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Weekend reading: Je ne regrette rien

Investing reads

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

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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{ 13 comments… add one }
  • 1 Financial Samurai June 26, 2010, 2:31 pm

    On highlighting the BP thing, I think the answer is “Yes”, you got it wrong. It’s OK though to admit, b/c we all get it wrong all the time. You don’t go ahead and write an investment article as to why to buy, if you don’t want to buy it right? It was well written, which is all that matters. The buyer is the one to blame.

    BP looks like it’s going lower frankly.

    I just want to see the UK government raise taxes on everybody to 50%! That would be sweet! Then we’d have a real revolution!
    .-= Financial Samurai on: Only The Poor or Super Rich Say- “Money Can’t Buy Happiness” =-.

  • 2 Faustus June 26, 2010, 5:17 pm

    Yes BP at 400-425 was a costly mistake in the short term – but there’s no point investing if we are not prepared to take calculated risks and learn lessons when we get it wrong. I’m certainly glad I didn’t commit more at the time, and also have a lesson in the dangers of trying to catch a falling stock before all the uncertainties behind its fall have been ironed out. RBS should have been a reminder that even blue-chip stocks can be high risk. In Monevator’s favour, I’ve read analysts screaming buy all the way down from 600, with far less caution expressed.

    There has been an unfortunate side-effect I think, in that UK Income and Growth Investment Trusts with BP holdings have seen their discounts to NAV almost wiped out (and at the same time those without BP such as Neil Woodford’s Edinburgh IT have soared to a premium due to demand), making it more difficult to find value at the moment without focusing on single stock picks.

  • 3 Balance Junkie June 26, 2010, 7:22 pm

    I read part of the Mauldin “wolf” article you linked to, but couldn’t endure the rest of it, especially once I realized it was written by a CFP, as those guys are the pied pipers of ostrich investing.

    I won’t argue that Mauldin’s predictive prowess isn’t great, but he freely admits it and he did keep me from losing any money during the crash. It’s interesting that the wolf article was written just before the markets tipped over in May. Nice timing. (Irony intended.)

    Market timing isn’t foolproof, but buying and holding without paying attention to the world around you is foolhardy. Maybe a bit of both is better? I don’t have the answer. Neither does John Mauldin. He offers his economic insights with enough asterisks on his market predictions that anyone who follows them to the letter deserves any resulting losses.
    I’ve never seen him write a 2000 word ad hominem attack on another person’s ideas. Perhaps he has better things to do.

    On BP – you were wrong.

  • 4 The Investor June 26, 2010, 7:34 pm

    Don’t get me wrong, I like Maudlin’s writing whenever I read it. He is perma bearish though.

  • 5 Balance Junkie June 26, 2010, 7:51 pm

    Yeah. You’re right. I read Mauldin’s stuff the way I read the permabulls. You have to consider the source. I meant no criticism of you. (It’s hard to get tone across well in writing.) I just thought Slome’s article was an unprofessional cheap shot.

    Your BP call and Mauldin’s market calls just illustrate how hard it really is to get investing right. No one does it all the time. And those of us who make our views public are eventually going to be wrong in public whether we’re buy and holders, value investors, or technical analysts.

    Kudos to you for offering your honest economic and market views. Keep ’em coming! 🙂
    .-= Balance Junkie on: 3D Hurricane- Are Your Finances Prepared =-.

  • 6 ermine June 27, 2010, 2:18 pm

    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.

    Au contraire… It is exactly why I love reading this. You’re at variance with what I expect, but are a refreshing reminder that I have to have some part of my portfolio also taking a punt on that possibility.

    And heck, we need hope in the gloom 😉 You give some well-thought out reasons for the hope, even if some other part of me thinks the darkness will still overcome the light.
    .-= ermine on: The Career Arc – Progressing Through A Middle Class Career =-.

  • 7 The Investor June 28, 2010, 11:12 am

    @ermine – Cheers for your thoughts. Looking at how Connaught (a public sector housing specialist) has been slammed by the coalition’s plans around housing benefit etc in the past two days (it prompted a profit warning) the situation definitely remains in play. I’m still broadly positive on the economy, though a little less than at the start of the year as the V recovery has tapered off. The market at 5000 is easy to be confident for the medium to long-term though.

  • 8 The Investor June 28, 2010, 11:13 am

    @Balance Junkie – Cheers, and yes of course investing is not meant to be easy. I think it was Lynch who said you needed to be right 6 out of 10 times? (He probably wasn’t the first. Just one of the best!)

  • 9 The Investor June 28, 2010, 11:18 am

    @Faustus and Financial Samurai – Well, it’s an old but very valid argument – as well as a refuge of scoundrels at times – to talk about time frames in investing. So at the risk of appearing the latter, I would say that when I wrote about BP I certainly wasn’t expecting an immediate bounceback in the share price. In fact, I can’t remember ever buying a falling knife share for immediate results (I’ve done it a few times around or ahead of an announcement for growth stocks). The BP situation was always going to take months to years to play out, though I admit it looks even riskier than when I first wrote about it.

    It’s true that virtually all analysts had a buy rec on the stock when I wrote. Perhaps I should have dug out my contrarian cowboy hat! 😉

    As Balance Junkie implies, £3 is indisputably better than £4 and change as an entry price. But as Faustus says, you have to buy sometime, if you’re going to buy.

    Cheers for the thoughts guys.

  • 10 Macs June 28, 2010, 1:38 pm

    For better or worse I’ve decided to take a punt and have BP as one of my starter shares in my shiny new S&S ISA, taking the view that it’s money I can afford to forget about for a few years, as I’m sure that’s the necessary timescale to see any value out of them. I haven’t pushed the boat out too far, though, just a sum roughly equivalent to a month’s beer ration (don’t worry, it’s only equivalent, I haven’t actually foregone any beer 🙂 ) I know in 5 years time, if I’d spent the money on beer it would be gone for good… compared to that I stand slightly better odds with BP. Still, I’m sure it’s going to be bumpy and hair-raising, but I’m going in with eyes wide open and fingers crossed and determined to learn the lessons about ‘the value of your investment may go down as well as up’. In subsequent months I’ll diversify my purchases further, but I balanced out BP with some VOD, and added a very small amount of HMV as another ‘crisis play’ this time around. The plan is to build up a high-yield portfolio, and an eventual return to BP dividend payments is the main premise of including it now whilst it’s so cheap. Ah well, time will tell 😉

  • 11 Neal June 28, 2010, 5:11 pm

    First, congratulations on your success and for having a great blog. I love it.

    Next, thanks for including me in your finds this week. An honor.


  • 12 Barb Friedberg July 1, 2010, 3:56 am

    I’m honored by the mention of my MBA Course: Lazy Asset Allocation Article. Best regard, Barb Friedberg
    .-= Barb Friedberg on: PURE PERSONAL FINANCE SATISFACTION Enjoy a Delightful Menu of Inspiring Reading =-.

  • 13 The Investor July 1, 2010, 3:42 pm

    @Barb – You’re welcome!

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