Death Wish
Always be careful what you wish for. I wished for share prices to fall back to more reasonable levels so I could make more purchases. I just did not want them to become quite as reasonably priced as they were by the middle of this week.
I should be pleased, really. Lower prices mean even better bargains so I and other investors had the opportunity to buy in at a much better level. However, there is something profoundly unsettling about a run of severe falls, even for the most experienced investors. To be talking about a possible new high at 7,000 points on the FTSE 100 index and suddenly be staring at a drop below 6,300 is no joke. We have been down 600 points from the recent peak.
I stick to my view that this fall is more irrational than the earlier surge to 6,875 points. The upward surge was premature exuberance; the subsequent fall is based on the false premise that an early end to governments’ economic boosts is bad news.
The FTSE twice found support at 6,250 points in April and powered on to better things. This week buyers summoned up the courage to move in at a slightly higher level. If markets start to move upwards again, the chance to buy could disappear remarkably swiftly. Summer markets are notoriously thin and movements in either direction can be heavily exaggerated. If, however, the index resumes its fall – which I do not expect to happen – then I must conclude reluctantly that it is probably better to hold off until it all settles down.
Despite having risen further and faster, and thus having further to fall, the FTSE 250 index of medium-sized listed companies is still above its April dip. The midcaps usually turn the corner sooner than the blue chips. As long as they stay above the April lows there is hope.
Meanwhile I take great consolation from the fact that my portfolio, comprising mainly solid dividend paying companies, has held up remarkably well despite a sharp falling back by Vodafone (VOD), in part because the shares have gone ex dividend.
Brown Moment
Is Chancellor George Osborne heading for a Gordon Brown moment? The rush to sell gold at the bottom of the market haunted the Labour chancellor and served as a constant reminder that his grasp of economics was nothing like as strong as he tried to pretend.
Osborne has no such pretentions to economic greatness and it looks increasingly as if he will demonstrate the fact by selling Royal Bank of Scotland (RBS) too soon and getting as poor a price as Brown got for gold.
Stephen Hester, RBS chief executive, has been forced to ‘resign’ after his valiant efforts to rescue the bankrupt bank were in serious danger of getting bankers accepted back into society as respectable citizens. A newcomer will have fewer scruples about getting RBS off the Treasury’s books at a cheap price.
At least until we know whether Hester’s replacement is up to the job, I would not touch RBS shares. A lot of nonsense has been talked about selling RBS at a discount to shareholders. The one way of getting value for shareholders is to sell RBS at the highest possible price, if necessary in tranches. A discounted sale will reward the City more than taxpayers.
The time for investors to think of buying in will come if and when the shares are sold off on the cheap. It will be Osborne’s Brown moment.
Gold? Bah!
If you think investing in shares is tricky at the moment, remember there is someone worse off than yourself: the gold investor. The last time I commented on the precious metal it was because the price had dropped below £1,000 an ounce.
I did not expect to be writing so soon about a further fall of £100 but gold has been below £900 for the past two weeks and looks as if it will stay there. Those who piled in as the bubble burst are nursing substantial losses and have had no dividends to compensate.
Stay well clear.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
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