Member Info for Cpt.Hornblower

Lol Courerdelion,

Your post should be nominated as post of the week.

Political talk is like talking about someone's back side: everyone has one :)

Nobody except you focusing on 'that that matters', ie the share price and why its moving.

But as you have highlighted, share price is higher than July.

My only commentary to this is July effect: withdrawal simptons from final dividend being paid.

Legal and general dividend is so large now, it significantly disports share prices (ie the share price run into the dividend, and the subsequent drop after all the dividends.

This time last year, bond yields where not where they are now!!!

So the market has 'marked down' L&G because of this.

So the key is Jan 2026, will there be a further step up in yields from Jan 25??

Thanks .

I think I am right in this:

Defined benefit pensions get increased by inflation: correct?

Coronavirus period and the previous 10 odd years were characterised by bond yields being LESS than inflation (Quantitative easing)

But now we are experiencing positive bond yield to inflation spreads. Bond yields 4.5%-5%, inflation rate 3.5%, so there is a positive spread. So this should help L&G overtime (unless inflation really spikes again).

Given L&G have been acquiring defined benefit schemes, included those funded when the differential was negligible or negative, the funds deployed on those defined benefit schemes should do very nicely (as the payment received to acquire those defined benefit schemes would have been priced at the time of minimal differential, ie receive more money per unit of defined benefit)

All I know is that I am being compensated more the risk vs return.

Inflation (which should be the key), is not rising, but bond yields are throwing a spasm

The differential between inflation and bond yields (gilts) is rising in the positive (ie rate between inflation and bondyields is increasing).

This is good. L&G has to pay future increased pensions based on future inflation, but is remunerated from the bond yield (very simplistic thinking).

As the differential increases (in favor of bond yields), the favor for L&G increases.

Future returns are made throw viewing the front view mirror, not the rear mirror.

Ie dont invest according to PE, the PE is irrelevant for L&G in this market.

Bond Masters starting to throw a hissy fit. This is good.

Added 10,000 shares to my position today.

The key is to watch the gilts vs inflation, if the spread widens too much the margin of safety for L&G increases.

Why?

because the Bond Masters will force Labor to be proactive with debt management

(and this is not political, they did the same with Liz @ conservatives)

For FY24 year end, there could be further losses for L&G on 'mark to market' given how gilt prices have moved over CY24, but then we move into CY25, similar losses will be required in FY25, which means further signficant downwards movement in gilt prices (or further increases in yields).

But the back up against this is the inflation rate vs gilt rate differential. They are already widening significantly. Hence my margin of safety.

That's great zac0_4, you take your ques from historical marking pricing of the shares.

In otherwords your focus is on the rear view mirror, viewing results, share prices etc as they have occurred in the past, and then using that data to influence your future investing.

I am the exact opposite, I like the understand why things occurred in the rear view mirror, but my focus is totally on the drivers screen right in front of me.

The past does not necessarily dictate the future, otherwise we would all be historians with excellent investment track records.

Agreed, but how does this present through the P&L?????

Politely, rubbish.

Don't get me wrong. I am very happy with the 'situation', as it highlights the 'risks' but not the 'benefits'.

WB and CM think you should because it gives accuracy to the situation. But I bet you that both WB and CM look through the accuracy to the 'long term profit situation'.

If the short term accuracy presents 'a', but I can buy at a discount to 'a' and hold to maturity with a very satisfactory result for total return including the income component and the capital gain on discounted pricing to maturity, then in the words of both WB and CM its a 'go'.

My whole commentary was around the PE, PE for companies like L&G are devilishly difficult to utilise, because of the 'E' in PE. And according to accounting standards how is the 'E' calculated!!!

The forward PE is given on the assumption of the markets expectation of profit, the market's expectation of profit does not include updated mark to market pricing of bonds.

Why do you think L&G PE rose to 30 something for 2024???

In 2022, 2023 the market was not forecasting a 2024 PE of 30 something.

Again this is not a post to buy or sell. Only be aware.

I am not suggesting legal and general are not good buying, I am only saying make sure one's investment thesis is correct. If the investment thesis is a PE of 9.5 for Dec 2025, one might be disappointed when that assumed PE doesn't eventuate.

Those forecast PE were before bond yields started going up again!!!

Agreed, but L&G also heavily tied to long term movements in UK bond yields. As UK bond yields rise, bond prices drop, bond prices drop, L&G has to mark to market the decline in bond prices. This is essentially why L&G is trading on a PE of 39 or whatever, its because of the mark to market decline.

Recently both UK and US long term bond yields rising again, this will put pricing pressure on L&G share price( because of the losses from mark to market).

So the key in my opinion, is where do you see longer term UK long term debt yields (or guilts), if you see them coming down in the future, then L&G is a very good buy (as the market fears and the mark to market will reverse), if you see long term debt (10yr+) trending even higher, then L&G will be hit further.

For reference the current GTDBP10yr is 4.63%, this is up 110 basis points over a year. So come the release of Dec Year End financials for L&G the results may not be as good as hoped, only because of this increased movement in long term yields.

This presents very interesting investing positioning. Long term positioning vs short term share price speculating.

Guys its not a Labour vs Conservatives thing.

The Conservatives were in power for 10yrs, and they made plenty of mistakes, especially Mr King D**K himself, Mr Boris. Mr Boris had the right vision in regards to Brexit, but like many hollow politicians had few follow up policies, and during corona virus, he made an absolute toss of himself (how can he party whilst the Queen followed protocol, yet was in deep mourning!!!!).

I feel very sad for the UK, it has alot of potential, yet its so bogged down. The UK needs to look back through time, the UK didn't get to where it got through excessive regulation, excessive taxes, protection of the TOFFS.

My vote will be on Nigel Farage.

A pox on both the conservatives and labour.

Labour is useless, and the conservatives represent 'old money'.!!!!

How this will play out in regards to legal and general I have no idea.

Legal and General share price is being constrained by the market being aware that L&G is underwriting retirement future payouts.

I bought nicely, I offloaded a bit when L&G share price hit 2.36 pounds, and I will use those funds to re-invest back into L&G.

Still working my way towards the British Equivalent of the pension with my L&G share holding

Price is what you pay, value is what you receive.

Price is paid according to the short term whims of the market, value is is your compensation through the combination of dividends received, and Mr Market repricing the share everyday (based on Mr Market's short term whims).

Mr Market is a maniac psychotic. He will reprice everyday, and with no guilty conscious as to how he repriced yesterday or tomorrow.

So the intelligent investor never minds Mr Market or his psychotic behavior. The intelligent investor only looks to Mr Market to determine whether its a good time to 'buy, hold or sell' based on Mr Market's psychotic pricing of the stock.

Mr Market will never take offense, because tomorrow he will be back and will offer another price.

And maybe today you gain a bit more insight???

Anyway I am happy, I didn't get to fill my full allocation, but I have (maybe!!!) achieved the holy grail, a fantastic dividend and rising share price.

My average buy in price is less than 2.2 pounds. And whilst not replacing the British Pension equivalent (haven't bought enough shares yet) I am 50% of the way there, and now I have not just the dividend cash flow but maybe that holy grail, capital appreciation as well.

Lets see how this goes.

But remember the Bible wrote this, and its in the old testiment.

And now we are starting to see the market's reaction.

For those that had the courage and added to their position below 2.2 pounds very well done.

In the short term the market is a voting machine, in the long term the market is a weighing machine.

The timing between both can be significant, but the weighing machine will win in the end.

And yet for those that were brave enough to acquire, we now have (at least temporary), that ultimate of share holder total returns, rising share price and excellent dividend