Thoughts on the week, then some good links.
I want to thank you for reading Monevator. It must be hard at times. Over 1,000 people now subscribe to hear me say the UK economy is growing nicely and that UK shares are good value, while virtually everyone else talks about a double-dip recession and a new bear market.
The truth is neither they nor me can be sure – nobody can be – but at least I’m honest about it.
With the FTSE 100 closing the week at 5,045 and the Dow at 10,142, it’s been a bad year for quick gains. The leading UK shares are down nearly 7%; that’s even worse than the US market, party because of the dire performance of BP.
Shares in the stricken oil giant are barely floating above the £3 level. Its price is down 25% from when I wrote that I thought BP shares were good value.
Was I wrong? Yes, and no.
Yes – In retrospect, the situation was still in play. The political fury was close to peaking, but the well was still leaking oil and estimates of the amount gushing out were rising fast. It would have been safer to wait.
No – I was clear that there were plenty of negatives. I also stressed it can often take a very long time (think years) for crisis situations to resolve themselves. Buying a plunging share is a calculated gamble. Buying one and expecting its price to rise tomorrow is wishful thinking.
Most analysts still have ‘buy’ ratings on BP for the same reason I liked the shares at £4.35. The potential reward seem to outweigh the risks. At £3, that case is stronger, although the final costs have risen as more oil has surged into the gulf and the mishaps have continued.
I’ll probably still not buy, having calculated my exposure through passive funds and trusts is 2-3% already, but I can see why someone else would.
It’s the stupid economy stupid
As for the economy and the wider market, no excuses are necessary. I simply tell it as I see it.
This blog would be more popular if I wrote about buying gold three times a week and screamed the sky is falling. That’s what does well on the web. But the whole point of Monevator is it’s a place for my thoughts on investing, with information on everything from the wisdom of tracker funds to the historical returns from equities, via Star Wars.
The forward-looking tea leaf stuff is a sideshow, but it’s honestly delivered.
With the FTSE 100 on 14x historical earnings over ten years and a forward P/E of 9, I still think shares are a bargain compared to nearly every other asset classes. And that’s partly because I think the economy will continue to grow, despite all the doom and gloom.
But shares are volatile, and reading the economic runes is very much a ‘for what it’s worth’ activity. The small print is the big picture when investing.
p.s. Plus, I was right about England, wasn’t I? Shame about the Germans.
Good reads on other blogs
- The accomplished mole: Seth Klarman – Investing Caffeine
- Market timing works, but not for you – Bargaineering
- Target date retirement funds – Cash Money Life
- Lazy asset allocation – Barbara Friedberg
- Exploiting the anomalies – The Psy-Fi blog
- Ruminations on the UK budget – Simple in Suffolk
- You can be rich without being smart – The Digerati Life
- The hunt for Yorkshire’s thriftiest granny – Miss Thrifty
- The best investments for retirement income – Wealth Pilgrim
Articles from the big media
- Inside the minds of the world’s wealthy – The Motley Fool
- A special report on debt – The Economist
- What really caused the commodity boom – The Economist
- Kevin Costner’s oil recovery device actually works, says BP – Yahoo
- Capital gains vehicles will continue to thrive – FT
- The scramble for yield – FT
- Retirement changes give savers control – FT
- Warren Buffett buys more Tesco – The Telegraph
- The cost of retiring at 66 – The Telegraph
- Five million more to pay 40% tax within five years – The Telegraph
- A VAT-free shopping list – The Telegraph
- Developing nations need the West’s expertise – The Independent
- Drive to turn wasteful houses green – The Guardian
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