To be fair of course you would have also had quite a healthy dividend income over ten years, but as you can see from the graph below, it has been quite a scary ride.
As everyone is currently wringing their hands with worry at the equity and property markets, it may be worth remembering not everything has gone down, and that certain assets have even been rising.
Nonetheless, there is an air of investment gloom pervading both the markets and the media, with many of the newspapers no doubt writing up their “How to survive the bear market” articles. With some commentators joining this now fashionable anticipation of doom it is easy to be persuaded that all is lost.
Well perhaps I could quote the recently and sadly departed Sir John Templeton, “Bull markets are born on pessimism, grown on scepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the time to buy, and the time of maximum optimism is the best time to sell”, and he certainly benefitted from such beliefs.
So are you pessimistic enough yet? It is at such moments that a substantial rally could come about. What would it take?
Possibly a realisation that a slowing global economy could reduce oil demand and if the crude oil price falls back it could give some short term relief to other hard pressed equities – even the banks.
In fact if you look back at some of the historic valuation graphs of some of our leading companies, their current prices are coming astonishingly close to levels we haven’t seen for nearly a couple of decades. If you look at the recently maligned Mark & Spencer, at around £2.34 as I write, it is a long way below its peak of £7.43 in May last year and in fact closer to its ten year low of £1.42 in September 1988.
There is a not dissimilar pattern to be found with the Daily Mail & General Trust where the share price has dropped from £12.57 to £2.70, with a low of 88 pence in October 1988. Now each company has its own story and both of these companies have significant business issues and concerns to address, but nonetheless there will come a moment when the stock valuation no longer reflects the real value of the business as investor fear drives down the price too far.
Unless you believe in Armageddon, then there will be value out there.
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The Bear seems to be still behaving badly, at least from BP’s perspective, with their Russian joint venture suffering serious internal conflict between its primary shareholders. We in the West tend to focus on the lack of Russian “understanding and appreciation of accounting principles” as well as other elements, however that is to miss the attitude of the Russians towards such ventures. We see Russia as a place to invest into commodity producers – they see such ventures as a means of investing outside into the wider world.
With their new found commodity wealth they are beginning to stretch their influence again and control of resources is a key part of this. With Western Europe now on the Russian gas “hook”, it was interesting to note their interest in buying Libya’s oil and gas exports – quite some purchase and quite some control. Bear watching is going to be an increasingly popular sport.
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As parts of the UK shrugs off another ‘monsoon’ week, a financial chill is sweeping across part of continental Europe.
The famous Parisian Summer sales seem to be falling flat and German consumer confidence has recently hit a two and a half year low. Add to this the falling export figures from both nations and the nine month lag in European slowdown seems to be finally taking hold. Monsieur Trichet’s firm stand against inflation may be laudable, but the price of higher interest rates may well be paid with slower retail sales and slower growth.
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And finally……some further unusual promotional news this week for Marks & Spencer when it came out that the physically enthusiastic Max Moseley sourced some of his outfits for his “events” at the aforementioned store. The tag line of getting your “S&M kit at M&S” might work, but maybe it is just for those who are strapped for cash?
Have a good weekend,
Justin A. Urquhart Stewart
Director
Seven Investment Management Limited