Yield to Temptation

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My attempts to forecast the price of oil and Shell shares have been spectacularly unsuccessful. In the short term, total washouts, in the longer term maybe they will come right. So I decided not to try your patience any further, until I saw a configuration of stars in the financial firmament that I have not seen since May 1996.

Then felt I like some watcher of the skies
When a new planet swims into his ken;
Or like stout Cortez when with eagle eyes
He star’d at the Pacific—and all his men
Look’d at each other with a wild surmise—

Enough of Keats; in May 1996 I had been walking in Alsace, ending up in Strasbourg, and was aboard a TGV  on a Saturday morning whizzing through the countryside bound for Paris and a slap-up lunch. There was no internet in those days so I was absorbed in the FT catching-up on what had been happening while I had been walking. I’d been thinking of buying British Gas but it just kept falling. On that Saturday morning in May 1996 I read that it was yielding more than 10% with a P/E ratio in single digits; astounding for a FTSE 100 company. I have made many misjudgements but buying into British Gas in 1996 was not one of them.

It has taken almost twenty years for a similar opportunity to turn up. Shell now yields over 8.5% on a P/E of 6.5. Yes, they may, probably will, cut the dividend but buying a quality company like Shell at 6 1/2 times earnings is an opportunity not to be missed.

Something else, rather less momentous, has popped up on my radar. I am a big fan of investment trusts and have wanted to buy Murray International. The snag has been that it has been trading at a premium of up to 5% over its value. It’s never worth paying a premium for a mainstream investment trust. After the recent collapse in equities it suddenly looks attractive. It is trading at a discount of about 4.5% and it yields almost 6%.

You would be correct in thinking that I regard this stock market rout as an opportunity not a disaster.

Optimumque est, ut volgo dixere, aliena insania frui.

And the best plan is, as people say, to profit by the folly of others.

Pliny the Elder, Historia Naturalis.

 

2 comments

  1. I notice that the price of Murray International has been going up today – doubtless as the followers of your Posts all piled in.
    I remember my father advising that when you see a stock tipped in the weekend press, wait until the end of the next week before buying it yourself by which time the resulting froth in the price will have subsided…..

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