“Phew! The Western world is saved,” said absolutely nobody this week, as US politicians packed in their latest bout of clowning around and told everyone in the government to get back to work.
Regardless of your political views, the debt ceiling malarkey is ridiculous. You might be concerned about spending, and want a smaller – or more efficient and less corrupt – government. I have every sympathy with that view.
But having playfights over a completely artificial limit that can almost certainly be ignored if push comes to shove is a pathetic waste of time. And genuine conservatives have probably shot themselves in the foot with this one.
Because as I noted in Money Morning on Thursday, the only tangible result from this government shutdown and deadline squabble is that the Federal Reserve now has every reason to keep printing money at current rates until well into next year.
“So on the one hand, you have an utterly useless government. But on the other hand, you have a central bank that’s most definitely prepared to do ‘whatever it takes’.
“You only have to look at the eurozone to see what that combination means for markets. The US might be turning into Italy politically – but the Italian stock market has been a cracking bet ever since the European Central Bank said that it was ready and willing to act.
“In short, the one thing that the market was really worried about earlier this year – a reduction in QE from the US – now seems to be off the table until next year.”
With the promise of money-printing stretching back towards infinity, the dollar took a hit, and gold moved higher. The US market itself looks rather expensive for our tastes, but my colleague Ed Bowsher had a few suggestions on specific US stocks that are worth a look.
Royal Mail - should you take a quick profit?
Of course, for most British investors, there were a couple of other far bigger stories than the fake drama over in the States. Firstly, there was the Royal Mail sell-off. If you managed to get hold of some shares, you’re probably wondering what to do with them (assuming you haven’t already taken your couple of hundred pounds’ profit).
The consensus in the MoneyWeek office is that they look pretty frothy at current levels. My colleague Phil Oakley liked the idea of buying them at 330p, but he’s a lot more reticent at current levels. Phil’s point is that Royal Mail looks like a potentially attractive income stock, but the current yield doesn’t pay you for the risks you’re taking.
Ed pretty much agrees. He covered the Royal Mail story a couple of times this week, and on both occasions, he reckoned that the stock is a ‘sell’ at any level above around 350p.
I’m actually still sitting on mine, but that’s rather the result of laziness on my part and I do plan to get around to offloading them – as Ed says, “there’s no shame in banking a 40% profit in less than a week”.
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The biggest story to hit UK fund management for years
The other big story was the shock news that Neil Woodford, one of the few British fund managers who is recognisable by name to most people, is leaving his job. He’s off to set up a new business (which sadly no one knows much about yet – we’ll definitely be keeping an eye on that).
Like any long-term track record, you can pick holes in Woodford’s performance if you really cherry-pick your data. But in the 25 years he’s been at Invesco Perpetual, it’s unquestionable that he’s done a good job.
So if you have any money invested in his funds, should you stay or should you go? Well, Phil will be addressing that in more detail in the next issue of MoneyWeek magazine (out next Friday – get your first three issues free here if you don’t already subscribe). But in the meantime, Ed thinks you should give the new manager the benefit of the doubt.
“My advice would be to stay put – at least for now. Remember, if you switch to another fund, you’ll probably have to pay a chunky initial charge to your new fund manager. So you should only move your money if you think there’s a very strong chance your investments will grow faster if you switch.”
That said, you should also consider taking charge of your own money – then you won’t have to worry about hitting unexpected hurdles like this one. If it’s income you’re interested in, then you should consider taking a look at Stephen Bland’s Dividend Letter newsletter – it focuses on building small, but nicely diversified, portfolios of stocks paying decent but sustainable dividend yields.
How to cash in on our greatest minds’ brightest ideas
Something I noticed when flicking through the papers last weekend is that there’s another upcoming flotation that will interest MoneyWeek readers. It’s much more obscure, but arguably even more exciting than the Royal Mail.
Applied Graphene Materials is going to list on Aim next month, with the aim of raising £10m – it’s been spun out of Durham University, and its goal is to focus on more efficient ways to manufacture the ‘wonder material’ graphene. If you haven’t heard of graphene, you can read more about it here in an old MoneyWeek magazine cover story.
It has an incredible array of potential uses – from making smartphones you can roll up in your pocket to faster computer chips – but the tricky thing has been making the stuff in large quantities at a commercially viable price. That’s partly what AGM will be working on. We’ll be keeping a close eye on this one.
Meanwhile, my colleague David Thornton took a look at other ways to invest in early-stage research stories in his free Penny Sleuth email this week. Both Imperial Innovations and IP Group are ones to watch, he says.
What’s the best way to measure profit?
Ed’s latest video tutorial is all about profit. Companies record lots of different profit figures in their accounts – operating profit, pre-tax profit – and they usually would prefer you to pay attention to one figure or another. But what’s actually the best measure of how a company is performing? Ed’s answer might surprise you.
If you haven’t watched any of Ed’s videos yet by the way, I suggest you start here – and also go through his back catalogue. This is all stuff you really need to understand if you want to get to grips with investing, and Ed’s videos are one of the most painless – enjoyable even – ways to get up to speed on what really matters when you look at a company. I highly recommend them.
• The Dividend Letter is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares – you can lose you some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. Forecasts are not a reliable indicator of future results. There is no guarantee that dividends will be paid. Customer services: 020 7633 3609.
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Have a great weekend!
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