Turn of
the Year Newsletter – December 2004
Mobius has seen changes in 2004. Our appetite for risk seems
to have strengthened with a little taste of success in the guise of Synergy. We have
taken a small plunge with Hamworthy but are held up in our decision to purchase
Ocean Wilsons. Both shares are exposed to the strength of the World economy.
Hopefully HMY can maintain impetus with further orders and no slip-ups in
manufacturing capability. Ocean could be good for us as Brasil’s trade
performance goes into top gear, if we can find a route to purchase.
Our last meeting was enjoyed by all members. We were treated
to a fresh perspective on portfolio design and management presented ably by
Dave Gaskell of Rolling Stocks Investment Club. Dave showed admirable knowledge
of his subject and gave us plenty of food for thought with a potential method
to sharpen our stock picking and portfolio building.
2004 has proved a year of two distinct halves. Through to
August the FTSE was volatile but made no progress. Over the last quarter though
it has made sterling gains (I must admit that in July I predicted further falls
which did not materialise. Oh, well!). In spite of some gloom around, the
majority of major world indices are near their respective highs for 2004. The
big question for us as investors is, where next? My feeling is that the index
will fall in January 2005 but later in the year I am inclined to agree with the
pundits who are forecasting an end of year total around 5000-5100. You don’t
make real gains by following the pundits though.
The factors which will determine markets might be any of
many, but what seems to be happening is continuing major currency realignment,
a steadying of commodity prices and an increase in oil supplies (coupled with a
mild winter in North America so far). The reduction in the oil price has to be
bullish and is therefore timely. The mechanisms at work will doubtless continue
to exert their regulatory effects on economies, leading to rebalancing of trade
flows although it is not obvious what the final outcomes will be.
An indeterminate but influential factor might be further
terrorist outrages either in Middle Eastern countries or in the West. We
approach the Iraqi elections with no clear idea of their outcome or effect. It
would be nice to be optimistic but I find it difficult. Having watched the two
factions knock hell out of each other in Northern Ireland over so many years
it’s a bit like deja-vu.
What about interest rates? Many seem to believe that they
have peaked but there may be a shock if they edge up further. There is evidence
that house prices are steadying and mortgage lending is back to the level of 10
years ago having come back sharply. This factor should bring the economic ship
back on course. As investors we do not need drastic changes or unwelcome or
unpredicted shocks.
The Gordon Brown effect.
Well, he can always be relied upon to raise taxes so we might expect an
early election so that he can do it with impunity. The election itself seems a
foregone conclusion but that does not mean there will not be some substantial
swings in the balance of power.
The tsunami effect. This tragic natural occurrence will hurt
the affected countries but as with the death toll it’s long term effects are
unknown. Huge investment will be needed.
What of individual
shares? The end of the year has seen new 2004 ‘highs’ in several banks, many
property companies including London Merchant Secs, and small caps. New highs
throughout the market have outnumbered new lows by a considerable margin. Is it
just the Christmas effect? Several old favourites of mine such as National
Grid, MMO2, Persimmon and Victrex etc look as if they will test new highs soon
in the absence of a setback. Hydro and DRS have bounced back sigmificantly from
their lows, perhaps Mobius should re-examine them and look to spot an
opportunistic price. Some of our holdings are also on the rise such as
Airpartner and Mitie so there are reasons enough to be joyful at the start of
2005.
All the
best. ML January 5 2005