Hi all
Sorry for being a bit late this week (I usually try to get this email out on Friday), I've been busy with a few guest articles and the like. But still, here we are on Sunday instead of Friday.
First a quick rant and then some links that you might find useful.
Rant: I am endlessly amazed at how many people come into this field of investing (by which I mean stock picking) without the faintest idea of what they're doing. I guess I shouldn't really be surprised though, because that pretty much describes me 10 or 15 years ago (and more recently too, on the odd occasion if I'm honest). At least when I started I was investing in index trackers, which I still think is the way to go for 99% of the population.
But this week, while browsing around on an internet forum on a very straight and business-like financial website, I found a discussion on Vodafone. Specifically the discussion was about share buybacks and whether they're a good idea or not. Most comments were aggressively against buybacks (I find that most forum comments are aggressively against something or other), and at the same time many of the comments berated Vodafone as a terrible stock.
I find all this quite shocking, although that's probably too strong a word - I'm surprised at the very least. If you're going to pick individual stocks then you must know what you're doing, unless you're just doing it with 'play' money.
Vodafone is not a bad stock. It has been a bad stock for those that bought it at far too high a price - especially back in the early 2000s. But that's not the fault of the company or the stock market, it's the fault of anyone who paid too much for it.
Several commenters said that while it paid a nice dividend, the price just kept going down. But why is that a bad thing? Unless you're going to be retiring in only a handful of years (in which case you should be mostly in cash anyway) then what do you care if the share price goes down? If the business is well run then surely it means it's an opportunity to buy more of it while it's cheap? If you're buying stocks then surely you want to buy them when they're cheap - if not then, when?
As for buybacks, if you own the stock then you must think that it's good value, otherwise why do you own it? If it's good value then what's wrong with buying more of it? Surely you'd want to buy more seeing as you already own it? If your shares are in a tax sheltered account then perhaps there is some argument for preferring dividends, but if your shares are in a taxed account then buybacks increase your wealth (or at least your ownership of the company) without you incurring any tax, at least until you sell the investment at some point down the road.
In terms of share price versus company fundamentals, the team at The Value Perspective from Schroders put out a short piece on AstraZeneca, which I own and which has a similar history to Vodafone (which I also own). The story is the same. Great company, solid growth, overvaluation 10 years ago results in poor shareholder returns which is nobody's fault other than the shareholders who owned the stock when it was expensive.
From the blog
I wrote a couple of pieces for the blog this week. The first was about a small-cap industrial fabrics company:
Fiberweb – With the turnaround almost complete, are the good times about to begin?
The second was about a large bank which you may have heard of:
HSBC–A bank worth investing in?
From Twitter
You may have gathered that I'm not exactly a prolific tweeter, it's not part of my DNA. But I do occasionally spot something on the web that's worth sharing:
A piece on GuruFocus.com about the four major economic moats, and seven key investor traits (and how to keep your feet on the ground) -
http://www.gurufocus.com/news/167064/so-you-want-to-be-the-next-warren-buffett-hows-your-writing
Defensive Value Report
The latest issue went out on Thursday and marked the first full year for the newsletter. The model portfolio is now mostly full of large-cap blue chip companies like Vodafone, BAE Systems, AstraZeneca and RSA Group. In the last year it's beaten a FTSE 100 index tracker benchmark by 1.5% and has a dividend yield of 5.2% compared to the benchmark's 3.3%. Now that the initial 'build up' phase is over I'm looking forward to showing how this low-maintenance, do-it-yourself large-cap portfolio compares to the market and the equivalent professional unit trusts.
If you aren't yet a subscriber and you want to see which FTSE 350 stocks have the best combination of long-term growth, earnings and dividend yields, you can take the 60-day free trial on the newsletter's home page (no card required).
As always if you want to get in touch just reply to this email and I'll get back to you as soon as I can.
Happy investing,
John
