Madoff Dies, Parsley Box, Active Trading, Babcock and Covid Vaccinations

Bernie Madoff, arch fraudster, has died in prison. He ran the largest ponzi scheme in history which defrauded investors of over $60 billion. His funds showed unbelievable good performance because he invented share trades to support his fund valuations. This attracted new investors whose cash he used to pay out departing investors and to support dividends. It is unbelievable that such outrageous frauds can still take place in the modern world despite all the onerous regulations.

I mentioned a recently listed company called Parsley Box (MEAL) in a prior blog post. I have now sampled their products – prepacked dinners and have come to the conclusion that I question whether this is likely to become a great company. The meals are rather bland and you can buy cheaper equivalents from supermarkets. They do have the advantage of a long shelf life and do not require refrigeration, but so do other products such as canned goods so I am not convinced there is a big market for them. The company is spending money on national TV advertising, on channels focused on the elderly like me. You can always generate sales if you spend enough on marketing, but that does not necessarily mean that you have a profitable business.  

How actively should one trade? This is a matter of personal preference I have come to believe. Some people can hold stocks for ever in the belief that they will come good in the end whereas others panic at the first sign of trouble. It does of course depend to some extent on the type of stocks in which you invest. Dumping small cap stocks that are on wide spreads can be a very bad idea. The volatility of small cap stocks can bounce you out of a holding quite easily if you have a tight stop-loss.

But there was an amusing story in the latest edition of the Techinvest newsletter. To quote: “In that respect, we are often reminded of a well-publicised study by a large American brokerage a few years ago that aimed to identify which retail accounts generated the highest investment returns. Top of the list were: the accounts of customers who it turned out had been deceased for some time; next best was those accounts that customers had forgotten about and had not traded on for many years; the poorest of investment returns belonged to accounts that had clocked up the highest transaction costs through frequent stock rotation”. Techinvest runs a portfolio and certainly its returns have been very good over the years as they rarely sell stocks. They appear to just wait until some idiot comes along willing to pay a premium price for their holdings.

Personally I often hold stocks for years but I am also impatient when investments seem to be going wrong. I cannot sit there doing nothing. As a man of action, I pander to my impatience by selling a proportion of my holding but not all, i.e. I sell on the way down in stages. That cuts my possible losses. The only exception to this rule I make is if the news is catastrophic or I have lost all trust in the management when I dump the lot.

Babcock (BAB) is a good example of the danger of holding on regardless. It has looked fundamentally cheap for some time but the shares have actually lost 75% of their value in the last 5 years in a steady downward trend. There was more bad news on the 13th April. An announcement from the company said “The contract profitability and balance sheet review (“CPBS”) has identified impairments and charges totaling approximately £1.7 billion”. They now plan some disposals which they suggest may enable them to avoid an equity issue.

On a personal note, I had my second Covid-19 vaccination yesterday (the Pfizer version) so I am feeling slightly tired this morning, as I did after the first. The organisation was chaotic though this time. Originally planned to be done at Guys Hospital but then redirected to St. Thomas hospital and they lost my wife’s record altogether. My tiredness may partly relate to the miles I walked yesterday around and between hospitals. The person who administered the injection worked for British Airways as cabin staff. He was redeployed as there are few flights to service at present. He said a lot of people are extremely nervous about taking the vaccine. He had spent 45 minutes talking to one person before they eventually refused it.

Personally I have no qualms at all about any of the vaccines. They are much safer than the risk of catching the virus. But there are a lot of idiots in this world are there not! The latest bad news however is that the CEO of Pfizer has suggested that we may need a booster every 12 months in future. As I have been having annual flu vaccinations for 25 years that is of no great concern.

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

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FRC Report on AGMs and Defensive Tech Stocks

 The Financial Report Council (FRC) have recently published a report on AGMs with a subtitle of “An opportunity for change”. The report covers how Annual General Meetings have functioned during the Covid-19 epidemic.  With restrictions on physical meetings, companies have adopted different approaches. Some have provided only the legal minimal which means ordinary shareholders have not been able to attend or ask questions. Other companies have provided virtual AGMs, with questions needed to be asked in advance, while others have provided a more comprehensive solution with questions capable of being asked and answered on the day, and votes capable of being submitted on the day.

I have commented on these different approaches and on the general issue of how to operate hybrid AGMs in future on this blog – just use the search function to search for “AGM” to see the articles.

The FRC report is a very good analysis in general of this subject (see below). It’s not too long or tedious for the casual reader but there are a few points worth noting:

They suggest that all shareholders be encouraged to use electronic communication and that they should provide an email address when purchasing shares.  It would certainly be good to have an email address on the share register which I have long argued for. It would assist communication from companies to their investors, and enable other shareholders to communicate with their fellow shareholders (a basic prerequisite for shareholder democracy). But the need to have the same information on the register for those in nominee accounts is also required.

Some share registrars already maintain a record of email addresses of shareholders and have electronic systems for recording voting but these can be complex and waste shareholders’ time. They also claim that these records are not part of the official “share register” which is dubious.

However, there are practical issues here that are not mentioned. I don’t mind receiving some information from companies via email but maintaining a record of which companies have my email address (and which one from multiple email accounts, particularly after I have changed them) would not be easy. We really do need a secure central register of all public company shareholders that the shareholders can maintain themselves as regards names, postal addresses, bank accounts (for dividend payments) and email addresses. Also there is the problem that I don’t like trying to read Annual Reports that can be several hundred pages long, on-line. Much better to receive a paper Annual Report.

For the above reasons, I gave up opting in for on-line communication and have all my reports on paper.

It is important for shareholders to be able not just to ask questions at AGMs but to “speak” on anything relevant to the business of the company. Some companies have adopted Articles providing for virtual AGMs that limit this. They also need to be able to ask “follow-up” questions.

The FRC suggests splitting the AGM into two meetings – an initial one for presentations and questions/answers with a formal meeting for voting later. That seems a good approach.

The FRC Report is present here:  https://www.frc.org.uk/getattachment/48c4ee08-b7be-4b7c-8f19-bcaf3d44e441/Corporate-Governance-AGM.pdf

The FRC is proposing to bring together a “stakeholder group” to consider the need for legislative changes or propose alternative means to achieve the required flexibility.

Defensive Tech Stocks

On another subject, why have technology stocks proved to be such good defensive holdings during the pandemic?  The editor of Techinvest spelled it out in these words in a recent edition:

“Driving the high demand for FAANG stocks since the start of the Covid-19 crisis has been the flight to safety after markets sold off heavily in early March. While it may seem counterintuitive, big tech has been attracting buyers-this-year because if its perceived defensive qualities. At a time when many other industries are being adversely affected by the Covid-19 disruption, tech appears to be emerging in a stronger position, with demand increasing in areas such as online shopping, remote working, and digital connectivity. According to research by McKinsey, the speed of digital adoption has been so quick in response to the pandemic that five years’ worth of progress has been made in just a few weeks. Big tech, in particular, is seen as a major beneficiary of the accelerated demand for digitalisation and investors have been backing this theme”.

Yes the world is changing rapidly and investors need to take note of that.

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

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