Stock market is a "fully-fledged epic bubble" and will burst
Discussion
mike74 said:
I've heard someone say elsewhere that in these inflationary times they ''wouldn't want to be holding cash rich, cash generative, low debt companies as they will suffer comparatively badly''?
Fundsmith still has the majority of it's holdings in quality, cash generative, low debt companies, essential consumer staples and medical... yet it has noticeably underperformed the wider indexes in this current downturn.
There is another important necessary attribute, continuing customer demand during tough times.Fundsmith still has the majority of it's holdings in quality, cash generative, low debt companies, essential consumer staples and medical... yet it has noticeably underperformed the wider indexes in this current downturn.
Would need to know what all the holdings are, to get an idea about why it has underperformed the indices.
What would the theory be ? Perhaps half of all investors fail to exceed indices.
leef44 said:
Oriental Asia of the past has not been about innovation. It has been about strong workforce and discipline. It is the Asian culture which is distilled from family life, through school, culture and then experience through adulthood.
Take the Chinese, as a workforce they can take hard grafting without protesting into strikes. It's the mindset and culture.
However this gives China a massive economic advantage over the West. This is the same advantage which Japan had over the West in the car industry throughout the 1980's to the late 1990's. The ability to copy the West and mass produce cheaper, more well equiped and more reliable products.
China nowadays has so much clout that it is importing Western science, engineering and technology highly skilled labour force and making that innovation work for them i.e. headhunt the top people in the West, offer three times more pay and all the benefits for their family and entice them to become China employees/directors (or whathaveyou).
Another example is Hyundai headhunting Albert Biermann and that has done wonders for the Korean automotive industry.
So even the innovation competitive advantage of the West will disappear.
I see where you are coming from, but there is still an advantage of innovation being part of the fabric of a society rather than something hired in. Ultimately this hired help will still be expected to defer to the host culture if push comes to shove,Take the Chinese, as a workforce they can take hard grafting without protesting into strikes. It's the mindset and culture.
However this gives China a massive economic advantage over the West. This is the same advantage which Japan had over the West in the car industry throughout the 1980's to the late 1990's. The ability to copy the West and mass produce cheaper, more well equiped and more reliable products.
China nowadays has so much clout that it is importing Western science, engineering and technology highly skilled labour force and making that innovation work for them i.e. headhunt the top people in the West, offer three times more pay and all the benefits for their family and entice them to become China employees/directors (or whathaveyou).
Another example is Hyundai headhunting Albert Biermann and that has done wonders for the Korean automotive industry.
So even the innovation competitive advantage of the West will disappear.
NowWatchThisDrive said:
mike74 said:
I've heard someone say elsewhere that in these inflationary times they ''wouldn't want to be holding cash rich, cash generative, low debt companies as they will suffer comparatively badly''?
Fundsmith still has the majority of it's holdings in quality, cash generative, low debt companies, essential consumer staples and medical... yet it has noticeably underperformed the wider indexes in this current downturn.
I don't know who said that, but I have to disagree. Owning highly cash-generative companies that don't have to use that cash to service mountains of debt, and can instead return it to shareholders, is precisely where I would want to be (and am). Owning companies with poor cashflow yields, and distribution thereof, means that your returns are dictated to a far greater extent by market prices.Fundsmith still has the majority of it's holdings in quality, cash generative, low debt companies, essential consumer staples and medical... yet it has noticeably underperformed the wider indexes in this current downturn.
As for Fundsmith...the problem for them, and everyone who's lauded TS as a genius over the last 5-10yrs, is that being a successful large-cap quality stockpicker in that time has come to be functionally equivalent to being a momentum junkie. Now the music has stopped for momentum and people are deciding that valuation actually matters again (as it always does eventually), and everyone who has been the beneficiary of the "quality"(/momentum) wave over the last decade (inc. FS) is getting whacked.
birdcage said:
TS probably has a premonition of China invading Taiwan and also taking control or shares of any business they like, Tik Tok, Baba.
The smart money is seeing which economy would take over their supply chain with stability, India Africa more Latin America
I know it's a big tongue in cheek but still a valid point. If China invades Taiwan, they would have a contingency plan how to deal with the world trade embargo. What sort of things can they do to protect their economy?The smart money is seeing which economy would take over their supply chain with stability, India Africa more Latin America
ETA: it's too late in the day and my brain is not functioning so an honest question as to what sort of actions/tactics China could take, out of interest.
NowWatchThisDrive said:
I don't know who said that, but I have to disagree. Owning highly cash-generative companies that don't have to use that cash to service mountains of debt, and can instead return it to shareholders, is precisely where I would want to be (and am). Owning companies with poor cashflow yields, and distribution thereof, means that your returns are dictated to a far greater extent by market prices.
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In theory I'd entirely agree with this but in practice it doesn't always work out that way... take Royal Mail (RMG) for example, of which I hold a few... record turnover, record profits, in an expanding market, lots of cash, little to no debt, had a special divi and a share buyback this year... and the share price has crashed by 50% in the last 6 months and the shorting parasites are all over it. .
mike74 said:
NowWatchThisDrive said:
I don't know who said that, but I have to disagree. Owning highly cash-generative companies that don't have to use that cash to service mountains of debt, and can instead return it to shareholders, is precisely where I would want to be (and am). Owning companies with poor cashflow yields, and distribution thereof, means that your returns are dictated to a far greater extent by market prices.
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In theory I'd entirely agree with this but in practice it doesn't always work out that way... take Royal Mail (RMG) for example, of which I hold a few... record turnover, record profits, in an expanding market, lots of cash, little to no debt, had a special divi and a share buyback this year... and the share price has crashed by 50% in the last 6 months and the shorting parasites are all over it. .
What happened with their pension liabilities?
Share buy-back? Shirley with that money they’d be better investing in taking on competitors and expanding into this expanding market?
But I’m no stock/company analyst so haven’t looked properly, nor would I see the point given I’ve no idea how I’d attribute a price to what I see
mike74 said:
In theory I'd entirely agree with this but in practice it doesn't always work out that way... take Royal Mail (RMG) for example, of which I hold a few... record turnover, record profits, in an expanding market, lots of cash, little to no debt, had a special divi and a share buyback this year... and the share price has crashed by 50% in the last 6 months and the shorting parasites are all over it.
As you know, serious investors put money out now, with the expectation of that money providing greater value and income in the future.
Therefore we need make an estimate of a company's prospects a few years ahead. Share prices effectively are a current measure of company future profitability.
Take a step back and try to think what could/might happen.
I may be completely wrong, but the number of letters must be expected to continue the steady decline. Shareholders have witnessed that themselves, with the reluctance to keep issuing printed documents, dividend cheques being discontinued, individual dividend vouchers being scrapped. A continual push to go electronic.
Parcels activity has increased for Royal Mail. Is a large part of that online shopping? Will online shopping reduce during a recession?
Royal Msil still has the legal obligation for fixed price UK wide daily deliveries. Postmen and postmen women, have to do their rounds, but become a greater cost if fewer letters are being delivered.
A huge workforce must be required to provide the UK coverage. Are there concerns about wage demands increasing costs considerably ? Household post used to be delivered using bicycles. Mine now arrives with a man driving a van, listening to a radio. Sometimes they must need extra vans so hire them from rental firms. I am talking about a built-up area, not rural countryside. Must be increased costs there, but keeps the employees warm in winter I suppose.
Everytime now that postage prices increase, it probably makes more people permanently change to electronic methods.
There you are. A few thoughts.
If the Royal Mail share price has fallen as you describe, so much more than the market, then investors are clearly pessimistic about the Company's future prospects. The share price decline might have been overdone, but time and future profitability will reveal the answer to that.
Jon39 said:
mike74 said:
In theory I'd entirely agree with this but in practice it doesn't always work out that way... take Royal Mail (RMG) for example, of which I hold a few... record turnover, record profits, in an expanding market, lots of cash, little to no debt, had a special divi and a share buyback this year... and the share price has crashed by 50% in the last 6 months and the shorting parasites are all over it.
As you know, serious investors put money out now, with the expectation of that money providing greater value and income in the future.
Therefore we need make an estimate of a company's prospects a few years ahead. Share prices effectively are a current measure of company future profitability.
Take a step back and try to think what could/might happen...
The pandemic wasn't just a temporary boost to the online parcels market, parcel volumes are still now around 20-30% above pre pandemic levels.
RMG is still far and away the biggest operator in the UK, which is apparently the biggest online shopping market in the world (per capita) and predicted to see continued growth.
Future RMG efficiency and subsequent profitability should look promising with recent investment of several billion £ in a number of huge automated parcel hubs which are due to become fully operational throughout 2022-23.
Further on future profitability it's widely expected that that there will be a relaxation of the current USO from 6 days down to 5 days or possibly fewer, which should make the letters side of the business much more efficient and profitable.
Whilst at the same time increasing the profitable parcels delivery side to 7 days.
You (aka your government) very kindly took on the then pensions liability on privatisation of RMG!
Surely recessionary fears of reduced consumer spending apply to every single aspect of the UK retail sector? Yet I've not seen the share price of most other online and high street retail sector businesses lose 50% in the last 6 months?
Personally I think most of the drop in the RMG share price is down to the actions of the Institutional shorters... when they act in unison with one another and their market maker accomplices they can engage in a whole range of devious and corrupt practices to manipulate a particular share price down to well below fair value and well below where all broker ratings and business fundamentals suggest it should be at.
Edited by mike74 on Monday 20th June 06:49
Jon39 said:
A huge workforce must be required to provide the UK coverage. Are there concerns about wage demands increasing costs considerably ?
I’d wager that RMG is probably the most unionised of all of the UK delivery services and has the least workforce flexibility. CWU has already be making noise around pay increases…
LooneyTunes said:
I’d wager that RMG is probably the most unionised of all of the UK delivery services and has the least workforce flexibility.
CWU has already be making noise around pay increases…
It certainly is the most unionised of all the UK delivery services without a doubt, but, that hasn't prevented the share price from climbing to around 600p on a number of previous occasions before each time the shorts have targeted it and driven it back down.CWU has already be making noise around pay increases…
Most of the current fall in the share price occurred prior to when this latest spat with the CWU developed, and if anything the share price has actually slightly recovered as this failure to reach an agreement has gone on.
As for workforce flexibility, RMG might not have the zero hours and ''self employed'' workforce often on illegally low pay and driving around in underinsured private cars that some other parcel carriers get away with using... but I still think the RMG workforce is reasonably flexible, with much of the workforce on only around 20 hour contracts but working over time when volumes require it (at no enhanced rate of pay)
LooneyTunes said:
Jon39 said:
A huge workforce must be required to provide the UK coverage. Are there concerns about wage demands increasing costs considerably ?
I’d wager that RMG is probably the most unionised of all of the UK delivery services and has the least workforce flexibility. CWU has already be making noise around pay increases…
LooneyTunes said:
Where do you see it going in the future then?
I would not bet against union action causing share prices to drop over the course of the next few months, and not just RMG.
I agree strike action probably lead to further short term falls.I would not bet against union action causing share prices to drop over the course of the next few months, and not just RMG.
RMG should just be a nice safe steady boring share, instead it's been one of the most volatile in the ftse.
I'd be happy for it achieve a sustained range of 500-600p which is where all the broker ratings and business fundamentals indicate it should be at.. Without the parasitic corrupt scum that are the institutional short sellers repeatedly engaging their dark arts to drive the price down, before they then close their short positions and proceed to load up on the reduced price shares.
mike74 said:
I agree strike action probably lead to further short term falls.
RMG should just be a nice safe steady boring share, instead it's been one of the most volatile in the ftse.
I'd be happy for it achieve a sustained range of 500-600p which is where all the broker ratings and business fundamentals indicate it should be at.. Without the parasitic corrupt scum that are the institutional short sellers repeatedly engaging their dark arts to drive the price down, before they then close their short positions and proceed to load up on the reduced price shares.
Are you one of those people who thinks short selling should be banned?RMG should just be a nice safe steady boring share, instead it's been one of the most volatile in the ftse.
I'd be happy for it achieve a sustained range of 500-600p which is where all the broker ratings and business fundamentals indicate it should be at.. Without the parasitic corrupt scum that are the institutional short sellers repeatedly engaging their dark arts to drive the price down, before they then close their short positions and proceed to load up on the reduced price shares.
mike74 said:
.. Without the parasitic corrupt scum that are the institutional short sellers repeatedly engaging their dark arts to drive the price down, before they then close their short positions and proceed to load up on the reduced price shares.
That would be market manipulation & illegal.
NowWatchThisDrive said:
mike74 said:
I agree strike action probably lead to further short term falls.
RMG should just be a nice safe steady boring share, instead it's been one of the most volatile in the ftse.
I'd be happy for it achieve a sustained range of 500-600p which is where all the broker ratings and business fundamentals indicate it should be at.. Without the parasitic corrupt scum that are the institutional short sellers repeatedly engaging their dark arts to drive the price down, before they then close their short positions and proceed to load up on the reduced price shares.
Are you one of those people who thinks short selling should be banned?RMG should just be a nice safe steady boring share, instead it's been one of the most volatile in the ftse.
I'd be happy for it achieve a sustained range of 500-600p which is where all the broker ratings and business fundamentals indicate it should be at.. Without the parasitic corrupt scum that are the institutional short sellers repeatedly engaging their dark arts to drive the price down, before they then close their short positions and proceed to load up on the reduced price shares.
NowWatchThisDrive said:
Are you one of those people who thinks short selling should be banned?
Are you one of those people who believe that institutional short sellers are purely taking a calculated gamble on predicting the future value of a particular share price based entirely on their research and analysis... and they in no way whatsoever have the ability to manipulate the price of a particular stock downward, especially when they act in unison with one another and other elements within the stock market?mike74 said:
RMG should just be a nice safe steady boring share, instead it's been one of the most volatile in the FTSE.
I'd be happy for it achieve a sustained range of 500-600p which is where all the broker ratings and business fundamentals indicate it should be at.
I'd be happy for it achieve a sustained range of 500-600p which is where all the broker ratings and business fundamentals indicate it should be at.
Leaving the FTSE 100 soon.
Does that mean Index funds will sell RMG ?
Don't take any notice of the 'expert' broker analysts. Just make a note of their forecasts, then revisit after a year. Most of those documents have to be filed on library fiction shelves. An analyst's real role is to create more client trading activity, for their employer.
If you want safe, steady and boring, look what has happened to BAT over the past 40 years.
During the 1980s, the world said it was going to stop smoking.
Since then, with a bagful of those shares, you would have no need to work at all now.
That has been one of the real recession beater stocks. Gradual sales decline, but sustainable price increases being the secret. Very loyal customers!
Governments are very happy too. Billions flow in their direction.
There has been a strong rerating since last autumn, so a shame if you have missed that upward movement.
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