Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Funds always have an investment objective and which states where and how the money will be invested and the asset allocation. That could be 100% equities, bonds, money market, property, alternatives or a mixture. They have to stick to that objective and asset allocation so fund managers will never sell out and sit on a pile of cash as that would be in breach of that objective and leave them wide open to successful claims.
If you use a discretionary fund manager you’ll get the same - they agree a risk profile and asset allocation and will stick to it. Financial advisors will do the same, although their job should be far more wide ranging to include detailed tax and cash flow planning which should boost overall returns and give some clarity, although the ones that don’t do that are a waste of money.
That approach will never be as profitable as timing the markets correctly, but that’s very hard to do and most people would be better off sticking to a long term diversified investment strategy.
I use a spreadbetting account for my trading funds as the combination of tax free returns, charges, variety of instruments to trade, options to go long or short and leverage make it a significantly better choice for me. It is a massive step up in complexity and potential risk and you need to maintain your own calculations regarding position size, leverage, risks, costs, yield etc as none of the platforms give you all the information you need. If you don’t do all of that then the odds are you will get burned through a combination of higher charges and using way too much leverage. Around 70% of people lose money spreadbetting, as opposed to virtually 0% of people who invest for the long term in funds. To be one of the 30% over the long term requires a lot of work, discipline and risk management. I withdrew my original capital a few months ago and now take regular withdrawals as part of my risk management process. It also allows me to reduce my taxable income and increase pension contributions (which go into funds) so the tax savings will also significantly boost total returns for me. Too much work and stress to do it forever though !
Fleccy - if the dividend income you are getting is sufficient to maintain the lifestyle you want without too much work or stress then you are doing the right thing and ignore most of what I say!
Dan - yes you can gain a statistical edge in the market if you put the hard work in. You need an understanding of macro economic events, sector trends and detailed company information and then blend that with the price action (charts) to try and pin point entry and exit points. It's not one thing - it's all of them together. You also need to realise that the best you can hope for is a statistical edge and you'll never be right all of the time. That's why single shares are hard work as you need to stay on top of it, and also risky as no matter how much work you put in you could be wrong and need to be prepared for that.
I've had a great in terms of returns, but I couldn't keep this up forever as it's time consuming and stressful. I'm waiting to take advantage of one more crash (it will happen whether it's this year or in 3 years time) and then I'm done. After that the money will be invested in funds where I only have to periodically review the strategic allocation and performance of my investments and my own personal and financial plans. I won't make anywhere near the same money, but I will save my sanity and be comfortable with the range of potential outcomes.
You’re right Fleccy - reinvested dividends make a huge difference to total returns. Take BATS as an example - nothing special looking at the price chart, but when you add in reinvested dividends over the last 20 years it’s one of the best performers in the FTSE for total returns and gives US markets a run for their money.
The only potential issue with dividend shares is that with rising interest rates they may suffer from yield decompression.
Take VOD as an example.
At 130p with a 9c div @120 GBP/EUR it offered a 5.77% yield.
If interest rates increase by 1%, then in order to maintain its risk premium the yield would need to increase to 6.77%.
If the dividend remains flat, then the only way the yield will increase is if the price drops, and in this case it would need to drop to 110.78, and if interest rates increase by 2% then the price would need to drop to 97.40.
I can’t see any companies increasing their dividends by enough to maintain the risk free premium. In the case of VOD that would mean a 17.3% increase in the dividend just to cover a 1% increase in interest rates.
I agree that tech is more vulnerable as those valuations use discounted cash flow models whose valuations can change even more dramatically with increases in interest rates. Those models also use expected growth rates, and if those start going down as well it could be a real bloodbath.
Powell made it absolutely clear last week that inflation is their number one priority so they are going to continue to raise rates until they get inflation under control. We aren’t going to see the same rate hikes in the UK as the economy isn’t as hot, but that in itself is another problem as we’re potentially heading to a recession much faster than the US, and recessions are always bad for share prices.
All of this has to run its course. Inflation has to come down, even if that means we have a recession.
The wild card is Russia, as peace in Ukraine could see a collapse in commodity prices which would bring down inflation without rates having to go up as much.
If that doesn’t happen in the next few months things are going to get very grim. Markets are tanking after a pretty good earnings season, but the next one in 2-3 months is going to be worse the effect of the sanctions against Russia will hit the top line of lots of companies (wait for the bloodbath in tech when Meta, Netflix etc report a massive drop in users) and high inflation will increase costs and erode the bottom line.
Add into the mix all major indexes are still way above their long term trend line and it could get very nasty this year with drops of 25-30% from current levels.
As I’ve said before, I wasn’t expecting a return to those trend lines for another 2-3 years but we may see it this year/next year unless something changes.
Robleo - the writing was on the wall a couple of weeks ago. I closed out all long positions, taking some losses and cutting short a few profitable positions (inc VOD) that I thought had a lot more legs in them. It was painful, but there’s no point burying your head in the sand when you need to take action.
It’s a tricky one right now though as by open tomorrow VOD is going to be closer to the bottom of its trading range than the top. Even though on the balance of probabilities the direction is going to be down, long term there’s potentially more upside than down, so you might also want to consider fleccys thoughts as well.
I’ve already got my watchlist of shares and potential buy in prices and the subsequent potential profits, losses and yields and will wait for the market to come to me. If it doesn’t then so be it. Balance of probabilities and risk to reward ratios aren’t attractive enough for me at the moment to go long.
It's already begun Robina.
VOD is hovering around support at the moment, but no major selling/shorting yet because results are due next week. If it continues to hold up here whilst the markets decline, then after the results come out it will be a prime target for shorters once that risk is off the table for them.
Bad results will get instantly punished, and the price might spike up on good results, but it will almost certainly come down after that.
If results are neutral/steady as she goes and the dividend looks safe then it could be a very nice defensive play when it drops back.
Fleccy - all of that might mean that VOD doesn't decline as much as other shares in the medium term and it may have a good long term future, but VOD has got dragged down with the rest of the markets.
120p is a key level for VOD for short term rising support, and longer term horizontal support. It bounced off that earlier this week and it's no surprise in a falling market it was dragged down to test it again. The wider trading range for the last 2 years is roughly 100-142p, although there is rising support at around 110p. Fundamentals don't come into it as much when there's fear and greed, and/or wider macroeconomic issues which push shares between these ranges.
A lot of other things I keep my eye on such as US Markets, BTC and a few other shares are all currently at key support levels, so today and early next week could prove pivotal in where the markets go over the next few weeks/months.
I think we're heading down, but I'm not 100% certain about that. It's all going to be about whether the current support levels hold. They were all tested about an hour ago and prices bounced so we'll see if that holds or whether it was just a dead cat bounce.
I still don’t think the magnitude of the BOE comments about the UK slipping into recession with double digit inflation has been digested by UK markets yet. That’s very bad news and will lead to a drop in share prices. Oil companies and those with dollar earnings are propping up the index for now, but even they will drop in a recession as will financials as the damage from recession will be worse than the benefit of higher interest rates.
Very strange times we live in when inflation is forecast to be 10% + and base rate is 1%!!
There’s a possibility US markets bounce again from these levels as DOW and S&P are close to support but haven’t broken it yet, but NASDAQ has and might lead the charge down.
GLA. Might be back in myself in a few weeks …
Trend line support from November 21 lows is around 120p so it could bounce from there.
It would have to get closer to the longer term trend line connecting Mar 20, Oct 20 and Nov 21 lows which is currently around 110p at the moment before I got interested.
That's one a hell of a downgrade in target price. A lot of the share price increase this year was due to excitement about M&A prospects, but now they haven't materialised VOD is giving up those gains.
I'll sit and watch this one for a while, as there's a serious risk that this market pullback could continue the for quite a while longer. Market reaction to a good earnings season hasn't been great, and the next season's earnings could be worse as the full effect of Ukraine, Chinese lockdown and higher costs filters through.
Don't be fooled by the big gains on the US markets yesterday. Just as things never go up in a straight line, neither do they go down in one. Nasdaq 100 reaction to 13000 support has also been fairly muted this week. If that breaks, we could be in for the next leg down.
Also a real risk of recession for UK and Germany at the moment, so VOD are going to have to pull a major bunny out of the hat to stop this slide.
Nothing is ever written in stone with financial markets - all you can do is look at the balance of probabilities and have a strategy where the balance of probabilities and/or the risk/return are in your favour. The only thing that has been consistently true from the time markets began to date, is that economies keep growing and equity markets go up over the long term. Different sectors/countries will fair better or worse during different market conditions/cylces. Total returns on US markets have been significantly higher than UK markets for the last 13 years, but that hasn't always been the case, and may or may not be the case going forward. Valuations are higher in the US for variety of reasons, but it's mainly due to the US having had higher economic growth during that period so investors are buying on anticipated future profits, and also the perceived 'flight to safety' in buying mega cap stocks denominated in US dollars. If you remove one or both of those factors, then US stocks could take a right beating. The FTSE has much lower valuations as they are bought closer to current profits with not much growth factored in. If the US and UK economies both flatlined, then from a valuation perspective the US should take much more of a beating that the UK, but if sentiment turns in the US, it turns globally so I don't think we'll see the markets going in opposite directions. FTSE has been far more resilient that the US since January, but that's mainly due to the US markets having a much heavier weighting towards tech which has done badly and the FTSE being much more weighted towards energy and basic resources which have done well with soaring commodities prices.
My decision to sell was a personal one based on my own circumstances and I did it last week before the big drops Friday and this morning. That move by no means guarantees me greater success over the longer, but it did lock in a lot of profit that I didn't want to risk losing. I'll still keep adding to funds every month in my pension as I won't be touching any of that money for a while and I know that strategy has the highest probability of being profitable over the longer term, even if it it doesn't have the highest probability of being the most profitable. My trading capital is different story and most of that is in cash now. I'll wait until there's blood on the streets before I deploy too much of that, even if that means waiting a while. They are two very different strategies, but between them other aspects of my situation, it means I'm covered for all eventualities although some will be more profitable for me than others.
I know people like binary answers and some of what I am saying may sound contradictory, and it is, but that's the whole point - none of us know exactly what's going to happen and when. We need to accept that and build that uncertainty into our long term plans.
Anyway, best of luck to all of you - I need to get some work done!
Just be careful out there. Earnings season so far is a bit worrying. 80% of US companies are still beating forecasts, but not by quite as much, and misses are getting punished far more heavily than beats are getting rewarded. That’s a classic sign of the end of a bull run/start of a bear market.
Markets have to drop around 30% at some point to get back to their long term trend lines. I didn’t think that would happen for another year or so, but with inflation showing no immediate signs of slowing down and the Fed getting increasingly hawkish by the day, there’s a good chance that could happen sooner rather later, and whatever happens in the US markets will be replicated over here.
If good earnings reports aren’t pushing the markets up, then the only things that can are a sudden drop in inflation figures or peace in Ukraine, and neither of those look likely over the next few months.
VOD also haven’t delivered any major deals and seem to be running out of options. They might pull a rabbit out of the hat but if they don’t I can see this dropping back to at least 120 next week, and if markets continue to decline it could easily be testing the lows of 2021 or even 2020 again.
Nothing is certain of course, but too many downside risks for me at the moment. I’ve made some good money on VOD and other shares/indexes in the last year but I sold out of nearly everything (including VOD) last week and will wait and see what happens over the next few weeks/months. Nothing looks particularly cheap to me at the moment and I’ll wait until it does.
Sorry if that’s sounds a bit doom and gloom, but that’s just how I see things at the moment. Good luck all whatever your strategy.
It’s been a while since I’ve been on here but just read a few posts and thought I’d give my thoughts …
The odds are only in your favour with a buy and hold strategy if you’re diversified. Anything can happen to a sector/company so having a buy and hold strategy on a highly concentrated portfolio of a few shares is extremely risky. Buying and holding VOD long term to date would have produced much lower returns than a diversified approach.
Buying and holding diversified funds / indexes over the longer term has always worked to date. You either need to be really lucky or put some hard graft in to outperform the indexes over the longer term. Most PIs don’t outperform for a variety of reasons, although the main ones are a lack of diversification, not knowing when to cut their losses, or trying to trade ranges where they are risking more than they can gain.
Nothing wrong with a bit of trading and banking some profit. You don’t need to be an expert in predicting exact price movements, but you do need to understand risk/return and risk management. It’s all well and good spotting a trading range, but what if it breaks out to the downside? Are you going to cut your losses and sell or hold? If you are going to hold then how far could it drop? Playing a range of 115-140 on VOD might make sense if you’re buying at 115 and looking to make 25. Say your downside is 95 which is 25 away, so risk/reward is equal. Playing a range of 45-50 to make 5 when your downside is 25 or a 20 loss means your downside is 4 times bigger than your upside. Your alternative of course is to use a stop loss and crystallise a loss when it drops out of the range, but be very wary of price spikes which are often designed to take out your stop loss before reversing direction, especially on spreadbetting accounts.
SB accounts are great for short term trading as the transaction costs are generally lower, although that will depend on which contract you choose and how long you keep your position open for. Daily funded bets have lower spreads, but you pay daily interest, which should currently be around 3.5% pa. That’s nothing for a few days/weeks, but eats into your profits if you hold for months. Futures contracts have higher initial spreads but you don’t pay interest so are better for longer term holds. I’ve used both on VOD.
Tax free profits can also significantly boost total returns if you’ve used up your allowances elsewhere.
If lower transaction costs and tax free profits are enough, then SB doesn’t have to be more risky than an ISA/share dealing account as you don’t have to use leverage. Eg, if you wanted to buy 10,000 VOD shares at 1.27, then you could either use £12,700 cash in an ISA(plus transaction costs), or put £12,700 in SB account and go £100 per point. If you do use leverage, run separate calculations to make sure you’ll have enough cash to cover your worst case scenario and be prepared to take the loss if it gets there. If you don’t do that then you wil
Yep. Bit of a bloodbath this morning with European indexes down 3% +.
Markets could quite easily pull back 10% + from here, or rebound sharply if everyone kisses and makes up.
Might be a rough few weeks / months, but geopolitical problems historically don’t cause bear markets - only recessions do that.
Underlying world economy is still good, Vod still undervalued and won’t be directly effected by any regional conflict.
Any losses should be regained during the course of the year.
I’ll be riding this one out as markets could swing either way within a few minutes of any news.
NN - I’ve done the maths for you below so you don’t have to worry
If you owned 100 shares of BATS you would would have been getting £215.60 pa income.
Allowing for 5% inflation. that should have gone up to £226.38.
The dividend was only increased by 1% to £217.80, leaving you with a shortfall of £8.58 you would need to cover by selling some of your shares.
That equates to 0.25% of your holding, not 4%.
The buybacks will mean that there are around 2.59% less shares in issue, so the share price should rise to compensate that.
So you could ‘cannibalise’ your holding so that your income increases in line with inflation and the value of your remaining shares should increase by around 2.34%.
Yes that does mean that in real terms the value of your shares will go down, but you wouldn’t get anywhere near running out of shares for a very long time.
With inflation at 5%, you need to realistic as you are not going to find any investment that can safely provide a 6.5% yield where both the yield and the capital value increase by inflation. To do that you’d need returns of circa 11.5%pa, and whilst some shares may have given those returns over the last few years, that’s way above long term averages and simply isn’t sustainable over the longer term.
Daniel - of course it’s possible to beat both the markets and the bookies. You just need to look for inefficiencies in pricing in both and consistently put your money into those opportunities with a disciplined approach to position size, profit taking and risk management.
Lots of people can make the ‘right call’ but without those last 3 things they eventually end up losing money.
Yes I agree with you Alex. I don't think inflation is going to calm down later this year as supply bottlenecks get worked out and we've got higher comparators for energy prices. It would have been nice to see a bit more spend on the dividend though, as that's a major attraction for this share.
Huge amounts of FCF though, stable growth, debt down and decent progress on New Categories so I can't complain too much. I can easily see this getting to 4,000+ over the next few years if they keep this up.
Yes very good results but tbh I am disappointed in the capital allocation. A 1% rise in dividend doesn’t come anywhere close to keeping up with inflation. 2bn buyback is healthy enough although they missed the boat on getting maximum value for those purchases
It will be interesting to see the details of this offer. Italy makes up about 10.5% of VOD total revenue. An offer of 10.5bn EUR would equate to an EV of around 100bn for the group. Take off net debt of circa 45bn and that gives an equity value of 55bn EUR or £46.6b which would be £1.72 a share.
That calculation assumes that the debt of the Italian operations is in line with the group total, and I don't know if that is the case or not.
That valuation for the group also doesn't take into account that VOD would be offloading one of it's divisions where revenue is declining, and keeping the ones where revenue is increasing, so on that basis it still undervalues VOD.
Quite interesting to see how VOD is currently worth a lot less than the sum of it's parts, and to get a feel for the scope for improvement that the activist investors have seen.
Lots of nudges upwards in broker targets which seem to be converging around the 170p level. Almost daily updates on M&A, 2 activist investors and heavy volume above 130p. I think the narrative is indeed changing and rather quickly...
I thought this would be 140p by May, but we've tickled that already today and 160p by May seems quite likely now.
Of course none of this would have happened if I hadn't sold a chunk at 133p so you can thank me all later :)
I'm not complaining though - made a few quid here, had an offer accepted on house yesterday and can happily let the rest ride.
I imagine they will be the usual of achieving or slightly beating guidance with lots of lovely free cashflow.
What will be interesting is what they decide to do with it. Back in December buy backs looked like a good idea, but with the jump in both the share price and inflation I'm hoping there's at least an inflationary rise in the dividend of 5%-7% and at these price levels I think I'd prefer to see a 10% hike and limited or no buy backs.