What To Do Before You Die, and Avoiding Doing So

Many of the readers of this blog will not be in the springtime of their lives. They therefore might be susceptible to the coronavirus. I thought it was worthwhile therefore to cover how you can prepare for that eventuality. This is not a “bucket list” of things to do before you die but how to ensure your family and executors are prepared for the eventuality. As someone who has had a serious medical condition for many years, this is a subject I have spent some time on so probably have some expertise in the matter.

First make sure you have drawn up a will, and that it has been updated since there have been any changes in your life – for example new partners or offspring. Also check the appointed executors are still able and willing to act. It’s very worthwhile using a solicitor to help you draw up a will or revise one rather than trying to do it yourself. It’s one of the few bits of legal work that are usually low cost.

But there are several other additional documents you need to prepare. A “Letter of Wishes” for how you wish your personal chattels to be disposed of will be helpful to your executors. This can help to ensure that items of particular interest to your partner or children go to the right home. It can also be useful to cover what happens to cash in joint bank or deposit accounts to avoid any doubt.

One problem that is relatively new is what happens to “digital assets” such as internet accounts and associated log-ins. So it’s also helpful to provide a “Letter of Wishes – Digital Assets” that says something like this: “I hereby grant my executors under my will the right to access such digital asset accounts by using the log-ins and passwords mentioned and assigning the rights to use those assets to any person they see fit, or in the case where the accounts contain assets of value they are to be bequeathed under the terms of my will”. Obviously you also need to tell your executors where they can find all the account details and passwords.

A common problem for executors is actually locating all the assets of a deceased. You should therefore also provide a document that covers “What to do when I die” that spells out where they are. For example which brokers/platforms or banks hold the shares and cash or where the share certificates are held. This should also indicate what immediate cash can be accessed if your partner will need that in the short term, and perhaps what should be done with any share holdings, i.e. whether they should be liquidated or who will manage them going forward. In addition it should tell your executors where your will can be found.

The above covers the really bad news, but there are other things you should consider putting in place in case you don’t actually die but are incapacitated for some period of time. A “Lasting Power of Attorney for “Property and Financial Affairs” and for “Health and Welfare” are worth putting in place. These enable a partner or anyone else you appoint to financially administer your affairs and make decisions about personal care if you are unable to do so.

It is also worthwhile putting in place an Advance Medical Directive (Living Will) covering medical treatment. For example it can ensure that where there is little chance of survival or you may end up mentally incapacitated that medical treatment is halted rather than pursued. Tell your partner or offspring where the aforementioned documents can be found. In reality the chance of a Living Will being needed to be considered is relatively low and with the current state of the NHS they may not want to spend a lot of effort on keeping you alive, but you never know.  There are template Advance Medical Directives available on the internet.

Of course, one essential thing to do is to avoid catching coronavirus if you possibly can by self-isolating and avoiding contact with any other humans. One way to avoid meetings is to use conference calling facilities. I attended a discussion group meeting of investors last night using Zoom and it worked quite well. The group were generally rather pessimistic for the economy but they are often are. They had few new investment ideas with a number moving into cash. The difficulty is that it is not at all clear how long the epidemic will last and many businesses have closed down for the duration. The economic impact could be enormous and Government money creation and debt raising is of major concern. It could take some years for the economy to recover, with possibly higher taxes required.

US listed Zoom is just one of many video or telephone conference services, but according to one tweet I saw this morning, its stock market valuation is now 50% more than all listed US airlines! With EasyJet (EZJ) grounding its entire aircraft fleet today, you could probably include UK airlines in that calculation also. A UK competitor for Zoom is LoopUp (LOOP) in which I hold a very few shares. I have not done a detailed technical comparison of the respective products. Zoom certainly seems to be popular and has been growing rapidly as businesses move to video conferencing from telephone conference calls. These are relatively low-cost products but there is also Skype which is free. That works relatively well for one-to-one or small groups but I often find it not easy to use. It has a confusing user interface and is technically unreliable.

In summary, try to stay alive!

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

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Bad News for the Housing Market and On-Line Retailers

The news in the housing sector is all bad. Banks have stopped providing mortgages and builders have stopped building houses (Redrow announced it was closing all its sites this morning). Estate agents are also giving up as nobody wants to have strangers wandering around their house and there are few new buyers. Who would look to buy a house given the economic uncertainty and with everyone’s jobs under threat? Rightmove previously announced it was discounting all its bills to agents but they have now announced that the proposed final share dividend is being cancelled.

Did you think on-line retailers might be able to continue operating? Think again. Next has announced it is temporarily closing its on-line operations including warehousing and distribution. Apparently “colleagues” feel they need to be at home. This mirrors what I have seen from a couple of smaller on-line clothing suppliers I use. They both announced closure in the last few days. Will Boohoo, ASOS and Amazon be able to continue to operate? Only supermarkets seem reasonably sure to be able to stay in business over the next few weeks.

This gloom over the country’s business status was echoed in the comments of Paul Scott on Stockopedia. He said this morning: “Hundreds of £billions in economic activity is being killed off, with ruinously expensive compensation schemes being dreamed up. For what benefit? We’re likely to end up with millions of unemployed, many thousands of destroyed businesses, all of which might have slowed down the spread of the virus a little”. He has lost confidence in the recent stock market bounce and thinks losses will be ruinously high in many companies. I agree with his comments. Certainly in many sectors it’s a question of which companies will survive the year, not whether they will make any profits or pay any dividends.

The only positive glimmer is that Anthony Bolton, who ran Fidelity’s Special Situations fund until 2007 very successfully, is apparently moving back into the market to purchase selected stocks according to an article in the Financial Times. He says “at these prices there are really interesting opportunities”. Certainly the key is to be very selective even if you believe the crisis will be over by the end of the year.

Meanwhile I am sat in the bomb shelter otherwise known as isolating at home. These are such momentous times that I decided to start writing a diary just as my father did during the second world war. It may interest my offspring in due course as reading my father’s diary did after it came to light 37 years after he died. My diary may be a much shorter one though if I catch the virus.

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

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It’s Impossible to Value Companies at Present!

The stock markets rose sharply yesterday and this morning, allegedly on the news of the $2 trillion economic support package announced in the USA. But the company news is consistently bad where it is available.

In the company announcements I have read, they seem to fall into two kinds: 1) We are shutting down all or part of our operations and managing the cash but our balance sheet strength is such that we can survive this for weeks and won’t go out of business (Greggs, Dunelm, Next and Victoria for example); or 2) Only minor impacts so far but it is too early to judge the wider impact of a possible economic recession on the business (Diploma for example).

Nobody is giving forecasts and it’s impossible to work them out for oneself. The result is that individual stock prices are bouncing up and down, and the whole market is also gyrating. I have no confidence that the recent market bounce is an indication that we have passed the bottom. It’s simply impossible to value companies at present with any accuracy.

One could perhaps say one can value them because the coronavirus crisis may only last a few weeks while company valuations should be based on years into the future, but there is no certainty on the duration of the epidemic, how many people will die and when the economy will be back to normal.

Here’s a useful quotation from the Victoria (VCP) announcement today: “….the Group goes into the uncertainty of the next few months from a position of considerable strength. However, as Darwin stated, those who survive ‘are not the strongest or the most intelligent, but the most adaptable to change.’ Therefore, our managers have been willing to think the unthinkable and act decisively and promptly to protect their business – particularly its cash position – as the impact will, in the short term, be significant”.

Some of the companies mentioned above have seen an immediate impact on their businesses while others are less affected. Those who run “non-essential” businesses such as General Retailers and Hospitality operators are the worst hit, but I suspect others will see the impact in due course as the economy slows. It’s OK for Governments to pump money into the economy to try and keep it afloat but the future profits of many companies will surely be wiped out this year.

The impact might be wider than we expect. For example, one of the on-line retailers I use has closed down its web site today presumably because of the difficulty of packing and shipping orders. On the other hand, office productivity might suddenly improve if everyone is working from home – less time will be spent gossiping or flirting with others or wasted on commuting.

As an investor does one simply sit on one’s hands in the expectation that the crisis will pass in due course and the markets will rebound?  There was an interesting article by Chris Dillow in last week’s Investors’ Chronicle. He pointed out that research tells us that when there is bad news, investors tend to look at their portfolios less often. It’s the equivalent of not going to the doctor because their diagnosis might be bad news. Not reviewing your portfolio regularly is surely a habit to be avoided. I do it every evening as a matter of routine.

I know exactly the value of all my portfolios and the movements of individual holdings over the day. It’s made for gloomy reading of late. I also get alerts during the day of share prices that have moved significantly from previous levels and review them at the end of the day also. I use software products such as ShareScope and Stockopedia to provide this information. As a man of action, I do react to what I see happening in the market and to individual shares. I manage my portfolio to reduce exposure to the market when it is falling. And I make changes to my individual holdings dependent on the latest news and current prospects.

But it’s easy to waste a lot of money by over-trading, and waste a lot of your personal time, so I try not to make changes unless trends are very clear. My habits have developed over many years of investing in the stock market and have worked out reasonably well. But others might take a different approach. There is no one “best solution” but hiding behind ignorance of what is happening in the market is surely a recipe for poor portfolio performance.

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

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Recent Annual Reports and Trust Discounts

After the news over the weekend, it’s clearly going to be another very bad day on stock markets. One rare riser initially was Ten Entertainment Group (TEG) despite the fact that they announced this morning that all their bowling venues had been closed but they made some positive comments about their cash balances and Government support which might have helped.

As per guidance issued by the Financial Conduct Authority (FCA) it has delayed publication of its Preliminary Financial Results for two weeks as many other companies will be doing. This seems unfortunate to me as a company could just give only a limited outlook statement in there and issue separate trading statements as the crisis developments. But there is no reason to delay the historic figures for the last year.

The AIM Regulator (the LSE) has also announced that in response to the epidemic it is making the rules around suspension of listings more flexible. It is also permitting Nomads not to do site visits to new clients. See https://www.londonstockexchange.com/companies-and-advisors/aim/advisers/inside-aim-newsletter/inside-aim-coronavirus.pdf for details.

Clearly all companies affected by the closure of all public entertainment venues such as pubs, bowling alleys and cinemas are going to suffer greatly. Although they might get some financial relief from the Government, a close examination of their balance sheets and debt will be essential. Some might request suspension of their shares until their financial position becomes clearer. Property companies seem to have been badly hit simply because independent valuers are having difficulty valuing commercial properties as the market is frozen. Retailers with physical stores are also closing them, apart from supermarkets who are doing well due to panic buying and the shift from eating out to eating in as restaurants close. But they seem to be having difficulties adapting their supply chains and coping with the new demands for on-line ordering.

With preliminary announcements being delayed, the AGM season might be delayed also. Companies might have difficulty holding physical meetings and venues might become unavailable, particularly in London. We might see companies holding small meetings in their own offices instead as they won’t expect many people to turn up – I certainly won’t be attending as I am one of those people being told to stay at home for 12 weeks. Some larger companies may try and provide a live on-line stream of the meeting such as Alliance Trust (ATST) who just issued their Annual Report which I would certainly encourage them to do, preferably with some way to submit questions.

It is interesting to look at the discounts to NAV of the share price of that trust and other similar large trusts. According to the AIC, their discount was 17.5% at the weekend, and others were Brunner on 17.5%, F&C on 19.3%, Monks on 12.6% and Witan on 15.6%. These are much higher discounts than such trusts have traded on of late. When private investors have lost faith in the stock market, the discounts tend to rise, although some of the discount can be accounted for by the delay in reporting.  There may be some bargains in investment trusts in due course as private investor sentiment tends to lag financial news.

One company that just distributed their Annual Report and which I hold is property company Segro (SGRO). They had a good year last year although the share price is down 28% from its peak in February due to the general malaise in the property sector as open-end funds close to redemptions and run out of cash. I won’t  be attending their AGM but I will certainly be submitting a proxy vote which all shareholders should do anyway. I will be voting against their remuneration report simply because the total pay of executive directors is too high. The remuneration report consists of 27 pages of justification and explanation, which is way too long and is a good example of how both pay and pay reporting has got out of hand of late.

With bonuses, LTIPs and pension benefits, the total pay of the 4 executive directors (“single figure” report) was £20.4 million. They also wish to change the Articles of the company to raise the limit on the total pay of non-executive directors to £1 million so I will be voting against that also. I would encourage shareholders to do the same.

Lastly for a bit of light relief as it looks like we might have a major recession this year, I mentioned the book “Caught Short!” by comedian Eddie Cantor on the 1929 Wall Street crash in a previous blog post. Now Private Eye have repeated one of his comments in October 1929 after John D. Rockefeller (probably the richest person in the world at the time) said “during the past week, my son and I have for some days been purchasing sound common stocks”. This was seen as an attempt to calm the market in a world where a few very wealthy investors could influence financial markets. Eddie Cantor’s response was “Sure, who else has any money left”. I hope readers do not feel the same.

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

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Market Bounces, But It’s Not on Good News

The FTSE-100 is up 2.5% today at the time of writing, and my portfolio is up 5.5%. There are several stocks in there that are up more than 20% but the bad news keeps coming so this seems to be more a case of folks picking up stocks that have fallen to very low levels and moving into defensive ones than on any really good news. The impact of the virus in the UK is still growing and business is grinding to a halt.

The bad news today was 1) From Rightmove (RMV) who said “Notably the number of property transactions failing to complete in recent days and likely changes in tenant behaviour following the announcement of the renters’ protections by the government may put further pressure on estate and lettings agents”. They are knocking 75% off their customer invoices for the next few months which will mean a hit of up to £75 million to revenue! Better to have some revenue than have agents cancel seems to be the logic. The share price is down 4%. 2) From Tracsis (TRCS) a provider of services to the rail industry who say: “Given that the situation is changing rapidly, at this point in time it is not possible to accurately quantify the impact on H2 trading and therefore full year expectation”. A lot of their revenue is recurring in nature but they will be impacted by the cancellation of events. The share price is up over 2%, presumably on some relief that it is not as bad a prognostication as many companies are issuing.

I do hold those stocks but one I do not is Next (NXT) the retailer. They have received compliments in the national media about their recent announcement which gave some very detailed forecasts of how they would cope “in extremis”. I still doubt this is a sector to get back into because wages in many sectors of the economy will be depressed which will surely hit retail sales even if they are able to venture back into the shops or shop on-line. When the economic outlook is uncertain, people stop spending money also.

For Sirius Minerals (SRX) shareholders, ShareSoc has issued a very well judged blog post on possible legal claims – see https://www.sharesoc.org/sharesoc-news/sirius-update-9-14-march-2020/ . Regrettably there have been some hotheads who wanted more action and sooner, which was not practical, and some who think ShareSoc is raising false hopes. Neither is the case. As someone who has in the past run shareholder action groups, I have learned that quick actions are neither sensible nor practical. But legal cases for redress are sometimes possible – for example in the case of the Royal Bank of Scotland rights issue in 2008 and the false prospectus. But it can take years to raise funding and reach a conclusion. Persistence is everything in such circumstances. But rushing into legal action, however willing lawyers are to run up fees on a case, is not sensible.

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

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Stock Market Turmoil – Don’t Sit There Awaiting a Rebound

The virus epidemic is causing major disruption to businesses and our personal lives. Thank god that we have the internet so we can conduct business and do our shopping without leaving home. But the UK is seen as one of the victims in the world so the pound is falling to parity with the dollar for the first time for many, many years. Meanwhile the Governor of the Bank of England is saying that he will print as much money as needed – unlimited “helicopter” money to lend to businesses to keep them afloat. Will that stop a recession? I doubt it. But to look on the bright side, it may be a short one.

China seems to have stopped the virus from spreading with no new domestic cases and movement restrictions being lifted. There are also some technical developments that might assist particularly in testing for the virus. But the UK is gearing up for a major epidemic and major stress on the NHS.

I am in isolation trying to avoid catching the disease as I certainly don’t wish to have another spell in intensive care as I had a few years ago. I ended up with “intensive care neuropathy” where all your nerves weaken. Had to learn to walk again, rather like Kenneth More playing Douglas Bader in Reach for the Sky. I recovered but it can be a very dangerous syndrome.

The news from my stock market portfolio is mixed based on the latest announcements which every company is now issuing. LoopUp (LOOP) who provide tele-conferencing is up over 40% today after a very long decline, and there are few other rises today, but overall my portfolio is still slightly down. It was not helped by 4Imprint (FOUR) reporting today that sales have declined by 40% over the last 3 days as against the prior year. They sell promotional merchandise and this an example surely of companies cutting back on non-essential marketing spend and events.

The commercial property market is interesting in that yet again a number of open-funded property funds have suspended redemptions. It is interesting to look back at the share price of TR Property Investment Trust (TRY) which I have held for many years. Such trusts have been badly affected by the gloom in the property sector even if the property companies they invest in may hold long leases and not much exposure to retail or other virus sensitive areas. But the share price of TRY is now back to the level it was in 2013. That’s down over 50% from its peak in February. If the recession is short, that will surely be seen as an anomaly.

It’s also worth remembering that valuing companies on short-term results or trading statements gives you a very poor estimate of what a company is really worth. What matters is the discounted future profits over many years. One bad year has relatively little impact. But when investors are panicking and simply reducing their exposure to the market by moving into cash, then valuations can become both unrealistic and extreme.

The Government’s response is probably a sound one. They are betting that the recession will be short and that keeping companies afloat by short-term loans is better than letting them go bust which would create a snowball effect on suppliers and staff employment.

But some sectors are clearly going to be dire in the short-term. Hospitality is one. Accesso (ACSO) who provide technology to visitor attractions published results yesterday. They might benefit from a low pound but their sales relate directly to visitor numbers to their customers’ sites. I cannot imagine US theme parks being very busy this year and solving queuing problems might be seen as irrelevant. They also declared a write off of $53.6 million on past capitalised software costs. With a new CEO this was hardly surprising to me given the shape of the business and the failure to find a buyer for it recently. Investors will need to be in for the long-haul if they wish to stay on board, but many clearly do not given the share price performance of late. The risk is that some buyer will come along and pick up the useful technology and customer contracts at a bargain price.

One aspect of the virus epidemic I am particularly unhappy with is that the market turmoil and declines have generated a lot more work on my portfolio than usual. Unlike some people, I do not simply sit there expecting shares to bounce back up in due course. Some may but others will not. Some companies may go bust or become a shadow of their former selves while other new opportunities arise. The trend to internet shopping and services will be accelerated. For example one of my eighty-year old neighbours has just opened a supermarket web shopping account for the first time. Ocado (OCDO) has had difficulty keeping up with demand and even had to close their App service temporarily. But once people get into the habit of shopping on-line they won’t revert to old ways. The future for the High Street looks ever bleaker.

There is one other aspect to consider. Will a short, sharp recession be quickly forgotten about or will it prompt the definite end of the bull market? Will share investment go out of fashion after many investors realise they have lost a pile of money from this incident? The general economy may quickly recover but the stock market might not. I don’t know the answer to that question but as always I won’t be guessing at it – just following the trend.

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

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Market Crash and Abcam Impact from Coronavirus

This morning my stock market portfolio was a sea of red – down 5.6% at the time of writing at 9.30 am.  Not only have most shares fallen, but spreads have widened so it’s not even easy to pick up those shares that are now undervalued at a fair price. I think the answer here is to wait until the immediate panic is over before making any more decisions to buy or sell.

The major impacts on shares have been the threat of the coronavirus Covid-19, where the reality of the possible economic impact is finally sinking in, and the other has been the oil share price decline. It might be only short term but the impact of Covid-19 on China and northern Italy is clearly going to be substantial.

I don’t actually hold any oil company shares and it was just propitious that I said on February 14th when discussing electric vehicles that one should “sell BP and Shell perhaps”. The price of oil is down over 25% since Friday and the share prices of BP and Shell are down 16% and 18% respectively today at the time of writing. These declines have a major impact on the FTSE-100. Does that make them a bargain? Perhaps to dividend seeking investors but these are companies whose share prices are driven by oil/gas prices so they are not the kinds of companies I like to own.

One company I do own is Abcam (ABC) who published their interim results this morning. Revenue up 11% but adjusted profits down 20% with the share price down 7% after a sharper initial drop this morning. They report a £3 million revenue reduction from the Covid-19 virus from its early spread in China. But the broader China activity is now returning although still below pre-outbreak levels. The supply chain has been largely unaffected to date.

Cash generated from operations increased but free cash flow is down slightly mainly because of high levels of expenditure still being applied to “new ERP systems and processes” which is capitalised and which I have commented negatively on in the past. Well at least that expenditure is down from last year.

Notwithstanding the short-term impact of the virus, they give a positive outlook statement – “pleased with progress, strong fundamentals, confident in our future prospects, attractive long-term dynamics” are some of the phrases used. I think we might see a lot of similar statements from companies over the next few months. But adjusted earnings per share forecasts for this year are surely going to be downgraded somewhat at Abcam.

I am also not optimistic that the UK, USA or other western economies are going to avoid a widespread outbreak of the disease which will disrupt our lives and economy even if it is a relatively short-term impact.

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

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