Author: rogerwlawson

Beware of Greeks Bearing Gifts

“Beware of Greeks bearing gifts” is a saying from Virgil’s Aeneid based on the story of the ruse used by the Athenians to gain access to Troy. It is a saying used ever since to beware of the sharp practices of Greeks or anyone appearing to offer something that is too good to be true. Globo was a company registered in the UK but with Greek management (both the CEO and CFO were Greek nationals). It was listed on AIM in the UK. Globo looked highly profitable but collapsed in 2015 as the cash on the alleged balance sheet was simply not there and revenue was clearly imaginary.

In my last blog post on the subject of Globo (see https://roliscon.blog/2024/02/17/globo-a-final-report/ ) I said “Do not trust the accounts of companies particularly those with Greek associations”. This comment has been attacked by a certain person, who shall remain nameless as I do not wish to promote his intemperate views. He has said “should we tar all Greeks with the same brush?” Despite the fact that he points out other Greek company frauds (InternetQ/Akazoo and Foli Follie) he thinks I have made a slur on an entire nation. But he admits to being a Hellenophile and having a house in Greece.

Let me be more specific as to why you should avoid Greek companies and their management.

Globo and its management should clearly have been pursued by legal criminal actions for fraud in the UK targeting the CEO and CFO but that was impractical because in extradition proceedings, in general Greece does not extradite a person who was a Greek citizen when the offence was committed or is a Greek citizen when the request is made. Neither does Greece accept enforcement of a European Arrest Warrant with some exceptions. See  https://globalinvestigationsreview.com/insight/know-how/extradition/report/greece#:~:text=In%20extradition%20proceedings%2C%20in%20general,when%20the%20request%20is%20made  

So in summary there was little deterrent to stop a Greek national from defrauding investors so long as they stayed in Greece and that is what happened.

In addition Greece is well known to be a country where accounting practices are dubious. To quote: “Creative accounting and profit management practices are well documented in the bibliography (Spathis, 2002; Spathis et al., 2002; Leuz et al., 2003; Baralexis, 2004; Caramanis and Spathis, 2006; Burgstahler et al., 2006). In fact, Leuz et al. (2003) rank Greece (along with Austria), as the country (out of a total of 31) with the highest rank in profit management” – see https://thescipub.com/pdf/ajassp.2019.327.335.pdf

I am sure most investors in the shares of Globo were not aware of these facts and the same problem applies to other Greek companies who might list in the UK. So I think my previous comments were very justified.

But the person who criticised them has been making snide comments about my views on Globo ever since he had to withdraw many of his allegations against me after I pursued a legal claim for libel against him some years ago. This was eventually settled by agreement of both parties but like any bad loser he keeps on raising the subject again and again.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Classic Red Flags According to Hindenburg

A report in the FT on the attack on the accounts of Temenos by Hindenburg Research included this comment: Its probe “uncovered hallmarks of manipulated earnings and major accounting irregularities”, Hindenburg said. “This includes evidence of round-tripped revenue, sham partnerships, rampant pulling forward of contract renewals, backdated contracts, excessive capitalisation of seemingly non-existent R&D investments, and other classic accounting red flags,” it added.

That’s a good summary of what to look for at companies where accounting fraud is suspected and would have been relevant to investors in Globo.

Temenos denied the allegations and said: “The [Hindenburg] report contains factual inaccuracies and analytical errors, together with false and misleading allegations, which are intended to adversely impact the company’s share price”. That did not stop the share price from falling almost a third last week.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Comments on the By-election Results

Labour might be celebrating the wins in Kingswood and Wellingborough but apart from the fact that by-elections are rarely good forecasts of general election results there are some things worth pointing out.

In reality the Labour vote did not increase, but the Tory vote dropped because it was eroded by support for Reform candidates. The problem for the Conservatives is that they have failed to retain the support of right leaning supporters when Reform have adopted the policies that attract traditional conservative voters. Such as much tighter control on immigration (the Conservatives have talked about this but action has been insipid and ineffective).

But Reform have some way to go to win seats because unfortunately many people vote the same way as they always have without looking at manifestos or the historic track records of the candidates. Democracy in the UK has become sclerotic because of those factors. We do need proportional representation but that is as far away as ever.

For example, look at the winning Labour candidate in Kingswood – Damian Egan. He was an Irish immigrant to Bristol but was elected as a Lewisham Councillor and then Mayor of Lewisham. His track record there included strong support of Low Traffic Neighbourhoods (LTNs) which has created strong opposition from those opposed to road closures which he ignored. But he did not talk about that in Kingswood but more on the deficiencies of the NHS.

Reform are attracting good candidates and building local representation but they still have a way to go to obtain mass support. They and the Labour party have won protest votes in these by-elections but it takes time and money to win general elections.

Note: I support both Reform and Conservative Parties but the Conservatives need to be much more effective in governing the country if they are to win my future vote.  

Roger Lawson

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Globo – A Final Report

Globo was an AIM listed company subject to a large fraud back in 2015 which caused the company to collapse and investors lost everything. Alleged cash on the balance sheet was non-existent. Despite investigations by the FCA and FRC (re the audit) no action resulted.

The FCA have published a final report on the matter which shows that the Greek authorities failed to make anything stick – see https://www.fca.org.uk/news/statements/fca-discontinues-criminal-proceedings-konstantinos-papadimitrakopoulos-dimitris-gryparis

There was never any hope that investors in Globo would recover anything but there are some conclusions to be drawn from this: 1) Do not trust the accounts of companies particularly those with Greek associations; 2) Don’t ignore “short” reports attacking companies – sometimes they are right, although not always.

Do not take any reports from me as being supportive of companies or recommendations to invest in them. My comments on Globo at the time simply reported on what the company said in announcements or at AGMs. If I was sceptical about comments from third parties it was because shorters often exaggerate their case.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Is Joe Biden Fit to be US President?

Having watched the videos of Joe Biden’s recent press conferences I doubt that he should remain as US President and certainly not stand for a further term in office. His memory is clearly defective. A report from Special Counsel Robert Hur into Biden’s retention of documents said Biden would be difficult to convict and described him as a “well-meaning, elderly man with a poor memory”.

At the age of 78 I have recently attended an elderly person’s assessment unit at Guy’s Hospital. Mobility is clearly limited and mentally I passed most of the tests but short-term memory is obviously declining.  I don’t think I’ll have a problem managing my financial affairs but I would hate to be responsible for the free world.

There should be an age limit for holding responsible positions. Clinical dementia can start earlier but anyone over 75 is surely likely to be of questionable ability. Just watching Joe Biden speak tells you that he has reached the age of 81 when he should retire from full-time leadership roles. Acting as Commander-in-Chief of US military forces is surely beyond his capabilities.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Sepsis and How to Diagnose It

I have probably mentioned before that I nearly died from an attack of sepsis a few years ago. Spent two weeks in intensive care and even when out of that took some time to recover from intensive care neuropathy. Sepsis is an extremely dangerous condition which probably kills more people than common cancers.

To try and improve diagnosis (early diagnosis and treatment is extremely important) NICE has recently published new guidelines to assist healthcare professionals. But it is worth reading for anyone who looks after the young or elderly, or those with reduced immune systems. See https://www.nice.org.uk/guidance/NG51

Edison have now today published a report on a company named VolitionRX who are working on diagnostic tools for sepsis – see https://www.edisongroup.com/research/snaring-sepsis-with-early-nets-detection/33224/ . They say “Globally, it is estimated that c 50 million people develop sepsis each year (42% of which are children under five years of age), the condition is associated with a c 20–25% mortality rate and survivors are typically left with one or more long-term consequences. In the US, it is estimated that approximately 1.7 million adults develop sepsis annually, corresponding to c 350,000 deaths”. The report provides a good overview of the market for sepsis diagnostics and the need for better tools.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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John Plender and John Rosier Articles and Technology Update

John Plender published a good article in the FT on Friday. He covered what he had learned from five decades in the investment world. This was a period when the “cult of the equity” took over from investment in fixed income bonds. With inflation racing ahead of interest available, bonds such as Government gilts were a big loss-making investment. They may have been nominally “safe” but only equities offer some protection against inflation caused by Government policies. This cycle has been repeated more recently.

There is much to learn from this article and he concludes with this wise comment: “After a lifetime spent watching the markets, I am struck how, with each new cycle in which central banks act as lenders of last resort, debt mounts inexorably. We continue to muddle through. But a great debt denouement is inevitable because debt cannot rise faster than incomes for ever”.

See https://www.ft.com/content/52f06fb9-ef15-498f-9a98-39673c960de4 for the full article.

Another good article was published on Friday in the Investors Chronicle by John Rosier, who managed to achieve an even worse portfolio performance than mine in 2023. He had this to say:

“Lessons from 2023. It was a poor year for me and while it is tempting to beat myself up, 12-year record of 12.4 per cent per year is good. However, as a matter of good housekeeping, I should examine what lessons I should learn from 2023. In last month’s outlook, I pondered whether I had been guilty of focusing too much on macro factors and not enough on bottom-up stockpicking. The conclusion must be yes. My exposure to commodity stocks, although helpful in 2022, was hugely detrimental in 2023. I had too much exposure to this theme. I allowed my belief in the positive drivers to influence my portfolio construction. I was also too obstinate to change course – perhaps because I had invested too much emotional capital in such a significant exposure. I intend to shift the balance back towards bottom-up stockpicking – in truth, I already have with purchases of stocks such as PayPoint, highlighted earlier……In what is a perennial problem for me and many, if not most, investors, I must get better at cutting losses earlier”.

His comments could just as well apply to my own portfolio management although not to such an extreme. I may from experience have avoided the worst mistakes but am still not cutting losses early enough.

One thing I have done this week is update my technology usage. My 10 year-old Lenovo Thinkpad Carbon X1 was a great business laptop PC running Windows with a touchscreen but battery life had dropped to about 2 hours so it was time to replace it. I have purchased a Samsung Galaxy Tab S8+ tablet to replace it. With more than 8 hours battery life it can last for a dialysis session where I like to watch old movies. These are readily available from YouTube so I watched a film called Greenwich Village last week. It included a memorable dance routine from William Bendix who usually played “heavies” in the 1940s. To quote from one biography: “character actor William Bendix’s burly physique and New York accent were equally suited to playing genial lugs and vicious thugs”.

I am still running a Windows 10 desktop PC for my main business applications which should last another couple of years.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Impossible to Vote!

I have just spent many minutes trying to vote my shares in the Baronsmead VCTs. I received letters giving me a web address for proxy voting and a CIN and “access code” but for some of my multiple holdings on the register the access code is blank. Even when supplied access is rejected in one case.

It’s getting more and more difficult to vote my shareholdings. Similar technical problems arose recently when trying to vote my shares in AJ Bell in the Signal Shares App.

I am generally most diligent in voting all my shareholdings but complexity and technical problems are frustrating doing so. It’s most annoying that companies no longer send out simple proxy voting forms.

Note these are holdings on the share register, either certificated ones or personal crest holdings, so these problems are inexcusable.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Fundsmith Annual Report

Terry Smith has published his Annual Report for holders of the Fundsmith Equity Fund (I am a holder). Total Return last year was 12.4% which I consider a good result but was less than the MSCI World Index of 16.8% probably because of being underweight in large US tech stocks where mania continued unabated.

Terry emphasises the long-term track record of the fund and puts that down to the superior return on capital of the fund holdings in comparison with those of the S&P 500 and FTSE 100 (32% last year versus 18% and 17%). He says “….. if you own shares in companies during a period of inflation it is better to own those with high returns and gross margins” and “Consistently high returns on capital are one sign we look for when seeking companies to invest in”. I completely agree with him on that.

He also argues the fashion for investing in bonds is misplaced as equities have provided better returns since 1928 which includes such periods as the Great Depression, World War Two, the 1987 market crash, Dotcom meltdown, 2008-9 financial crisis and the Covid pandemic.

He also makes some prescient comments on the enthusiasm for AI products and points out it will be difficult to predict the winners in that market.

The newsletter is worth reading for the wisdom of Terry Smith. See Fundsmith Annual Report: https://www.fundsmith.co.uk/media/31plodnq/2023-fef-annual-letter-to-shareholders.pdf

I see no reason to change my holding in Fundsmith.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Year End Review of 2023

As I have published in previous years, here is a review of my own stock market portfolio performance in the calendar year 2023. I’ll repeat what I said last year to warn readers that I write this is for the education of those new to investing because I have no doubt that some experienced investors will have done a lot better than me, while some may have done worse.

It’s worth bearing in mind that my portfolio is very diversified across FTSE-100, FTSE-250 and smaller company (e.g. AIM) shares listed in the UK. I also hold a number of UK investment trusts which gives me exposure to overseas markets, and some Venture Capital Trusts (VCTs). Although I have some emphasis on AIM shares, they are not the very speculative ones.

One feels wary of publishing such data because when you have a good year you appear to be a clever dick with an inflated ego, while in a bad year you look a fool. Consistency is not applauded on social media. But here’s a summary of my portfolio. Total return including dividends was up 2.9% while the FTSE All-Share was up 3.8% which I use as my benchmark (the latter figure does not include dividends though). So in summary a disappointing year although much better than the previous year.

Some explanations are as follows:

Holdings in small and mid-cap stocks, particularly tech ones, had another bad year. Both my and my wife’s ISAs showed significantly losses mainly because I tend to purchase any new speculations in those portfolios as costs are lower there. Losses were therefore incurred on Paypoint, SDI, EKF, Spirent, Telecom Plus, Keywords, Learning Tech, RWS etc.

Property REITs failed to recovery from the impact of higher debt costs on property companies until late in the year.  

Values of alternative energy investment companies fell towards the end of the year resulting in losses on Greencoat UK Wind, Renewables Infrastructure Group, Gore Street Energy Storage, Gresham House Energy Storage etc and those holdings were sold. Clearly there was excessive enthusiasm by the market and me for environmentally friendly investment funds while it became clear that future profits from these companies were difficult to predict.

My investment trust and fund holdings generally did well often because they have substantial US holdings. I failed to beat Terry Smith’s performance at Fundsmith for yet another year but Scottish Mortgage and Polar Capital Technology recovered substantially, particularly the latter.

Venture Capital Trusts almost all lost value as their holdings in smaller companies were revalued downwards to reflect AIM market valuation falls (the AIM market was down about 8% in the year). But their dividends held up well.

Holdings in big oil and mining companies which I had moved into did reasonably well but not good enough to offset the negative impact of losses on small/mid-cap investments. Overall dividend income was down slightly due to moving more into cash in the previous period and I still have a relatively defensive overall portfolio position with substantial cash holdings in ISAs and SIPPs. But at least brokers are now paying reasonable levels of interest on cash holdings.

Due to my poor health at present, at age 78 I need to have shorter time horizons for investments with less time spent on researching new investments and managing my portfolios.

What does the future hold? I find it impossible to predict what will happen in markets and I therefore tend to just follow the trends. US markets are now highly valued but betting against the vibrancy of US technology markets could be very tricky.

The political environment is still negative with wars in Europe and the Middle East while it seems likely that the Labour Party will have a good chance of winning a general election later in the year. None can be good for stock market investment and taxes are currently too high to stimulate investment in the UK even if inflation is now being brought under control.

I am therefore feeling somewhat negative about future investment prospects but simply continue to focus on investing in good companies that are generating real cash profits or on well managed investment trusts and funds.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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