Hundreds of years ago, bearded scholars sat hunched over their bubbling flasks hoping to turn base metal into lustrous gold – at least, we like to think so. Well, things have moved on a bit since then, and it is another kind of alchemy that firms practise today. It’s called the “value chain”.
The idea’s simple enough. The process that gets a consumer product to you, the customer, involves a number of activities, or links in the chain. The strategy of any good company should be to focus on those activities that are most profitable, as Richard Beddard explains in the cover story in this week’s issue of MoneyWeek magazine.
Everyone’s heard of Apple, for example. You might even be reading this on an Apple phone, laptop or tablet. The point is, Apple designs, sells, and provides support for its products. It even distributes them – in the case of smartphones, via telephone networks. However, the parts that go into making your iPhone are sourced from countless global suppliers. Apple, for its part, commands a “highly profitable position in the chain of activity”, says Richard. That’s why Apple has been so successful. For other companies in the value chain, taking over more profitable activities can transform the business – and your portfolio.
So, which are the companies now moving up the value chain to higher profits? Well, if you’re already a subscriber, you can find out here. If not, don’t worry – sign up to a subscription to MoneyWeek magazine.
Buy the stuff that makes money
When you think about it, investing really doesn’t have to be all that complicated. Take Paul Mumford, author of The Stock Picker. Paul’s been working in the City since 1963, so when it comes to making money, he’s an old hand. That’s a rare commodity in the industry these days, says MoneyWeek’s editor-in-chief Merryn Somerset Webb. Most good fund managers don’t stick around much beyond 50.
Straight to the point, “what makes a great stock”, Merryn asks Paul in this week’s interview in the magazine. “A great stock is a stock you can make money out of.” So what’s that then, Merryn pursues. “You buy it when it’s cheap and you sell it when it’s expensive.” Right. So, would he call that value investing? Contrarian investing perhaps? Nope. “Moneymaking.”
Paul’s not trying to be clever – it really can be that simple. You just need to know where to look, and Paul’s got a few ideas. Read the interview, and find out where he’s putting his money. Remember, if you haven’t already, sign up to a subscription to MoneyWeek magazine.
Fire up the helicopters
Going back to our original point about how names change, “’helicopter money’ was once regarded as an elegant, if highfalutin, thought experiment”, says MoneyWeek regular David C Stevenson in this week’s issue. It may not be as old as alchemy – Renaissance genius Leonardo da Vinci had to come up with the helicopter first – but in 1969, economist Milton Friedman imagined that “one day a helicopter… drops an additional $1,000 in bills from the sky”.
“As is the way with economists, a rather more dry, respectable-sounding term has now been coined to describe it – a ‘money-financed fiscal programme’ (MFFP)”, says David. In theory, it allows “a targeted drop of money to those most in need, bypassing traditional programmes such as bond-buying”. David explains how it works, and asks the question on economists’ lips: should we fire up the helicopters? Have a read and make up your own mind.
What do economists know anyway?
Or should we be paying attention to economists at all? Most didn’t see the financial crisis coming. And the short-term impact of the Brexit vote? Wrong again. Simon Wilson investigates to see if economics is in a crisis, and asks whether there is any point in trying to forecast the future in this week’s Briefing.
But Matthew Lynn just can’t resist getting his crystal ball out in this week’s City View. He wonders whether we are in fact about to witness the death of traditional high-street banking. After all, all those mis-selling scandals have left many high-street banking brands in tatters, and the online challengers are lining up to take their place. “The industry has not quite reached the tipping point when it tumbles into the abyss of oblivion yet”, says Matthew. “But that point may not be far away.”
Elsewhere in this week’s issue of MoneyWeek magazine, my colleague Matthew Partridge asks whether you should follow the example of Kenny in the new film Gold and go prospecting for profits.
Max King explains why you don’t need to worry about when it is right to raise or reduce your exposure to US stocks – the two funds he tips will do all the hard work for you. Sarah Moore looks at the potential headaches facing homeowners buying leasehold new build properties, hoping to buy the freehold later. (Hint: it can get expensive.) And I explain why, with all the headlines telling us to “check your change”, we’ve become a nation of neurotic numismatists.
So, there you are – treat yourself to sign up to a subscription to MoneyWeek magazine if you haven’t already.