As I mentioned in a previous blog post, I made the mistake of buying some shares in housebuilder Persimmon (PSN) last October. I am pondering what to with them after reading the Annual Report which I received over the weekend. It’s full of glowing references to future prospects but the share price is way down on my purchase price meaning the shares are now on a prospective p/e of 8.2 and a yield of 11.4%.
Clearly the price of shares in housebuilders have been falling due to worries about higher interest rates, which could make mortgages much less affordable, while the Government threatens them about the rectification costs of high-rise buildings. The latter may be less of an issue than the former, particularly for Persimmon, but will some increase in the cost of mortgages really put off people from buying houses? I doubt it. There is such an unsatisfied demand for more houses to get people off high rental prices and for bigger houses to cope with Working from Home that price will be a relatively small factor in my view. In any case so long as house price inflation is greater than mortgage interest rates, it is a simple argument that you should buy a house if mortgages are available.
We bought our first house in 1976 for about £10,000 with a cheap mortgage from the local council when the interest rate was way below inflation. A bit of a no-brainer at the time. Inflation can be good if you are borrowing money rather than lending it! Our sons have managed to buy houses with small contributions from us but we now have grandsons who will no doubt need some assistance soon. Clearly we are moving back into the era of the 1970s in terms of financial planning.
I voted my shareholding in Persimmon electronically as Computershare provide an easy voting system for registered shares, but I voted against the Remuneration Report. Pay is still too generous at this company – the CEO earned in total £2.6 million last year. For 2022, fixed salary will be £746,000 plus 9% for a pension, plus up to 200% of salary for the annual bonus plus up to 200% for the LTIP. Real world economics have not yet sunk in so far as the Remuneration Committee is concerned it seems.
The fact that Persimmon performed well last year and prospects are claimed to be good does not excuse this generosity.
Why I Don’t Invest in Banks
Reading the FT today reminds me why I don’t invest in banks. Barclays (BARC) have apparently managed to lose £450 million due to a technical error in their structured products unit. It will have to compensate customers after issuing $15.2 billion more Exchange Traded Notes than were registered for sale. The loss will affect Barclays share buy-backs and the share price was down 4% at the time of writing.
Another FT article reported on how National Westminster (formerly the Royal Bank of Scotland) has reduced the Government stake to less than 50%. The Government has of course lost many billions of pounds on its investment in RBS after it thought it could turn a profit by forcing RBS to give it an equity stake in the 2008/9 financial crisis. They were following the Swedish model which was successful in that country’s previous banking crisis. But HM Treasury was no better at understanding the accounts of banks and their risk profile than any other investors.
Paying for Share Tips
I see one of my former sparring partners is complaining about share tipsters who are paid to puff companies – apparently by being issued shares in the companies they talk about. It’s certainly a disreputable practice. Let it be stated now that I am not paid by anyone to talk about the companies I mention. I am not paid and never have been since I started commenting on financial matters!
This blog is not just free to readers, it also does not pay contributors.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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