‘My shares have soared’
Diary of a Private Investor
On the surface it looks as though shares have done nothing much over the past month. But beneath the calm appearance, there has been radical change.
Big multinationals and oil companies, such as Royal Dutch Shell, have fallen back while companies that primarily operate in Britain have recovered strongly.
My biggest holding, Lloyds Banking Group, is a dramatic example. It fell heavily after the Brexit vote – from 72p to a mere 47.7p at the close on July 6. It began to recover the next day and settled for a while in the low 50s.
But more and more information then came in suggesting that the British economy was not going to have the sudden slowdown – or even recession – that certain politicians had forecast. House prices have stayed up. Unemployment has fallen. Exports, of course, have been boosted by the lower pound. Retail sales have risen.
The miserable short-term forecasts are being proved utterly wrong.
As the growing evidence of this gradually reassured doubters, Lloyds shares moved up out of their former range on August 23 and have reached 61p at the time of writing.
They have recovered by a stunning 24pc since the post-Brexit low, although they are still well short of their level before the vote.
This sea change is a great relief to me since, as I admitted in my previous diary, I took heavy losses on my British-oriented portfolio in late June and early July when such shares took a dive.
I was not brave enough at the time to measure exactly by how much I had underperformed the FTSE 100 index this year but – at the worst moment – it was probably not far short of 20pc. But I kept on buying more “Really British” shares every working day for more than two weeks after the referendum.
I held on to the belief that the vote to leave the EU would not in fact be bad for British companies.
As a result of the big rally, I have seen some remarkable gains on some of the purchases I made. On July 6 I bought a few shares in Aldermore, a small bank, at 105p, which have since gained more than 50pc. I am now in profit on virtually all the purchases I made after the referendum.
It’s a relief and a pleasure. I am glad I stuck to my guns. But, as with Lloyds, most of the shares I owned before the vote are still lower than they were before it, despite the rally. So I have still underperformed the FTSE 100 this year, but I have been catching up fast and the shortfall has more than halved.
What now? Well, you will not be surprised to hear that I believe that “Really British” shares will continue to outperform as confidence continues to build. I think the Bank of England’s reduction in Bank Rate a month ago was panicky and premature.
According to Prof Tim Congdon, the economist, one measure of the money supply rose by 5.8pc in the year to June – the fastest rate of growth since 2008. There was no need for the monetary stimulus.
In view of this and the good economic statistics, it seems highly unlikely that any further monetary boost will be delivered this year. It is more likely that the next move in interest rates will be up. If so, it will be particularly beneficial for banks, which will then be able to earn some interest on the money they hold.
I am hoping and expecting that Lloyds shares will head back towards the 72p level whence they came. I am also expecting the pound, which has steadied after its initial post-referendum fall, to begin a recovery. That is why I am 90pc in British shares – a higher percentage of my portfolio than for a decade or more.
Amid all the recent drama on the big stage, there has been one more modest, practical change to deal with: for many years I have subscribed to the Morningstar premium share information service, which has included profit forecasts made by individual stockbrokers.
These have been an important piece of information to help me decide whether to buy a share. Suddenly, without announcement, the service stopped. I asked Morningstar why and was told it was down to “EU regulation”. Whether that’s true or not, it is a change that makes the life of a private investor a bit more difficult.
It is all right for the big institutions, but for the rest of us it has become increasingly hard to get good analysis and informed opinions. Internet chat rooms are no substitute.
‘I took heavy losses in late June and early July’
James bought heavily into Lloyds, whose shares have gained 24pc since their post- Brexit low