● This week was all about banks again. They weren’t being subjected to stress testing this time. Instead we British taxpayers were being urged to congratulate ourselves on our collective investment acumen. It seems that we might actually reap a return on the money we pumped into the semi-nationalised banks.
And as for the ones that remained in the private sector, such as HSBC and Barclays, they seemed to be doing rather nicely, thanks very much. Mind you, much of that improved performance came from a slide in bad debt provisions. Under the bonnet, investment banking figures, particularly from Barclays, were lacklustre and top-line growth weak.
Still, you’d better not try to break us up, warned Barclays. There was the usual veiled threat that it might stamp its little foot and abandon the country at the drop of a hat. The banks don’t like the idea of the rest of us extracting any sort of payment or safety margin from them in return for the implicit taxpayer guarantee they enjoy.
I can see why the banks don’t want things to change. Being able to privatise profits and socialise losses is a dream state for any company to be in. But this isn’t a fight that we can afford to lose – read my blog from this week to find out why.
● Elsewhere in the news, Russia slapped a ban on wheat exports as fires swept the already drought-ravaged country. Russia is the third-largest wheat exporter in the world, so understandably, this sent the wheat price soaring.
We’ve written about the case for investing in agricultural stocks several times in the past. It’s a pretty straightforward equation:
More people and richer diets + less water and less land = a need to make more food with fewer resources.
I’ll break that down. You have more mouths to feed because the global population’s growing, and also getting richer, and therefore eating more. On the supply side, you have fewer resources to feed them with. In the short term, that means rising food prices. Particularly if you have to contend with natural disasters along the way.
But as you can see from the rest of that simple sum, the long-term profits won’t come from rising food prices themselves. Because as I’ve noted in the past, we can’t tolerate high food prices for long. They have to be brought down somehow, or people will starve. That means increasing supply to meet demand, by squeezing more out of the resources that we have available.
So the real money to be made in agriculture will come from investing in the companies that can help farmers do this – to produce food more efficiently, as I noted in Money Morning earlier this week. We’ve discussed this theme in MoneyWeek magazine on more than a few occasions in the past – most recently my colleague James McKeigue covered the topic here: Harvest profits from agricultural growth.
● Talking of food, Cris Sholto Heaton was describing his culinary adventures in Asia this week. Those of a delicate disposition might like to scroll down past this quote. Let’s just say that Cris isn’t the sort of guy to order anything as tame as a chicken korma when he goes into his local curry house.
“I’ve sampled my fair share of strange snacks on my travels around Asia. There was the carton of salted soymilk I drank in Guangdong. And the curry paste-filled doughnut I bought in a Japanese bakery.”
Eurgh.
But then, no doubt those Chinese people glugging down salty soymilk would gag at the idea of drinking the cup of cheap, bitter coffee that’s rapidly cooling by my keyboard.
And that’s Cris’s point. “What sells in one market may be totally different to what people like a few hundred miles away.” And this isn’t some cuddly lesson in understanding each other’s point of view. There’s a hard-edged investment take to it all.
Investors often make a huge mistake thinking of Asia as one big block of fairly similar countries. But “in reality, there are many more differences between countries than you find in Europe.” And understanding this can give you the edge over other Western investors in the region.
It’s an edge you can get by subscribing to Cris’s Asia Investor newsletter.
● “Most British investors are hardwired for failure.” That’s a pretty damning statement. But it’s what Tom Bulford, writer of the Penny Sleuth free email and Red Hot Penny Shares newsletter, believes. Much of it is down to our “dangerous pre-occupation with property in this country. And that extends to an equally deep mistrust of shares,” says Tom.
And yet, we can’t make real money by just swapping houses with one another. “The only way that wealth is created is through trade and commerce – business in other words.” And “if you want to make real money, you need to get as close to the source of that wealth creation as you can, get in early, and don’t wait for others to tell you that you are doing the right thing.”
That means you have to do your own research, rather than wait for a share to be swarmed all over by City analysts (who get it wrong at least half the time anyway). Because by that point, if it’s a decent company then everyone will have caught on. You might still get some nice gains – but nothing compared to the sort of multi-baggers you could get if you buy in at the very beginning.
The good news is that this is exactly what Tom does in Red Hot Penny Shares. He looks at the stocks that no one else is interested in. It’s a risky business, but it can also be very profitable.
● Oh, and if that’s whet your appetite, you’ll like this week’s MoneyWeek cover story. My colleague David Stevenson – a former small cap value fund manager – has delved into the stock market to pick out his five favourite small caps, each of which could be on the verge of being re-rated by the wider market. You have to be a subscriber to read it – but if you’re not already a subscriber, then why not subscribe to MoneyWeek magazine?
● By the way, if you’re a Londoner or you spend much time in the city, you might be wondering if Boris Johnson’s new bike scheme is worth your while. We like the idea, but in practice, for commuters at least, you’re probably better getting on your own bike rather than one of Boris’s. Our personal finance writer Ruth Jackson explained why this week in her free email MoneyWeek Saver – you can read the piece here: The cheapest way to commute by bike.
● And just to remind you, you can now follow MoneyWeek articles on Twitter. And most of our writers have their own Twitter feeds for which you can sign up direct – here’s mine. You can also follow deputy editor Tim Bennett, personal finance writer Ruth Jackson, sector writer James McKeigue and associate editor David Stevenson. On the feeds we’ll be highlighting new articles on our website, and also articles from other sources, that we’ve found interesting ourselves.
Forecasts and past performance are not reliable indicators of future performance. Shares are by their nature are speculative and can be volatile and you should never invest more than you can safely afford to lose. Information in Money Morning is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Appropriate independent advice should be obtained before making any such decision.
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