Friday, April 8, 2016

You want humility? Here’s real humility (well, sort of) and the sad tale of how I came to realised I am not the world’s greatest stock picker

Every so often I take a look at ‘the stats’ to see which of my previous posts have been read. There are a few evergreen favourites - the travails of M. Hollande, of 4, Factory Close, Versaille, France, are a perpetual favourite, as is more or less a post on what a bloody little shit T. Blair, of Duncheatin Palace, 1 Moneybags Avenue, George Town, Cayman Islands, is. My musings on Somerset Maugham also prove more popular than other posts, although I can’t suggest why.

Yesterday I noticed that an entry published on December 3, 2009, entitled ‘A share tip from a certified sucker who is otherwise highly sceptical of ‘a sure thing’ ’ had had two visitors. Intrigued about what I could possibly have to say, I went along and subsequently almost blushed with shame.

The first thing that struck me was how the qualifying ‘from a certified sucker who is otherwise highly sceptical of a “sure thing” ’ of the post’s title, apparently an innocent and modest disclaimer, is nothing of the kind. And in view of what I am about to tell you, you will realise just how conceited I was to write that entry in the first place.

You can follow the link above and go and skim through the post, but if you can’t be arsed - and I wouldn’t be offended if you can’t - I’ll sum it up: when, in about 2006 when I heard of SIPPs (self-invested pension plans), I decided that the very modest sum I had stashed away with some mickey-mouse company based in Bournemouth and which was growing at the astounding rate of 0pc per annum wouldn’t do any worse in a SIPP. (I had taken out the pension about 18 years earlier with Hill Samuel, but it was then sold on several times - they are actually allowed to do these things, believe it or not - until it ended up with the losers in Bournemouth.)

Most of the sum I transferred was invested in three funds which went on to do rather well - one doubled the amount invested in nine years - but I had a little left over. In 2006, we were still living in an age of ever-greater credit and the stock market was booming. But I suspected, given that we were still living in an age of ever-greater credit, that at some point the music would stop and the party would be over.

That’s exactly what happened a few years later, although I can’t claim any credibility as a soothsayer, because I didn’t know exactly when it would happen. I mean you wouldn’t hand the keys to the Meteorological Office over to some herbert who assured you that as sure as eggs were eggs,
it was bound to rain at some point in the next two months. I just suspected that it would happen, and knowing that when the economy got into the doldrums and people were very much feeling the pinch, shares would undoubtedly be hit, I asked myself what kind of business might be expected to thrive in a recession. Of course: pawnbrokers.

I did ‘a bit of research’, i.e. I googled ‘UK pawnbrokers share price’, and discovered only one was a limited company quoted on the London Stock Exchange, a company called Albemarle & Bond.

If I remember, I bought the shares when they cost about 62p each - and watched in delight as the price rose and rose and rose. By the end of 2009, when I wrote my entry giving my ‘share tip’ and faux-modestly explained that otherwise I knew nothing about picking great shares (but, of course, hinting the exact opposite) the share price had more than doubled. And better than that, it went on to hit £3 - a startling rise.

Well, if I really was that smart an alec and if I really did have the faintest clue as to what I was doing, I should have sold the lot at the point. I don’t know how much I had invested in Albemarle & Bond, but whatever it was would have grown to almost five times the amount. But I didn’t. Patrick, me lad, (I told myself) you are onto a winner! Just hang on in there and Albemarle & Bond shares will grow and grow and grow (and I don’t doubt that privately I reflected on just what a financial genius I was).

Well, as I don’t doubt you have already guessed (and wondered when they hell I will not just get on with it!), the fall which inevitably follows unwarranted pride came along in good time. Albemarle & Bond’s share price ended its starospheric rise and began what would eventually be a calamitous fall.

There were several reasons for this, as you can read here. But briefly, it made much of its money buying up the gold of men and women who, in the bad times which followed the Lehman Brothers bankruptcy had sold it all to help make ends meet. For a while the price of gold increased. Then it stopped increasing and fell again by over a quarter of its price. Then there was a second factor putting the break on all the good times and denting my imagined expertise as a stock picker: the competition Albemarle & Bond faced increasingly.

As it had not occurred to me that the price of its shares would not carry on rising for ever and a day, it didn’t seem to have occurrd to Mr Albermarle and Mr Bond that as their pawnbroking business thrived, others would take not of the moolah to be made and also move into pawnbroking to get a piece of the action. Which, of course, other firms did. Albemarle & Bond also made much of their money by giving short-term loans. And again other sharks weren’t slow to spot a winner, and the number of shyster firms also lending money in short-term loans at exorbitant prices exploded.

Finally, thinking they were onto a good thing Albemarle & Bond decided to expand. They announced that they were opening loads more branches throughout Britain and, crucially, borrowed a great deal of money to fund that expansion. Sadly, that was what is universally known as a Bad Move.

As business got a lot tougher, the new branches didn’t thrive, profits suffered and the share price went into reverse. I was - thank the bloody Lord - in the habit of keeping an eye on how the shares and funds in my SIPP were doing, and I noticed the decline in share price. Within months it was dropping from £3 to £2.50 to £2 and further. At first I wasn’t alarmed. ‘These things happen,’ this wise old owl of a financial wizard told himself. ‘Just hang on and it will go up again.’ But it didn’t, and finally realising just how unwise it would be to hang on in there, I sold up when the price hit £1.32.

Now that, admittedly, is not half as good as getting £3 per share, but at least I hadn’t lost the lot - as I would have done if I had hung on much longer in the hope the price would rise again: the share price dropped and dropped and dropped until Albemarle & Bond asked for trading to be suspended when it hit just 6p (£0.06).

Given the smug tone I managed to hit in the title of the original post - ‘A share tip from a certified sucker who is otherwise highly sceptical of ‘a sure thing’ - which implied that I was, of course, anything but a sucker, I shall admit quite clearly: I was lucky, very, very lucky. I would like to conclude by ‘well, that’s taught me a lesson’, but it hasn’t, of course. I - you, too, if you are honest, shall carry on believing my own bullshit, sadly. But at least I can recognise the odd occasion when Lady Luck as the good grace to suck my dick once in a while.

Things went from bad to worse for Albemarle & Bond without my help and the company is now once again a humble pawnbroker, all its dreams of grandeur and cutting a dash in the pawnbroking world in pieces. Here are two more pieces you can read about how fate caught up with Albemarle & Bond, one from the Guardian and one from its administrators PriceWaterhouseCooper.

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