally. The Company provides clean water and wastewater services through its businesses, Severn Trent Water and Severn Trent Business Services. It operates through two segments: Regulated Water and Waste Water, and Business Services. The Regulated Water and Waste Water segment includes Severn Trent Water Limited's wholesale operations and household retail activities, and related support functions. The Business Services segment includes the Operating Services businesses in the United States, the United Kingdom, Ireland and Italy; its renewable energy business, and Severn Trent Water Limited's non-household retail business. The United Kingdom Operating Services provides contract services to municipal and industrial clients, and the United Kingdom Ministry of Defense (MOD). The United States Operating Services provides contract services to community, municipal and industrial clients. more »

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Aviva plc is a holding company. The Company provides customers with long-term insurance and savings, general and health insurance, and fund management products and services. Its segments include United Kingdom & Ireland; France; Poland; Italy, Spain and Other; Canada; Asia; Aviva Investors, and Other Group activities. The United Kingdom and Ireland segment consists of two operating segments: Life and General Insurance. The principal activities of its French operations are long-term business and general insurance. Its Poland Activities in Poland consist of long-term business and general insurance operations. Its Italian operations are long-term business and general insurance. The principal activity of the Canadian operation is general insurance. Its activities in Asia consist of its long-term business operations in China, India, Singapore, Hong Kong, Vietnam, Indonesia, Taiwan and international operations. The Aviva Investors segment offers a range of asset management services. more »

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  Is National Grid fundamentally strong or weak? Find out More »

334 Posts on this Thread show/hide all

djpreston 31st Oct '11 295 of 334

Utilities low risk? Really? With government controlled pricing etc who would bet against another windfall/profiteering tax or a harsh pricing formula or two (all very politically favourable). Then there's Nat Grid with its tens of Billions of debt for investment and its habit of raiding the market for new cash. How secure the div?

Safest of all would be SSE imo as its just been incredibly well managed over the years. Utilities? You can keep them.

Fund Management: European Wealth
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fuiseog 1st Nov '11 296 of 334

Not your normal utility but International Power (IPR) has been a good steady growth stock over the years and, with GDF having taken a stake, it's opportunities are likely to increase.

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Fangorn 1st Nov '11 297 of 334

Interesting to read your comments on Prudhoe Isaac. Came to similar conclusions myself and decided to hold off for the time being.

Markets looking very sickly this morning. Running a tad late, so was shocked to see SOCO down 10%!

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Isaac 4th Nov '11 298 of 334

MAN Results were an Interesting read, as was the Cantos Interview....I plan to hold for a while yet,. I don't understand why the market has rated it so poorly, but it suits me just fine - I can wait for the mood to get better& even add to my posiition especially if they pay a 9-10% dividend.

I have to admit for me it is very tempting to make very LONG term Investments in the likes of Barc, LLOY and RBS.

When anyone looks at the cold blooded numbers these banks look very cheap.

Sentiment is on it's arse and is unlikely to improve soon - which is exactly the time to be buying these stocks.

These things go in cycles and one day in the future the banks will again be profitable and will make ALOT of money again.

Infact I really can envisage that we all look back at the current environment and wonder why we were'nt buying shedloads.

There are clearly uncertainties, but does anyone really believe RBS/LLOY/BARC is likely to go bust at this stage of the credit crunch? I just think if they were to go bust it probably would have happened by now.

I just can't see why the businesses won't be around in 5-10 years time. I think if one does invest here they have to take ateast a 5 year view and with buy backs and dividends I think there could be extraordinary returns to be made over a LONG period of holding.

Infact If I could realise some of my Soco Investment I could see some of my money going into the banks. I mean RBS is trading at a p/b of 0.18, BARC at p/b of 0.35 & LLOY at a p/b of 0.43 - Very Cheap.

Fortune favours the brave - And I like Risk.

Investment is a long term game and looking for very long term Investments, the banking sector would definetly be on my radar.

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djpreston 5th Nov '11 299 of 334

Hmmmm, but weren't you completely negative on markets only a couple of weeks ago? (Then again, my memory isn't what it used to be).

Anyway, you can realise some of your soco investment any time you want. Click the mouse and you're done.

I know you'll say you want the "full" takeover price but that's the market and that's opportunity cost.

Ask yourself, "do I think the banks will provide a better and lower risk return over xxxx years". Simple as that. If you think they will, click away.

I suspect that this is the core of your Soco frustrations. You want Ed and Roger to sell up/divest SV at precisely the right time to benefit you. It aint going to happen or else by pure freakish luck. You also feel frustrated because other stocks you've liked have done better.

This is the "problem" we've all faced over the relatively recent history. All I can say is "suck it up. That's the game."

Fund Management: European Wealth
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Fangorn 5th Nov '11 300 of 334

Erm I wouldn't be exchanging Soco for RBS or Lloyds personally ,,,,maybe HSBC/Standard Chartered at a real push...

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Isaac 5th Nov '11 301 of 334

In reply to Fangorn, post #300


I don't plan to. What I said was :

Infact If I could realise some of my Soco Investment I could see some of my money going into the banks

I.e. If Soco sold up I would put some of my funds into the banks so it won't be a case of swapping Soco for a bank.

Although the banks are cheap what I can't quantify is when they will be more reasonably valued, but I suspect when that is obvious the price will be a lot higher. It would be easier to take a stake in the near future if they paid a dividend as then waiting won't be such an issue.


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emptyend 5th Nov '11 302 of 334

In reply to Fangorn, post #300

Erm I wouldn't be exchanging Soco for RBS or Lloyds personally

I own a few Lloyds, bought at just over 50p on the pullback from the highs earlier this year. The CEO's illness seems a significant blow, as Lloyds continues to be in need of culture change and clarity of purpose for the different brands. Although I regard the recent Euro-inspired falls as largely unjustified in the case of Lloyds (I bought in part because it has negligible exposure to the Eurozone risks by comparison with the others), I don't think I'm going to be rushing to add at present - even though it may well work out fine...and even though I've been thinking about adding at recent levels.

RBS is a slightly different case, because they seem to be coming out of the woods and sharpening their brand strategy and market prescence (reviving the NatWest brand?). However, they are still more exposed than I would like to further global macro issues - more shrinking to be done first?

I wouldn't swap SOCO for either of them on the terms that seem likely to be offered by the market....until there is an external development. I don't think there is a rush just yet - bank reratings look a little way off.



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Isaac 5th Nov '11 303 of 334

I actually like RBS over LLOY as it is the cheapest on a P/b of 0.18! And a market cap of £13.6bn.

I am not looking at it from an individual bank perspective of which bank holds what amount of exposure to Europe, because if Europe blows up then I expect even those banks with little exposure to be hit perhaps just as bad!

So in effect I am treating it as a ONE bank scenario.

I think the reality is if the banks are going to get through this mess & recover then it probably makes more sense to buy the cheapest of the lot & just hold on as your likely to make the most money in that scenario and if it does'nt work you will probably lose as much. I don't see UK Gov wanting to hold RBS on it's balance sheet so nationalisation just seems out of the question.

I don't think it is impossible to see an RBS go up 3-4 bag over a 10 year period which would put it on a £40-55bn valuation. But what kind of regulation and taxes this industry will face over the next few years is not yet clear. But a 3-4 bag return seems attractive.

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emptyend 5th Nov '11 304 of 334

In reply to Isaac, post #303

Re price-to-book ratios, I wouldn't rely on them at all. RBS has probably got more conspicuously-rubbish assets on its balance sheet than the others. You'll recall it used to be thought that a PBR of less than one indicated cheapness.......but that was in the days when people believed bank balance sheets!

However, it isn't expensive and I think Hester will eventually sort it out and it will get refloated at c.50-60p at some point (nb - it will need a damned good following wind for any float to get enough private investment in!). A doubling seems a decent buy and hold bet - though the timescale is very uncertain.....and it could get even cheaper first.

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Fangorn 5th Nov '11 305 of 334

In reply to Isaac, post #301

I suspect you'll be waiting a while on the dividend front. As, unfortunately am I, given i hold both!

The sooner they both return to decent profitability the sooner they should resume paying 80% of their profits out in dividends (great way for government to get some much needed cash in!)

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Fangorn 5th Nov '11 306 of 334

In reply to emptyend, post #302

Yes, it was quite a shock Antonio going on medial related leave.

I think the problem with Lloyds, unlike RBS and the latter's exposure to Europe, is that the former is over geared to a economic recovery in the UK. I personally don't see this happening for a while. The HBOS acquisition is going to be one hell of an ask to turn around and this will weigh on Lloyds form many years to come.

A pity as Lloyds used to be a conservative superbly well run bank. I've been a shareholder for many years(as well as a long standing account holder with the bank) and have nibbled several times on the way down..but have not fared well at all. HSBC has been a rock and it is them that I'll continue to invest in - the Eastern promise, the decent dividend, and a strong balance sheet. Admittedly they've been fairly active in the CDS side(presumably punting rather than back to back client trading) but I'm not aware how significant their exposure is in Europe.

RBS do seem to be turning things around but they are indeed still far too big.Share your sentiments here.

I'm more inclined to swap my Soco holdings for a several stakes in some Canadian and Colombian oilies myself. The former paying 6% or so, the latter which DJP has been discussing recently.


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Isaac 8th Nov '11 307 of 334

Wow! :-)))



Intraday chart. Click to open a chart window
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Isaac 8th Nov '11 308 of 334

I have no plans to sell my LLPC - I hope to hold these a long time and collect dividends...

From LLOY results today...

Since 31 January 2010, the Group has been prohibited under the terms of an agreement with the European Commission from paying discretionary coupons and dividends on hybrid capital securities issued by the Company and certain of its subsidiaries. This prohibition ends on 31 January 2012. The Group intends to be in a position to recommence payment of coupons and dividends on these hybrid capital securities after this date. Future coupons and dividends on these hybrid capital securities will, however, be paid subject to, and in accordance with, the terms of those securities

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Isaac 9th Nov '11 309 of 334

Just bought some ADM and AV.

I don't think the ADM statement is that bad, profits to be at lower end of expectations if Q4 does'nt improve. It is still a good quality company to own IMO and I've taken advantage of todays falls to lock in an 8% yield.

"Across 2011 as a whole we are likely to have grown our UK vehicle count by more
than 20%.  Our international insurance business also continues to achieve strong
growth and further improvement in operating results.

"Notwithstanding the continued higher level of large claims in the quarter, I
expect us to once again report record profits for the full year, probably some
10% higher than last year.  I am confident that with Admiral's enlarged customer
base and significant combined ratio advantage we are in a strong position for
sustained long term growth and good news in 2012 and beyond."

Group highlights

  * Group turnover* increased by 30% to £582m (Q3 2010: £446 million)
  * Group vehicle count increased 27% to 3.3 million (Q3 2010: 2.6 million)
  * International car insurance turnover up 45% to £27.0 million (Q3 2010: £18.6
  * International car insurance vehicle count up 53% to 267,000 (Q3
    2010: 175,000)
  * Annualised UK vehicle count growth rate of just over 13%
  * Modest UK premium rate increases achieved
  * UK ancillary contribution per vehicle in line with H1 2011
  * Combined ratio remains significantly lower than the market
  * Financial position remains strong
* Turnover is defined as total premiums written (including co-insurers' share)
and Other Revenue


Our claims experience in Q3, if replicated in Q4, would lead to a small
improvement at the end of the year in the aggregate projected ultimate loss
ratios for the back years (2000-2009).  However, consistent with the trend
reported in H1 2011, the frequency and expected cost of new large personal
injury claims has remained above historical levels of experience.  This leads us
currently to expect some adverse development at the full year on the projected
ultimate loss ratios for 2010 and 2011 which would affect both overall reserve
movements and recognised profit commission.
If there is no reversal in Q4 of this higher than normal level of large claims,
we anticipate that full year pre-tax profits will be towards the lower end of
the range of analysts' estimates, or some 10% ahead of 2010, with no further
reserve releases in the second half.


Maynard Paton also highlighted ADM a week ago, at 30% cheaper it must be a better bet :-)

This could be today's no-brainer

So what might Neil Woodford and Warren Buffett buy now? Here's one no-brainer idea for them, and of course for you as well: Admiral (LSE: ADM).

As you may already know, Neil Woodford likes shares with high, rising and reliable dividends. Warren Buffett meanwhile likes shares with tip-top management and strong competitive positions. Buffett also likes insurance companies, which is lucky for him as Admiral is one of the country's largest motor insurers.

Anyway, here are ten facts about Admiral you might want to consider while everyone else panics about Greece:

1. It has grown from nothing to become a £3 billion FTSE 100 share in 20 years;

2. It floated during 2004 at 275p and the price reached £17 earlier this year;

3. It has expanded rapidly, despite the recession and Greece. Between 2006 and 2010, profits and the dividend jumped more than 80%.

4. It continues to grow, with first-half profits this year up 27%;

5. It has consistently reported underwriting profits, unlike most of its rivals;

6. It hasn't needed to retain capital to grow, and therefore regularly distributes about 90% of its earnings as ordinary and special dividends;

7. It offers a trailing total dividend of 74.6p per share and 6.7% yield at £11;

8. It has a forecast P/E of 13 for 2011 and 11 for 2012;

9. It is run by founder management that has an enormous £540m riding on the share price, and;

10. It has seen its share price fall since the summer on fears of rising costs, and Greece.

I've also bought back an old favourite which I last sold at £4.49 in March this year, Aviva.....I think it is worth locking in the 8%+ yield again.

I will use my dividends and income to further top up on these and buy other stocks as the opportunity arrives.

Now is the time to be drip feeding money into the markets IMO especially dividend paying stocks where you get paid to wait. 

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Isaac 9th Nov '11 310 of 334

ADM has managed to grow it's Revenues and Customers every single year since 1993 - that is an awesome stat :

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macroeconomix 9th Nov '11 311 of 334

What sort of European sovereign debt exposure for AV and ADM ? ;)

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Fangorn 9th Nov '11 312 of 334

Minimal for AV apparently, although on the downside alot of its general insurance business originates from Europe so possible downturns there. But sovereign debt exposure is pretty small from what I've read.

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Isaac 9th Nov '11 313 of 334

Minimal for ADM as well....although I expect both to continue having loads of volatility based on what happens in Europe.

I am comfortable picking up stock though in the current environment, the numbers look good. If I included numbers + emotion I too probably would'nt want to buy,

I think it is just a case of waiting on both taking nice dividends with the expectation that the price can go anywhere in the short term.


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Isaac 9th Nov '11 314 of 334

Well the CEO's wife of ADM today bought £8.74m worth of shares!!

That is probably the single biggest share purchase I've seen from a director/director's spouse etc


Diane Briere de l'Isle, the wife of Admiral Group Chief Executive Officer, Henry
Engelhardt, has today bought 1,000,000 Admiral Group plc shares at an average
price of  GBP8.74.

Henry Engelhardt and Family holdings now total 39,313,565 ordinary shares in
Admiral Group.

The CEO now has £343m worth of shares in the company.....

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