My attempts to forecast the price of oil and Shell shares have been spectacularly unsuccessful. In the short term, total washouts, in the longer term maybe they will come right. So I decided not to try your patience any further, until I saw a configuration of stars in the financial firmament that I have not seen since May 1996.
Then felt I like some watcher of the skies
When a new planet swims into his ken;
Or like stout Cortez when with eagle eyes
He star’d at the Pacific—and all his men
Look’d at each other with a wild surmise—
Enough of Keats; in May 1996 I had been walking in Alsace, ending up in Strasbourg, and was aboard a TGV on a Saturday morning whizzing through the countryside bound for Paris and a slap-up lunch. There was no internet in those days so I was absorbed in the FT catching-up on what had been happening while I had been walking. I’d been thinking of buying British Gas but it just kept falling. On that Saturday morning in May 1996 I read that it was yielding more than 10% with a P/E ratio in single digits; astounding for a FTSE 100 company. I have made many misjudgements but buying into British Gas in 1996 was not one of them.
It has taken almost twenty years for a similar opportunity to turn up. Shell now yields over 8.5% on a P/E of 6.5. Yes, they may, probably will, cut the dividend but buying a quality company like Shell at 6 1/2 times earnings is an opportunity not to be missed.
Something else, rather less momentous, has popped up on my radar. I am a big fan of investment trusts and have wanted to buy Murray International. The snag has been that it has been trading at a premium of up to 5% over its value. It’s never worth paying a premium for a mainstream investment trust. After the recent collapse in equities it suddenly looks attractive. It is trading at a discount of about 4.5% and it yields almost 6%.
You would be correct in thinking that I regard this stock market rout as an opportunity not a disaster.
Optimumque est, ut volgo dixere, aliena insania frui.
And the best plan is, as people say, to profit by the folly of others.
Pliny the Elder, Historia Naturalis.
I notice that the price of Murray International has been going up today – doubtless as the followers of your Posts all piled in.
I remember my father advising that when you see a stock tipped in the weekend press, wait until the end of the next week before buying it yourself by which time the resulting froth in the price will have subsided…..
As it happens it was from your father that I got my enthusiasm for investment trusts.