Harold Wilson reassured an anxious electorate in 1967 that the pound in its pocket was still worth the same after sterling was overnight devalued by 14% against the dollar.
Most of us know we have no idea what a pound or anything else is worth. The value of a portfolio of shares bobs up and down daily, recently for me more downs than ups. The trick in investing is to spot when a share is over-valued – usually in expectation of future growth – and get out. This is not easy so I usually hope I have bought the right shares and hold on almost for ever.
There is no better example than MP Evans in which I have held shares for more than forty years. In 2016 shareholders overwhelmingly rejected a £7.40 takeover bid. Since then the company has prospered in every department: higher production, the commissioning of mills, virtual elimination of borrowing, much higher dividends, a focus on sustainability and so on. A recent valuation of assets by the company values it at about £15 a share. So where did the shares close yesterday? Don’t look, I know, £6.74.
There is no reason why the share price in a relatively small company with an illiquid market should not stay at a discount almost indefinitely. Many investment trusts are also at substantial discounts. MPE buys back its own shares at such an attractive discount which in a very small way improves shareholder value but unless there is a whiff of a takeover there is no reason for the discount to narrow much. Funnily, the share price usually goes up a bit when palm oil prices are strong, although that leads to an export levy by the Indonesian government and of course palm oil prices go down as well as up.
My switch from Marks and Spencer, booking a loss of about 27%, into Babcock has not been a success. My loss in M&S would now have been eliminated and Babcock shares have fallen. It is not so easy to establish a fair value and I have tied a knot in my hanky to remind me to sell them if they ever rally.