I feel I should eat the hat that Paddy Ashdown famously promised to consume after the general election. Although I voted for Brexit, I was never in any doubt that the UK would vote to stay in. A majority of four percentage points for leaving is a real shock.
There are few certainties in investing and I still believe that I was right to stay fully invested in shares ahead of the vote. You have to go with what looks most likely and be prepared to stand the knocks. Over time, shares deliver in a way that no other investment can.
The FTSE 100 opened 8% down after the referendum result, which was actually the least we could have hoped for in the circumstances. Investors should hold their nerve. The fall in share prices inevitably opened up buying opportunities that some courageous investors immediately exploited.
The sharp drop in banks was overdone. Even more so, the slump in housebuilders was beyond belief. We would be short of houses even if immigration ceased completely. In reality, shutting off the migrant flow was one of the embarrassingly false claims put out by the Brexit side. We still need to bring in skilled workers, while people seeking a better life will continue the trek from east to west.
Markets may hate uncertainty. Investors should love the opportunities that uncertainties create. Life goes on.
Tesco may be Turning
Regular readers will know that I have favoured Sainsbury (SBRY) over Tesco (TSCO), though I have certainly lost my enthusiasm for Sainsbury in recent months. Tesco’s latest quarter could mark a turning point in its fortunes.
Tesco actually managed modest like-for-like sales growth in the 13 weeks to 28 May, the first quarter of its financial year, despite a squeeze on food prices. This was the second encouraging quarter in a row, something that had not happened for a long time.
Tidying up the Tesco empire will help further. I think it was right to dispose of Dobbies Garden Centres and concentrate on the core supermarkets, just as Sainsbury realised many years ago that owning Homebase did not work well. The disposal of the operations in Turkey, where Tesco has struggled, is also a plus. So is the sale of restaurants and coffee shops.
At around 155p Tesco shares are still about 65p below their level of a year ago. Although the update was greeted with a surge in the share price it is not too late to buy in if you believe in the recovery story.
… and so may Majestic
Majestic Wine (WINE) was a great go-go stock 15 years ago but somewhere over the past decade it ran out of fizz. Last year Rowan Gormley sold his Naked Wine chain to Majestic and took over as chief executive of the enlarged group. Given that it is the Naked Wine side of the business that is thriving, he could be the man to work magic in the rest.
Gormley says he is going back to what worked in the first place, such as rewarding and retaining staff. Latest figures were a bit mixed, with profits well down, so I won’t be investing but if you have an appetite for risk do take a look.
… while Debenhams turns down
No such enthusiasm was generated by department store Debenhams (DEB). Sales in the latest quarter have slowed down and margins, which were expected to edge a fraction higher, are flat. The shares topped 120p at the end of 2012 but are now down around 60p after losing 6% in reaction to the update.
The price/earnings ratio is now in single figures while the yield is an attractive 6% but I just find the whole concept of Debenhams to be too dull. I usually like boring companies, but only those that are plodding upwards.
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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