Hobson on Trump, Trade and Purplebricks

THE WEEK: Morningstar columnist Rodney Hobson says market moves may be painful, but over the long term stocks tend to move up

Rodney Hobson 6 July, 2018 | 2:45PM
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Donald Trump trade war tariffs China US

Every time US President Donald Trump tweets an inflammatory message it feels like the end of the world for stock market investors. A crash of 100 points or more as Trump raises fears of a global trade war have become quite normal. But volatility aside, the FTSE 100 index has actually moved sideways since the start of last year.

This phenomenon is quite normal. Anyone who has invested over the past 10 years ought to be used to it by now. The market can move very erratically but only in quite a narrow range until it finally lurches to a new range, either higher or lower. Over the years, that lurch is more likely to be upwards.

I know this is a theme I have touched on in this column before, but it needs repeating from time to time when nerves get frayed.

The current range is 7,300 to 7,600 points. We did briefly slip below 7,000 points in March before racing away to set a new record above 7,800 but otherwise we have stayed within a range of 300 points. As always, the downward lurches have provided excellent buying opportunities for the brave.

We are currently at the top of that range, so bargains are much thinner on the ground, but those who seized their chance on the dips are already on the whole in profit even without including any dividends earned.

All this has been achieved while Trump wages trade wars, the UK government is split hopelessly over Brexit and Europe shows early signs of a slowdown.

In that context, remarks by Bank of England Governor Mark Carney this week are quite curious. This is the man who issued dire warnings about voting for Brexit and who panicked his committee into reducing base rate to 0.25% when the voters ignored him.

Yet now he insists that the UK economy has shown resilience during the second quarter and that the disappointing growth figure for Q1 really was all the fault of the weather and not some underlying disaster.

GDP growth for January to March has been revised upwards, from 0.1% to a still anaemic 0.2% and Carney seems to be implying we managed growth of 0.4% from April to June. Latest PMI figures suggest that manufacturing is still growing, construction is at last turning the corner and the dominant services sector is doing fine.

I see an orange glow. It could be the end of the world, it could be a new dawn or it could be merely the reflexion from Donald Trump’s tan. You don’t know which it is until after the event. Either way, you tend to do better to invest now and worry about the future when it happens.

A Purple Haze

If an estate agent offered to sell your house free of charge, wouldn’t you be a tiny bit suspicious? How does it make any money?

Yet Purplebricks (PURP) persists in bombarding TV audiences with its claim that it charges no commission. The unwary taken in by this grossly misleading advert will discover that Purplebricks does indeed charge you for selling your house. It will also charge you if it fails to sell your house, which even on the most optimistic figures is about one home in five.  Purplebricks refuses to disclose its own figures, claiming they are “commercially sensitive”, a phrase that should always be treated with the utmost suspicion.

The shares were listed at 100p in December 2015 and shot to 500p but have tailed off to just above 300p. Despite operating at a loss it is expanding overseas, which means either running up debt or issuing more shares. This looks a high-risk investment to me.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.