Category: Stock market

How Sweden’s Stock Market Became the Envy of Europe

“How Sweden’s stock market became the envy of Europe” is the title of an interesting article published by the FT today. Many small and medium-sized businesses are deciding to list in Stockholm. With 501 IPOs in the last ten years “the Nordic country has been highly successful at encouraging smaller domestic businesses to stay at home, encouraged by the depth of its stock market” according to the article and “A key driver has been the country’s investment culture, which Carnegie’s Elofsson says has attracted ‘everyone from the man on the street to very engaged private banking investors, entrepreneurs, but also the small and mid-cap investment community’”.

Compare that with the UK where AIM listings have been falling and the main market has failed to attract new listings – larger companies such as Shell are looking to move to the USA instead which they perceive has a more vibrant equity culture, better share valuations and more liquidity.

Swedish insurance companies have big equity holdings while in the UK insurance companies and pension funds have been reducing their equity holdings, particularly in UK companies.

Another quote from the article: “Compared with the rest of Europe, Swedish households hold among the highest proportion of their investments in listed companies and among the lowest in bank deposit holdings, while financial literacy is greater than in Germany, France or Spain. In 1984, the government introduced Allemansspar, a product enabling ordinary Swedes to invest in stock markets. By 1990 there were already 1.7mn of these accounts, helping drive the launch of domestically focused small and mid-cap funds”.

Education about financial markets in schools seems to be one reason for the vibrancy of equity investment in Sweden, while UK schools seem to be spending a lot of time on education on gender differences, black history and eco issues.

Having worked for a Swedish company for a couple of years I would comment that the business culture is somewhat different. The UK AIM market is full of companies whose management I would not trust, while that is a key attribute of any successful stock market investment. Cleaning up the AIM market is a prerequisite if more IPOs of small and mid-cap companies are to happen. There are still too many dubious IPOs in the UK – companies that list at optimistic prices and quickly run into difficulties – such as Dr Martens. The promoters of such businesses are part of the problem. Too many people looking for a quick return.

Anyone who is interested in improving the UK stock markets should read the FT article.

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

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The FTSE 100’s Magnificently Unglamorous Seven

Oliver Ralph wrote an interesting article for the FT on Monday. It was entitled “Let’s hear it for the FTSE 100’s magnificently unglamorous seven” and covered the history of Vodafone which has halved its share price in the last two decades while unglamorous Bunzl and Howdens have increased their share prices by 565% and 488% respectively.

Other well-known companies who have done poorly are Barclays and HSBC who did not make it into positive territory while BP, Tesco and GSK did but still underperformed the FTSE-100. Meanwhile lesser-known companies such as Compass, Diploma, Intertek, Experian, Howdens, Bunzl and Relx have done a lot better.

Vodafone should have done well operating in the high growth sector of mobile communications and I looked at them more than once when they were tipped as “cheap” but never purchased the shares. But I have held Diploma, Experian and Relx so it seems I may not be completely daft after all.

The article mentions the acquisition strategies of the successful companies – basically small and low risk ones are preferred.

My prejudice against banks has also worked out well and a preference for smaller well-managed companies with high returns on capital has been successful – Diploma is a classic example.

It’s an article well worth reading. And maybe I should look at Howden and Bunzl to see if they are likely to keep up their performance.

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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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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Xmas Reading and New Year Greetings

brown and black bokeh photography with white text
Photo by Lena Khrupina on Pexels.com

It’s that time of year when one has some spare time. Time enough to read a book or two. I have purchased a 14-book set of the original James Bond books by Ian Fleming and am already half way through them – they are a quick read!

I probably read some of them 50 years ago but they are well written with good evocations of the time and locations they are set in. I have also purchased a recently published biography of Ian Fleming by Nicholas Shakespeare – subtitled “the complete man”. It received good reviews so even at 860 pages I am hopeful that it will keep me awake.

I have not read many books on investment lately that I could recommend, although there are some published on the life of Charlie Munger who recently died that might be of interest. It’s unclear which are particularly worthy of consideration so if readers have any suggestions, please let me know.

The early James Bond films are reasonably faithful to the books although there is more sadomasochism in the books. The books are good for filling time at my hospital appointments where I am averaging several per week lately. I am supposed to be on kidney dialysis but it’s not working as planned.

My thoughts go to Tory MP Craig Mackinlay who has had “extreme surgery” after sepsis. He says “Treatment by the NHS has been exemplary and I’m extremely lucky to be alive”. My feelings too a few years back when I suffered from sepsis. The Sepsis Trust is a good location for any Xmas donations.

My stock market portfolio has been perking up but I suspect this is just another of the usual Santa rallies so I am not rushing back into the market. The economic and political outlook is still depressing so I’ll just follow the trend so long as it continues.

Small cap stocks may look good value but there is still a lot of dross on AIM. Too many companies where hope springs eternal but they tell a good story.

It remains to wish my readers a Happy Christmas and a prosperous New Year.

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

Good Articles in Latest ShareSoc Informer Newsletter

Are you fed up with reading about the antics of media personalities in the national press? I know I am. For some more intelligent and useful material, ShareSoc has just published its latest Informer Newsletter on stock market events.

It does include a couple of short articles from me which is not unusual but other interesting ones cover:

  • Can AI give me an edge by Marcus Breese. His conclusions seem to be similar to mine, i.e. probably not as AI cannot be relied upon to give the right answers.
  • A report on the “digital only” AGM of Marks & Spencer by Cliff Weight. Amusing to see my former colleague Gavin Palmer turned up physically regardless. It’s clear that digital-only meetings are unsatisfactory in several regards. Hybrid events are surely preferable.
  • Some comments on the Flint Interim Report on digitisation which is quite rightly called “a betrayal” as the recommendations therein might remove shareholder rights and defeat shareholder democracy.
  • A note on the threat to investors in SIPPs if the manager goes into administration based on events at the Hartley Pensions manager. This certainly needs pursuing.

In summary, an exceedingly useful newsletter and shows how ShareSoc is doing a great job at representing retail shareholders’ interests.

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

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Are We Nearing the End of the Bear Market?

There were glimmers of light in the UK stock market last week. I actually purchased a few shares to add to my current holdings although I still have a lot of cash in my portfolios. It is worth repeating what Mark Slater of Slater Investments Ltd said at the end of the week:

“The bear market that started in late 2021 is now getting fairly long in the tooth. It has led to significant de-ratings across the board, with a small number of exceptions among the megacaps that dominate the FTSE 100 index. We have now seen a run on a major bank. Many investors are trying to work out which is the next shoe to drop – perhaps a real estate collapse, perhaps a worse recession than expected. We are well and truly into the disillusionment phase. Sir John Templeton said that “bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.” Conversely, bear markets kill off the euphoria of the previous phase quite quickly and then grind away at any residual optimism until almost all market participants are deeply pessimistic. Given the current mood, the odds are that this bear market is nearing its end.

We are not advocates of market timing for the simple reason that it is extremely hard to get it right, both at the point of entry and exit. Investors who can do this are extremely rare, and most of them get it badly wrong at some point. Instead, we prefer to buy businesses we understand that can compound their earnings over time. We expect the majority of the companies we own to do this even though the economic backcloth is challenging. Some other companies we own will probably see their growth rates slow temporarily but we expect them to improve their competitive positions during tough times by taking market share or by making cheaper acquisitions. Only a handful of companies in the portfolio have experienced problems but these are typically due to unforced errors or things like China’s lockdown, issues that are temporary or fixable.

We have not seen so many companies we own trade on single digit PE multiples since 2008-9. Now, as then, as companies grow their earnings while their multiples fall they are getting cheaper and cheaper. It is analogous to holding a beach ball under water. Sooner or later you cannot hold it down any longer and it jumps above the water. For a more accurate analogy, someone would also be pumping air into the beach ball while you try to keep in down.

It is fashionable to be “down” on the UK, especially after the Truss budget. It is therefore worth remembering that the UK is not all doom and gloom. The Mid 250 index has broadly matched the earnings of the S&P 500 over the past twenty years. The UK market also produces a higher proportion of “tenbaggers” than the US market. Michael Caine might say that “not a lot of people know that” and he would be right. Our view is that we saw peak gloom about the UK last autumn.

While we cannot predict the end of the bear market with any accuracy we also believe we should not try to do so. We are comforted that we own good businesses that are cheaper than they have been for a very long time. If we look ahead a couple of years rather than a couple of months, we expect to make money When things are going wonderfully, people can rarely imagine that they can go wrong. Similarly, when times are tough, people often struggle to imagine that they will one day be wonderful again.”

These are wise words from a very experienced stock market investor.

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

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Warren Buffett’s Letter to Shareholders

Warren Buffett has published his latest annual letter to shareholders in Berkshire Hathaway. As usual it contains several words of wisdom on investment and I’ll pick out a few interesting points:

He does not believe in efficient stock markets and says: “It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. Efficient markets exist only in textbooks. In truth, marketable stocks and bonds are baffling, their behavior usually understandable only in retrospect.

He relates how his capital allocation decisions and stock picking have been “no better than so-so” offset by a few good decisions and good luck. He emphasises this lesson for investors of holding on to your winners but selling your losing investments: “The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well”.

Buffett justifies share buy-backs which Berkshire did in 2022 as did some of their investee holdings. He says: “The math isn’t complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices. Just as surely, when a company overpays for repurchases, the continuing shareholders lose. At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment banker who recommended the foolish purchases”.

Comment: Management often have a strong incentive to advocate share repurchases as their incentive schemes are often based on earnings per share. Also they think it might help the share price. I frequently vote against share buy-backs because there are usually better ways for a company to use any surplus cash. Buffett may be one of the few people who can rationally value the benefit of share buy-backs and can be trusted to act in the interest of shareholders.

Charlie Munger, Warren’s partner and aged 98 has some interesting comments on railroads (they own BNSF). He says: “Warren and I hated railroad stocks for decades, but the world changed and finally the country had four huge railroads of vital importance to the American economy. We were slow to recognize the change, but better late than never”. As railroads are a natural monopoly because it’s very difficult to build new ones, one wonders why British railways consistently lose money while BNSF is very profitable. Management is surely the difference.

Warren continues to “bet on America” but the key message is invest in companies that can grow and compound their earnings and then have patience.

Full Newsletter Text: https://www.berkshirehathaway.com/letters/2022ltr.pdf

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

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It’s All Good News Today

With my stock market portfolio picking up in value, the even better news was that Nicola Sturgeon is resigning as First Minister of Scotland. I don’t often comment on politics but Ms Sturgeon was a very divisive leader who chose to push for Scottish Independence in the face of any rational analysis of what might happen to Scotland economically if that was achieved. Even after she lost the referendum vote on it she persisted in pushing for it. She also managed to mismanage the Scottish NHS and more recently fell over backwards over what is a woman.

Whenever she spoke on television I was revolted by her ignorance of the outcome of the policies she was pursuing. Like Sadiq Khan in London, she blamed all her problems on central Government when they were of her own making.

Other good news is that inflation has fallen slightly to 10.1% and the sun is coming out. Crocuses are flowering in our garden and spring is on its way.

In addition I had a phone call from Computershare about my problem with Diploma dividend payments (see previous blog post) and it seems they are going to waive the claimed administration fee. It always pays to complain!

What cheered me up also was reading about the problems of Rolls-Royce (RR.) in Investors Chronicle. The article headlined “Is Rolls-Royce in decline?” and covered recent comments by the new CEO such as “Every investment we make, we destroy value”, “We underperform every key competitor out there…” and “This is out last chance. We have a burning platform… it cannot continue”. What a way to demotivate staff or put a rocket under their backsides.

I worked very briefly for Rolls-Royce 50 years ago and did hold the shares a few years back – sold at 300p in 2015 when they are now 108p. So I missed that falling knife. I sold way before the pandemic hit airline travel and sales of jet engines because I came to the conclusion that their accounting was way too optimistic.

Incidentally I am currently reading a book entitled “Power Failure” on the rise and fall of General Electric who are of course one of the competitors for Rolls-Royce in the aero engine market. I may write a review of the book at a later date. It’s only 800 pages long. Oh so I hate these lengthy tomes when the authors could have communicated their message in so many fewer words.   

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

The New Realities and Private Healthcare

The editorial in this week’s Investors Chronicle was full of doom and gloom. Under the headline “Facing up to new realities” the editor said “The threats identified by the WEF (World Economic Forum at Davos) include climate change, the cost of living crisis, geopolitical confrontation, high debt levels, recession, low growth, social unrest and cyber crime. These crises are converging, it says, to shape a unique, uncertain and turbulent decade to come”.

All I can say is that I have seen all this before and the problems we face are actually relatively minor in comparison with the difficulties faced in previous decades. Having lived through the 1970s when the UK economy was on its knees, we only face minor handicaps now in my view. The WEF is talking us into a recession as when confidence in the economy falls then businesses stop investing for the future. But this is a temporary phenomenon and when we get out of the gloom of winter the picture may be a lot brighter.

Another interesting article in Investor’s Chronicle was on private healthcare which had the headline “Private care likely to boom amid NHS crisis” and I would not dispute that comment. It covered Spire Healthcare (SPI) one of the few medical companies that are UK listed. I was particularly interested in the article because Spire have recently acquired The Doctors Clinic Group who provide private GP services mainly in the London area. I actually used the service a month ago when I got fed up with trying to book an appointment with my NHS GP who have a dysfunctional web site and hopeless phone service. Doctors Clinic was a very efficient, slick and relatively low cost service which I would recommend. Appointments can be made and in person relatively quickly.

But the acquisition by Spire was a relatively small one for them. The financial results of Spire over the last eighteen months do not inspire confidence. Profit margins are poor with only “unadjusted” profits of £4.2 million on revenue of £598 million in the last 6 months. The results were apparently hit by cancellations due to the covid epidemic and staff absences for the same reason.

There is clearly great potential to expand the private GP service as people give up on the NHS but Spire seem to be no better than the NHS at operating a service that more than covers the costs of provision.  And this is one of those companies that “polishes” their financial figures by reporting Adjusted EBITDA and even adjusted cash flows so interpreting their financial figures is not easy.

Investors would have more confidence in the company if they focussed on unadjusted financial figures plus better profit margins and return on capital which have never been brilliant in the last decade.

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

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