Stock Market Investing – It’s a Doddle

An amusing announcement today was by AJ Bell. They are launching a new app-only investment platform to be called “Dodl”. Clearly they wish to suggest that stock market investing is a doddle when I think it is anything but. After 30 years of investing, I still find that some of my new share picks don’t turn into profitable ones. There is no simple formula for picking successful investments, but experience does seem to help a lot.  They should have called the app “Tricky”.

AJ Bell clearly intend to attract new investors by making stock market investment appear simple and fun. To quote from their press release: “Investing needn’t be scary, with Dodl’s friendly monster characters on hand to guide people through the application process, as well as providing information to help people make their investment decisions”. To make it even more attractive the new app offers zero commission trading but there will be an annual charge of 0.15% of the portfolio value for each investment account with a £1 per month minimum charge.

This may prove a competitive threat to other investment platforms and encourage even more consolidation among providers. And it’s clearly a response to the zero commission platforms such as eToro that have been attracting new investors of late.

Is this a positive move? Or will it encourage people to become stock market traders and speculators rather than long-term investors? If you make investment too easy, i.e. to be done at minimal cost and without prior thought or research is that not positively dangerous?

I also feel it could be that these new low-cost platforms might be gaining business without a sound understanding of the real cost of doing business, i.e. they are using it as a loss-leading marketing approach in the hope of making money later. That was the reason many alternative energy suppliers recently went bust.   

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

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A Book to Cheer You Up

We are in one of those depressing moments of the manic-depressive cycles of the stock market. Invest-ability just told us that the FTSE 250 has now lost over 7 per cent this month and I can quite believe it with my portfolio certainly heading downhill. With the gloom of winter fast arriving, I can only recommend the book “Where are the customer’s yachts?” by Fred Schwed.

This book was first published in 1940 and the author had experienced Wall Street at its most extremes. He was a trader but lost a lot of his money in the crash of 1929. It’s a cynical look at the practices and people on Wall Street of which the author clearly had a fine understanding. One might conclude that the financial world has not changed much since.

It’s both witty and educational. As the introduction to the 2006 edition by Jason Sweig spells out: “The names and faces and machinery of Wall Street have changed completely from Schwed’s day, but the game remains the same. The Individual Investor is still situated at the very bottom of the food chain, a speck of plankton in a sea of predators”.

The title of the book refers to the apocryphal story of some out-of-town visitors to New York. On arriving at the Battery their guides indicated some handsome ships riding at anchor and said “Look those are the bankers’ and broker’s yachts”. “Where are the customer’s yachts?” asked the naïve visitor.

Here’s one educational paragraph from the book after he comments that “pitifully few financial experts have ever known for two years (much less fifteen) what was going to happen to any class of securities – and that the majority are usually spectacularly wrong in a much shorter time than that”:

“Still he is not a lair; nor is our other friend. I can explain it, because I have not only had lunch with economists, I have sometimes had dinner with psychiatrists. It seems that the immature mind has a regrettable tendency to believe, as actually true, that which it only hopes to be true. In this case the notion that the financial future is not predictable is just too unpleasant to be given any room at all in the Wall Streeter’s consciousness. But we expect a child to grow up in time and learn what is reality, as opposed to what are only his hopes. This however is asking too much of the romantic Wall Streeter – and they are all romantics, whether they be villains or philanthropists. Else they would never have chosen this business which is the business of dreams”.

On the subject of trusts he says “There has been a good deal of thoughtful, searching legislation enacted against trust abuses in recent years, and all of it favors the investor. The sad thing is that there can be no legislation against stupidity”. The recent events at Woodford come to mind.

The writer also comments on the detachment of the investor or speculator from the real businesses represented by pieces of paper – and “with these pieces of paper thrilling games can be played……this inability to grasp ultimate realities is the outstanding mental deficiency of the speculator, small as well as great”.

He points out that one of the agendas of the S.E.C. is to work towards the ideal of a completely informed investing public. A laudable effort he says but then points out that then “everybody would know whether to buy or sell, and whichever it was, everybody would try to do the same thing at once”. Orderly markets exist on differences of opinion. This view is worth pondering now that we have such instant dissemination of financial news and analysis on large cap stocks.

There is a much wisdom in this book which is both relatively short and readable. Highly recommended for those new to investment for the education and to experienced investors for the levity.

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

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Mining Companies, Takeovers and a Journal of the Coronavirus Year

The usual stock market gyrations are taking place in August and this year it seems to be the turn of big mining stocks. Rio Tinto (RIO) is down 20% since its recent peak in May and Anglo American (AAL) fell sharply after it recently went ex-dividend. BHP Group (BHP) is also down but not by as much as might be expected after it announced that it was intending to unify its corporate structure and this will mean it will no longer be a FTSE-100 stock so some tracker funds will have to sell it. The downward move was probably limited because this company is dual listed in the UK and Australia and there was a discount in the UK versus the A$ price which will be eliminated.  

The reasons given in the media for declines in mining stocks are numerous – some profit taking after a long rise, worries about Covid infections rising, US stimulus measures being cut back, a slow-down in economic growth in China and several other reasons. All of this is probably just “noise” that can be discarded as financial news tends to be thin during the summer so media tend to invent stories.

As regards the BHP move, where I hold the stock, I do not oppose the simplification. It will still be listed in the UK but as a FTSE-250 stock. However the one-off costs of US$500 million to do the unification seems to be unreasonably high. I hope we see a good justification for the move when it comes to a vote. But it has been suggested that one motivation is a more relaxed corporate governance environment in Australia. As I have pointed out in previous blog posts, excessive regulation in the UK is providing an incentive to list elsewhere or not list at all.

Other market news is a recent spate of takeovers in my portfolio such as at Avast (AVST) and Ultra Electronics (ULE). The Avast proposal is not at a great premium but I have only held it for a short while so I will not oppose. It’s a good opportunity to simplify my portfolio which still has too many holdings in it.

As regards Ultra this is another short-term holding and the agreed offer price is at a very good premium so I will support. The Government has required the competition watchdog to assess ‘national security issues’ over the sale but the share price barely moved after that announcement so it seems the market expects this will not thwart the deal. With UK and US defence companies now so intertwined it would seem pointless to object.

On a more personal note, in March 2020 I started a diary because the coming year seemed likely to be a momentous one. With the Covid epidemic spiralling out of control and our departure from the EU (Brexit) having happened but no free trade agreement yet in place which was forecast to be a disaster by some people, it looked likely to be an interesting year economically and politically. And so it turned out to be.

My life in the period has been somewhat mundane as meetings have been cancelled and travel much restricted. But I thought it might of some interest to my offspring in due course. My father wrote a diary covering the years before, during and after the Second World War which proved to be fascinating reading when it came to light over 50 years later even though he was in a “reserved” occupation and the nearest he ever got to fighting was in the Home Guard.

I have now finished my diary as I consider the epidemic to be substantially over and Brexit has turned out to have minimal consequences on our daily lives. But some aspects of our lives have changed. My diary has been printed under the title “A Journal of the Coronavirus Year” and is comparable to “A Journal of the Plague Year” by Daniel Defoe published in 1722.

I have published other books in the past – the most recent one via Amazon which is relatively simple to do. But I only wanted a few hard copies for my family so I used a company called BookPrintingUK (https://www.bookprintinguk.com/ ). This I found to be a very good low-cost service which I can recommend it you have a similar need. It is easy to use and they can include colour photographs.  Photograph of completed volume of 400 pages is above.

The current book contains both personal information and commentary on the financial world – the latter often taken from my blog. Is it worth turning it into a publication that the general public, or at least the investment community, might find of interest? Let me know if you think that would attract any demand. As a history of the epidemic and other events from March 2020 to June 2021 and how life has changed in that period it may be of some interest to historians.

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

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Comments on Primary Markets Effectiveness Review

The Financial Conduct Authority (FCA) have launched a public consultation on potential changes to the regulations regarding the listing of companies on public exchanges (see link below). This is in response to concerns about the fall in the number of companies listing (the number listed is down by 40% since 2008). There is particular concern that the UK regime is tougher than other international markets and particularly deters certain types of companies from listing.

You only have to read the consultation document to understand how complex the rules on main market listing are and they are surely due for simplification. Over complex rules not just deter companies from listing but add to the costs of doing so and those costs fall on investors.

A survey by PWC in 2018 indicated that regulatory burdens and costs are the main reasons for not listing as opposed to raising finance by other means. A fall in the number of listed companies particularly affects private investors who want to invest directly in companies and wish to have a direct connection with where their money is invested.

Other factors are also involved such as the low cost of debt at present and the ability of private equity firms to act quickly and provide a less onerous corporate governance regime. But it would certainly be a retrograde step if public stock markets fell substantially in size.

Among the proposals to make listing more attractive in the UK are 1) allowing dual class structures where some shareholders can have disproportionate voting rights; and 2) relaxing free float levels required. But there is also a proposal to increase the minimum market capitalisation substantially from the present level, which surely would not help.

There are also proposals to alter the primary segment qualifications or remove segments altogether which I favour.

I support the relaxation of free float levels but am opposed to dual class structures. Dual class structures enable founders to retain control but that is not necessarily a good thing. In practice there are other ways that founders can retain substantial influence – for example by retaining significant shareholdings and board seats. I do not see that permitting dual class structures (DCSS) is necessary to make listing in the UK more attractive.

What will make listing more attractive is a simplification of the listing rules and a reduction in cost plus a reduction in the regulations such as onerous corporate governance regulations (such as the recently proposed climate disclosure regulations I commented negatively upon).

You can read my detailed responses to the FCA consultation here:

https://www.roliscon.com/Primary-Markets-Effectiveness-Review-Response.pdf

The FCA Consultation is here: https://www.fca.org.uk/publications/consultation-papers/cp21-21-primary-markets-effectiveness-review

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

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A Correction or the Start of a Bear Market?

This week saw sharp declines in stock markets. My portfolios headed downhill consistently this week. It’s not just technology stocks that have declined but big miners also despite the fact that there have been several press articles suggesting that commodities are in a “super-cycle” and that the price of products such as copper will rise due to the inadequate supply to meet the needs of electrification required for a low carbon world. At the same time there are concerns about inflation rising with April’s consumer prices index in the USA surging by 0.8pc equivalent to an annual rate of over 4%. That may be a short-term blip but with Governments pumping cash into their economies to offset pandemic impacts, there are certainly worries that sooner or later interest rates will have to rise. If they do then the stock market may become less attractive than bonds despite an otherwise booming economy.

Is this a market “correction”, i.e. a short-term response to excessive exuberance, or the start of a bear market? Or perhaps it’s the normal “sell in May” syndrome as markets enter a quieter period during the summer as has historically been the case?

I doubt we are entering a bear market. Bear markets arise from a combination of economic circumstances and where stock market investors suffer from a deep depression about the future and head for safer havens. But there are certainly sectors of the stock market that appear to be in bubble territory and need calming down.

How this will play out is ultimately unknowable though. Predicting overall stock market trends is rather like predicting overall economic trends. Something that only fools will try to do. One can only follow the trends to see if there is a bear market developing or not. Reacting to short-term trends by selling stocks because the major indices have fallen is not likely to be a wise policy in my experience. But selling individual stocks, or a proportion of your holding, when they appear to be overpriced or in bubble territory is something worth considering.

However, moving in or out of stocks based on the vagaries of the stock market is surely the wrong approach. The prices of individual stocks are driven as much by emotion as fundamentals. Hot stocks and hot sectors can rise disproportionately because sometimes there are only buyers and no sellers as enthusiasm for their future prospects overcomes any doubts about the future risks.

The answer is surely to invest in stocks that are fundamentally sound and show all the qualities of good long-term investments, i.e. forget the short-term and look at the long-term prospects. So I won’t be selling in May because that does not match my investing style. And I will need convincing to sell at all unless I am clear that overall sentiment to a company or to the economy has changed.  

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

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Rampant Speculation, Cryptocurrencies, Buffett Meeting and Ridley Blog

With a long weekend for the May bank holiday, I took the opportunity to prepare the information required by my accountants to submit my and my wife’s tax returns (it’s many years since I completed my own Self Assessment tax returns – my financial affairs got too complicated).

After reading a good article in this weeks Investors Chronicle on Inheritance Tax (IHT), entitled “Eight things executors need to know”, I think I should have simplified my financial affairs long ago! My executors are going to have quite a job on their hands. But IHT is just ridiculously complicated. It looks like a “make work” scheme for accountants.

I have of course tried to simplify matters recently by consolidating two SIPPs on different platforms into one. The process was started on the12th January and is still not complete although most of the assets have now been transferred. As I have said before, the time and effort required to move platforms is disgraceful so I will be preparing a complaint to go to the Financial Ombudsman this week.

Having reviewed my income and expenditure figures for last year, it’s also a good time to review the state of the market. Should I “Sell in May and Go Away” as the old adage goes? Not that one can go far these days without a lot of inconvenience and expense.  

My portfolios contain a mix of individual shares and investment trusts, with a strong focus on technology stocks and small cap stocks. I certainly have some concerns about small cap technology stocks which seem to be fully priced at present, even if their futures look rosy. There are a large number of new IPOs of late where the valuations seem very optimistic. Meanwhile there is rampant speculation being pursued by inexperienced investors, particularly in cryptocurrencies and NFTs.

This is what Warren Buffett’s partner Charlie Munger said at the recent Berkshire Hathaway Meeting: “Of course, I hate the Bitcoin success and I don’t welcome a currency that’s useful to kidnappers and extortionists, and so forth…Nor do I like just shuffling out billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. So, I think I should say modestly that I think the whole damn development is disgusting and contrary to the interests of civilization. And I’ll leave the criticism to others”. That’s very much my opinion also.

Government debt has been ramped up to meet the Covid epidemic and interest rates are at historic lows. The concern of many is that inflation will increase as a result requiring Governments to clamp down on the economy to stop it overheating. This was a useful comment recently from the editor of Small Company Sharewatch: “The solution to the problem of lower interest rates is self-evidently higher interest rates. But the US Federal Reserve is having none of it. In the 1970s. inflation of around 15% was the problem. This was cured by higher interest rates, which got inflation down, and allowed interest rates to fall – for the next 40 years! The problem has now flipped. Low interest rates are the problem. Debt is encouraged: complacency grows; savers take on more risk; and investor mania grows. These are all likely to persist until the Fed acts”.

The economy is certainly buoyant. I learned today from attending a webinar of Up Global Sourcing (UPGS) that even pallets are in short supply. Commodities are also increasing in price as a result. I have not lost faith in technology stocks but perhaps it is best to look for new investments in other sectors of the economy – and certainly UPGS is a very different business which I now hold.

For another topical quote, here’s one from Matt Ridley in an article in the Telegraph (he always has something intelligent to say):

“The whole aim of practical politics, said HL Mencken, ‘is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.’

It is hard to avoid the impression that officials are alarmed rather than pleased by the fading of the pandemic in Britain. They had a real hobgoblin to hand, and boy did they make the most of it, but it’s now turning into a pussy cat. So they are back to casting around for imaginary ones to justify their draconian – and deliciously popular – command and control over every detail of our lives. Look, variants!

And yes, the pandemic is fading fast. The vaccine is working ‘better than we could possibly have imagined’, according to Calum Semple, of the University of Liverpool, based on a study which found that it reduced hospitalisation by 98 per cent……”.

If the pandemic and the associated fear of the population is over, no doubt the Government will ramp up the concern about global warming despite the fact that we had the coldest April for almost 100 years. Government actions in this area are already having a significant effect on some sections of the economy and I have been putting a toe into that pool. No I am not buying electric car stocks but the power generation area is certainly of interest. How to avoid the speculations and just buy good businesses that are not totally reliant on Government funding is surely the key.

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

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Soporific Webinars, Property Market, Portfolio Performance, and It Helps to be Older.

I attended three on-line company meetings yesterday – AGMs and results presentations. I have to admit that I fell asleep watching one of them which shows how soporific many of these events are. It does not help when the presenters read from a script that they have rehearsed beforehand which causes them to drone on. There is much less spontaneity than in a physical meeting.

The other common failure is that they show presentation slides at the same time that are not easily readable. That would be OK if the slides just contained bullet points in large type or graphics that reinforced the points the speaker was making but they frequently contain masses of small font text that are barely readable on a small laptop screen.  If hybrid meetings are going to be the norm in future, then more attention needs to be paid to how to do them well.

One of the presentations was by Equals CEO Ian Strafford-Taylor who had gone to his office in the City on the day. Surprisingly he said he had not managed to get a seat on the tube and there were queues at sandwich shops. So it seems life might actually be returning to City offices.

Perhaps it was coincidence but the share price of Schroder REIT (SREI) rose by 2.6% on the day and has been rising steadily since it bottomed out last July. The trust holds a mixed portfolio of commercial property. This morning the trust gave an update on rent collection which said “The Company has collected 88% of rents due on the 25 March 2021 for the quarter ending June 2021, after allowing for agreed rent deferrals.  This is ahead of the equivalent date in the previous quarter.  The breakdown of collection rates between sectors is 98% for industrial, 96% for office, 83% relating to ancillary uses and 51% relating for retail and leisure.  The Company remains in active dialogue with tenants for all rents due to be paid and expects to recover a significant portion of the outstanding amount”.

Clearly the retail sector is still one in difficulties, but the discount to NAV of SREI shares as reported by the AIC is 26% so I think there is value there if one has the patience to wait some time.

I don’t know how readers portfolios are faring of late but mine seems to be zooming up in valuation – up over 60% since the low point of the start of the pandemic in March 2020 (that’s ignoring dividends received and cash movements). There is clearly a lot of enthusiasm among retail investors for stock market investment. Is the market becoming irrational and over-valued? I would not like to say. But as a dedicated trend follower I have had some difficulty in keeping up (I tend to buy more when share prices are rising and vice versa).

It was interesting to see a report from Interactive Investor (II) who published the chart below of the performance of their clients in the first quarter of the year. Clearly there is a benefit in being old when it comes to stock market investing!

They report “all age categories trailed the FTSE World Index, which was up 4.09%, while the FTSE All Share did even better after a poor 2020, up 5.19%”. They also say though that “the average interactive investor customer portfolio – in median terms – is up 32.09% over the year to end March 2021, ahead of the FTSE All Share”.

They explain these results by saying “The outperformance of the 65 plus age group could be in part due to lower cash weightings in a rising market, and their low exposure (in median average terms) to tech stocks like Apple, Tesla or Amazon, which had a shaky Q1. No tech stocks appeared in the top 10 holdings by value (in median average terms), amongst the over 65s”.

In a quarter in which the FCA warned that some younger investors are taking on board too much risk this does not seem to be an overall trend amongst Interactive Investor customers. They have a high weighting in investment trusts but less in individual technology stocks.

But as Alliance Trust (ATST) reported at their AGM yesterday, I have underperformed global stock market indices because I don’t have big holdings in the mega technology stocks such as Tesla or Apple. They are held by some investment trusts I hold but they tend to be under-weight in them like ATST. I am not unhappy to be under-weight in very large tech stocks which certainly look to be in bubble territory to me.

I hold the stocks mentioned above.

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

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Margin Calls Not Met – $Billions Lost

On the 23rd March I warned about the dangers of the rise in speculation among small retail investors. I said this: “I suggest that buying shares on margin should be accompanied by very strong health warnings to investors and tougher regulations. It was one of the reasons for the collapse of the US stock market in the 1930s. Too many folks geared up with broker loans that were unsupportable when the market headed down. Investors were unable to meet margin calls, and the lenders then went bust”.

But this is also a problem among larger investors. Today the FT reported that Credit Suisse and Nomura – two of the world’s largest banks – faced large losses after their client Archegos Capital Management, for whom they acted as prime broker, failed to meet margin calls.

Nomura said it estimated that its claim against the client might be $2 Billion or more if asset prices continued to fall. The share price of Nomura fell by 16% as these events might wipe out its second half profits. The losses at Credit Suisse might be even higher at between $3 Billion and $4 Billion it is suggested in the FT article.

Archegos, an investment company, has been dumping shares after sharp declines in ViacomCBS and Chinese technology stocks.

The problem is that whenever a few big players become over-leveraged their failure can have the effect of falling dominoes as they trigger the collapse of other players. Even if the lenders don’t fail, the sales of holdings when margin calls are not met depresses the share prices of those holdings. In summary there are too many people betting on rising markets and trading on margin. Financial market regulators seem to have taken no notice of the growing risks attendant on this structure.

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

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The Promotion of Speculation

I was flicking through some TV channels last night and I saw an advertisement for Interactive Brokers Inc. You know the market is getting too speculative when you see they are offering margin rates of as low as 1%, i.e. you can borrow money at that rate to purchase shares.

This is some of what they say on their web site:

“Lowest Financing Costs:

We offer the lowest margin loan interest rates of any broker, according to the StockBroker.com 2021 online broker review.

Earn Extra Income:

Earn extra income on the fully-paid shares of stock held in your account. IBKR borrows your shares to lend to traders who want to short and are willing to pay interest to borrow the shares. Each day shares are on loan you are paid interest while retaining the ability to trade your loaned stock without restrictions”.

That last statement is truly surprising. So it seems you could sell all the stock you purchased on margin even though it has been lent out.

Interactive Brokers (IBKR) is a US listed company with revenues of over $2 billion. They are authorised by the FCA. The fact that they are now actively promoting their services in the UK tells you that the mania for share trading by small investors is spreading from the USA to the UK.

I suggest that buying shares on margin should be accompanied by very strong health warnings to investors and tougher regulations. It was one of the reasons for the collapse of the US stock market in the 1930s. Too many folks geared up with broker loans that were unsupportable when the market headed down. Investors were unable to meet margin calls, and the lenders then went bust.  

Borrowing to speculate on shares is like gambling with other people’s money.

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

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The Death of the High Street, and All Physical Retail Outlets

A couple of items of news today spelled out the dire situation of retailers with physical shops, whether they are on the High Streets, in shopping malls or out of town locations.

Firstly chocolate seller Thorntons are to close all their 61 shops and rely on internet orders and partner sales alone.  Thorntons has been a feature of the retail scene for many years but it had been losing money even before the pandemic hit. I did hold the shares for a time when it was a listed company but it is now owned by Ferrero. I even sold the company some software over 20 years ago and remember visiting their factory more than once. It was indicative of changing shopping habits with supermarket sales and local convenience stores taking over from specialist shops for much of their business and with internet sales being the final nail in the coffin. Some 600 jobs will disappear as a result. The vertically integrated structure (both making and selling their products) gave them some competitive advantage but not enough.

Another indication that shoppers have changed habits, and probably permanently, was the announcement from payments company Boku (BOKU) this morning. In their results for the last year the CEO said this: “Industries dependent on face-to-face contact have been decimated. Some – hospitality, for example – will bounce back when restrictions are released, but for others, the pandemic has accelerated pre-existing trends. It turns out that many people didn’t really like driving into town to go shopping and for many types of goods the switch to online will be permanent”.

I hold some Boku shares and although revenue shows another healthy increase, it still lost money last year mainly because of a big write down of goodwill in the Identity Division. One might consider that an exceptional item, although the division is still reporting a loss.

Another interesting announcement this morning was that by Smithson Investment Trust (SSON) which I also hold. In their final results, the fund manager said this: “In the Investment Manager’s view, a high-quality business is one which can sustain a high return on operating capital employed and which generates substantial cash flow, as opposed to only creating accounting earnings. If it also reinvests some of this cash back into the business at its high returns on capital, the Investment Manager believes the cash flow will then compound over time, along with the value of the Company’s investment…….the Investment Manager will look for companies that rely on intangible assets such as one or more of the following: brand names; patents; customer relationships; distribution networks; installed bases of equipment or software which provide a captive market for services, spares and upgrades; or dominant market shares. The Investment Manager will generally seek to avoid companies that rely on tangible assets such as buildings or manufacturing plants, as it believes well-financed competitors can easily replicate and compete with such businesses. The Investment Manager believes that intangible assets are much more difficult for competitors to replicate, and companies reliant on intangible assets require more equity and are less reliant on debt as banks are less willing to lend against such assets.

The Company will only invest in companies that earn a high return on their capital on an unleveraged basis and do not require borrowed money to function. The Investment Manager will avoid sectors such as banks and real estate which require significant levels of debt in order to generate a reasonable shareholder return given their returns on unlevered equity investment are low”.

This formula of ignoring physical assets is proving very successful and demonstrates how the world is changing. I am not quite so pessimistic about real estate companies but certainly those holding retailing assets are surely to be avoided.

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

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