As I approach my 80th birthday, my thoughts turn increasingly to the future, particularly as regards my children and grandchildren.
From their earliest years I have built up share portfolios for both my daughters. Though they are appreciative, I have never managed to generate any real interest from either of them in the course of these investments — and to be fair I probably should have tried to involve them more in the decision-making.
So I am planning a very different approach with my four young grandchildren. I intend to start small portfolios for them, most likely through a Junior Isa set up by their parents. Crucially, this would focus on companies they can identify with, such as Greggs, Hollywood Bowl, Marks and Spencer, Restaurant Group (owner of Wagamama, which they love) or Tesco.
In this way, I hope to get across to them that they will own a very tiny piece of these businesses. Any dividends will go to them as extra pocket money.
When I told them about my plan, Ivan, the six-year-old, blurted out that he wanted to buy shares in Standard Chartered. A gobsmacked grandfather queried: “Why?”
“Because they sponsor Liverpool,” he replied — his favourite football team. No dividend yield or price-earning ratio for him, but if it stokes his interest, perhaps we are on the way!
After 60 years of investing, I am also making some changes to the way I treat my own portfolio.
Notwithstanding rising energy costs, broader price inflation and the tragic war in Ukraine, the two main happenings in my stock market life over the past quarter have been the takeover of Air Partner and the derating of flavours and fragrances producer Treatt.
I first bought into Air Partner in 1999 and built up a significant Isa holding over the years, despite fairly frequent mid-air turbulence. Its purchase by US operator Wheels Up, concluded in April, produced sizeable cash proceeds, taking the numbers of takeovers or “take private” deals in my portfolio over the years to well over 50.
But I now increasingly focus on income, withdrawing my Isa dividends rather than reinvesting them. On the cusp of my ninth decade, I do not regard this as an unreasonable indulgence. So two-thirds of the AP proceeds went into what I term “The Three Sisters” — Aviva, Legal & General, and M&G — on an overall 7 per cent tax-free return. I find it quite extraordinary that this return is obtainable on such companies compared with nearly zero on cash in the bank. Do swaths of our population not realise what they are missing?
The remaining one-third went primarily into the small-caps sector, topping-up existing holdings such as Anpario, Christie (hugely undervalued in my opinion), Concurrent Technologies (a beneficiary of increased defence spending), Lords Group Trading (with encouraging maiden results), Tate & Lyle, Titon, Vianet, and of course Vitec (now Videndum and a current favourite of mine).
A sale of palm oil company MP Evans at over £10, compared with average buying at £7, added more cash for reinvestment. Although Evans is trading very well with palm oil prices benefiting from ramifications of the Ukrainian conflict, this will not go on forever.
Thus, I was able to purchase three new holdings for modest prices: Manolete, Secure Trust and STV. Manolete is probably the least known, “buying” insolvency cases for a small consideration and then, with its specialist team, chasing former directors or others who may have misappropriated company funds, splitting the proceeds with company creditors.
During the pandemic, government controls restricted insolvencies, but these are now off, resulting in a surge in cases benefiting Manolete. My average buying price of 240p has pleasingly risen to 300p.
Unfortunately, Secure Trust has gone the other way from £12.40 to £11, but I am confident that this conservatively managed banking business, with low, well-diversified risk, will recover, and go further, given its very modest rating and 5 per cent dividend yield.
STV — Scottish Television — capitalised at £140mn — looks very good value on a price/earnings ratio of 7 and a yield of 3.7 per cent. Its content creation is highly regarded, as is its management.
Given the size of my Treatt holding, by far my largest, the sharp derating from a peak of £13 to below £8 was a nasty blow, but thankfully it has recovered to just under £9. Fortunately, even now I am sitting on a very substantial profit.
However, the episode underlines the vulnerability of very highly rated companies to even the slightest disappointment or change in sentiment. My view is that the derating has been significantly overdone. The problem is that in recent years Treatt has invariably beaten profits expectations rather than just achieving them. Latest results could hardly be criticised — 9 per cent revenue growth, with an order book and dividend both up by 25 per cent.
True, it has a lot to do in the second half of the year to reach annual profits expectations, but its conservative management has never failed to deliver — and its new state of art headquarters building at Bury St Edmunds will deliver substantial savings.
The reduction in Treatt’s overall capitalisation, to £500mn, inevitably makes it very vulnerable to a major international predator, but I hope none appear as I believe a great independent future lies ahead. I am staying firmly aboard.
Real money is made by staying with a growing business for the long term, even if it has a “plateau” year from time to time. The lesson is: don’t be a short-term schmuck!
Lord Lee of Trafford is an active private investor and author of “Yummi Yoghurt — A First Taste of Stock Market Investment”. He is a shareholder in all the companies indicated.