2012 has had its moments, but overall it’s been one of the least fraught years we’ve seen since the financial crisis kicked off. But what does 2013 hold?
In this week’s edition of The Fleet Street Letter newsletter, the team outlined their three big investment themes of 2013. One of the most exciting is UK shale gas, says Brian Durrant.
“Over the last few years the US has engineered an energy renaissance. Right now America imports 20% of its total energy consumption, much of it from the Middle East. But over the next year, America will continue to take major steps towards becoming self sufficient in energy.”
The spectacular turnaround, which would have been unimaginable a few years back, is all down to America tapping its unconventional oil and gas deposits. Now the FSL team thinks that a similar energy revolution could be coming to Britain.
“The UK is sitting on a huge amount of untapped energy in the form of shale gas trapped deep in sedimentary rock”, says Brian. “Two years ago experts reckoned that shale gas supplies were 5.3 trillion cubic feet (tcf). But earlier this year the British Geological Survey significantly increased the estimate to as much as 200 tcf.”
Better yet, “exploration companies themselves have claimed to have identified 300 tcf so far. Meanwhile, offshore resources, which are harder to extract, could be as much as five to ten times higher. Whatever the numbers turn out to be Britain has the potential to be one of the world’s top gas producers.”
Of course there is well-publicised opposition to ‘fracking’ for shale gas – for example many ‘green’ groups are against it. However, there is also growing support as more people realise the benefits it could bring.
“A report by the Institute of Directors uses conservative assumptions, reckoning that the UK would be 50% as successful as the Americans in extracting shale gas. Yet it projects that 35,000 jobs would be directly created and that there would be enough onshore supply to meet 10% of our gas demand for the next century and carbon emissions would be cut by 8%.”
Even the government is getting on board. Last week it approved up to 30 gas-fired power stations. The fact is, with a host of older power stations set to be retired, policymakers may well realise that gas is a good bet.
Brian’s co-author, David Stevenson, has found some great tips to play the theme. One of them is in this week’s MoneyWeek cover story. If you’re not already a subscriber, you can subscribe to MoneyWeek magazine.)
Meanwhile, if you’re interested in learning a bit more about The Fleet Street Letter, you should check out its latest report. Although bear in mind that as one of the oldest financial newsletters in the country, FSL takes a long-term approach to investing. So if you’re looking to make a quick buck, don’t bother reading the report. This is aimed squarely at people trying to build up a hefty pot for retirement.
How gold investors can sleep at night
Another, more risky investment strategy is explained in Metals and Miners. Simon Popple has a significant amount of his own wealth in gold. The thing is, he doesn’t invest in the metal itself, but in gold miners.
That’s because many have had a rocky few years and look good value at the moment. But how does he know which miner to chose? I’ll let him run you through his criteria.
“We choose to buy companies with:
1. Key assets in safe mining jurisdictions
2. Denominated in safe currencies (Aussie and Canadian dollars)
3. Producing gold at reasonable costs
4. Strong cashflow
5. Exploration potential
6. Gold price on an upward trajectory.”
Simon calls these companies “supply kings” because they are in a strong position, producing an asset – gold – that will be in increasing demand in years to come.
“I sleep very soundly in the knowledge that I have invested in these stocks. I really do believe that we are investing in one of the great investment stories of our time. That’s why I am so eager for you to build up a sizeable portfolio of supply kings. Not only do I think these stocks will protect our capital. They also have the potential to deliver serious gains.”
Every week Simon investigates mining companies and builds up a portfolio of those that tick the boxes on his stringent checklist. To find out more about his newsletter, take a look at this report.
The one good thing about student fees
Changing topic slightly – my colleague Merryn Somerset Webb blogged about student fees this week. Merryn had been shocked to learn about the way exams are taken these days, after speaking to a first-year undergraduate in Scotland.
Before the exam officially started, students were able to look at the questions and discuss possible answers with friends. Even when the exam did start, students wandered “in and out”, with most leaving before the end.
But Merryn’s young friend didn’t leave early. “That’s partly because she is pretty diligent”, says Merryn, “but also because she is not a Scot. So – unlike students from Scotland – she is paying full price for her university education.
“Given that her years at university are going to cost her going on £100,000 (after you add in interest on the loans), she can’t afford to fail. Perhaps those who aren’t paying for their own tuition don’t feel quite the same.”
The story throws up some interesting points to debate. “When tuition fees were first introduced, we were very against them. And I remain very anti the new loan system (which should be seen as an additional rate of income tax rather than anything else). But the one good thing about aligning cost with benefit is that it does force everyone to think about value.”
After all, the fact the university applications are down 10% since tuition fees were introduced, shows that many think degrees aren’t good value, says Merryn. And it’s this same “need to get value that makes fee-paying students stay to the end of exams while non-fee-paying students head off for an early lunch”.
And of course, “if students demand more from their universities in return for their £9,000 a year, they will eventually get it… And we will all benefit from that.”
Commenting below, Ellen disagreed with Merryn, arguing that students are being conned, essentially. “If there are courses that are not worthy of being paid for, they should be scrapped… Extortionate student fees rely on the naivety of young students to pay too much for far too little.”
Boris MacDonut took a slightly different view, feeling that higher education can’t be based on financial metrics alone. “Offering our young people a chance to mix with bright, creative folk while simultaneously expanding their own knowledge and personalities is a great leap forward in civilisation. A leap beyond the dour mechanics of a factory or the fear and death of the battlefields of our past.
“To sum it up in pound signs is a crass denial of the utility of a decent education both for the individual involved, becoming a more rounded person with a fulfilling life, and for the benefits to society as a whole.”
It’s getting into quite a deep debate so if you haven’t done so yet, Merryn Somerset Webb blogged about student fees this week.
How ‘rebalancing’ could save your portfolio
Taken in its most basic form, the goal of an investor is a simple one – buy low and sell high. Yet most retail investors do exactly the opposite. They plunge into stocks when everyone else does – at a high price – and get nervous and sell when everyone does – at a low price.
But there is an easy way to stop yourself from doing this – ‘rebalancing’. In this week’s video tutorial MoneyWeek’s deputy editor, Tim Bennett, explains how rebalancing can boost your wealth.
The looming disaster facing Britain
And before I go I’d just like to point you in the direction of our most popular, and controversial, report of the year. This has been debated by politicians and rival journalists on twitter, it’s been covered as far afield as Russia, and it’s well worth a read. No matter how much wealth you have, or how it’s invested, this report is essential reading if any of it is in the UK. Read the controversial End Of Britain report in full.
• This article is taken from the free investment email Money Morning. Sign up to Money Morning here .
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Have a great weekend!
• MoneyWeek
• Merryn Somerset Webb
• John Stepek
• Tim Bennett
• James McKeigue
• Matthew Partridge
• David Stevenson