Shares digital

I mentioned last week on this page that investors shouldn’t assume that ‘in the know’ experts in the City have any greater savvy about the future. It looks like I was preaching to the converted because, according to latest research from Capita Registrars, private investors have been trading extremely volatile markets with an impressive amount of wit and wisdom, focusing on sensible defensives and outperforming smaller company stocks.

But that’s not all. We know that it’s all very well making good buying decisions, but it’s just as important to know when to flog them too. Timing can be just as important as good fundamental research. So it’s interesting to read that Capita Registrars has calculated that private investors have dumped over £3 billion worth of shares in the market’s worst performing sectors – consumer services and financials – over the past year, due to their hefty exposure to worsening economic conditions.

Of course, this might have meant that private investors were merely panic selling, heading for the exit in a mad rush. But not so.

According to John Roundhill, director of Capita Registrars, ‘private investors have played a clever game,’ taking advantage of a disastrous start to the year to buy £484 million of equities. More to the point, that buying has also been aimed with a keen eye. Faithful old friends of uncertain times such as utilities and telecos, whose shares tend to outperform in weak markets, have seen a massive £1.9 billion of private investor’s money over the past 12 months, which would seem to show an impressive grasp of foresight on the part of the ordinary investor.

The net result of this shares reshuffle, plus the outperformance of the shares they own, means that private investors own more of the UK stock market (11.6%) than at any time since September 2006, when the equivalent figure hit 11.9%.

Roundhill believes that this could signal a prosperous time ahead for private investors since, ‘with bricks and mortar no longer such a solid investment, the advantages of good dividend yields and the ability to diversify one’s risk, make shares look more attractive.’ He’s not alone either. This week Talib Sheikh, co-fund manager of the JPM Cautious Total Return Fund, reiterated his cautiously optimistic outlook for the year, seeing pockets of value particularly in some regional equity markets, even if the UK stock market may not be one of his preferred bets. He anticipates that ‘any recession in the US should be short-lived and shallow,’ with the Fed’s aggressive pre-emptive action on interest rates an encouraging sign. Such an outcome would lead to a collective sigh of relief the world over; it is in few investor’s interests to face the ructions that a US recessions implies.

However, Sheikh also believes that the Bank of England has been a bit slow off the mark in protecting the nation’s ability to grow, and ‘remains more concerned with controlling inflation.’

This cautionary tone regarding the immediate prospects of Blighty is hardly ground breaking or unique, similar noises have been echoing about the City for several months, and indeed, as Capita Registrars’ study shows, private investors have been on the ball, certainly for the past year. However, if ordinary investors are to stay ahead of the game they may have to look beyond the boundaries of Britain to do it.

Time to hit where it hurts

Another example of a toothless watchdog? The £41.6 million fine handed out by energy regulator Ofgem to National Grid, for ‘a serious breach of competition law’ is so pathetically insignificant that the firm’s share price actually rose on the day it was announced. When the company is worth almost £20 billion and is expected to post profits of over £2 billion for the year to March, £41.6 million is little more than a financial slap on the wrist. It’s less than ten times what National Grid’s directors earned in basic pay last year.

But I do have some sympathy with Ofgem, it has a difficult balancing act to perform. Fines like this are really an indirect penalty on shareholders; it’s their money after all, so simply upping the fine wouldn’t necessarily hit those responsible. Shareholders don’t control the firm’s day-to-day operations after all.

It’s the people with their hands actually on the tiller that are guilty of breaking the rules and any penalties should be aimed at them, the executive directors. Maybe they should be directly charged with meeting a sizable portion of the fine out of their own pockets. I bet that would work as a far more effective deterrent.

Googlewhacked

Apparently, almost half of the ten most recognisable business brands to us Brits are actually American, according to the latest ‘Superbrands’ research. Last year’s top business brand, the Beeb, has been knocked back into fourth spot this time round, while neither BP, BA or the FT are number one. Google has that honour, apparently. Incredible! Not just because it’s an overseas company, but because it’s also only been around about five minutes (well, since it was set up in 1998, so a relative five minutes). I’m not sure if I should be surprised by this or not. I suppose not, considering how Google has come to dominate the online world so comprehensively. Did you know, for example, that an astonishing 81.9 million unique users visit Google every month, and that over half of them are outside its US home, sourcing search results in 35 different languages. Let’s face it, internet surfers don’t even search the world wide web anymore, they ‘google it’.