This column was supposed to be about personal budget priorities for next year, but instead it’s a subject I’ll address in the first column of the New Year.
Instead, I recall something my mother used to say when I was a girl: “Sometimes, it’s best to do nothing.”
It’s advice the Government should have considered when the heard that a single pig feed supplier had sold tainted meal, and it’s advice I’ve been pondering as I review my long term finances: do you do nothing and hope that you can sit out the economic storm?
Or do you throw on the mackintosh and galoshes and get out there bailing water, repairing holes, and even building yourself a new boat, until the storm passes?
My natural inclination is the latter – to do something. But the bad news about still falling tax revenues, rising unemployment and immigration, price and wage deflation is pretty relentless.
With most of my pension funds tanking, and the value of the few shares I own (and my house) looking pretty grim, I really want to believe the investment reports I receive which say that there are now thousands of high quality, global leading stocks that are selling at historically low prices.
This is the same, once-in-a-lifetime opportunity, they say, that the few, canny investors during the Great Depression had. Overcoming your fear is the most difficult part of the transaction.
I collect these reports in a huge file on my computer called ‘Stocks to Buy?’ and it includes well known household durable companies, oil stocks, and index funds which analysts say are too cheap to pass up.
One such company, is frequently mentioned – Microsoft (ticker code, MSFT) – which I’ve mentioned on this page before. A year ago, Microsoft’s shares were selling for over US$37; at time of writing $19.45.
Yet according to one newsletter I subscribe to, “Last year, Microsoft did more than $18.4 billion in free cash flow. Free cash flow is all the cash generated by a business in excess of all the expenses and reinvestment required to maintain and grow the business.
“Right now,” wrote Dan Ferris of www.Stansberryresearch.com on December 11th, “you can buy every share of Microsoft for about $183 billion – about 10 times one year’s free cash flow…which is absurdly cheap. Though Microsoft is too big to go private, it’s easily worth at least double what it’s selling for today.”
The same author gives another example, ExxonMobil (XOM), “the biggest and best-run oil company in the world. It pulls oil out of the ground for $8 a barrel – less than just about anybody. It’s also the most profitable company of any kind in the world, with over $40 billion of net income last year.”
ExxonMobil generated $42 billion in free cash flow over the last four quarters and has more than $38 billion in cash on its balance sheet.
“Right now, ExxonMobil is selling for a market cap of about $400 billion – less than 10 times free cash flow. Even better, ExxonMobil tends to spend all of its free cash flow on dividends and share repurchases.”
According to analysts, about $38 trillion in stock market capitalisation has been lost so far in the great global crash of 2007-08.
Last week the Bloomberg news service reported: “Stocks have fallen so far that 2,267 companies around the globe [many represented in the MSCI World Index fund] offered profits to investors for free as of the open of trading today. That’s eight times as many as at the end of the last bear market, when the shares rose 115 per cent over the next year.”
‘Shooting in a barrel’ is how many describe such buying opportunities. Yet there is another view – from even more cautious newsletter writers – that suggest that even these world-beating shares could well, get a beating once the inevitable Obama-inspired stimulus rally fizzles out because it has been funded by yet more borrowing, debt and the creation of more money (from thin air).
You can try and gauge all this opinion for yourself by starting your own ‘Stocks to Buy?’ file.
I recommend that you begin by subscribing to MoneyWeek magazine (see www.moneyweek.com).
This is a UK magazine, but pertinent to many Irish investors with UK shares or property, as it takes a holistic look at the economy, providing good insight into both the US and UK economies (and occasionally our own), offers share tips and recommendations, but most importantly, is extremely readable.
You should also sign up for the excellent free www.fool.co.uk, www.dailyreckoning.com and www.marketwatch.com (Wall Street Journal) websites.
You will be prompted to sign up for various subscription newsletters these also offer – some are, of course, better than others and the analysis and recommendations may not be what you expected or are relevant to your needs.
The one common recommendation from nearly all the commentators I’ve been reading – including the specialised financial analysts quoted regularly in Bloomberg, Barrons, etc is to consider having some precious metals and energy shares in your portfolio.
Next week, we’ll look at what’s been happening to gold and oil recently, and a simple formula for determining if a stock is genuinely good value.