Portfolio news: BP and Tesco.

BP @ 399.3p, +1.7p (+0.43%)

Tesco @ 372.95p, +8.15p (+2.23%)

Some news updates for the portfolio holdings BP and Tesco.

Not sure what BP's CEO, Bob Dudley has been doing since the Rosneft deal fell through but  Rosneft has re-struck the deal with ExxonMobil in the place of BP ( www.iii.co.uk: Exxon deal with Rosneft shatters BP's Arctic dreams).

Disappointing given BP's lead on it which effectively opened the door but not surprising. I am surprised not to see the same hue and cry from the senate regarding the deal affecting energy security and the like though. Issues and concerns which were voiced when BP announced the original deal. Time yet I suppose but I doubt it which underlines it had more to do with BP than the deal.

Hopefully, this puts to bed the BP - Rosneft fiasco once and for all and the company can refocus on a new and clearly communicated strategy, whatever that may be.

Elsewhere, Tesco has announced that it is selling its Japanese interests as it concludes "that it “cannot build a sufficiently scalable business” there". LONDON (ShareCast).

In total this is 129 Tokyo stores selling under the Tsurakame, Tesco and Tesco Express brands.

From the same ShareCast update, Philip Clarke, Chief Executive Officer, said:

"We have decided to sell our operations (in Japan) and focus on our larger businesses in the region, in line with our priority of driving growth and improving returns.”

Certainly not a big play in Tesco's hand though and the shares are on the up today.

Related articles:

- www.iii.co.uk: Exxon deal with Rosneft shatters BP's Arctic dreams

- www.sharecast.com: Tesco sells Japan interests

Earlier Posts:
- BP update: a little bit of everything. 

- BP's Russian Roulette.

- BP: Rosneft deadline not extended.

- Supermarket Sweep: Tesco; Morrisons; or Sainsburys? 

Boeing announce 737 MAX for 2017.

2017 then will be the year that the 737 MAX will be rolled out by Boeing. This updated and more fuel efficient version of the existing 737 will compete with the A320 neo offered by Airbus.

Boeing are claiming order commitments for 496 from 5 airlines but it isn't clear in the article whether these are cross-overs from existing 737 orders.
The most significant, albeit expected news is the selection of CFM engines (CFM being a joint venture between GE and Safran). The CFM Leap engine is already selected as an option on the A320 neo along with Pratt & Whitney's geared turbofan (GTF).
Elsewhere, Airbus are looking to pull the A320 neo forward by 6 months which would see an entry into service in 2015.

The A320 and the 737 compete in the 150 seater sector of a market expected to be worth over $2 trillion dollars over the next 20 years. 
Disappointingly for me, Rolls-Royce's presence in this segment of the market will likely dwindle (until it can compete on a new aircraft), as A320 sales decline in favour of the 2 newer aircraft. 
A rare slip-up in the strategy perhaps, which has seen it achieve great success over the last 20 years or so, but one that means that it has still not rectified the original costly failure to compete on the first version of the 737.


I managed to find the following segment from a 2005 business week article (www.businessweek.com: Rolls-Royce At Your Service ) which also includes a quote from Sir John Rose underlining his implemented strategy.


There's still work to do. Rolls-Royce's civil aerospace business is less profitable than GE's larger jet engine division, which chalked up margins of 21% for the first three quarters of this year, vs. 12% for Rolls in the first half. The British company suffers from not having an engine for the popular Boeing 737. Yet by broadening its offerings, Rolls has more than doubled its sales, to an average of 1,000 engines a year. 
"If you don't get on the airframe or win a customer, it may be years before you have another opportunity," says Rose. (www.businessweek.com: Rolls-Royce At Your Service ).

Hmmm. Food for thought.
 
Related articles:

- www.reuters.com: UPDATE 4-Boeing plans to deliver re-engined 737 in 2017

- australianaviation.com.au: Airbus brings A320neo forward to 2015

- www.ainonline.com: Rolls-Royce Skeptical of Re-engined Airbus A320 and Boeing 737

- www.businessweek.com: Rolls-Royce At Your Service

Earlier posts:

- Boeing 737 update: upgrade announcement due soon?

- Paris Air Show: Review

Reckitt Benckiser concerns: Nurofen Plus recall.

It will be interesting to see if there is a short term impact to Reckitt Benckiser shares following the announcement of a recall of Nurofen plus following Seroquel XL 50mg being found in 3 packs.

Taken from the following article: www.bbc.co.uk: Investigations into the Nurofen Plus mix-up begin:

- "Seroquel XL is a prescription-only anti-psychotic drug used to treat several disorders including schizophrenia, mania and bipolar depression" 

- "Thousands of 32-tablet packs are in the affected batches - numbered 13JJ, 57JJ and 49JJ."

- "Each of the affected batches contains between 4,000 and 7,500 packs - around half a million in total. But it is known that not all the packs are affected." 

- "..."serious investigations" were under way to establish how the mix-up occurred, especially as Seroquel XL is manufactured by another drug firm, AstraZeneca."

As a consumer product company with potential access to new markets in China, India etc. Reckitt Benckiser is on my watchlist of candidates to add to the portfolio given the geographic shape of its current and potential sales; and its product portfolio of consumer and medicinal brands. The company has also maintained a progressive dividend policy to match its growth although, it has to said that this is historic and there have been recent doubts about future growth particularly given the recent loss of Bart Becht, the Chief Executive of the past 14 successful years.

Hopefully, the pro-active approach will close out this issue without any consumer being affected or any damage to the Nurofen brand which to be fair is a victim given that tablets have been substituted rather than anything contained within the actual manufacturing process.

As such, I will continue to watch for an opportunity to add it to the portfolio.

Related article links:

- www.bbc.co.uk: Makers of Nurofen Plus recall all remaining stock

- www.bbc.co.uk: Investigations into the Nurofen Plus mix-up begin

Boeing 737 update: upgrade announcement due soon?

Looks like Boeing is getting closer to an anouncement on its 737 range (www.bloomberg.com: Boeing Board Weighs 737 Upgrade Next Week), which looks like being an upgrade with a more fuel efficient engine in order to achieve an entry into service that will ensure it has a product to compete with the upgraded Airbus A320NEO.
The NEO is due to enter service in 2015 and with the speculation that an all new 737 wouldn't be ready until the end of the decade, the view is that an upgraded 737 would be ready for 2015.
Realistically this would initially take-up some existing 737 orders as customers opt to switch their orders to the newer specification.

Again, it raises a significant question for Rolls-Royce following its failure to put together a competitive proposal for the NEO. 
The company has always had it in mind to compete on a new 737 having failed to recognise the potential (first time around) of an aircraft that has gone on to be the world's biggest selling aircraft.
Its statement on the NEO again seemed to be along the lines of not being able to justify a business case (not seeing longevity I guess), preferring instead to wait for an all new 737. 
But, with Boeing potentially going for the re-engine this could freeze Rolls out again for another decade or more with some suggestions being 2020 (www.bloomberg.com: GE, Rolls-Royce Race to Try Biggest Engine Redesign in 20 Years). Particularly given the realistic expectation of fewer or no new orders for the V2500 option on the existing A320 as the NEO takes up.


So what can Rolls-Royce offer, well, in recent years the company has progressed a design (RB282/RB285) with a 3 shaft core but, at the time, this made little headway with Airbus for the NEO.
But, with the A320 - V2500 market (new orders) now appearing to be finite, I hope the RB282/RB285 can be progressed to a more competitive and compelling package this time around for a sector that provides the workhorses of the sky and all the profitable support services that go with it.



Related articles:
- www.bloomberg.com: Boeing Board Weighs 737 Upgrade Next Week
- www.ft.com: Boeing-Airbus dogfight flares up again / Rolls-Royce has plenty riding on 737
- www.bloomberg.com: GE, Rolls-Royce Race to Try Biggest Engine Redesign in 20 Years
- www.ubmaviationnews.com: We’re glad Pratt is back in the game, says Boeing’s Mike Bair 

Earlier Post:
- Paris Air Show: Review

Market reaction to Bernanke keynote speech is just bizarre!

FTSE 100 @ 5129.92, -1.18 (-0.02%)
DJIA @ 11284.54, +134.72 (+1.21%)
NASDAQ @ 2161.97, +53.76 (+2.55%)


I see that global markets are increasingly irrational with a bounce earlier in the week on the back of hopes that the Chairman of the US Federal Reserve, Ben Bernanke would use a keynote speech on Friday to announce more economic stimulus as he did last year. Then running into yesterday (Thursday) those hopes faded and markets collapsed again helped by rumours that Germany would be downgraded ( http://www.citywire.co.uk: Global markets give up gains on Germany downgrade rumours).
Markets continued down today (Friday) as Wall St opened down but then, bizarrely following Bernanke's speech and no announcement of the hoped for stimulus (any decision being put of until a September meeting), markets bounced again. Falling with no stimulus and then up when this is confirmed!

I have always understood and tried to reinforce to myself the view that markets are not a one way street but this is just bizarre, seemingly irrational and impossible to predict.

Related articles:
- www.digitallook.com: US close: Investors seize on postives from Bernanke speech
- http://www.citywire.co.uk: Global markets give up gains on Germany downgrade rumours

Apple update 2: Steve Jobs to step down.

A few interesting bytes on Steve Jobs from the Financial Times site including a segment from Apple co founder Steve Wozniak.

- http://blogs.ft.com: Wozniak on Jobs: 'The best business leader of our time' 


- http://www.ft.com: Timeline: Steve Jobs - FT.com


- http://www.ft.com; Apple to face a severe test without Jobs


Earlier Post:
- Apple update: Steve Jobs to step down.

Apple update: Steve Jobs to step down.

Apple @ $375.8, +£2.20 (+0.59%) 


Well the expected and long awaited announcement that Steve Jobs is to step down as CEO of "his" company finally came through last night. 
And, although Apple shares closed slightly up at $375.8, the various overnight news reports on the topic are suggesting that Apple was down around 5% in "after hours" trading.

So despite his seemingly frail nature and long reported health problems the expected was perhaps unexpected for some.
As expected though, it looks like he will be succeeded by Tim Cook, the company's Chief Operating Officer, who has deputised during Job's current leave of absence.


Obviously the fear is that the company could be losing its visionary and, as a result lose direction and its ability to design and produce industry defining products. Hopefully this is a little short sighted given that Jobs looks set to take up the Chairman's position; Cook is a long established Apple senior (joining in 1998); and the company is surely not working with an empty pipeline of new products, strategies; and developments to existing products (like iPhone 5!). 
Given his history, coming back to rescue the near defunct company he co-founded as a 21 year old (whilst fighting his illnesses), I can't see Jobs leaving a sinking ship that is so closely intertwined with him. To many he is Apple.


Reports suggest that analysts are in support of Cook although there must be still be some concern (me too) that, without the messianic Jobs, the company could slowly melt back into being another consumer electronics company losing the conceptual design and lifestyle appeal that it has today.
In the last decade or so its been very difficult to tell if the brand is Apple or Jobs. 
The task now is to bring the cool white "Apple" brand out from under the deep shadows of its charismatic founder whilst maintaining its niche concept design position outside of the "establishment". 
Looking back, there are many examples of previously successful growth machines in the technology sector which have had pseudo monopolies but eventually become part of the establishment which, in the eyes of the next generation, flips the uncool switch.


But, as it stands today, the current horizon of growth forecasts should be intact which puts Apple on an undemanding 13.7 times price:earnings for the current year. 
I guess its the forecast growth thats the demanding part but this is based upon iPhone and iPad sales, which still seem to be going from strength to strength, and its pipeline of evolutionary and, dare we hope, revolutionary new products.

Can we still dare to dream that the cool white machine will continue on!


Related article links:
- www.telegraph.co.uk: Apple chief executive Steve Jobs resigns

Earlier posts:
- Shares update: Apple's third quarter results.
- Apple 2nd quarter update - profits up 95%!
- Apple update: Ipad 2!   
- Is Android a reason to invest in Google?
- Globally Diversified Technology, Growth, and Hedge portfolio!!!

IG trading update and market volatility.

IG Group @ 422.7, +4.3p (1.03%) as at 9:20 gmt

Nice to find something in the portfolio benefiting from the volatility. IG Group came back to the market yesterday with a trading update and despite it being holiday season across the globe the company reports that record levels of activity during the recent market volatility should enable the company to achieve quarterly sales of £94m (+19%) against £79.1m for the same quarter last year.

As ever there continues to be some risks around IG with regard to the proposed "tax" on financial transactions but there is widespread opposition from the financial services industry and this is possibly already priced into the shares which are currently on a forecast price: earnings of 11.7 times.
Despite this the company continues to be a leader in its field has cash balances of £124m and is forecast to yield 5.4%.

Related article links:

- www.sharecast.com: IG boosted by recent volatility

- thescotsman.scotsman.com: Volatility in global markets is a boost for IG

Related posts:

- July 2011: Portfolio Update.

- Shares update: IG Group Holdings Preliminary Results.
- IG Group: FSCS sticks the boot in!
- IG: Interim Management Statement.
- Has the sun set on IG Index?

HP bids £7bn for Autonomy: Another bid at a huge premium to market valuations.

FTSE100 @ 4962.94, -129.29 (-2.54%)
Autonomy Corporation @ 2490p, +1061p (+74.25%)

Well, despite the world markets collapsing around our ears Autonomy is one of the rare risers on the FTSE but it isn't a minor jump, its a 74% jump following an overnight bid of £7bn from Hewlett-Packard.

The actual offer of £25.50 (all cash) is at a 78% premium to last nights close, so there is still 2.5% left for anyone who wants to jump in at £24.90 albeit with a small risk of it not going through.
Not sure how much this affects the deal but the exchange rate is currently moving in the favour of sterling at $1.65 to the pound which would make it more expensive still for Hewlett-Packard unless they have funds abroad or have hedged beforehand.
But, I have also read a headline somewhere suggesting that Microsoft might enter the bidding process for Autonomy so there could be more to come.

Again, to me its another signal that, following the indiscriminate sell-off, there is value around beyond the horizon that a recession might provide. Technically a recession being defined as two consecutive quarters of negative growth. All a bit short sighted really as, once they decide we are in recession, we might already be out of it as it is based upon 6 months of historic data. 

I've mentioned it earlier but have enclosed a 2 year chart of the FTSE100 to show the slightly less dramatic but still wealth damaging 1000 point fall (5800 - 4800) suffered by the FTSE100 last year prior to it ending the year at 6000. Can I recall exactly what happened last year that led to the 1000 point pull back? No, but it was probably sovereign debt around the P.I.I.G.S (Portugal, Italy, Ireland, Greece, and Spain), so the reasons are probably not too much different to today other than some inertia before another recession is declared.

FTSE100 - 2yr chart - Click to enlarge and back button to return (chart courtesy of Digitallook)

As ever, interesting times.

www.telegraph.co.uk: Autonomy board backs £7bn Hewlett-Packard offer

Boeing completes flight certification for Rolls-Royce powered 787 Dreamline

"Boeing announced today that it has completed flight certification for its 787 Dreamliner aircraft powered by Rolls-Royce engines. The final flight concluded on Sunday when ZA102, the ninth 787 to be built, landed at Paine Filed in Everett, Wash., following a 90-minute flight from Billings, Mont" (news.cnet.com: Boeing completes flight certification testing for 787).

Its been a long journey but Boeing and its suppliers are almost there in delivering the first 787 to a commercial customer which, in this case is All Nippon Airways (ANA). Due for delivery next month this first aircraft is powered by Rolls-Royce Trent 1000 engines.

ANA and the general public will soon get to see whether the reality matches the hype surrounding the "Dreamliner" with its large proportion of composite materials and revolutionary new design.


There are currently in the region of 827 firm orders for the aircraft and Rolls-Royce has won orders for 217 (37.5%) of the the 578 aircraft where an engine choice has been made. The remaining 361/578 are to be supplied by the only other engine choice on the 787, General Electric.
Orders for the aircraft peaked at 910 (2008) but today's 827 reflects 83 cancellations since 2008. However, there are also options and rights for a further 483 aircraft so, taking the bigger picture, it will be a significant milestone to all stakeholders when the first aircraft is delivered, and it will be a relief to start seeing production rates and cash inflows from the heavily invested project.


For Rolls-Royce, at 2 engines per aircraft and using the 37.5% of orders won as the forward assumption, that could be 610 engine orders plus potential service, maintenance, and repair contracts. So it can only be good news for the company and its shareholders to get these engines into the field.


Roll on that first delivery (of many)!


Rolls-Royce @ 600.5p, -9.5p (-1.56%)
General Electric @ $16.23, +$0.08 (+0.5%)
Boeing @ $62.18, -$0.05 (-0.08%)

Related articles and links

- news.cnet.com: Boeing completes flight certification testing for 787

- www.boeing.com: 787 Family

- en.wikipedia.org: List of Boeing 787 orders

Market valuations and Google's $12.5bn bid for Motorola.

I have to say that given the recent market correction Google's bid for Motorola is good news. If Google is willing to buy out Motorola's mobility division with an all cash bid of $40 per share which itself is a 63% premium to Friday's closing price, it does say something significant about valuations now and in the future.
No holding back on that one then was there. No arguing about current valuations either. Google has obviously stacked up the sums internally and made assumptions on both the stand alone value of Motorola and the broader value to Google's existing and proposed products.

Anyway, the key message for me is that, for Google, the expectation of the future is intact and companies such as Google can still see value despite it not being reflected in todays share price. The value of the patents might make this a value play, or just give more freedom to the design of new products, or just save on legal fees. 
When making a business decision like this it also helps to have $13.6bn in the bank and $29bn of income (before the addition of Motorola).

Whether or not this damages the relationship with other mobile manufacturers currently using Android remains to be seen.

Elsewhere - :


"The recent sell-off is creating an opportunity for brave investors: recession-level P-Es for some top U.S. companies. Nearly 100 of the 460 companies in the Standard & Poor's 500 with profit forecasts for 2011 are selling at single-digit price-earnings ratios based on those earnings expectations, including giants such as Ford, Hewlett-Packard and Chevron.

That creates a chance for investors to get recession-like prices even if the broad market isn't yet so beaten-down. It "underscores value in the market," says Robert Maltbie of Singular Research. "The market is undervalued on historical, relative and absolute basis," USA Today reports." (www.digitallook.com: US newspaper round-up: Bargain stocks, Abercrombie, Germany.)

There are plenty of examples of businesses over-valuing and overpaying and current valuations being so low doesn't mean that the market is wrong with its valuation of the current risks.
But, long term, if your view is that the world isn't going to end then this is just another minor correction in a long term story. And, as long as those forecasts remain intact the value will come out in the end.

Markets are never going to be a one way journey or even as simple as 2 steps forward 1 step back so, as ever, the goal is to recognise value and pay the right price for it.

Related articles:

- www.telegraph.co.uk: Google buys Motorola Mobility in $12.5bn deal
- www.digitallook.com: US newspaper round-up: Bargain stocks, Abercrombie, Germany.

Stock Markets stabilising at the end of a turbulent week?

FTSE 100 @ 5320.03, +157.2 (+3.4%)
DJIA @ 11269.02, +125.71 (+1.13%)
NASDAQ 100 @ 2182.05, +14.98 (+0.69%)

After a hesitant start to the week markets temporarily stabilised and recovered some of their recent losses which, although welcome, has not provided any long term solutions to the current issues which themselves are a continuation of the credit crunch as Governments have bailed out the banks and taken on their mistakes.
As it stands currently, the banking sector's great Ponzi scheme continues but the health of Government finances now appear to be in a more parlous state.

Impossible to back up now but my view has always been that Government stimulus should have been better distributed and put directly into job creation (in the form of public works, tax breaks for employers or employees etc) rather than being used to support the banking industry's corrupt practices. 
At least this would have had a measureable output in terms of job creation or tax revenues.
Taking a Darwinian view on Banking the strongest would survive but would also have had to take a long hard look at how they got to us to this stage, then evolve and adapt to a changed economic environment or at least worked harder to attract much needed client funds and custom.
As it stands now nothing appears to have changed (other than their mistakes have been passed on to Governments and taxpayers which is an even bigger threat to us all), and there has been no philanthropic boost to the economy from banking. 
Its neither their responsibility nor (more significantly) their objective to take on the responsibility of contributing to recovery and financial solvency, and any impact on the economy is not easily measureable other than by artificially boosting banking profits and bonuses. They fail to see the symbiotic nature of our custom and instead seem to revel in their parasitic profits and bonuses.
I say artificial as, with the help of the BoE they continue to rape savers to fund their profits and bonuses without having made any fundamental changes to behaviours and practices. 
In a former working life and discussion around bonuses I recall the explanation that anyone wanting a bonus should first go and look up the definition in a dictionary i.e. "Something given or paid in addition to what is usual or expected!"

Its much too late to do anything different now other than to let this run its course and hope that Government austerity can eventually counter the mistakes created by banking greed and profligacy. 
Although I do still think that some of the chaff needs to be allowed to fail rather than being used as a gaming board for speculators seeking to make money out of the view that Governments will continue to bail out sinking ships at a premium that might just bankrupt us all.


Taking another look at the current market correction which strangely mirrors the 1000 point fall at around the same time last year, I have to say that nothing has actually happened yet other than Greece's controlled default. America hasn't defaulted neither has Italy or Spain. 
And although extremely concerning situations both Italy, and to a lesser degree Spain, have manufacturing industries with presence in high technology markets like automotive and aerospace so finding a way out of their current GDP imbalance is at least foreseeable (unlike Greece) as they make saleable products in demand. And, certainly in Italy's case there is an argument that there are significant "public" assets.

For me also, manufacturing has a distinct advantage over financial services as it distributes prosperity more evenly, and more directly, in both a geographic and jobs created sense.
It always seems to me that financial services (certainly in the UK's example), concentrates a disproportionate amount of wealth in small geographic pockets  amongst a small pocket of people upon which you are then reliant to trickle down into lesser paid service sectors.

I am digressing slightly but in summary I would still say that nothing has actually happened yet other than speculators feeding and benefitting from our fears.  
This does make it very difficult to assess whether or not any "default" discount has been priced in. 
I suspect that it hasn't though, and that this is a further change in recent times that speculators can profit equally from market falls as well as market rises hence the volatility. Where they can't make money is when there is a lack of volatility as they are effectively taking a contrarian view  (think George Soros and sterling) and then in some cases attempting to manipulate the market in their favour by creating volume through leverage.


But, I guess it also supports the view that the market can and will turn around as quickly as it can fall hence the need to take a contrarian view with logic rather than react to emotion.


To that effect I have also added Vodaphone to the virtual portfolio principally for its dividend, cashflows that will eventually reduce its debt (could they be a model for sovereign states?), access to smartphone markets, and its 45% stake in Verizon Wireless that might just be the jewel in its crown.
There are still threats from reduced call and connection charges, and competition, but the forecast 6.6% dividend will provide some support as well as a special dividend courtesy of a dividend due from Verizon Wireless which finally starts to justify Vodaphone's significant investment in a minority ownership.

Market Update: Is it time to be greedy?

FTSE 100 @ 4974.64, -94.31 (-1.86%) as at 11:23
DJIA @ 10809.85, -634.76 (-5.55%)
NASDAQ @ 2060.29, -134.09 (-6.11%)


Absolute rout on Wall St. yesterday when I was hoping for some fightback.
Nothing much I can do but wait out the bad news and take a look at the world if and when things settle. 
Standard and Poor's starred over the weekend and even prolonged the agony by releasing their verdict on America's credit rating when markets closed. They also seem to have courted controversy by downgrading the US, breaking ranks with their peers who managed to maintain their AAA rating on US debt.
All a bit tricky as you want them to have upped their game after having completely dropped the ball in the run-up to the credit crunch. As you would expect there are various accusations flying around about the use of flawed assumptions, and data errors.
At the end of the day the US House of Congress did leave itself wide open to this and the resulting criticism following their drawn out saga but I wouldn't necessarily use this in the negative context that S & P have done. 
In fact, it should have been a positive to S & P that the US is seriously considering its position on its debt and that a near majority within Congress want to implement serious cuts to borrowings. 
I can almost see Obama's view that the agency appears to shaping the outcome of events to fit their view rather than change or moderate their view to the actual outcomes.


Coming back across the pond the management of the EU's sovereign debt problems don't seem to be faring much better with Italy and Spain coming under the spotlight.

On a more personal view of events, a popular tenet of Warren Buffett's is to: "be greedy when others are fearful and, be fearful when others are greedy".

Basically this is an attempt to guide you against buying at the top of a market and selling at the bottom which is what can happen when fear and greed drive you with the herd. 
None of us actually want to buy at the top and like some pyramid scheme be the last one holding the bubble before selling out when it implodes.
Fear and greed are basically the fuel that drives bubbles, booms and busts when all rational behaviour is elbowed aside.


I have managed to swallow my own fear (for the moment) and dip into the market making a further purchase in Aviva. Obviously haven't been lucky enough to find the bottom but should (hopefully), have found some value that will bear out in the future.
Still got a couple of dips left in me as well with Astrazeneca, Reckitt Benckiser, Admiral, General Electric, Standard Chartered and Vodaphone topping the list but I am also not averse to topping up any of the portfolio's existing holdings as I have already done so with Aviva.
Buying Astrazeneca will probably also lead me to cash in my Invesco Perpetual stake at some point in the future as my holdings start to overlap with the current strategy driving Invesco.

Can be quite exciting once you start buying but the only problem is that you can soon run out of money.

Trawling around I have also found some useful reading over on the Motley Fool site. Quite a few of their writers seem to have similar opinions to my own which includes trying to learn lessons from investors such as Benjamin Graham and Warren Buffett. These include Graham's tale of Mr Market (www.buffettsecrets.com: Mr Market ) which has a similar message to that of "being greedy" (which you would expect given that Buffett was a student of Graham's).


In this sage tale, Mr Market is a business partner who comes to the office each day offering to buy your share of the business or sell his share to you but being an extremely emotional or manic depressive figure he is subject to extreme swings between optimism and pessimism which dictates whether he is buying or selling. 
It also determines the extreme price swings that he can quote to you as he seeks to gain your share or offload his own.
The key elements here are that he is, more often that not, driven by emotion rather than factual information. This, in itself presents you with an opportunity to try to recognise value by either buying or selling into an emotionally driven situation that could be more than a little irrational.



I have started to term them as lessons on thinking like a rich man! 

On a more serious note, it looks like its going to be a long painful process of recovery and reality has certainly bitten hard.


Related articles:

- www.fool.co.uk: The time to buy shares is when everyone else is selling. What are you waiting for? 

- www.fool.co.uk: The market has slumped. It's time to be greedy.

- www.fool.co.uk: There's nothing new about stock market slumps.

- www.fool.co.uk: It may be looking at you in the mirror. 

July 2011 Portfolio Update: Year to date wipe-out.

FTSE 100 @ 5393.14, -191.37 (-3.43%)

Well, not so happy now. With the FTSE100 down below 5400 my remaining year to date gains have been totally wiped out to the point where I am now shouldering a loss of 0.23% for 2011.
Unfortunately for the FTSE it is now down 9.68% relative to its 2010 year end of 5971.01 and 0.07% down on its 2009 year-end of 5412.88.

Very little consolation for me now.

July 2011: Portfolio Update.

Slightly academic exercise given the subsequent market moves following the weekend and the US debt ceiling vote.
However, in July the portfolio did manage an increase of 0.06% (5.08% year to date), versus the FTSE 100 which fell 2.2% (-2.61% year to date).
But, subsequent to that as I look today the portfolio has pulled back from July's close by 2.41% (giving just 2.55% year to date) and the FTSE has retreated by 4.37% (giving -6.86% year to date.

On the plus side it looks like the virtual portfolio is performing better than the FTSE up or down as the sectors most closely geared to current events (debts, growth and recovery), swing wildly. As it stands, mining and banking do not have a presence in the portfolio. 
It could be that the benefit of dividends are also coming through in the portfolio with its forecast 3.41% yield (to be re-invested of course).

Looking back at July, dividends came through from Rolls-Royce and Tesco in the month but were countered by share price retreats in Aviva and National Grid.
Apple, Microsoft, National Grid, Scottish and Southern, Centrica, IG and Rolls-Royce all reported in the month with mixed receptions initially but overall market fears over sovereign debt and global recovery won out.
As anticipated, Apple did briefly record a 100%+ capital gain for the investment which was the first such milestone in the 19 months of the portfolio.
Scottish and Southern Energy also went ex. dividend in the month. 
Cisco remains the biggest concern (or work in progress), but I think I am resigned to giving it longer on the basis that it is still growing and retains significant market share and, it could well be trawling the bottom of this particular underperformance with a forecast PE ratio of  just 9.7.

Virtual Portfolio - Merchant Adventurer's Index
		Forecast	1 month	YTD	19 Months
	% holding	Div. yield	% gain	% gain	% gain
R-R	29.73%	2.64%	1.16%	4.74%	34.95%
National Grid	18.11%	6.56%	-2.53%	7.96%	10.00%
Inv. Perp. High Inc. ***	7.06%	0.00%	0.16%	5.95%	18.72%
Aviva	4.67%	6.77%	-9.16%	1.48%	6.21%
BP	4.65%	3.80%	0.51%	-0.98%	5.91%
Apple **	4.18%	0.00%	13.53%	14.89%	96.08%
IG Group	3.23%	4.81%	1.42%	-13.22%	47.11%
William Hill	2.97%	3.97%	1.09%	35.27%	35.04%
BG Group	2.91%	1.02%	2.12%	11.42%	32.47%
Centrica	2.65%	4.98%	-5.17%	-7.54%	-2.92%
Morrisons	2.53%	3.70%	-2.28%	8.71%	14.97%
Scottish and Southern	2.49%	6.20%	-6.24%	6.69%	13.56%
Microsoft **	2.36%	1.94%	2.85%	-6.86%	8.03%
Tesco	2.11%	4.07%	-4.61%	-3.88%	-3.87%
BAE Systems	2.09%	6.07%	-4.55%	-7.88%	-4.78%
Cisco **	1.61%	0.29%	-0.15%	-25.08%	-26.48%
Cash	6.65%	0.00%	8.00%	20.66%
	100.00%	3.41%
			1 Month	YTD	19 Months
Virtual Portfolio gain (incl. Div.)			0.06%	5.08%	32.85%
FTSE gain (excl. Div.)			-2.20%	-2.61%	7.43%
- 1 month gain   5945.71 - 5815.19
- YTD gain         5971.01 - 5815.19
- 19 month gain 5412.88 - 5815.19
Transactions:
05/07/2011	Dividends	Rolls-Royce @ 9.6p per share
08/07/2011	Dividends	Tesco @ 10.09p per share
Notes:
*     US Dividends are adjusted for exchange rate and 15% withholding tax)
**   Sterling : Dollar exchange rate = £1: $1.6433 as at 29/07/11
*** Invesco Perpetual Accumulation units (i.e. Dividends re-invested)

Coming to the chart it looks like the end of April was a significant milestone in the current year as that looks to be the point where the portfolio's performance (and positive trend) has started to diverge from that of the FTSE100. 
In the 19 months since its inception the index is up by 32.8% and, as the chart shows, the FTSE100 is up just 7.43% over the same period.

Click to enlarge, back button to return.

Overall then, the portfolio feels healthy with Cisco the biggest concern along with Apple's ability to maintain its performance. There is another chunky dividend due this month from National Grid so the pattern of the portfolio's performance looks to be maintaining itself.
But, it still feels like a long way to go before the portfolio becomes self sustaining and able to potentially generate an income.

I am starting to think about gaps in the portfolio though, which would be from a strategic and diversification perspective, but need to weigh up the potential benefits of further investments against the manageable number of holdings which is now 16. There is also the consideration of whether there is a threshold on diversification which when crossed results in underperformance.

Gap wise, I am probably also looking to consumer products, industrials, and pharmaceuticals, and ideally, these will have exposure to fast growing economies like China and India (as opposed to direct investment).
Hopefully, this will be ahead of the next stage of growth or recovery (now there's an idea).

Links to previous Portfolio updates: 

- June 2011: Mid year Portfolio Update 

- May 2011: Portfolio Update
- April 2011: Portfolio Update

- March 2011: Portfolio update.

- Feb 2011: Virtual Portfolio update.

- Jan 2011: Virtual Portfolio Update

- 2010 Virtual Porfolio Performance!

One Crisis averted, what next.

Well that's one pantomime crisis temporarily averted in Washington. Now lets look for some ashes to rake over so that we can start another wildfire blaze! Or at least that looks to be the way of markets currently.
There are always periods when the bears rule the markets and at these times what little good news is around is often swamped and overwhelmed by the negative or in most cases just the fear of the negative.
And, lets face it, having stared into the abyss over the last few years the fears still have a tangible substance that can be quickly recalled along with still open wounds or painful scars.

So the markets weren't strangely apathetic to the drama in Washington, they were just waiting to dump on us once the situation had been resolved.
This is one of those periods where the macro economic news is overwhelming anything positive that might be happening on an individual investment basis.
The word contagion is everywhere and appears to be the new "buzz" word following the credit crunch. I guess that at the end of the day very few, if any, of us know what contagion risk is present.  
I wouldn't necessarily say that ignorance is bliss but I think that there are too many spouting an opinion from within the shadow of a more informed expert in a sort of sheep mentality. 

In the past there have always been sovereign defaults and even Gordon Brown's attempts to cement his place on the world stage was through an agreement for the worlds banks to stage a controlled default of African debt.
Before the credit crunch defaults were normally isolated to a group of banks rather than every single bank and government on the planet which is what is often spouted today. You could even argue that the repackaging and selling on of debt is the ultimate misselling scandal.

Going forward, if these were my companies then I would be actively planning and unwinding as much of these risky compexities as possible. I would be looking for credibility and firm foundations from which to grow. It might be slower but over time a significant momentum can be found in steady predictable growth whilst avoiding the all or nothing risks that have become custom and practice in the last decade or more.

I am a firm believer that there is a light on at the end of the tunnel though and even that each country is having its own light bulb moment after the desperation of printing more paper and throwing it on the bonfire of the cheap credit bubble.
Of course that also means that many of the excesses are still there but the changing, or at least moderating, of behaviours gives some of the inflationary excess a chance to return to more normal levels in line with GDP growth.
If this is taking place then, although there will still be breakout fires to put out, it is just a case of time to help the healing process and bring budgets and cashflows back into equilibrium.
In time there will also be a next generation with little connection to the credit crunch other than its place in history. 
True cultural change can take years but lets hope that we can instil some acknowledgement of consequences in them as the current generation had no such inhibitions.
And, with no organisation (or its legal stewards) penalised (other than Lehmans being allowed to fall), it is worrying that banks and governments will probably not deliver the protection that we need. In a way they have already detached themselves from the consequences of the credit crunch and believe it won't happen again on their "watch".
I hope I am wrong but it feels like it is the "stewardship" element that Directors seem to have forgotten. Directors are "stewards" of companies on behalf of shareholders and this is their ultimate accountability. I guess the same is true for MP's and Governments.

Greed always seems to win out over good corporate governance I guess, which is worrying!


Be lucky!