' What I suspect matters for readers, and for Ludo himself, is what it
all adds up to in money terms. He started with #17,000 from a maturing
insurance policy less than five years ago and he now has #38,642. '
IN the quarter which ended on September 30, Ludovic's portfolio, which
I manage, beat the stock market indices handsomely, according to Tilney,
his stockbrokers who do the valuations. Since the end of June, the FT
All Share Index was up 5.18% and the FTSE 100 Index (the ''Footsie'')
was up 4.74%. He managed a rise of 14.93%.
This is all very encouraging, though there is always an element of
luck in such outcomes. It is, however, hard to beat indices all the time
(and he did not beat them in the previous quarter;) not least for the
reason that they incur no costs -- neither brokerage nor stamp duty, a
tax on savings, if not as nasty as capital gains tax, none of which the
index pays! But then no index benefits from his re-investment of
after-tax dividends, which does count for a bit.
What I suspect matters for readers, and for Ludo himself, is what it
all adds up to in money terms. He started with #17,000 from a maturing
insurance policy less than five years ago and he now has #38,642 of
which #37,492 is the value of his shareholdings and #1154 is cash at the
Abbey National. (No credit is taken for any interest such cash balances
may earn.)
His cash balance was #1978 last quarter but he applied for some
additional shares in BT and got 720 for an outlay of #1085. To what
money was left has been added the dividend income of #261 after tax
during the quarter.
I am psyching myself up for another initiative, either a new
investment trust savings scheme or another share, to get the cash
balance deployed where it will grow. It takes courage to make an
investment, even for someone else; and I am always aware of the costs
involved which soar if a mistake has been made and a quick sale is
required to cut losses.
The investment trust schemes greatly reduce the risk of getting timing
wrong. And some big companies actually provide for small investors to
buy their shares cheaply in relatively small amounts, which appeals to
me. I shall report on the decision quite soon.
Of the actual shares he holds, I am delighted to say that Zeneca has
confounded the pessimists and confirmed my judgment in holding on to it
and taking up the rights. A colleague tells me that other analysts
recommended Zeneca at the time of its de-merger from ICI. If so their
work escaped me completely. They were certainly the unrepresentative
minority, for most said ''sell''.
Like any of us, analysts can get it wrong sometimes. This was a case
in point. My only regret was in not buying a little more but I was on
holiday when the right moment occurred, which is the sort of penalty a
self-managed portfolio tends to inflict.
Royal Bank of Scotland shares have also been powering away. Its
management seems to be getting things right. It bought the Adam Bank in
Edinburgh after that fledgling got into such trouble that it might never
have been able to fly by itself.
The price paid was fair to both sides, and I hope the Royal keeps the
Adam customers, mostly flyers and potential flyers themselves, if small
game compared to the corporate clients a big bank serves.
Royal also continues to prosper in North America, where most other
British banks have done badly.
Ludo hopes that the bank will eventually hive off its Direct Line
insurance company (still going from strength to strength). Were that to
happen it might achieve a further upwards re-rating of Royal Bank
shares. The Bank's line (sic!) is to say firmly that it intends to leave
well alone. Yet, just below the very top of its team, somewhat different
noises are heard to the effect that nothing has been ruled out.
Bat is doing less well, with doubts about its US insurance performance
compounding the effect of the cigarette ''war'' there. It remains a huge
cash generator, however, and is likely to strengthen its financial
services side in the UK, where it already owns Eagle Star and Allied
Dunbar.
Ludo will hold on for still growing dividends. He stopped smoking a
couple of years ago, he told me casually just the other week. ''But that
does not mean I have any moral objection to holding the shares,'' he
quickly added. So they remain.
British Telecom is a large milch cow as well. How I love when the
press whines about its ''obscene'' profits: no doubt, they would prefer
it to make a loss. A more significant worry is that, instead of passing
its surpluses to shareholders, its management is discouraged (by the tax
system and those who find obscenity
in balance sheets) from
doing so.
Shareholders would be able to decide their own investment policy,
which might differ from that of BT's management. In short, I worry about
BT's latest North American ventures, an area where it has so far failed
to share the Royal Bank's prudent touch.
I suspect, however, the BT remains under-valued, though I may slice a
little off quite soon to raise funds for the holding promised above.
BP remains to perplex. Its fate depends on the oil price (maybe on
Opec!) but the downwards pressure on crude oil will maintain its impetus
to become even leaner and fitter still.
Scottish Power is doing well. If it looks dear against its English
counterparts, it is not exactly similar to any of them. I expect
above-average dividend growth.
A reader advises me that the size of the Foreign and Colonial holding
makes the portfolio top-heavy. It is certainly the largest holding, but
it could easily double its present size without it imposing much
distortion.
That is because its own portfolio is so diversified (internationally
as well as by sector) and because it enjoys exceptional management, as
is attested by its record. Every small investor's portfolio should be
dominated by an investment trust or two.
That said, F&C's discount is now remarkably narrow and its yield tiny.
I give it a lot of thought. A good rule, however, is to let well
performing stocks get on with it: but, ''Up to a point, Lord Copper''
comes to mind.
Were F&C ever to falter its price would suffer drastically. A prudent
investor should be able to wield a salami knive now and again.
How it all began.
LUDOVIC Ranfurly was the beneficiary of a maturing endownment policy
of #17,000 nearly five years ago. Late in life, during which he had
cashed in accumulated superannuations as he changed jobs, he married a
woman much younger than himself. Were he to die before her, any pension
she received would be pretty modest. So he asked me to manage the
#17,000, re-investing the dividends, to leave his wife better off than
she would be if the money were merely deposited in a building-society
account.
I agreed, thinking the work might show that any person with a modest
amount of money and a little time could manage a fairly safe portfolio
of stocks and shares which would both beat the safest investment (cash
on high yielding deposit) and confer a degree of stimulation.
These aims are succeeding. Ludo's capital has more than doubled and
the flow of dividends is already greater than a building society account
could deliver now that interest rates are lower than when he started.
Another friend tells me the portfolio was slow
to perform -- true, but patience is a great virtue in
investment. What I call vegetable growth is far more dependable than
the hyper-space leaps of science
fiction. The chosen shares are not a random selection, but they are
not numerous enough to be a representative spectrum, so they could as
easily lag as lead the appropriate indices.
They are, however, leading at the moment.
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