Ne’er cast a clout till May is in. Shares and the pound jumped this week as Theresa May was able to form a government quickly and the Bank of England decided not to rush into cutting interest rates and launching more quantitative easing. Something like normality returned for a couple of days.
Those who sold out in panic on the Brexit result or who had, even earlier, followed the highly-flawed maxim and sold in May, are seriously out of pocket. It took strong nerves at times but shares have been proved, once again, to be the best investment.
I was reminded of this fact in mid-week when a £250 dividend from Sainsbury (SBRY) dropped into my online dealing account. I’m currently £2,250 down on my original investment so it hasn’t been my finest and I have held on far too long. Yet I am still ahead overall because of all the dividends I have received from the supermarket group over the past seven years.
The many concerns in the world have not gone away. Share prices were highly erratic in the earlier part of the year well before the seemingly interminable Brexit debate got underway and swings of 100 points a day on the FTSE 100 index will continue to be quite normal.
Most companies have year ends between December 31 and March 31, so May to August are the biggest months for receiving dividends as the finals come through. The cash should help to steady nerves as we see how May’s new government gets on with the job.
Discount Store
What is it about retailing, where previously solid companies make too large an acquisition and can no longer cope? Memories of the disaster that beset supermarket group Morrison (MRW) after it took over Safeway were rekindled when Poundland (PLND) embarked on the ambitious move to buy 99p Stores.
As in the case of Morrison, the move was severely delayed by a Competition & Markets Authority review. Both chains suffered from the inability to take action in the meantime and both found that the acquisition was too big to digest when it finally happened.
It is a potent lesson to investors that companies making takeovers often suffer while shareholders in the target companies walk away with the loot. If ever you are offered a choice of shares or cash in a takeover, take cash unless you have a good reason to stay in the enlarged company.
Poundland was floated at 300p just over two years ago and many shareholders paid more than that as the shares initially surged. Now South African group Steinhoff is offering just 220p plus the 2p dividend already declared.
Steinhoff owns or can count on almost a third of the shares and is going to succeed. To put this offer in context, Poundland shares halved to below 150p earlier this year. Shareholders can either sell in the market for just shy of the 222p bid or vote for it to go through. Resistance is pointless.
More important is to learn that flotations by private equity groups can come badly unstuck. Remember Debenhams (DEB)?
Question Time
I’m happy for readers of this column to raise issues with me on Twitter @rodneyhobson and I will answer in 140 characters if possible.
I was asked this week about ITV (ITV), whose shares have been something of a rollercoaster over the years. If you thought the High Street was cut-throat competitive, what about TV? A channel that has evoked sympathy because it struggles to vie with cash-strapped BBC cannot be much of an investment.
The shares are down from 270p at the start of 2016 to less than 200p. Stand back and watch them slide further.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
