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EDFEB IT 15 IO N The e-magazine created especially for active spread bettors and CFD traders

Issue 37 - February 2015

The Hunt for Income Finding solid yields in difficult times






Feature Contributors Alpesh Patel Alpesh Patel is the author of 16 investment books, runs his own FSA regulated asset management firm from London, formerly presented his own show on Bloomberg TV for three years and has had over 200 columns published in the Financial Times. He provides free online trading education on

James Faulkner A true stockmarket anorak, James Faulkner began investing in the stock market in his early teens. James is a devotee of the PEG-based growth investing model pioneered by Jim Slater in his seminal book, The Zulu Principle, while also being’s resident economic ‘guru’. James is an Associate of the Chartered Institute for Securities & Investment and holds the CISI Certificate in Investment Management.

Jim Mellon Entrepreneur and former fund manager, Jim Mellon, is worth an estimated £850m according to the Sunday Times Rich list. With a substantial international property portfolio and interests in a variety of companies Jim is a highly experienced and successful investor.

Samuel Rae Having completed his Economics BSc Degree in Manchester, Samuel Rae quickly discovered that the retail Forex industry was for him. His personal trading style combines classic candlestick analysis with a simple, logical and risk management driven approach to the financial markets - a strategy that is described and demonstrated in his best selling book, Diary of a Currency Trader.

Richard Gill SBM Editorial Director Richard Gill, CFA, is a smaller companies specialist with an investment philosophy focussed on cheap growth companies operating in booming sectors. He was a judge at the 2013 and 2014 Small Cap Awards.

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Editorial List EDITORIAL DIRECTOR Richard Gill

Foreword Hedge fund legend and fellow Old Harrovian, Crispin Odey of Odey Asset Management, thinks that the present financial environment provides the greatest shorting opportunity since the crisis of 2007/8. This may well prove to be the case.

EDITOR Zak Mir CREATIvE DESIGN Lee Akers COPYWRITER Seb Greenfield EDITORIAL CONTRIBuTORS Alpesh Patel Filipe R Costa Simon Carter James Faulkner Samuel Rae Dave Evans Jim Mellon Maria Psarra

Disclaimer Material contained within the Spreadbet Magazine and its website is for general information purposes only and is not intended to be relied upon by individual readers in making (or refraining from making) any specific investment decision. Spreadbet Magazine Ltd. does not accept any liability for any loss suffered by any user as a result of any such decision. Please note that the prices of shares, spreadbets and CFDs can rise and fall sharply and you may not get back the money you originally invested, particularly where these investments are leveraged. In comparing the investments described in this publication and website, you should bear in mind that the nature of such investments and of the returns, risks and charges, differ from one investment to another. Smaller companies with a short track record tend to be more risky than larger, well established companies. The investments and services mentioned in this publication will not be suitable for all readers. You should assess the suitability of the recommendations (implicit or otherwise), investments and services mentioned in this magazine, and the related website, to your own circumstances. If you have any doubts about the suitability of any investment or service, you should take appropriate professional advice. The views and recommendations in this publication are based on information from a variety of sources. Although these are believed to be reliable, we cannot guarantee the accuracy or completeness of the information herein. As a matter of policy, Spreadbet Magazine openly discloses that our contributors may have interests in investments and/or providers of services referred to in this publication.

However, as most of us are all too aware, having a view is one thing. Getting the timing right is arguably everything. For instance, there have been people who since the 1990s regarded the London real estate market as being painfully overvalued. This may be correct. But since then, and especially over the past five years, prices have entered the stratosphere, fuelled by the “buy to leave” speculators. Clearly, the advent of QE in the Eurozone has changed the landscape of markets and economies drastically. The major casualty in this respect has been the familiar relationships that many traders and investors relied upon. It is no coincidence that last month’s “Mellon on the Markets” article was entitled “Rip up the Rule Books.” In many ways it does seem that since the turn of the decade the rules firstly changed, and then simply went out of the window. Perhaps the best and simplest example in the recent past has been the price of crude oil. While there was perhaps an initial boost last year courtesy of the Russia/ Crimea/Ukraine situation, this gave way to a punishing decline, even as we were introduced to such geopolitical dynamite as Islamic State. Normally, one might have expected a rise from $100 a barrel to say, $150. Instead, since the autumn we have seen a decline from $100 to below $50. The usual rule with a decline in oil is that it is the forerunner to a decline in the world economy. In fact, it is usually a very reliable rule. But saying that, in the new environment the effective “World Tax Cut” – to quote UK Oil & Gas Chairman David Lenigas – could mean that we are treated to a worldwide GDP windfall. This is especially the case in the wake of the €1.1tn QE bazooka unleashed by “Super” Mario Draghi. Speaking of what is going on in Europe, this could be another example of where traditional expectations are thrown out of the window. The prospect of a Grexit and even a revamp of the EU and the Eurozone may actually be taken very well by the markets, if only on the basis that given the pain and misery suffered by many in this idealistic concept, a fresh start could only be better. Closer to home, things are less fraught on the surface, but we are of course seeing the general election campaign in full swing. While the experts have called this the closest vote in living memory, the truth here may be that with a solid housing market, jobs market and economy, the onus is on Labour – and of course UKIP and the Lib Dems – to grab votes from the Conservatives. This will be an uphill battle, whether or not traditional political rules apply this time around. All the best for February Zak Mir

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The Hunt For Income James Faulkner looks for yield under the backdrop of low bond rates and deflation.



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It’s time to look for value and income By Filipe R. Costa - our resident economics specialist seeks out capital appreciation and income generation.

The Best of the Evil Diaries Highlights of what infamous short seller Simon Cawkwell (aka Evil Knievil) has been trading and gambling on in recent weeks.

Fund Manager in Focus Activist investor Bill Ackman of Pershing Square Capital Management is in the spotlight this month.

Mellon on the Markets Read the latest thoughts and trading ideas of multi-millionaire investor and entrepreneur Jim Mellon.


Three Small Cap Income Plays


Robbie Burns’ Trading Diary


Maria Psarra School corner - Part 3

James Faulkner returns with three quality, high yielding, smaller company shares.

The “Naked Trader” spots opportunities in the Middle East health care market.

Maria Psarra, Head of Trading at Prime Wealth Group, advises traders to pull the trigger!

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Zak Mir’s Monthly Pick

Digging through the FTSE dogs Richard Gill, CFA, sifts through the best (and worst) of the high yielding blue-chips.

SBM editor Zak Mir takes a technical and fundamental look at tech giant Apple.

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44 Zak Mir Interviews Gervais Williams SBM editor Zak Mir talks to small cap fund manager Gervais Williams.

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Alpesh Patel on the markets Fund manager Alpesh Patel argues you don’t have to be a genius to make money in the markets.

Currency Corner Trader and author Samuel Rae gives his take on the effects of Eurozone QE.

Binary Corner Dave Evans of spies trading opportunities in the Canadian dollar.

Technology Corner SBM’s resident technology specialist, Simon Carter, takes a look at the new rival to LinkedIn, Facebook at Work.

Book Review: Fast Forward Richard Gill reviews Jim Mellon and Al Chalabi’s latest book, Fast Forward.

Markets In Focus A comprehensive markets round-up of under and out performers during the month of January.

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Zak Mir Interviews


GERVAIS WILLIAMS This month Zak interviews award winning equity fund manager and Managing Director of Miton Group, Gervais Williams.

We meet companies, make investment decisions based on a one-to-one basis, and just keep a weather eye as to what the longer-term trends may be.

Zak: Gervais Williams, you are one of the most successful fund managers of recent times via the Diverse Income Investment Trust. Is this nature or nurture, or both? How did you get into having a day job which is both daunting and, at times, extremely pressured? Gervais: It’s interesting when you say it’s pressured. I don’t feel the pressure. That’s not because I’m immune to pressure, it’s rather that I think there are certain things we can get involved with and can control, and there are certain things which we can’t control: the level of the market, what Mrs Merkel’s going to say next week, I have no control over things like that. I might have a view, but I have no control. So what we really do is focus back to individual stocks, granular stock selection, with an eye to the longterm weather. If investment weather’s going to be mucky, then clearly you’re going to make different decisions about how much risk you’re willing to take than if the weather’s benign.

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Zak: Is money a motivator for a fund manager? Or do you have to switch off from the idea of getting it right, leading to the next yacht or mansion? Gervais: There are two aspects to this. We’re dealing with millions of pounds. We’re dealing with people’s savings, many of which have been collected in sort of £20 notes and £50 notes, so this is hard-earned cash. And the responsibility is very severe from that point of view, so we’ve got to keep that absolutely in mind. There’s also the issue about whether fund managers are paid. We’re very well paid as an industry. We can outperform and get higher pay. To answer both those questions, answering the second one first, I’m just not even slightly bothered about the financial returns on a personal basis. I’m lucky enough to have been in the market for some years. I’ve made quite a few bob for my clients. Generally my fund management groups make enough money so they’re not looking to make cuts and all the rest of it.

Gervais Williams

“We meet companies, make investment decisions based on a one-to-one basis, and just keep a weather eye as to what the longer-term trends may be.� February 2015 | | 9

Zak Mir Interviews

So net, net, net, my main interest is to deliver for my clients; absolutely, start and finish. And, quite honestly, financial returns are not even slightly interesting from my point of view. Zak: So pressure and money do not affect you? Gervais: Not even slightly. But I do absolutely take responsibility. When you look over the side of the cliff and when I’ve lost money for clients or made some poor investment decisions, you think, ‘Well, that’s cost my clients £3 million,’ or £5 million, or whatever the numbers are. These are big numbers. I think I’m probably my own harshest critic. I don’t think anyone can criticise me harder than I criticise myself. We’re always going to have some things wrong. No one’s going to get everything right. But I think what you’ve got to do is always remain fresh, and not carry the weight of having lost money in a biotech or made a poor investment in a very small quoted company, which then leads you to say, ‘Well, I mustn’t make another of those.’

“So the whole nature of my role is to take a risk, but hopefully on average to make a very commensurate return. And I think that’s the way to do it.” If you just kept looking in the rear-view mirror you would very likely constrict yourself from making any money at all. So the whole nature of my role is to take a risk, but hopefully on average to make a very commensurate return. And I think that’s the way to do it. It’s a lot of small things coming right. Individual capital is very substantial money, but in a portfolio context, the actual risk-reward ratio is hopefully moderated. Zak: In your view is there a minimum time required for a would be fund manager to earn their spurs, to get up to match fitness in terms of the decisions they make. This could be a minimum age. Does life begin at 40 for a fund manager?

Gervais: Well, it’s interesting that, isn’t it? I was a fund manager when I was 25 and I was making good money for clients. I wasn’t as well versed and didn’t have as many grey hairs as I’ve got now. But I don’t think there should be a minimum age – you can get good fund managers who are young. Sometimes, fund managers who’ve been around maybe 20 or 30 years have become a bit cynical, or they’ve become a little less hungry and they’re not willing to kind of go those extra yards. So I think there are swings and roundabouts in older and younger fund managers. We have at Miton, for example, Georgina Hamilton. She’s 30/31 and a very strong fund manager working with George Godber. Their team have been top performers with very low risk metrics. A very able fund manager. Zak: One of the big stocks last year, unfortunately on the downside, was a company called Quindell. Did it fall, or was it pushed? Was it just one of those unfortunate stock market phenomenon that come around now and again, or are there lessons to learn from that example which hurt a lot of private investors and even AIM as a whole – which I describe as the Wild West of the stock market. How do you avoid situations like that? Gervais: Here’s a business which obviously grew partly by acquisition, and that’s always a higher-risk stock. It reached an extraordinary share price, which implies high risk, so we always knew it was high-risk. I was a high-profile supporter of the company from the very early stages. The reason why I was comfortable to hold it for a long time was because a lot of the major insurance companies, with extraordinarily large numbers of employees, did due diligence when they signed up, and they will have had access to all sorts of information which would have been illegal for me to look at, and they still signed up. Now, we have had the share price completely collapse, 90% or whatever it is. We’ve had the CEO change and other things go wrong. What has been astonishing is we’ve not had a downgrade yet. That’s a really extraordinary thing. We’ve not had a whole row of clients who’ve moved out the door. So it’s been remarkable, in a way, by how stable the business has been relative to the share price. Now, I think there will be, clearly, potential for writedowns. They’re going through an accountancy review at the moment.

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Gervais Williams

Rob Terry, who originally set up the business, has left, and I think that leadership is important and that will make a difference to the business. But actually, is it still a viable business? All the indications are that it is. Tosca, who have just bought a 5% stake, who are not known for being casual in the way they invest, have invested. So I think there are a lot of things about it which are related to the share price, and a lot of people believe that share price is the most transparent aspect of the reality of the business.

Zak: So it’s not over on that particular situation. The other point was Tosca. Tosca went long a couple of weeks ago in terms of this interview. But before that we saw that hedge funds were short. So it was actually rather easy to go short with the hedge funds and then reverse and go long when it was revealed that Tosca went long from say, 60p. One can follow them, and by implication they have done the homework on Quindell. Are hedge funds something you look at? Gervais: Not greatly, no. I don’t look at them a lot. I mean, hedge funds are clearly intelligent people and hard-working people, and they don’t make trivial decisions either, but they are often much more interested in the short-term share price. And, as I say, share prices, by their nature, are very spiky, and just because a share price is down or it’s up does not mean that that is the long-term value of the business.

Zak: Is sentiment a better indicator than value? Is that a fair thing to say? Gervais: Yes, that’s right. Well, it is, but all share prices are very spiky. They spike up and they spike down. Now, clearly Quindell spiked up and spiked down a lot more than most others, and that doesn’t mean it’s a good investment. What I do think is good is that all the way through that process the market has remained open. Some investors want to buy, some investors want to sell. They may not like the price, but the market’s been open. I think that’s an incredible reflection of the quality of the strengths of AIM, the ability for market-makers to be involved, and therefore, yes, a lot of people lost a lot of money. There’s no trivial aspect about that, but as a market, in the context of a portfolio, no one should be investing on just three or five stocks. We’ve all got to invest, particularly in small companies, on a 30/40-stock portfolio basis. Then I think that is not such a bad thing. The risk-reward ratio has changed. We haven’t had a downgrade – there may be downgrades to come. But generally the market has worked. It was a highrisk investment, knocked off-course by these people at Gotham City, which led to all sorts of other issues. But ultimately, maybe it’ll go back up again. It’s not the finishing post. We don’t know.

I think you’ve got to look through and take a view as to where the long-term value is, and there may be long-term value in Quindell. Many of the things suggest that it’s going to generate cash and all those other things, which will be marvellous if it happens. They may sell businesses. Who’s to say? There may be a great return to be had out of this business. Recovery stocks are often the best performers.

“the markets have gone up. They may have made a little bit more or a little bit less than the index, but it’s very easy to make money.” Zak: Moving on, you have written a book on the whole area of AIM and smaller/growth companies: The Future is Small. In it you highlighted the ants that symbolise productivity and vibrancy. We have heard of the beauty of smallness before in terms of “elephants don’t gallop”, is this just an extension of that philosophy? Gervais: It is absolutely so. With the credit boom and the focus on scale, the focus on globalisation, the focus on the growth of the markets and the huge returns in assets, it’s been very easy for people to make money. The markets have gone up. They may have made a little bit more or a little bit less than the index, but it’s very easy to make money. Extra volatility, extra beta has equalled extra return.

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Zak Mir Interviews

There have been setbacks. 2008, obviously. Most notably, 2000. So it’s not been a straight line, but generally the last 25 years have been characterised by institutional investors becoming very aligned with mid and large companies in the UK and internationally. This has been at the expense of the smallest end of the market. And you don’t need the extra growth potential of small companies when the world is growing rampantly. Now the world has stopped growing as fast. Look at the oil price. Look at many of the commodity prices. Look at some of the dividend cuts coming through the market. The world hasn’t quite stopped growing, but it’s growing very slowly. And this is when growth potential comes through, and that is why the vibrancy of the AIM market is so unique. You look round the world, and we haven’t got hardly another market in the world with such smallness characteristics. Even NASDAQ is now mid and large. It does have some small, but mainly mid and large. The only area where there’s vibrancy of smallness is in the Japanese market. Why is that? Well, because the Japanese market economy has not grown for 20 years. Now, this aspect will be necessary for all institutional investors and all investors to access the extra growth potential of small companies. And as they do so, they’ll shove share prices up; and as they put their share prices up, those companies will raise capital to increase productivity; and more productivity will give them the ability to grow their sales, grow their profits, grow their cashflow. Then you get into this virtuous period where small companies grow their dividends more than big companies, just as they did in the 60s and the 70s. We’re just entering that period. AIM itself isn’t the magic formula, but many of those companies on AIM will surprise on the upside, because they’re regular businesses with regular cashflow, more cashflow next year than this. They’ll be able to grow their dividends. And that’s the opportunity as I see it, and that’s why the book really focuses on those aspects. Zak: I would love to believe in this scenario. I do see this read across from the Japanese 20 year deflation scenario to the rest of the world. This means that the only way to get more than 0.1% on deposit at your bank is to invest in a growth situation. But isn’t the piece missing from the jigsaw that of funding? Funding is the problem for small companies. The banks, especially the High Street banks, were useless when they were lending, and now they don’t even want to lend.

Where is the funding coming from to get these companies off the ground? Gervais: If you go back to the 70s and the 60s, typically most long-term investors had 5-10% of their UK equity weighting in small micro. Currently – not in small mid, but in small micro – you might have 1%, on average. I think we’re seeing increasing allocation to the smallest end of the market for the first time since ‘92, when Aberforth were raising money for some of their funds.

“If you go back to the 70s and the 60s, typically most long-term investors had 5-10% of their UK equity weighting in small micro.” We’ve seen the River & Mercantile small Micro Cap fund. We’ve seen more capital coming into some of the funds from Giles Hargreave and his team at Marlborough. We’ve seen quite a lot of renewed interest in some of the funds we’re doing. Multi Cap Income, yes, we set up the Diverse Income fund and other funds have copied us. This is two-thirds of the capital going into small micro. So we’re getting new allocation. It’s that effect which will allocate more capital at the bottom end. Make it easier for companies to raise money. Share prices will outperform. They’ll find it cheaper to raise money. They’ll be able to get a better return on that money because they’re issuing shares at a higher price, and the uplift and earnings enhancement would be better. So you get into this kind of virtuous spiral. We’re only just stop-starting as it becomes more established, but the very fact that small companies are a small universe will suddenly count in their favour. So, yes, it may look a bit idealistic. It’s unproven at the moment. But the conditions which we anticipate to cause that are all coming through at the moment. Zak: A private investor holds a stock, it is going wrong, or the original scenario does not seem to fit anymore. Let us say it is Tesco (TSCO). When does he get out? Is there any sort of magic formula for getting out, ditching a bad idea?

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Gervais Williams

Obviously Warren Buffett got in at the top, and I think probably got out at the bottom of Tesco. Is there any sort of benchmark rule? Or do you just go by a percentage decline from entry? Gervais: There are three or four things in my view. I’ve just got a very simple way of looking at it: red and green traffic lights. It’s nothing more sophisticated than that. If the top line is going negative, if you’ve got lower sales this year than last, if you’ve got lower expected sales a year ahead, then that means that cash generation in the business is probably going to be under pressure. So that’s absolutely a good reason why you don’t want to be holding the company in future. So if sales turn red, for me, I tend to take a profit. I may take a loss, it doesn’t matter. But the point is that’s a red light for me. Usually, lots of little companies are growing, but some of them turn red. If you get a business where the margin comes under pressure, say you’ve got a good margin but there are competitive changes in the market, again, less cashflow in future. So if margins come under pressure, it’s a red light, it’s a sell for me. If you’ve got a balance sheet which is just too exciting, so you’ve got a company which has got some debt, but that debt in the context of the group and the ability to repay that debt looks like a negative, then that’s another reason to sell as well. So these are the main reasons to sell. But the last one, of course, is if you’ve got a company where the valuation reflects a large percentage of the future upside. You know, it’s a very good company, but it’s priced for perfection. Again, that’s another red light.

So I just look at those green and red lights. If you want to ask me about Tesco’s, it’s still seeing likefor-like negatives. If you look at its margins, they’re coming under pressure. If you look at its balance sheet, although they’ve got some disposals to make, they’ve still got some balance-sheet work to do. They haven’t got much headroom. So all of those three red lights are on. I’m not sure about the valuation one. It might be a bit cheap. But those three red lights are on. Have I got stock in Tesco’s in my Multi Cap Income fund, a place where I could have it? No, I haven’t. Zak: A closing “fun” question on investment heroes. Are there any people who inspired or still inspire you? Gervais: Yes, I mean there are lots of people around who are very capable. I always love meeting engaging people to have stimulating conversations with. But I think the person who stands head and shoulders above most others, of course, is Benjamin Graham. What I like about him isn’t so much about all his process and stuff, but he honed his skills during the ‘30s, the ‘40s, the ‘50s. These were times when investment markets were very troubled. He wasn’t just a fair-weather sailor. He was out there making money for clients when times were pretty grisly. They were pretty grisly for them. But he did really well, and so I just think that’s incredibly impressive. Zak: The degree of difficulty was 10 out of 10? Gervais: Absolutely. And that’s why I take his whole book, The Intelligent Investor, and all the other things he says, ridiculously seriously. So that is often the foundation of my own decision-making.

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February 2015 | | 15

The Best of the Evil Diaries


Evil Diaries

The man the Daily Mail dubbed “The King of the Short Sellers”, Evil Knievil (aka Simon Cawkwell) is Britain’s most feared bear-raider. He mostly famously exposed the fiction that were the accounts of Robert Maxwell’s Communication Corporation, an event which helped to earn his pen name.

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The Best of the Evil Diaries

A big man with a bigger reputation, Evil Knievil famously made £1 million by short selling shares in Northern Rock during its collapse. He also uses his knowledge and experience to buy shares, often resulting in the same devastating effect.

The F and M on the side presumably stands for Full and Meaty.

Three times a week Evil provides his thoughts and musings on the markets. Now writing EXCLUSIVELY for Spreadbet Magazine at

“We received several hampers of comestibles for Christmas. But what is my wife to do with them once emptied?”

He doesn’t just deliberate about the financial markets on The Evil Diaries, but also comments on politics, current affairs, which horses/sports bets are his latest favourites, with the occasional film and book review thrown in for good measure. Here we take a look back on the highlights of Evil’s diaries in the month of January.

But, once empty, it must be Finished and Manque. This is just a guess but, absent any other offerings, it is the only logical way to go.

Evil’s breakfast?

2nd January 2015 Phantom cheque book No 1 Asia Resource Minerals (ARMS), now 26p and capitalised at £60m, seems to me to enjoy, if that is the right word, a seriously intractable balance sheet. Last Wednesday it announced that it had secured a judgement of $173m against one Rosan Roeslani. This legal victory was hardly surprising given that Mr Roeslani had offered this very sum, without, it must be said, admitting liability, about eighteen months ago. But the problem remains: Roeslani remains on the run and is uncontactable. Get short above 10p. Incidentally, for the avoidance of doubt, even if Roeslani coughs up, ARMS is still in deep trouble.

Phantom cheque book No 2 Also seeking a legal result is Oxus Gold (OXS). This one jumped 37% on Wednesday and is now capitalised at £15m. The punters are looking for an imminent award from the Uzbekistan government of perhaps $1bn. But, at even one quarter of this figure, the receivable is around £150m. I have used the term ‘receivable’ since cash is a rather different idea. Uzbekistan’s boss is one Islam Karimov who favours the missionary position. In his case he takes a political opponent and boils him to death just as would be the fate of a missionary in nineteenth century deepest Africa. It is not clear why such a chef would be good at writing cheques. We received several hampers of comestibles for Christmas. But what is my wife to do with them once emptied?

5th January 2015 Over the years I am from time to time reminded by chums and others that Mitie (MTO) is basically a short. But Mitie refuses to go down. It’s got its own self-levitation mojo. However, it is capitalised at 277p at around £1bn whilst it enjoys net tangible asset value of minus £150m. Further, there is nothing special about this company. So, what will be the catalyst for collapse? Damned if I know. I misrepresented Oxus Gold (OXS) last week in that I declared that the Uzbek government would not pay if the arbitration currently imminently awaited goes against the Uzbeks, and that therefore the outlook for Oxus shareholders is bleak regardless of the arbitration outcome. This overlooks the possibilities for sequestration of Uzbek governmental assets outside Uzbekistan. These might – I am not remotely expert in the law on or the disposition of such assets – come to considerably more than the current capitalisation of Oxus such that the eventual payment by the Uzbeks could be well above the market’s current expectation. So I hesitate to recommend selling but, equally, I can’t say I’d rush out and buy above 3p, say.

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The Best of the Evil Diaries

“A capitalisation of £2.5bn is astonishing – Amazon will surely not descend from the clouds and grab this proposition.”

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The Best of the Evil Diaries

There is no evidence offered to support the claim by Miss Roberts that she was a sex slave offered up to the Duke of York inter alia. Indeed, she could have run away at any time she chose and slaves cannot do that. She elected instead to continue her wellpaid trade as a prostitute. As for the proposition that the Duke knew she was under age and not merely a good time girl, give me strength.

7th January 2015 Majestic Wine (MJW) is off 10% and more pursuant to an indifferent trading statement. Perhaps matters are more serious than so far considered in that supermarkets have always had brilliant wine buying departments but have not competed so effectively on price. That is surely all over. Discounting is now a permanent ineradicable factor with less pressure on available space. This means the supermarkets’ wine departments will step up competition with Majestic and be impossible to resist. Talking of supermarket space, I understand that Tesco (TSCO) has got a lot of its properties up for sale. This is presumably generally to be on a sale and lease back basis. But I suspect that Tesco wish to wind back as well. Incidentally, in connection with this asset realisation programme one does wonder about the intangibles in Tesco’s balance sheet. Red lettering above five squashed blue rhomboids is tidy enough but hardly remarkable.

A line or two lower this transmogrifies to “fastjet Tanzania, the group’s principal operating company, posted its first profitable trading month at an EBIT level in December...” This is slightly different. I lost about £400,000 on Fastjet but am not minded to chase to get it back yet. Clear Leisure (CLP) announced on 15th December 2014 that TNAV is circa 7p per share. Given this company’s history of disappointing the market, all that was caused by this RNS was a hollow laugh. However, Clear Leisure today announces a further fund raising, albeit a fairly trivial sum – £200,000, and so one is tempted to wonder whether this company might be turning up for the better. However, one would have to be a bit of a silly billy to allow oneself to be excited.

14th January 2015 International litigation corner There’s quite a crop of results this morning. First up is Asia Resource Minerals (ARMS) where the debtor, Rosan Roeslani, has dunna runna. ARMS seem to think that eventually they will get something back. All I can say is, hmmmm.

9th January 2015 One can see why Cameron thinks the Greens should be given an opportunity to debate with him in public as part of the general election gabfest. After all, he knows that the Greens are so stupid they are bound to put him in a favourable light.

John Ficenec, Questor in the Daily Telegraph, yesterday reviewed online retailers and made the general observation that the game in stock market terms is over. He covered (BOO) and extrapolated right across the sector. I am sure he is right and that the bull phase will not return.

12th January 2015 The headline for Fastjet (FJET)’s RNS today includes, “fastjet achieves first profitable trading month”.

Meanwhile Churchill Mining (CHL) faces a claim by the Indonesian government that Churchill’s documentation relating to its prospective mine is forged in whole or in part. This seems pretty ridiculous to me since although I can well guess that a sweetener might have been paid to somebody the notion of faking paperwork just does not seem practical to me. Which leaves this morning’s state of play at Oxus Gold (OXS). Unusually, there is nothing to report. Ocado (OCDO) had dipped below 300p and, I was assured, this meant chart wise a much further fall down to 80p. However, a few months later and the going rate is 400p. Today’s RNS seems perfectly respectable, but it is hard to see this business turning sustainably cash-flow positive. A capitalisation of £2.5bn is astonishing – Amazon will surely not descend from the clouds and grab this proposition.

February 2015 | | 19

Fund Manager In Focus

fund manager in focus

William “Bill” Ackman

“We’re not a trader at all. We don’t trade. We buy a stake in the business. We get actively involved in the business. We work to make the business more valuable. We invest generally in very good companies that have lost their way. And with better management, enormous value can be created.” Bill Ackman While a speculator buys shares because he believes someone else will buy at a higher price, an investor buys shares because he believes the value of the company will grow. But when we speak about what Bill Ackman does, we can’t label him as either; he buys shares because he believes he can improve the value of the company by changing the way it is managed. He is one of a few activist investors who is not sitting at his office waiting for his investments to grow in value, but rather taking part in the company’s growth by actively participating in shareholder meetings, voting resolutions and by nominating members to the board. Often criticised for his relentless calls on company management and certainly labelled as persona non grata by the controversial Herbalife, Ackman’s activist strategy has been delivering excellent performance for his investors while helping to restore value in companies that have lost their way.

But his relentless calls on company management and his pragmatic views have rendered him as many enemies as friends. Severely opposed by top names such as Soros, Loeb and Icahn when he shorted Herbalife in 2012, Ackman was never intimidated and looks forward to pursue his goals. While John Paulson and Paolo Pellegrini made what is sometimes referred to as the best trade ever (making billions out of credit default swap contracts in the advent of the mortgage backed securities (MBS) collapse), Bill Ackman turned $60m into an impressive $2.3bn by investing in a company that was about to file for bankruptcy in 2009. Holding a modest 1,058th position in the eccentric Forbes billionaires list, Ackman has been concentrating on achieving top positions for his funds instead.

20 | | February 2015

William “Bill” Ackman

“ackman’s activist strategy has been delivering excellent performance for his investors.”

February 2015 | | 21

Fund Manager In Focus

In 2014, a year hedge funds struggled to achieve alpha as the Fed intervention was phased out, Ackman beat everyone else and sat at the very top of the Bloomberg’s rankings.

Starting with real estate William A. Ackman, known as Bill Ackman, was born in 1966 and raised in New York. His father was chairman of a New York real estate financing firm, which would later be of crucial importance for Ackman in teaching him all the basics he needed to start his own business. Ackman obtained a Bachelor of Arts degree from Harvard College in 1988 and then went to Harvard where he completed his MBA in 1992. He worked with his father for some time where he learned all he needed to about the real estate business. He then decided to set up his own business with a fellow Harvard graduate. They founded Gotham Partners with $3m, with the aim of making small investments in public companies. The business went relatively unnoticed until 1995 when they teamed up with Leucadia National, an insurance and real estate company, to bid for the Rockefeller centre. Even though they didn’t win the bid, Gotham was boosted by the news and attracted fresh funds. At one point in 1998, they had over $500m in assets. However, while their popularity escalated, so too did trouble. Gotham was caught in legal turbulence in the early 2000s, which would lead to its liquidation. The New York Supreme Court blocked a merger between one of Gotham’s investments, Gotham Golf, and First Union Real Estate due to a lawsuit by preferred shareholders. After significant investor withdrawal requests, Ackman had no option other than to liquidate all assets, given the illiquid nature of the real estate investment. The difficulties did not end here though.

“not even he Would knoW that ten years later he Would be managing a portfolio Worth $13.4bn.” In 2003, the New York Attorney General launched an investigation into Gotham’s trading activities as the company had decided to sell shares in Pre-paid Legal Services just after writing an article praising the company. Ackman claimed that Gotham was just winding down its fund, but harm to his name and company was nevertheless done. Gotham was closed, but Ackman’s claims were validated by the court who ended up deciding in his favour in both cases. But it was too late to save Gotham…

Pershing Square is born Ackman is well known for his vigorous and obstinate character. He would never give up after seeing so much success. Gotham was gone, but Pershing was about to be born.

22 | | February 2015

William “Bill” Ackman

Supported by Leucadia National, he founded Pershing Square Capital Management in 2004 with $54m. Not even he would know that ten years later he would be managing a portfolio worth $13.4bn. Unlike many other hedge fund managers, Ackman would never sit behind a computer from early morning until late at night praying for his investments to grow in value whilst yelling at his portfolio managers. He would most likely be out at a shareholders’ meeting, voting on a resolution or in a stern meeting with a company’s CEO or chairman. Instead of waiting for performance to come his way, he is an integral player in the final result. Ackman choses just a few investments at a time, but is willing to take part in every one, steering changes to drive performance higher. Pershing had a tough year in 2008, as many hedge funds had, losing as much as 12%, but more than reverted the loss in 2009 by achieving a 41% gain.


February 2015 | | 23

Fund Manager In Focus

Ackman’s performance in 2014 is brilliant not only because it topped the Bloomberg’s top-performing large hedge funds list, but also, and in particular, because he is almost the only one in the list with an activist strategy and one of the few at the top that is trading equities. “Ackman was an outlier. Most managers on the list were debt traders, including a dozen funds dealing in bonds backed by mortgages and other assets, or quants -- investors who use mathematical models to trade a variety of securities.”, Bloomberg states.

A thorn in the flesh? Over the last few years much has been said about the weight-loss and nutritional products company Herbalife. In 2012 Ackman publicly announced a short on the company’s shares for $1bn at a price of $49 a share. But it was not only about shorting the shares, Ackman in fact launched a relentless attack on the company by stating that its whole business is a scam and that “it’s an embarrassment for the country that this [Herbalife] company exists”. “I’d be surprised if it isn’t gone within a year”, he added.

But Ackman was right when he said “it’s not over yet”. Herbalife has been presenting deceiving earnings and inverted its trend. In 2014 alone, its shares were battered down by 52% and are currently trading, to Ackman’s delight, near $31. Whether the stock will be driven to zero, as suggested by Ackman, or manage to recover remains to be seen. Ackman primarily focussed on the allegation that the firm was tricking people into becoming salespeople. Many of the firm’s revenues are made by selling to these salespeople and not the final consumer. He brought this to the attention of legal authorities and at the same time faced fierce opposition on his trade from Daniel Loeb, Carl Icahn and George Soros, just to name a few who jumped into the stock proclaiming its value. They managed to convince investors in general, and in 2013 the company’s shares topped $80.


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William “Bill” Ackman

Investment activism – a tough route to follow Ackman has also had his fair share of bad investments.

That was the best decision they could have taken as the company has since laid off thousands of employees and closed several stores whilst never being able to put a floor on the share price. At the time Pershing sold its stake, the shares were trading near $12.90, but they’re now near $7.90.

It all started with Wendy’s International a few years ago. At that time Pershing successfully pressured the company into spinning off its Tim Horton’s doughnut chain. Pershing doubled its investment but Wendy’s lost strength and found troubled waters thereafter. Many pointed their fingers at Ackman’s activist fund and its short-term biased goals as the main reason for the outcome. Later on, Pershing accumulated a stake in the human resources company Ceridian Corp. From the very first minute, Ackman disagreed with the company’s CEO, Kathryn Marinello. With a 15% stake, he nominated his own independent members to the board and pushed for a spinoff of the company’s strongest division. It was, again, a tough fight resulting in a 50% profit for Ackman but a less than desirable outcome for Ceridian, which ended up being sold to a private equity firm. In December 2007, Ackman accumulated a 10% stake in Target Corp., amounting to $4.2bn. This time he encouraged the company to get rid of its credit card business by selling its receivables to a bank. However, a major crisis in retail shares and a fierce fight with the company’s management led Pershing out of Target at a loss. Borders Group was another thorn in Pershing’s portfolio. In 2006 the firm was willing to finance a buyout of Barnes & Noble, but the deal was broken and Borders ended up filing for bankruptcy. The fund lost $200m. JC Penny was a further big name traded by Pershing. In October 2010, the fund was the biggest JC Penny shareholder, with a stake worth $900m. Ackman joined the board and helped attract Ron Johnson from Apple to rebuild the company’s stores as the new CEO. Ron Johnson was key in turning “the boring [Apple’s] computer sales floor into a sleek playroom filled with gadgets”, as the New York Times once said. But that wasn’t effectively reproduced at JC Penny, as sales kept sinking and the strategy failed. Johnson got fired and Pershing ended up selling its stake for just $500m after a lost battle for the next CEO.

While turbulence seems present within most of Pershing’s investments, there have been exceptions. In 2009 the firm invested $60m in General Growth, a near-bankrupted mall operator. Pushing for a business restructure and then returning to the public markets, Pershing’s stake was worth $2.3bn in the end, and it also saved the business.

February 2015 | | 25

Fund Manager In Focus

“bill ackman certainly isn’t one of the quieter characters involved in the hedge fund industry.”

Final comments Bill Ackman certainly isn’t one of the quieter characters involved in the hedge fund industry, mainly because of the nature of his business and his energetic personality. While 90% of the industry manages its operations seated behind computer screens, Ackman chooses to be face-to-face with CEOs and directors, often having to oppose their ideas in order to build the value of a company from the ground up.

His activist strategy is a rare one within hedge funds, but one that can derive high value at a time when it is becoming increasingly difficult to find truly good investment opportunities.


26 | | February 2015

February 2015 | | 27

Mellon on the markets



The pandemonium in the foreign exchange markets seen in January was something to behold – when the Swiss National Bank unpegged the franc from the euro rate it had established as a floor, the Swissie soared at one point by 39%. This was by far the biggest one-day move in a major currency in living memory, and has had the effect of wiping out a number of forex brokers, putting some others under the spotlight, and busting at least one major fund, Everest.

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Mellon on the Markets

Many people thought they were being smart by continuously selling Swiss francs to the central bank, only to be bitten in the proverbial when the Bank did exactly the opposite of what was expected. Saxo Bank had to reset its customers’ trades to avoid what are posited as losses for itself, and the whole industry of leveraged foreign exchange trading must now be under a cloud, especially as margin percentages will rise sharply. The real lesson of all of this mess is never to trust a central bank and the so called wisdom of the crowds. One day before they acted, the Swiss were verbally defending their peg with solid words; the next day, causing mayhem by reversing their position. Whether or not this was a good policy move is yet to be determined. A million trees have been felled so far in analysing the consequences of this dramatic action. But what it is is symptomatic of the peripheral, and soon to be mainstream, effects of central bank interventions on such a massive scale on hitherto free markets. The move to zero or ultra-low rates in almost every sort of solvent government bond market is an artificial construct of monumental bond buying by central banks.

I think it is fair to say that the absolute consensus is the ECB will unveil a monster QE package, and bond yields in the Eurozone are forecasting this – and negative inflation to boot. What happens if the package disappoints? Probably bond yields in France and Germany will rise – and so I am short the Bund market. At the same time, the euro will rise – short term. I see a technical bounce in the euro to possibly 1.20 against the dollar. And this is the first time in two years I have removed my euro shorts!!

“The real lesson of all of this mess is never to trust a central bank and the so called wisdom of the crowds.”

This has been the policy response of every major bank, amplified by the moves of the European Central Bank on the 22nd January. These policy moves have utterly changed the dynamic of markets. While in some ways it makes them more predictable in the short to medium term (i.e. go with the tide of central bank moves), it will, as with the Swiss situation, lead to catastrophic and systemic losses when the policy is abruptly reversed, as in many cases it will undoubtedly be. In my last letter, I talked about sifting for probable outcomes among lesser uncertainties, an unscientific art if there ever was one. I spoke of my absolute conviction that the euro was headed down (now at 1.15 – but beware, I think it may be due a short term bounce), and that the yen had been oversold, with every analyst then calling for it to be weaker. And so it has proved. The Swiss situation, on the other hand, was a probable train wreck waiting to happen, and those who were short Swiss francs (or borrowed them to fund investments) were playing a game of chicken which would end with their heads lopped off. So let us look for the other mugs who are “playing a Swissie” in markets elsewhere.

US interest rates continue to fall, despite robust growth in the domestic economy. I feel that this is based on expectations of ultra-low inflation and of small, if any, interest rate rises for the foreseeable future. What if this didn’t happen? Actually, I think that there may be a negative surprise in this respect, as wage inflation begins to seep into a nearly fully employed economy, and that yields could rise sharply in the US later this year. So short – but cautiously – the US bond market at the long end.

February 2015 | | 29

Mellon on the Markets

“The yen, meantime, I am neutral on, but remain a huge buyer of the Nikkei.” Meanwhile, the Japanese bond market, now way overbought by a sole buyer, the Bank of Japan, represents perhaps the greatest toxic threat to world markets that there is. Interest rates at the long end, measured in small shoe sizes, might just be one of the greatest shorting opportunities of the next year. The yen, meantime, I am neutral on, but remain a huge buyer of the Nikkei. This is the only market as a whole that I am bullish on, and see 20,000 on the Nikkei as a target for this year.

What of other markets? The crack (not) forecasters, who in mid-summer were calling for a rise in the oil price from $110 per barrel, got it totally wrong. Now they are trying to make up for past mistakes by forecasting oil down to $20 or less a barrel. Let’s get real – this isn’t going to happen. No oil company would ever invest at that level. While Saudi might be OK, the rest of the oil producers would cut back in a heartbeat. Furthermore, while energy intensity is falling, overall demand for crude still rises, and oil just might be a great buy here now. Look at crude futures or Ophir Energy as buys.

So, my month’s selections on a macro basis include: BUY euro/dollar on a short term basis. SHORT government bonds. BUY NIKKEI, trade the S&P for short term movements, be half long the DAX. Continue to SHORT the AUD and go long gold and silver.

Likewise, gold and silver were in the doghouse it seems just yesterday, but have been ticking up since the volume of the naysayers reached maximum levels. I like them and would buy. JNUG (The Direxion Daily Junior Gold Miners Index) is a good proxy.

And finally... I have just been in San Francisco for two weeks at the JP Morgan conference, and saw nearly 80 companies overall. We are performing our usual triage on these, and are sifting them down. Some are private, some public. In my next report I will go over what I like and don’t like in bio. Biotech has been by far and away the best performing of all market sectors over the past couple of years. That won’t last, but there is still opportunity, and I and the Master Investor team are determined to bring it to you.

30 | | February 2015

Jim Mellon will be headlining the Master Investor 2015 show, to be held on Saturday 25th April in Islington, London. To pre-book your FREE tickets for this year’s Master Investor Conference as an SBM reader, CLICK HERE

February 2015 | | 31

Digging Through The FTSE Dogs

DIGGING THROUGH THE FTSE DOGS Searching for solid yields within the blue-chip index By Richard Gill, CFA

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Digging Through The FTSE Dogs

February 2015 | | 33

Digging Through The FTSE Dogs

While small caps shares have their obvious attractions, a dividend yield, generally speaking, isn’t one of them. Looking at the c.1,100 companies currently listed on the AIM market only 25% of them paid a dividend for their last financial year. Granted, there are many attractive small cap income stocks (see James Faulkner’s article on page 50 for some examples) but it is to the boring, low growth, but highly cash generative blue-chips I will go to seek some of the highest yielding shares on the London markets – only six FTSE 100 firms offer no dividend payment.

It is also important to read through regulatory announcements to make sure no companies in the filter have said they will cut future payments and also to check if any special dividends have distorted the figures. For example, the table below shows the current highest yielding FTSE 100 constituents based on historic dividend payments.

One way of seeking out the highest payers is via the income/value based strategy known as the Dogs of the FTSE, adapted from money manager Michael B. O’Higgins’ identical strategy which focussed on the Dow. To put this into practice an investor simply has to buy the top ten highest yielding shares in their index of choice. The idea is that this will filter out those companies which are currently unloved by the market, or those that are at the bottom of their business cycle and could see a share price rise in the near future – assuming dividends are held steady through the down years.

“the idea is that investors Will benefit from both a large dividend yield and a decent capital gain folloWing a recovery in the share price.”


Thus, the idea is that investors will benefit from both a large dividend yield and a decent capital gain following a recovery in the share price.

Dangerous dogs? Of course there are a number of dangers regarding the “dogs” strategy. Firstly, there is the issue that future dividends may not be equal to historic ones and as such investors may not be getting the yield they expect. Ensuring that future or projected yields are used in this strategy, rather than historic ones, is critical.

Three of the top five companies in the above table – Antofagasta, Sainsbury’s and Tesco – have all indicated that they will cut their payments this year, demonstrating the importance of doing further research on the output of any filter. For example, Antofagasta made an unusually high and one off dividend payment last year of 142% of net earnings as it redistributed excess cash. Previously solid Tesco slashed its interim payment by 75% and will not make a final payment for the full year.

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Digging Through The FTSE Dogs

“morrisons has not yet said it Will cut its dividend payment despite facing many negative issues.”

At first glance, this would equate to a tasty yield of 7.34% at the current share price. However, this will cost Morrisons an estimated £308mn and compares to the firm’s own forecast of underlying pre-tax profits of just £325-£375mn for the full year, leaving the dividend cover very thin. With CEO Dalton Philips set to leave shortly and the firm suffering as a result of the rise in the discount retailers, his successor may have a more cautionary view on maintaining the payment.

Rival Sainsbury’s decision was less harsh, it fixing dividend cover at 2 times underlying earnings but flagging that the payment is likely to be lower this year given the expected lower profits.

Let’s look at the dogs of the FTSE on a projected yield basis

TOP 10 FTSE YIELD PROJECTED CHART This filter brings up another issue with the dogs strategy, this time surrounding the potential for dividend cuts and investors potentially falling into a “yield trap”. As James Faulkner mentions in his article, “a high yield is often tacit acknowledgement of the risks to the sustainability of that income stream.“ Or in other words, the shares are cheap for a reason. For example, staying in the supermarket sector, the highest yielding company in our filter, Morrisons, has not yet said it will cut its dividend payment, despite facing many negative issues. In defiance, the firm increased its interim payment by 5% under the shadow of a 51% fall in underlying profits and has committed to making a 13.65p total payment for the year to January 2015.

While the company has said that it is on track to generate £2bn of free cash flow in the three years to 2016/17, it is not exactly flush with cash at present, with year-end net debt expected to be around £2.3£2.4bn. And competitive and industry forces are not going in its favour. The latest stats from researchers Kantar Worldpanel showed growth in the overall UK supermarket of just 0.6% in the 12 weeks to 4th January, with close rivals Aldi and Lidl seeing sales surge by 22.6% and 15.1% respectively. Overall, this leaves Morrisons a highly risky stock to buy on an income basis, especially given that its own like-for-like sales (including fuel) fell by 5.2% in the six weeks to 4th January. It looks highly probable this could be a classic yield trap situation. I should note that Tesco’s historic yield edged above 8% just before it slashed its interim payment and also that Morrisons looks perilously close to being relegated from the FTSE 100 following its price decline.

February 2015 | | 35

Digging Through The FTSE Dogs


“on forecast consensus earnings for the year the dividend cover is looking thin at 1.16 times.” There are also other firms which look like yield trap candidates. Drugs giant GlaxoSmithKline has been steadily increasing its dividend over the years – by a CAGR of 5.3% between 2010 and 2014. The firm will even return an additional £4bn to shareholders this year following the sale of its Oncology business to peer Novartis. A commitment has been made to maintaining the standard dividend payment in 2015 but on forecast consensus earnings for the year the dividend cover is looking thin at 1.16 times.

There are also concerns over increasing competition from generic drugs and the firm potentially needing several billion pounds in three years time if Novartis exercises a put option to sell its 36.5% stake in its Consumer Healthcare joint-venture to Glaxo. The catalyst for a 2016 dividend cut could be the arrival of new Chairman, Sir Philip Hampton, who will take up the role by the beginning of September.

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Digging Through The FTSE Dogs


Moving away from the “dogs of the dogs� my top blue chip income idea is... Royal Dutch Shell B Following the fall in the Brent Crude price, from near $115 a barrel in June to just over $56 as I write, shares across the oil sector have been decimated. However, shares in FTSE stalwart Shell have only lost 12% of their value despite the halving of the oil price and the firm missing analyst forecasts for the fourth quarter. Q4 saw Shell post earnings on a current cost of supply basis of $4.16bn, down from $5.27bn in Q3. With the oil price lower now than in Q4 it is likely that the first three months of 2015 will likely see a further fall in profits.

Firstly, Shell has the flexibility to react to lower oil prices via cutting investment spending and lowering costs - two things which management are specifically focussed on. For example, capital investment in 2015 is expected to be lower than 2014 levels and $15bn of potential spending over the next three years has been scrapped. In addition, multi-billion supply chain cost opportunities have been identified. Secondly, the firm is a prolific cash generator, with a solid balance sheet. In 2014 net cash flow from operations was $45bn, three times higher than net income. With $31.85bn of capital expenditure for the year there is a clear opportunity to improve free cash flow in 2015 by reducing these costs, should the oil price remain low. During 2014 the balance sheet was boosted with $15bn worth of divestments, leaving net debt at just under $24bn. The position is solid, with gearing at just 12.2% and interest payments of $1.8bn for the year being covered over 25 times by cash flow.

Despite the fall in the oil price I believe Shell looks like a good income (and value) candidate for several reasons.

February 2015 | | 37

Digging Through The FTSE Dogs

Thirdly, Shell has an excellent track record of returning cash to shareholders. The dividend payment has been steadily increased over the years and was even increased by 5% in 2009 (the last time oil was trading in the $50 region) when annual earnings plunged by 69%. $15bn of dividends and share buybacks were made in 2014, with the dividend cover being a comfortable 2.1 times free cash flow. The quarterly payment for Q4 was 0.47 cents per share (costing $3bn), in line with previous quarters, and the firm has committed to making an identical payment for Q1 of 2015.

What’s it worth? Despite the recent fall in the share price Shell maintains its crown as the largest company by market capitalisation to trade on the London markets and is the sixth highest yielding stock. At the current price investors are getting a yield of 5.68%. There is also the bonus of dividends being paid quarterly, rather than twice annually, and significant upside potential to the share price should oil prices recover to previous levels.


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February 2015 | | 39

It’s time to look for value and income

It’s time to look for value & income By Filipe R. Costa

Irrational exuberance One particular feature of the equity markets that is different from what happens in almost any other market is the behaviour of investors in reaction to price changes. In general, economists expect a consumer to demand less of a product as its price rises; a company to demand less capital as the interest rate rises; and an employer to demand less labour as wages rise. Generally, higher prices equate to a fall in demand. But when we look at the equity market, it seems such a relation does not hold, as more and more funds are attracted to the market as prices rise, causing a feedback effect that leads to substantial price increases and to subsequent bubbles and crashes.

Such a process leads to prices departing from intrinsic values and to overvaluation, exposing shares to subsequent abrupt corrections. But, because every investor believes he can get out of the market before all others do, this mechanism is difficult to break, as the tech bubble of the 1990s attests. It sometimes takes years until the market implosion is ignited and everybody realises how absurd prices were. But until that point, the sky is usually the limit. Instead of opposing the market, investors should protect their portfolios from a fall, reallocating funds between different types of shares.

An increase in equity prices pushes investor sentiment higher, which in turn further pushes prices in a self-powered mechanism.

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It’s time to look for value and income


Sentiment and market overvaluation

The final result of such massive intervention and associated high investor mood was an impressive six-year market rally that completely reversed the losses seen after the 2007/8 financial crisis.

One of the biggest problems the equity market faces is sentiment. The unseen mood that encourages investors into buying over-priced assets is, at times, their main enemy. While during the 1990s such a mood was inspired by a new technology, over the last few years it was certainly inspired by the trillions of dollars worth of asset purchases made by the Fed.

But as was the case in the 1990s, such a rally may have gone too far, and the S&P 500 looks like it is heading towards over-valued territory. The uncertain and scarce growth opportunities offered by “new technologies” are too expensive now, as the Shiller price-to-earnings ratio shows us.

February 2015 | | 41

It’s time to look for value and income


The Shiller price-to-earnings ratio on the S&P is 26.5 times earnings, which is similar to pre-crisis levels, and 56% above its historical mean of 16.6 times. Without a new technology, as in the 1990s, and with QE ended in the US, nothing remains to support high price-to-earnings ratios.

Under such conditions, an investment in companies that pay dividends, have a proven track record, have stable earnings, are more mature and are easier to value, often outperforms any attempt to capture unlimited (but often unattainable) growth.

Seeking value

While the price exuberance seen today is still much weaker than what occurred during the 1990s, at least then there were new technologies being developed that could change the world. In the end, investors understood that such changes were not so great as to justify price-to-earnings ratios in the 200s. But at least there were new technologies justifying the optimism.

Recent academic research has contributed to demystify the connection between investor sentiment and share prices. Using a large variety of ways to measure sentiment, academics in general agree that periods of high sentiment are associated with contemporaneous share price increases and future price declines.

The same doesn’t apply today, as the massive share repurchase movement in the US is evidence of. If CEOs were nearly as optimistic as in the 1990s, they would retain their companies’ profits and never pay them out as dividends or buy back their shares, instead investing in new projects. However, if they don’t believe in the future of their own companies, why would investors buy the promised unforeseen growth?

The main idea is relatively simple. At some point in time we experience some kind of positive shock, such as a new technology or expansionary monetary policy. This positive shock often leads to increased optimism and consequently an increase in investor sentiment. Confident investors tend to buy more equities, leading to an increase in prices, which further attracts more buyers in a feedback effect, as mentioned above.

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It’s time to look for value and income

At such times, credit and leverage usually increases, further contributing to price increases. But, as prices depart from fundamentals, some investors stop buying and the system starts collapsing. With high leverage taken, the smallest of price declines is often enough to lead to panic selling. Sometimes the market declines slowly, at other times it completely crashes.

While it is more or less impossible to fight against this situation, we can at least prepare for it. Selling shares just because you think the market is overvalued and is going to revert to fundamentals is not a good idea. The 1990s teach us a valuable lesson about this. In 1997 the market was already overvalued, but it only crashed three years after. Your money would have eventually not been enough for three years of sentiment-driven prices. Academics seem to agree on the kind of shares that are involved in the sentiment-driven price rise. When sentiment rises, investors tend to add money to those stocks that are more difficult to value, that have a short track record, are not covered by many analysts, don’t pay dividends and are in the growth and small cap categories. These are the stocks with higher propensity for speculation, as no one knows for sure how much the company can grow and how much it is worth. This often leads to price departures from fundamentals.

“more mature companies with a proven track record and low but steady growth usually overperform through a mix of capital appreciation and income generation.” But when sentiment vanishes, investors usually understand how much they overestimated their growth prospects, and these companies underperform. In contrast, the more mature companies with a proven track record and low but steady growth usually over-perform through a mix of capital appreciation and income generation.

Recent studies are telling us the full story. Five years of profit growth have left S&P 500 constituents sitting on $3.6tn in cash and other cash equivalents. But instead of using the cash to invest in new opportunities and expand business, they opted in their droves to increase dividend payments and repurchase shares. It is estimated that repurchases amounted to $565bn and dividends to $349bn, while profits should have hit $964bn in 2014. If this is the case, companies have been paying out 95% of their earnings, which is an indication that CEOs don’t see any better uses for the money their companies make. At a time when companies are failing to perceive any potential expansion opportunities, global growth is languishing and interest rates have hit rock bottom, it is time to give up on glamour stocks and look for ways to preserve capital whilst earning a decent income on it. The high price-to-earnings ratio investors are currently paying for the market will most likely prove too much. Investors should instead look to the more established companies that currently carry low price-to-book and low price-tosales ratios and at the same time are expected to deliver high dividend yields, even if this is at the cost of foregoing a degree of capital appreciation.

February 2015 | | 43

Zak Mir’s Monthly Pick

ZAK MIR’S MONTHLY PICK Buy Apple (AAPL): Above $110 Targets $130 Recommendation Summary


With the economic situation on both sides of the Atlantic as unfathomable as it has been since the financial crisis began nearly eight years ago, looking at tech stocks can help investors to rise above the macro and “old economy” difficulties.

As well as providing us with a masterclass on how to market and develop pricing power on a fundamental basis, Apple also provides us with many of the technical clues for those wishing to spot the hottest of stocks.

Enter Apple, a group which is trading hot on the heels of a blinding performance by iPhone 6 and iPhone 6 Plus and is in the run up to what is a much anticipated launch of the iWatch later this year, as “wearables” fever takes hold of the global geek population. The shares maybe on a long dated bull run, but as things stand it would appear that there is plenty of momentum to ride on both a fundamental and technical front.

These include:

I am taking a view on Steve Jobs’s baby following the 27th January update from one of Silicon Valley’s leading lights. Notably, Apple posted the largest ever quarterly profit by a public company, of $18bn, driven by market beating iPhone sales. The update underlined the momentum being seen here, both fundamentally and technically.

- wide unfilled gaps to the upside. - brief bounces off and bear trap rebounds from below the 200 day moving average. - new support coming in at or well above former resistance. Indeed, all of these phenomena are currently on display on the daily chart of the tech giant, which recently surpassed the whole of the Russian stock market in terms of stock market capitalisation, at $700bn. Looking in detail at the configuration here it can be seen how we have been treated to all of the above in terms of charting / technical highlights, as well as progress within a rising trend channel from April last year.

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Buy Apple (AAPL)

The floor is towards $105, well above the 200 day moving average, which is now at $98. It rather goes without saying that when support comes in well above the 200 day line, even on quite sharp dips, we are looking at a very robust situation indeed. On this basis one would not be shy of projecting a target towards $130 and the top of last year’s price channel. The timeframe on this destination is seen as coming in as soon as the end of February.

At this stage cautious traders would wait on a momentum buy signal such as a clearance of the late November resistance at $119.75, before going long. This is even though the latest bounce off a December uptrend line in the RSI window towards 35 should be a leading indicator on the buy argument. The technical stop loss is currently seen to be just below the 50 day moving average which is at $112.


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Zak Mir’s Monthly Pick

Recent Significant News January 29th - The After recording the biggest quarterly profit by any company ever, Apple might have earned itself another accolade: world’s largest smartphone vendor. It’s clear that the iPhone maker had a bumper quarter, reporting record sales of 74.5 million smartphones. However, Samsung is only saying that it sold 95 million total handsets, of which, it says, somewhere between 71 million and 75 million (the “high 70 percent”) were smartphones. So has Apple finally beaten Samsung? It’s impossible to say with absolute certainty.

Samsung isn’t likely to give up any more information on the topic, and analysts and industry experts are hedging their bets accordingly. Some are marking it as a dead heat, while others are claiming Apple as the winner. Counterpoint Research, which polls global distributors for its figures, says the iPhone maker is definitely ahead — pegging Samsung’s shipments at only 73.8 million. Ben Bajarin, an analyst for Creative Strategies also gives the win to Apple (see chart above), but Strategy Analytics claims both vendors shipped 74.5 million smartphones in the fourth quarter last year.


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Buy Apple (AAPL)

January 24th - Business Apple reports its earnings next Tuesday, 27th January. According to Ming Chi Kuo, analyst at KGI Securities, the company will report mind-melting iPhone sales. In a new report picked up at Apple Insider, Kuo forecasts Apple sold 73 million iPhones. Of that, 42 million were iPhone 6s, 16 million were iPhone 6 Pluses, and the rest were a mix of other iPhone models.

Sources accepted no major bank will want to miss out on Apple Pay, however, as early signs from the United States suggest it may be the service to finally convince consumers to pay with mobile phones. Apple Pay allows iPhone 6 users to upload their credit or debit card details to their handset and use a wireless microchip to pay at “wave and pay” terminals, verified by a thumbprint scanner. Apple takes a small fee

The consensus among analysts is that Apple sold 66 million iPhones last quarter. If Kuo is right — and in the past, he’s been one of the most accurate Apple analysts out there — then Apple will smash expectations. With numbers like those Kuo is predicting, iPhone sales would be up a whopping 43% on a yearover-year basis. And, if Kuo is right, Apple will have sold about $44 billion worth of iPhones. For some context, Google is expected to bring in $15 billion in revenue for the same period. December 27th - Britain’s top banks are in talks with Apple to introduce its iPhone “wave and pay” service, Apple Pay, to the high street in the first half of 2015. Negotiations between the Silicon Valley giant and at least one of the biggest banks have proved tricky, however, because of wrangling over the terms, including what data Apple will be able to access, according to sources.

“What history tells us of course is that investors underestimate Apple’s success at their peril.” It is understood the bank is uncomfortable with the amount of personal and financial information Apple wants to collect about its customers. Some executives fear Apple Pay and the data it delivers to Apple could serve as a beachhead for an invasion of the banking industry.

Fundamentals Just like in recent years, the market appears to be stuck between being mesmerised by the sales of the latest iPhone, in this case 74.5 million for number 6, and what could be served up next, the Apple Watch on 12th March. There is also the ongoing conundrum as to whether all the good news surrounding this company has already been “backed” into the price, a price which is staggering and surpassed the value of the whole Russian stock market when Putin’s “Soviet Strategy” had its darkest hour in December. What history tells us of course is that investors underestimate Apple’s success at their peril. While there may have been an initial hiccup in the wake of Steve Jobs’s death and with the iPhone 5 being a relative disappointment, the sheer upward momentum of technological improvement year-onyear has meant that Apple has been able to maintain its profit momentum. The group has also tended to steal the thunder and the best selling concepts of its competitors. It was not shy to get on the 7 inch tablet bandwagon, and the iPhone 6 Plus is a nod to the “phablet” gains by Samsung and the rest of the Android brigade. Being Apple, new products are a polished and more expensive version of the competition, which makes them all the more sought after.

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Zak Mir’s Monthly Pick

“even if there is a Wobble after the recent earnings update, any dip for the share price is likely to be a buying opportunity as feW are likely to be Willing to go Wholeheartedly short.” Indeed, it may be argued that with the Apple Watch due to be the next driver of growth we are looking at a combination of the company reinventing something which is already very much around, but likely to take “wearable” technology into the mainstream. Therefore, even if there is a wobble after the recent earnings update, any dip for the share price is likely to be a buying opportunity as few are likely to be willing to go wholeheartedly short - unless or until Apple Watch does not meet expectations. As most of us will be aware, this colossus does not tend to do failure.

As a footnote on the Apple gadget frenzy, it may be worth keeping in mind what is a less glamorous fundamental prospect for the future. In December it was reported that leading UK banks were in talks with Apple regarding the roll out of an iPhone “wave and pay” service. It is not surprising that the banks have been proactive here, as Apple Pay could arguably be their nemesis in the future. Those looking for a longer term reason to buy Apple may wish to follow the progress of this service closely in 2015.

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Three Small Cap Income Plays


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Three Small Cap Income Plays

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Three Small Cap Income Plays

RWS Holdings (RWS) In our macro piece on the hunt for income (see page 44), we spoke of the merits of looking for companies operating in niche areas of the market in order to deliver an income stream less dependent on the success of the wider economy. One such company that we believe may fit the bill is intellectual property (IP) support services provider RWS Holdings (RWS). As the world transitions to an information-based economy, the importance of IP creation and protection can only increase over time. The USA and China drove record-level patent-filing activity in 2013 as the number of annual international patent applications surpassed the 200,000 mark for the first time, showing a 5% increase in the 2013 filings to 205,300. As the world’s largest provider of patent translations and one of the leading players in the provision of intellectual property support services and high level technical translation services, RWS is perfectly placed to benefit from this trend. It has a blue chip multinational client base spanning Europe, North America and Asia, active in patent filing in the medical, pharmaceutical, chemical, aerospace, defence, automotive and telecoms industries. The Business Patent translations, which currently accounts for over 55% of group revenue, mainly take the form of French and German to English, with freelance translators retained for the less widely used languages. The firm also differentiates itself through its Information division, which includes a comprehensive range of patent search, retrieval and monitoring services. RWS also owns PatBase, one of the world’s largest searchable commercial patent databases, access to which is sold exclusively as an annual subscription service, thus providing considerable barriers to entry and a good source of recurring income. The firm also provides international web-based patent filing solutions via the recently acquired inovia business. While this business has not performed to expectations since its acquisition, this activity is expected to grow and continue to be a significant source of patent translation revenues for the group. The Numbers RWS’s association with this secular growth market has served it well. FY14 results released in December showed revenue up by 21% to £93.6m (+26% on a constant currency basis) and adjusted operating profit up 9% to £22m.

Since it joined AIM back in November 2003 at 112p per share, revenues and profits have grown in every single year – including during the financial crisis – and the dividend payment has been hiked by at least 10% in every one of those years. In fact, dividend growth will have averaged a CAGR (compound annual growth rate) of 13.3% during the years FY1015. At the current price of 850p, the shares yield 2.7% based on last year’s payment. But with net cash of £22.5m, dividend cover of around 1.9 times, and earnings set to expand further in the coming years, we suspect that investors will continue to be rewarded with double-digit growth in dividends for the foreseeable future.

“we suspect that investors will continue to be rewarded with double-digit growth in dividends for the foreseeable future.”

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Three Small Cap Income Plays


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Three Small Cap Income Plays

AdEPT Telecom (ADT) Earnings per share climbed by 18% to 14.99p, which was slightly ahead of forecasts due to a lower tax charge. As usual, profits were well backed by cash flow – with free cash flow, after interest, of £2.6m during the period. This led to a further net debt reduction of £0.3m year-on-year to £3m. The declaration of a final dividend of 1.5p resulted in a 100% increase in the full year payment to 3p.

Telecommunications services business AdEPT Telecom (ADT) is a cash cow that is managing its business well and stepping up cash returns to shareholders. Although it operates in the declining fixed line telecoms market, it is mitigating this via growth in data, mobile and broadband, as well as through some rather clever bolt-on acquisitions, which have become something of a management specialty. The Business AdEPT provides voice and data services to its customers by offering “best of breed” products from all major UK networks. Continued deployment of 21CN data connectivity products has led to data and broadband revenues increasing by 27% during the year to March 2014. As the demand for faster data connectivity speeds continues, AdEPT has seen further customer orders for 10Gb Optical Spectrum Services and is currently underway with the launch of 40Gb and 100Gb Optical Spectrum Services. Numbers Although FY14 revenue fell by 0.8% to £20.9m, this was down to a drop in traditional fixed line revenue (-£1.1m) and was partially offset by growth in data and broadband (+£0.7m to £3.3m). Notably, data, mobile, inbound and other services now represents 24.7% of total revenue, with call revenue now down to 27%. Adjusted EBITDA increased by 8.3% to £4m – the eleventh consecutive year of EBITDA growth – and margins increased 160 basis points to 19.4%.

The strategy remains much the same going forward. The business remains focused on organic sales growth through its approved supplier status on the various telecom frameworks, while maintaining profitability and cash flow generation, which will be used to reduce net borrowings and/or fund suitable earnings-enhancing acquisitions if identified. As the company explains, its smaller in-fill acquisitions are simply an alternative to sales and marketing spend, and the fact that the Bluecherry acquisition (August 2014) was completed for between 4.5-6.2 times EBITDA, highlights the attractions of such a policy. The board is confident that the continued strong cash generation will support a progressive dividend policy. What’s it worth? Crucially for an income play, AdEPT exhibits robust levels of cash generation, which is helping the company to pay down debt, while at the same time carry out bolt-on acquisitions and pay a decent dividend to shareholders. The firm’s revenue per employee of £444k leads the sector, and could rise even further given the intention to make further bolt-on acquisitions in the fragmented reseller market. AdEPT’s proven ability to deliver tangible cost savings to customers remains a major growth opportunity. Broker Northland forecasts adjusted pre-tax profits of £3.9m on revenues of £22.2m for the year to March 2015, giving adjusted earnings of 13.1p per share. For FY16, it has pencilled in respective figures of £3.9m, £22.5m and 13.1p. The broker also expects a dividend payment of 4p in FY15, rising to 5p in FY16. On these forecasts the shares trade on a prospective FY16 multiple of 11.7 times, with a prospective FY16 yield of 3.3%. We admire the focus on increasing the dividend, which could have much further to run considering that dividend cover is currently high at c.3.3 times earnings.

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Three Small Cap Income Plays


“We admire the focus on increasing the dividend, which could have much further to run considering that dividend cover is currently high at c.3.3 times earnings.�

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Three Small Cap Income Plays

James Halstead (JHD)

James Halstead (JHD) is the UK market leader in the consumer and commercial flooring market. Originally founded in 1915 as a dyeing, finishing and later waterproofing and rubberising business for textiles for rainwear and other outdoor clothing, the firm expanded into flooring products in 1934. After many experiments to develop uses for the synthetic polymer PVC, Halstead technologists provided a real breakthrough when they were able to make a homogeneous vinyl sheet product. A major innovation in flooring manufacture, branded Polyflor, this product and its many adaptations became the cornerstone of the company’s success. After many years of expansion, Halstead now operates as far afield as China, Russia, Australasia, Europe, Scandinavia, South Africa and Canada. The Halstead family remains at the helm, and, with a significant shareholding, their interests are aligned with those of other shareholders who are looking for steady growth and a progressive dividend payment.

“revenues increased by 3% year-on-year, driven by the uk, Where sales improved by 7% on last year.” Without government grants, this self-funded business is recognised across Europe as a great success and a model recycling initiative. Today there are nearly 600 collection points in the UK. The waste that would otherwise go to landfill is returned to the manufacturing processes. This initiative helped the firm report gross margins for FY14 on a par with the prior year, despite the firm experiencing a “difficult” year overall. In any case, progress in the second half still brought about record flooring turnover and record profit. Revenues increased by 3% year-on-year, driven by the UK, where sales improved by 7% on last year. There was also an acceleration in H2, with growth in revenues improving to 4.2% from a pedestrian 1.2% in H1. This facilitated a 16.7% increase in the dividend to 10p per share, reflecting management confidence in the outlook and the £38.5m cash pile.

What’s it worth? For the current year to June 2015, broker Shore Capital expects adjusted pre-tax profits of £44.3m and EPS of 15.8p. In view of the strength of the cash pile, subject to capex demands, the broker also feels there is a good chance that a special dividend will be paid to shareholders during the course of what will be the group’s centenary year. We note that several special payments have been made historically.

Numbers Halstead retains the spirit of innovation to this day. Five years ago the company, together with one of its competitors, founded Recofloor to collect vinyl wastage – both off-cuts/remnants and uplifted floors.

Special dividend or not, we believe that James Halstead is an attractive addition to a portfolio. Its market leading position and reputation for excellence enable it to generate high-teens operating margins and a very high return on capital employed, especially for a business involved in something as mundane as flooring. Moreover, conservative yet highly capable management has enabled the firm to deliver a steadily rising dividend stream over the years. We see the current yield of 3.1% as an attractive entry point.

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Three Small Cap Income Plays


“there is a good chance that a special dividend will be paid to shareholders during the course of what will be the group’s centenary year.” February 2015 | | 57

The Hunt For Income


The hunt for income has become more difficult than ever of late. As central banks slashed base rates to historic lows following the financial crisis, traditional ‘safe’ sources of income, such as the interest on cash deposits and the yield on government bonds, dried up. What followed was a ripple effect as income investors were forced to take on ever greater risk in their search for income. The first port of call was investment grade corporate bonds and blue-chip equities. However, in order to secure a high yield, many investors have been lured into some very dubious areas of the market, such as peripheral Eurozone debt, emerging market debt and sub-investment grade (“junk”) corporate bonds.

The effects of this displacement are evident everywhere – from the unrealistically low yields on the debt of fiscally unsound nations such as Greece, to the huge premiums commanded by infrastructure-based investment trusts, which have a measure of inflation protection. In such an environment, we believe investors ought to tread very carefully when considering investments aimed at generating a long-term sustainable income.

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The Hunt For Income


The Hunt For Income

Quantitative easing has pushed the yields on ‘riskless’ assets, the prime example being US Treasuries, to record lows. While the chief goal of QE was to lower long-term interest rates, thus giving consumers and businesses the confidence to borrow and invest, this artificial suppression of government bond yields poses some significant questions. Investment theory teaches us to price assets relative to the ‘risk-free rate of return’, which is essentially the yield on US or other high quality government bonds. Given that all other capital assets are priced off of the ‘risk-free’ asset, it stands to reason that the required rate of return for other capital assets could increase if this artificial support, in the form of QE, were to be removed. As you may have noticed, the US is in the process of unwinding its QE programme – and has even hinted towards the possibility of interest rate rises in the not-too-distant future.

“shares with the highest yields may be among those that are most exposed to a tightening of monetary policy.” If rate rises are indeed coming – and our resident economics expert believes they are – this could potentially pose problems for some of those companies which geared-up their balance sheets after taking advantage of the cheap credit made available to them by ultra-loose monetary policy. With this in mind, investors should not simply go chasing yield in the current market, as shares with the highest yields may be among those that are most exposed to a tightening of monetary policy. The risks of chasing yield are well documented. Tesco was yielding close to 5% before its recent troubles began. Its dividend was considered to be safe as houses by many (everyone needs to eat, right?), yet it was recently forced to do away with the payment altogether in order to repair its balance sheet and invest in revamping its UK business.

Another generous but ‘safe’ dividend payer was BP prior to the Gulf of Mexico disaster. BP was yielding well over 5% before it had to slash its dividend payment so it could redirect funds to disaster relief and legal costs. The point to bear in mind here is that income-paying investments do not exist in a vacuum. In fact, a high yield is often tacit acknowledgement of the risks to the sustainability of that income stream. However, setting aside the possibility of interest rate rises, equity income investors could face a rather different – but equally significant – problem. Deflation. Deflation, or falling prices, can wreak havoc for companies. A deflationary environment makes it harder for companies to raise prices, increase earnings and grow dividends. But perhaps more alarmingly for some over-indebted firms, it also increases the real value of debt. Everything depends on whether or not current disinflationary trends are down to a supply-side shock (such as the shale revolution in the US) or a lack of demand (as is becoming increasingly likely in the Eurozone). While the true nature of the current disinflationary environment is uncertain, it is another factor investors need to bear in mind when looking at potential income investments.

Setting aside the risks facing income investors, the good news is that British companies are forecast to pay dividends worth £85.8bn in 2015 (source: Capita Asset Services), up 5.5% on 2014 (if Vodafone’s special dividend of £15.9bn is not included). The yield on the FTSE 100, currently around 3.4%, also remains attractive in relative terms when viewed against bonds and other equity markets such as the US. We should also recognise that there is upside risk for dividend prospects, including the strong dollar, which could benefit the large contingent of FTSE 100 companies that report in dollars.

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The Hunt For Income

Furthermore, if the current disinflationary trends are benign (i.e. they are supply-side rather than demand-side related), this could point to a more positive outlook. So what should equity income investors look for in a potential investment? Given the risks outlined above, we believe that security and sustainability should take precedence over size. Many of the higher yielding stocks have low dividend cover ratios (defined as earnings per share/dividend per share), which could indicate that the dividend payment may be at risk, or at least may be hard to grow, in the absence of earnings growth. However, earnings can often be easily manipulated, so investors should go further. Net indebtedness, and in particular the level of interest cover (defined as earnings before interest and tax (EBIT)/interest expense) should come under particular scrutiny, as should free cashflow (essentially the money left available to shareholders after maintaining and expanding the firm’s asset base). It’s no secret that the UK equity income sector is becoming very crowded. According to Reuters, British income funds raised more than $20bn in 2014, versus a previous record inflow of $6.6bn in 2006.

“British companies are forecast to pay dividends worth £85.8bn in 2015.” With this in mind, it may pay to look farther afield to areas such as the small cap sector, which has actually experienced net outflows in recent years. On an individual level, small caps can be less susceptible to the vagaries of the market as a whole than large multinationals. In a deflationary environment, small caps may find it easier than their larger counterparts to grow their dividends, as they are often exposed to niche areas of the economy that continue to grow in spite of wider economic challenges. We highlight some smaller companies that could be of interest on page x {insert link}.

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Don’t miss out!

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Robbie Burns’ Monthly Trading Diary

ROBBIE BURNS’ monthly trading diary

LOOKING FOR “HEALTHY” PROFITS If I was to give one piece of advice to those starting out with trading shares, I’d say: “Ignore all the stocks with busy bulletin boards, especially those with 100s of posts with blokes bitching and fighting with each other, and go for the ones that are completely quiet.” On that note, there’s a sector which I think is almost totally ignored by private investors and that’s Middle Eastern healthcare. You’ll see hardly any posts made on shares in this area of the market. It’s just not exciting enough for the alpha male alcoholics who seem to dominate the bulletin boards. Which is great for me and generally means I can enjoy being in these stocks, which also tend to be far less volatile. So I’d like to highlight one or two current favourites of mine, if you don’t mind.

I visit Dubai once a year for a sunny Christmas and New Year so I know NMC Heathcare quite well as I see its hospitals as I walk around. Private healthcare is big in the Middle East – there are clinics and hospitals everywhere and the sector is growing fast. The firm’s numbers are looking good, with group revenue up more than 18% year-on-year for 2014. Two new hospitals were opened, others are being expanded, and more new openings are earmarked for this year.

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Robbie Burns’ Monthly Trading Diary

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Robbie Burns’ Monthly Trading Diary

The shares paused for breath in 2014, hovering most of the time between 450p and 500p after rising from around 200p, where luckily I bought a lot of mine. I think 2015 could see the shares get a re-rating, maybe not early on but at some point. If we get a break through a fiver, I would hope to see 600p or more by the year end, giving a tasty 20% profit.

If February is a bad month and the shares go down to 450p, I think I would load up! I’d be surprised if the shares ever needed emergency care. (Yeah OK, it took me ten seconds to think of that rubbish pun).

NMC CHART In a similar vein is Al Noor Hospitals which centres in and around Abu Dhabi. Again, there was strong revenue growth here of 20% last year and unlike NMS, which has some debt, Al Noor actually has cash, which should help it to grow further. Here’s an interesting comment that Ron Lavater, CEO of the company, made recently: “The healthcare sector continues to be one of the fastest growing industries in the UAE due to population growth and a rapidly ageing demographic; an increasing incidence of lifestyle-related medical conditions such as diabetes and obesity; and service gaps in the current healthcare market.

Responding to the community’s escalating health needs provides Al Noor with abundant opportunities for growth in services and delivery sites. We are continuing to strengthen the company’s infrastructure, systems and processes to take full advantage of the healthcare sector’s expansion.” Sadly, people are getting unhealthier due to their poor lifestyle choices and Al Noor benefits from this. As does NMC. I’m told by people living in Dubai and Abu Dhabi that both companies are well respected and their hospitals and care are second to none. I can see only growth coming from both these firms.

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Robbie Burns’ Monthly Trading Diary

“people are getting unhealthier due to their poor lifestyle choices and Al Noor benefits from this.”

AL NOOR CHART At around 900-950p Al Noor looks like a lovely “tuck away” stock, and I am looking for it to reach its previous high of 1,100p in time, maybe by the year end. Any positive statements could see a sudden rerating.

I know waiting a year for growth is 364 days too long for most bulletin board fighters, but get to know a few healthcare stocks, tuck them away for a year... and... and... drat! I can’t find a heath care pun to finish off with. Nurse... the screens! Happy trading! Robbie

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School Corner

school corner


By Maria Psarra - Head of Trading at Prime Wealth Group

This is the fourth in a series of educational articles on the best habits of winning traders and investors, the most common mistakes traders make, and practical ways to avoid them. As promised in my last article on “overtrading”, here is the opposite side of the coin – under trading, or in other words, being afraid to pull the trigger on a trade.

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School Corner

“If you do not trade, you risk nothing. The problem is you have no chance of winning anything either.�

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School Corner

Who is afraid of the big bad market? The truth is at some point we have all been scared of making a trade and had good reasons for it, especially when we first started in the markets. We were too inexperienced to understand how things work, or we had made too many mistakes, including the overtrading issue discussed in my last article, to trust that our next trade would be profitable. We had been hurt too much, and as such were now unwilling to risk experiencing any further pain by actually… trading! Now let us not confuse being afraid to pull the trigger when our trading strategy dictates so, with feeling uncomfortable with the prevailing market environment, especially in times when greater economic and political reasons lead to increased volatility and uncertainty of market direction. The latter is a valid reason for decreasing our exposure, or even staying out of the markets altogether if necessary, in order to protect the value of our portfolio.

So there you are sitting in front of your computer, having just completed your fundamental and technical analysis of stock X, which according to every single one of your trading rules looks like a good “buy” opportunity. To make things even better, the price level the stock is currently trading at is just above support. You can place a stop perfectly suited to your personal risk profile, and there is more than enough volume traded to fill your order easily.

“I often say that trading is very similar to “real life”, so I like using real life metaphors.” All you have to do now is enter the trade, or “pull the trigger”. Simple as that. But what do you find yourself doing instead? You sit there unable to move because you recall all the bad moments when you entered a trade and shortly after you lost money. And you do NOT want to feel that pain again. So you just stay there doing nothing instead. If you do not trade, you do not get hurt, right? Yes, you are right. If you do not trade, you risk nothing. The problem is you have no chance of winning anything either.

Similarly to my previous articles, this is best illustrated through an example. The new year has started and you have made a commitment to only make trades that are dictated by your trading strategy. This year is going to be different. You ARE going to follow strict rules, you will not repeat the same mistakes, you will not jump the gun for no reason, and you will not hurt yourself and the value of your trading account/portfolio. This year WILL be different. That’s what you keep repeating to yourself anyway.

I often say that trading is very similar to “real life”, so I like using real life metaphors. Under this light, what just happened in our example is the trading equivalent of the life situation where you are too afraid to ask anyone on a date, regardless of how promising they may be, because you allowed someone else to break your heart in the past. So it appears that the only solution for you to avoid future pain is to never get involved with anyone new. Correct? Now I really hope that you are laughing upon reading this, because you understand how silly doing what I just described is. It is exactly as silly as you not executing the trade in our example. So let’s go back to trading. I have mentioned this one before. The markets will only hurt a trader as much as the trader allows them to. In this sense, it is never about the market, it is all and always about the trader.

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School Corner

So what do winning traders and investors do differently?

This is exactly what you should do with your trading – either change your approach and reactions to the markets, or just stay out of them for good.

They follow a proven trading strategy and only take trades that are indicated by it. They leave their emotions out of trading and they fully realise that when entering the markets they only have two goals: to make money, and to best protect themselves from themselves, not the markets. Yes, they may have lost money in certain trades, they have also made mistakes. Just the same as you, there was a time when they did not trust themselves enough to pull the trigger.

Now most of you do not know me personally, but you can take my word that I am not fearless in personal situations, but I have no fear when it comes to trading my system and pulling the trigger. And if I was able to teach myself how to do this, hopefully you can too! Until next month, Happy Trading everyone!

But winning traders learn from the experience. They grow bigger and better, and so can you. There is no point in being in the markets if they make you suffer in any way. Again, similarly to real life, if something hurts you, you do your best to fix it. If you succeed, you stay; if not, you move on.

Maria Psarra is Head of Trading at Prime Wealth Group (PMW), supervising a team of experienced brokers, and advising High-Net-Worth Individuals on suitable investment strategies. Maria employs different investment styles in order to construct personalised portfolios best suited to the risk and return preferences of PMW’s clients. Typical portfolios primarily comprise of UK and European Equities and Equity Indices, and to a lesser extent Commodities and Fixed Income exposure.

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Alpesh Patel On The Markets


Do you have to be a genius to make money in the financial markets? I speak every day with many people, traders and non-traders, who often ask me the same questions: how am I able to be on top of the market, manage a successful hedge fund and offer daily trade ideas on several instruments while travelling abroad as often as I do? The truth is that my everyday schedule is actually far busier than people realise.

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Alpesh Best Patel of On theThe BlogMarkets

February 2015 | | 73

Alpesh Patel On The Markets

I don’t just have the fund to manage, offer my advice on the premium NewsletterPro reports and make the occasional journey abroad on behalf of Queen and country. I have meetings with policymakers to attend, advisory boards I am part of, start-up company executives that crave for guidance and networking, and of course a new bride whom I try to devote my last drops of free-time to. So I understand why people are wondering how I can manage all these things and at the same time devour all the information on the markets and apply them towards consistent success. When I was young, I also wondered how someone can be so wise and smart to be able to know every single thing about the market and make sense of all the numbers and levels of analysis. However, as I grew older I understood that the concept of the “allknowing analyst”, one who can understand every single market statistic and apply it towards profit, doesn’t exist.

“the “allknowing analyst”, one who can understand every single market statistic and apply it towards profit, doesn’t exist.”

Perfect analyst? All those who have successful careers in money management are not 4-digit IQ geniuses that we see in films like “Limitless”. Nor do they employ an army of extremely bright analysts to understand where the market is going. Sure, Goldman’s Sachs and the rest of the high street firms have a very large number of employees, but they also deal in thousands of products across hundreds of markets. So what does it come down to when we’re trying to understand where the market is going? I believe that the answer is two-fold. Firstly, you need to have a simple understanding of general financial developments across the globe. Secondly, you then need to have a plan of action – a way to recognise opportunities across different financial instruments, and how to capitalise on them. Now the first requirement is rather simple. Anyone with a fairly reasonable grasp of financial language can understand how any new development is expected to influence the global and domestic economies. And if you can’t, then it is very simple to learn. You don’t need to go to college. Just pick up a book on what financial terminology stands for, or log-on to sites such as, which offer a complete dictionary. The second one is also pretty simple as well, or rather it has to be if you want to be successful in applying it day after day. Your plan of action needs to consist of: - An identifying trigger that will draw your attention to an opportunity. It can be a fundamental development or a technical pattern on a chart. - A simple execution sequence – when to get into a trade, when to exit it, manual vs. automated execution, entry orders vs. live market orders, and so on. - A set of money management rules: how much risk to assume per trade and your desired risk/ reward ratio. And then all you have to do is close your ears to the excess information that exists in abundance on the television and internet, and just execute your plan. I believe that for someone to be profitable in this business, all it takes is a sound plan of action with simple rules and the conviction to apply it every single day; because trading success is built on small accumulated gains, day in and day out.

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Alpesh Best Patel of On theThe BlogMarkets

“we all hope to find the perfect opportunity that would skyrocket us to fame and fortune. But that rarely happens.”

Sure, we all hope to find the perfect opportunity that would skyrocket us to fame and fortune. But that rarely happens. You see, we are all able to make the usual NBA “Million Dollar Shot” by scoring from the middle of the court. Sure enough, if you take a million or more shots, one of them is bound to end up in the basket.

However, the guys that make the really big bucks in the magical world of US basketball are the ones that net the far simpler two and three point shots, but do it consistently. Well, trading is also like that. You see a shot that you’re comfortable with and you take it. And then you do it again and again and again. Happy Trading

Alpesh B Patel Alpesh is a hedge fund manager who set up his asset management company in 2004. His Sharescope Special Edition has outperformed every UK company’s fund manager over the past decade, as well as Warren Buffett. He has written over 200 columns for the Financial Times and presented his own investment show on Bloomberg TV for three years. He is a former Visiting Fellow in Business & Industry at Oxford University and the author of 18 books on investing. Find out more at and

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Currency Corner


A Trader’s Take on Eurozone QE By Samuel Rae

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Currency Corner

SBM contributor, Samuel Rae, is the author of the bestselling book Diary of a Currency Trader. Sam’s personal trading style combines classic candlestick analysis with a simple, logical and risk management driven approach to the financial markets – a strategy that is described and demonstrated in Diary of a Currency Trader. On 22nd January 2015 the European Central Bank (ECB) announced that it would follow its American, Japanese and British counterparts and implement its own quantitative easing (QE) programme. Over a period of at least 19 months, the ECB expects to spend a minimum of $70bn per month, accounting for a low-end guaranteed asset purchase of circa $1.3tn. Within minutes of the announcement, the euro collapsed nearly 200 pips versus its US counterpart, and action throughout the following sessions mirrored this decline. Those of you who have followed my musings on the euro over the past six or eight months – both in this publication and on my blog http://www. – will be more than aware of my long-term bearish bias on the euro.

So, how does this recent announcement affect my bias, and where will I be looking as we head into the early quarter of 2015?

“i’m still very much short inclined on all of the euro crosses.”


February 2015 | | 77

Currency Corner

“markets have already very much discounted the potential for quantitative easing in the eurozone into all of the key areas of the economy.” Well, to put it bluntly, my bias remains unchanged. I’m still very much short inclined on all of the euro crosses – with the exception of the EUR/JPY which I expect will remain relatively flat over the next couple of months. What is my reasoning behind this?

I honestly don’t think that quantitative easing will have any impact on the Eurozone economy – or those of its constituent nations. While it can be argued that quantitative easing has been effective in the US – and to some extent in the UK – I expect this not to be the case for Europe. This is for a couple of reasons.

EUR USD First, I think that the ECB has been too slow in taking action. When the US and the UK announced quantitative easing, it was an, effectively, unparalleled response to a threat of a return to recession. Markets were “shocked” into action, with the sort of financial stimulus required to wrestle an economy back into the black.

In contrast, markets have already very much discounted the potential for quantitative easing in the Eurozone into all of the key areas of the economy. Specifically, and perhaps most importantly, because quantitative easing has been expected for such a long time, its actual introduction is unlikely to have any effect on yields. Yields in euro constituent nations are already low, and huge asset purchases are unlikely to have too much of an effect.

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Currency Corner

Next, even with huge amounts of asset purchases, European banks are unlikely to lend this “cash” for commercial purposes. Yes, the Eurozone has negative interest rates, but the Eurozone economy is so fragile at the moment that it is likely that retail banks in Europe would rather pay a small amount for the privilege of holding cash reserves with the ECB than take on risky loans to both large and small private commercial entities across the Eurozone. In short, quantitative easing will very much be just an accounting exercise – a transfer of assets and liabilities from one balance sheet to another (namely those of retail banks and the ECB). Finally, the logical effect of a huge injection of cash into an economy is inflation. This is the ECB’s goal. But inflation (at least in the short term) is very much bearish for the currency. Simple supply and demand suggests that an increased supply of the currency in question will decrease the per-unit value of those units already in circulation.

Put simply, I believe that the quantitative easing effects in the Eurozone will be much more akin to those seen in Japan rather than those in the UK and the US. The Japanese economy is struggling (hence my flat bias on the EUR/JPY), and the quantitative easing programme was very much put in place with the goal of avoiding deflation – not meeting an inflation target. Even this effort now looks to fail. So how will I be looking to trade this bias over the coming few months? As mentioned, I will be primarily looking for short term entries. This is not to say that I won’t be partial to a quick counter trend entry if we see a bullish bounce off what I perceive as support, but my primary positions will be taken from bearish pin bars at tests of resistance or breaks of support. I am well aware that many analysts may not share my bias. I have spoken to a number of traders who believe that we have seen the bottoming of the EUR/USD and that a wild recovery is on the cards. Of course, this may well turn out to be the case. I, however, am highly doubtful.

February 2015 | | 79

Binary Corner

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Binary Corner


Oil Price Slide Heaps More Pressure on Canada By Dave Evans of

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Binary Corner

Almost forgotten amidst the ECB’s recent big QE announcement and the Greek election result has been the decision by the Bank of Canada to cut rates to 0.75% in January. The key driver for this was the sudden plunge in oil prices, with Canada being the biggest oil exporter in the G7. Although oil extraction only accounts for 3% of GDP, crude oil does account for 14% of exports. The USD/CAD rally has accelerated in recent weeks, driven at the end of January by the announcement that Canadian GDP dropped by more than expected to -0.2% in November.

The corresponding US figures were hardly anything to write home about, but this has been offset by strong Chicago PMI figures and an 11 year high for consumer sentiment.

USD/CAD Daily Chart

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Binary Corner

The longer term monthly charts shows just how extreme the January run up was, with the USD/CAD now hitting its highest levels since the height of the 2008/09 recession.

USD/CAD monthly chart The following monthly chart of oil shows that this current slump in the value of the Canadian dollar and the 2008 struggle both corresponded with a fall in oil prices.

Oil Prices Monthly Chart

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Binary Corner

The chart above also displays an indicator which measures the size of the spread between oil prices and its Parabolic SAR indicator. When this gap becomes not just large, but large by historical standards, it is a sign of extreme price movement. You don’t need an indicator to spot that the recent slump in oil prices is extreme. What is interesting however is the number of months that oil spent at these extreme levels in the last slump around 2008. At that time, oil was in extreme selling territory for around six months, while the current run is in its third month. It is impossible to draw direct comparisons between the two periods, but it does highlight the danger of expecting an immediate turnaround in oil prices. Markets themselves don’t know what to expect, which is why the Bank of Canada may have to take the extreme step of back to back rate cuts at their March meeting.

“the Bank of Canada may have to take the extreme step of back to back rate cuts at their March meeting.” Cutting too soon could be seen as a knee jerk reaction, but every month that oil remains below $60 is another damaging month for the Canadian economy. Analysts currently make it 50/50 that the Bank of Canada will cut at its next meeting, but these odds will only shorten as oil prices struggle.

US Dollar has Further to Climb By the contrast, the US dollar is continuing to push higher on the back of an increased likelihood of the Federal Reserve raising rates, possibly this year. The US economy generally seems to be stabilising, while corporate earnings continue to impress – not least for the tech companies, led by Apple.

US Dollar Index Daily Chart

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Binary Corner

“With oil prices likely to be volatile in coming months, any move higher could also be followed by sharp declines.” With the prospects of a near term increase in US interest rates, in the context of another cut to Canadian lending, the USD/CAD rally could yet break those 2008 highs. A higher trade on the USD/CAD would be a simple way to play this, but a more strategic approach could be to bet using a ‘One Touch’ trade. With oil prices likely to be volatile in coming months, any move higher could also be followed by sharp declines. With a One Touch trade, you only need your target level to be hit once for the trade to win.

A good way to play this is a ONE TOUCH trade predicting that the USD/CAD will touch 1.3300 at some point in the next 62 days for a potential return of 228%. Or put another way, at the time of writing, betting that the USD/CAD will rise and touch 1.3300 before the close on April 2nd could return £32.83 from every £10 put at risk.

Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.

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Technology Corner

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Technology Corner


Facebook at Work By Simon Carter SBM’s resident technology specialist, Simon Carter, takes a look at Facebook’s new rival service to LinkedIn.

February 2015 | | 89

Technology Corner

For a company whose very name is synonymous with being a scourge on workplace productivity, Facebook’s move into Enterprise Social Networking is nothing if not ballsy. With a pilot currently working its way around the world, we take a look at Facebook at Work and ask what businesses might have to gain, what Facebook has to gain, and what everybody has to lose if it all goes horribly wrong. Enterprise Social Networks (ESN) are not a new concept, with applications such as Microsoft’s Yammer, independent platforms like Slack (valued at $1.2bn despite being just a year old) and Social Cast all currently jostling for your company’s attention. Each promises to increase productivity, cultivate professional relationships and act as a platform for everything from meetings to email to document management. Despite these grand promises, most have found it tough to make significant inroads into what is thought to be a potentially massive market as many users shun ESNs for email, content management systems and face to face meetings. But we’re beginning to see a trend developing of well-known social or personal brands moving into the enterprise world. Of course the concept of transferring brand loyalty from the retail world to the business one seems like a no-brainer, but so far it hasn’t been as straightforward as you would think. Google may be the biggest name in the tech world, but their ESN – Google Wave – was launched and then withdrawn within just 15 months, and the uptake of Google Docs for Business is slow, to put it generously.

“The initial pilot application is identical, feature wise, to the Facebook that we all know and love/ hate.” However, Microsoft will certainly have more success with Skype for Business, which is essentially a rebrand of their own moderately successful Lync instant messaging software, with the addition of the Skype look and feel and the option to integrate Skype personal contacts into a Business installation. Clearly Microsoft feel that taking an already successful product and applying mega-branding to it will increase the uptake of Lync/Skype, and it’s hard to argue with that logic. And this is the angle that Facebook are taking with Facebook at Work. The initial pilot application is identical, feature wise, to the Facebook that we all know and love/hate, but with the absence of third party software and advertisements. The branding is slightly different (the famous blue is replaced with white to allow any corporate branding to shine through), but it’s essentially the same.

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Technology Corner

Users will also be able to share documents, but, as in Facebook, those documents will be currently read only. So how is any of this supposed to increase productivity? Primarily, Facebook at Work is designed to be used as a communication tool. If the boss needs to send out a staff memo, they can update their status and the whole organisation will receive it on their News Feed. Need an impromptu meeting? Set up a Facebook at Work group chat. At present it’s difficult to determine just how useful this will be to businesses – although internal communication and maintaining good inter-staff relationships are notoriously difficult – but with no cost attached, at present, it seems likely that many businesses may be tempted to try it out. For Facebook it could simply be about removing the stigma attached to their name in the corporate world. After all, if staff are to be encouraged to use Facebook at Work (and given the fact that you will be able to connect your personal and work accounts), what’s to stop staff using Facebook at work? When looked at from this point of view, Facebook really has nothing to lose. At best they may take over the ESN market as they have with personal social networking. At worst it may become another failure such as Paper and Slingshot, neither of which did the business any harm. For businesses the downsides are more acute – encouraging staff to spend time updating statuses, chatting and commenting could be disastrous for productivity. Furthermore, beyond improving internal relations, it could have an adverse effect as employees feel under pressure to “Like” their boss’s status or get perturbed when a colleague doesn’t share their own update. Group messaging could also lead to people becoming marginalised – intentionally or otherwise. In short, office politics are likely to be magnified on such a platform.

So how does it work? When a business first connects to Facebook at Work, each employee is automatically given a user account. This account can be customised by the user in pretty much the same way as a personal account, so profile pictures and cover photos can be added, and each user can of course add statuses, share pictures, message other users and “Like” and comment on others’ posts.

For their part, Facebook claim to have been using and refining Facebook at Work themselves since the company was formed, and so we should be seeing a mature, successful product. Will it take off? That all depends on how many friends they get.

Different departments can have their own profiles – for instance, IT Support may have their own profile to invite users to post about issues – and these can be managed centrally or by nominated staff members.

February 2015 | | 91

Book Review - Fast Forward



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Book Review - Fast Forward

Terrorism, spiralling debt, Ebola, over-population, transport strikes, failing hospitals, cost of living crisis, inflation, deflation….

A book review by Richard Gill

Given all the doom and gloom pumped out by the mainstream press every day, it’s not surprising that we often forget just how well off humans really are in the 21st Century. Despite all the apparent misery, we should not forget how much more healthy, wealthy and prosperous we really are compared with our relatives of just a few generations ago.

To give some examples, global life expectancies have increased by over 40 years since 1809; an estimated one billion people have been taken out of poverty in the developing world in the past 20 years; and per capita GDP on a global scale has almost doubled since the turn of the century. But given the rate of technological progress we may soon be looked back upon as paupers by our grandchildren.

If Mellon and Chalabi’s investment backgrounds were not enough to make you take notice, consider that their “balanced” stock portfolio suggestions from Cracking the Code outperformed the NASDAQ Biotech Index by a stunning 37.6% between July 2012 and July 2014.

In Fast Forward Jim Mellon and Al Chalabi argue that a new era of change is upon us, with advanced technologies accelerating productivity and making most of the global population even better off than before. And for investors there will be plenty of opportunities to profit along the way.

Authors This is the fifth book which has come from the great minds of the Mellon/Chalabi double act, and follows on from the captivating biotech investment tome, Cracking the Code. Jim Mellon needs no introduction, being a contributing author to Spreadbet Magazine (read his latest article on page 25). Al Chalabi is a successful entrepreneur with a background in engineering, management consulting, research and advisory services, technology and angel investing.

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Book Review - Fast Forward

“given the rate of technological progress we may soon be looked back upon as paupers by our grandchildren.�

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Book Review - Fast Forward

Core text Over eight main chapters, covering topics as diverse as 3D printing, energy, payment processing, life extension, transportation and others, Mellon and Chalabi cover the dominant themes that investors should be looking out for in the coming years. While the various sectors covered differ widely, they have three things in common: - they are all seeing rapid growth as a result of new technologies.

In the above I mentioned that “most� of the global population would be beneficiaries of the new technologies. For some, however, life will be challenging, with robots replacing many jobs which humans currently do, potentially creating global unemployment issues. For example, a study by Oxford University in 2013 suggested that 47% of US jobs are at risk of being replaced by robots. And if life expectancies head towards 120 years as the authors suggest they could, will we have to work into our 70s, 80s and even 90s in order to fund our retirements?

- they are all seeing changes which could transform the world as we know it. - and, perhaps most importantly, they all offer interesting investment opportunities. The book kicks off with perhaps the stereotypical view of the future depicted in old science fiction novels - the rise of the robots, which looks at how machines will become advanced enough to automate many aspects of our lives. From simple errands such as cleaning the floor, to more dangerous tasks like disposing of bombs in a war zone, the robotics sector looks closer than ever to matching scenes witnessed in sci-fi classics such as 2001: A Space Odyssey and The Jetsons. Fans of Cracking the Code will be pleased, as the robotics chapter covers how machines and automation are set to transform areas such as medicine and caring for the elderly. More significantly, one chapter of the book is completely dedicated to life sciences, an area which the authors still see as being one of the most exciting and interesting to invest in over the coming decades. Alongside all the new technologies and gadgets covered, the authors specifically mention the companies, both public and private, which are involved in the specific area, so readers can do more research and potentially make their next investment. While the advancing technologies will benefit many, there will also be challenges to be faced.

As in any area of life, major technological changes can cause major disruption. But reading Fast Forward will make you better prepared as both an individual and an investor to plan for what the future holds.

Conclusion Overall, I would say that Fast Forward is one of the most engaging, thought provoking and readable investment books I have read this decade. As a book for private investors it gives you everything that you want - well researched material, an interesting read and a stack of new investment ideas from authors who have excellent track records of wealth creation. It is also a highly recommended read for anyone interested in what’s just around the corner for the human race. Robots taking over the world, humans living to 150 and flying to Mars... the future is coming faster than we think!

Fast Forward is published by Fruitful Publications can be bought in hardback and kindle format from READ THE INTRODUCTION FOR FREE BY CLICKING HERE

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Markets In Focus


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Markets In Focus

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Thank you for reading. We wish you a profitable February!

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