Cheap sugar puffs and other investment tips

Can you make money as an investor eschewing the business press and trusting your own observations and experiences?

Normally I scoff at people who say things like "I'm buying Thomas Cook - people will always go on holiday", completely ignoring the current share price and the company's competitive and financial position.  In fact Thomas Cook is down 90% over the last 2 years; people may always go on holiday but they are also free to book with online competitors.

But a walk down the cereal aisle at Tescos this week did give me an investment insight.

I bought Tesco shares quite heavily in January after their first profit warning in 20 years had caused them to fall by 20% or so in a matter of hours.  I thought the fall overdone and expected to be quickly up on my investment. It turns out I was wrong about that as the shares have hovered around the same level ever since and even gone lower on occasion.

It was a long term investment of course and I can wait.  TSCO yields 4,5% and the significant business that it does outside the UK should ensure that group profits continue to grow and give me a healthy return.

Certainly beats any cash ISA investment I know of.

There is no denying though that Tesco's UK retail core is suffering and its not just the recession. Other supermarkets are doing well and stealing market share.  There are problems with non-food and the bosses admit that they have let standards of service and store presentation slide.

But fundamentally it's a question of their prices.  They have got used to growing by simply opening more stores and retaining customers with gimicky Clubcard offers.

It has been obvious for some time that Tescos has become an expensive place to shop particularly when compared to Asda.  To be fair to the management they recognised this long before the profit warning and acted last year with the Big Price Drop promotion.

The City was lukewarm about the plan and it didn't help much at Christmas when other stores, particularly Sainsburys, won custom with special offers and one off bargains which made Tescos "5p off own-brand cheddar" look a bit weak.

That's where the Honey Monster comes in.  I noticed his Sugar Puffs were an eye-catching £1 under the Big Price Drop sign.  Looking around I saw a host of other meaningful price falls right through the aisles.

What does that say to you?  Management is backing its own judgement and sticking with a strategy that is aimed squarely at the right target - Tesco needs to be genuinely cheaper.  Also they have listened to criticism  and made the campaign stand out more.  Tell'em About the Money! (imagine monster voice)

The news for Tescos has actually been pretty bad this week with an embarassing mice infestation in a London store grabbing the headlines ("Mice refuse to leave sinking ship").  All the articles have trotted out the lines about how Big Price Drop has failed and the company is on the ropes.

But if you take a contrarian view now would be a good time to buy Tescos.  All this bad news is in the price and if the company is still holding its market share (down a mere 0.1% this year) while its everyone's favorite whipping boy and when it is still struggling to get its pricing policy right, what will happen when it puts things right - as I think it is - and the press start to pick on someone else?

From our website:  Massive tax rises for Spain in 2012

Sympathy for Spanish football clubs in short supply

He shoots!  He scores!  He pays tax!  Er, or he should do.  It's actually more common in Spain and other continental leagues for the clubs to pay a star player's taxes for him.

So recent rises in income tax rates for the super rich are causing more of a problem for Spain's La Liga clubs than their players. 

There are two measures that are biting the most: a rise in the top rate of income tax to 52% for anyone earning more than £300.000 and an end to a special low tax regime for foreign workers in Spain who earn more than €600.000. 

This last measure, making the tax loophole known as Beckham's Law non-applicable for big foreign stars, was a particular blow.  It has always been used by the big clubs to make their overseas stars' tax bills more affordable. It's nickname relates back to the time when David Beckham was at Real Madrid.

It used to mean foreign players wages were taxed at 24% but now they will be paying 52%. Ouch.  Although the burden might initially fall on the clubs presumably players who are due to renegotiate their contracts will suffer financially.

To top it all, both the Spanish tax office and the social security agency are chasing the clubs for unpaid tax and social security totaling €1.3 billions which makes Rangers unpaid tax liabilities look like small change.

Many of these top clubs are weighed down by debt as it is.  A couple of years ago some figures came out suggesting the teams collectively owed €3,5 billions and no one believes things are on an improving trend.

I can't see the football clubs getting much sympathy from the Spanish public still suffering from "El Crisis" which looks to be worsening if anything.  Everyone is being hit by higher taxes with even the lower rate going up:


Massive Tax Rises in Spain for 2012

So when you see Barca and Madrid advancing to the Champions League final, as they probably will, and read of Messi and Ronaldo's incredible goal-scoring feats, remember that Spanish football is not in quite such rude health as it appears.

The truth about fees that every ISA investor should see

It's the time of year (less than a month to go until the 2011/12 deadline) when many people in the UK are thinking about where to invest their ISA allowance.

If you are planning to invest in a fund rather than cash or self-selected securities, then the table on the left (produced by Vanguard - see this excellent guide "The Truth About Costs")) could be more important than any research you do into which funds are likely to outperform. It shows that a fund with high charges will underperform and disappoint in the long term almost however well the fund manager does or however clever you are in selecting a "hot" investment trend.

For the average investor who doesn't follow and track these things, the effect of fund charges are greatly under-appreciated.  0.25% or 1.6% or even 2.5% don't sound very substantial numbers.  A positive bargain actually when compared with say a 15% tip at a restaurant.

The problem is that fund charges are made every year on your cumulative investment, so over a 30 year period a fund charging 2.3% (many do) will take that % of the money you invest in year one 30 times.  And they will take 2.3% of any gains and dividends.  And all the charges they make reduce your capacity to roll up cumulative gains on the investment.

Small wonder that even a 1.6% charge rate can reduce a potential "pot" of £46k to £29k even before inflation is considered and even before tax because it is in an ISA.  And don't get me started on so called Independent Financial Advisers and their fees.  Or "funds of funds" which have two layers of charges.

If you want to find the real scandal of the City, forget about hedge funds and bonuses: it's the quiet, deadly raids that are being made every day on our savings that are the real disgrace.

What to do?

Option 1 - open a self-select ISA with no annual admin charge and pick out 5 or 6 quality stocks with your allowance (perhaps spread the timing of your investments over the year - one every two months) and forget about them.  Apart from the small commission and stamp duty* at the beginning you will have no charges to pay.

Option 2 - pick funds with low charges. Look for a TER* or Total Expense Ratio and remember the difference between 0.25% and 2.5% is enormous.  Any fund with a high TER must really justify itself.

* - note that dealing costs are not included in the TER - they are taken directly out of the fund - so that actual charges are higher than the quoted TER

Final note to anyone unfamiliar with initial charges: never pay them.  Some funds charge up to 5% simply to buy into their fund.  That's money taken upfront and which never earns you any cumulative return.  It is completely unjustified - it's like being charge commission to enter a really expensive shop and spend money there.  Avoid by going to a broker which waives or rebates the charges.

From our website:  Self employment in Spain - the guide

Baked-in laziness

There seems to be a big marketing push going on in Britain at the moment for a "new" product, ready-baked jacket potatoes.

The makers must have high hopes for this revolutionary concept because their seem to be a myriad of TV ads, billboards and full pages in newspapers devoted to it.

Apparently it's McCain's biggest product launch for over 30 years.  They have even gone so far as to introduce special billboards at busstops which glow and emit the smell of baked potatoes.  I kid you not - Adverts that Smell Like Jacket Potatoes

Now I like baked potatoes but rather than pay £1,50 for two I pay 70p for four (thanks Asda) and throw them in the oven when the need arises.  It doesn't take Heston Blumental to cook a baked potato.

It's hard to reconcile the "squeezed middle" or "breadline Britain" headlines about struggling consumers when you read about products like this which seem predicated on the belief that the average British household can't be bothered to cook even the most basic of meals and must pay a 400% mark-up to get someone to do it for them.

What next, ready-buttered bread?  Disposable mugs of tea that can be popped in the microwave?  For pity's sake.

From our website  Spanish pension benefits 2012

How Cameron can save the economy and win the election

I am sure neither David Cameron nor his political advisers feel in need of some advice from a nobody but I am going to give it any way.  Just to get it off my chest.

Most on the centre and the right think Cameron is a reasonable Prime Minister and his chances of reelection are surprisingly good given the state of the economy and most people's personal finances.

However it frustrates me that his government is not more radical particularly when it comes to the economy.  Apologists often claim the government is being held back by their Lib Dem coalition partners but I sense an opinion poll led fear of straying too far from the centre ground.  Thatcher he 'aint.

But there is an alternative to centrist policies. Here's how he could be radical and position the Conservatives to win the next election at the same time.

His objectives should be to (a) cut a deal with the LibDems which achieves for them some of their cherished goals  but also gets through some more right wing policies that their rank and file won't like (b) wrongfoot Labour by accepting to some extent their argument about cutting the deficit "too far, too fast" (c) bring his own right wing back on side to unite the party (d) appear radical, decisive and like he is doing everything he can to boost the economy in a fair way.

This is the deal he needs to do with the Lib Dems to achieve these 4 goals:

1. Drop the 50 p higher rate of tax back down to 40p
2. Cut corporation tax as part of a package of measures to encourage multinational companies to invest/base in the UK (copying what Ireland has done).  Other measures to include making it easier to hire and fire, and make it easier to get permits for non-EU staff
3. Cut employers' National Insurance to boost job creation
4. Increase the personal income tax allowance to £10,000 (a key Lib Dem objective which Conservatives should have no trouble supporting)
5. Partially offset these tax cuts with a mansion tax (another key Lib Dem objective which will help undermine the argument that the package favours the rich)
6. In a similar vein to 5. close some tax loopholes used by rich people to avoid taxes; again a Lib Dem policy which will help achieve the fairness objective.  It is also good economics to cut high tax rates and close loopholes - Obama has just proposed something similar in the States.
7. Offset some of the tax cuts with benefit cuts.  Despite the outcry among the left-leaning establishment the benefit cap, cuts to housing benefits and crackdown on fake incapacity claimants are extremely popular and necessary policies, they just don't go far and enough.  What about asking the million young unemployed to do some work for their benefits?  Many will stop claiming.
8. Leave some of the tax cuts (1-4 above) unbalanced by spending cuts / tax rises (5-7 above).  Although cutting the deficit is vital, the markets will not be spooked by a loosening of the reduction target if it is in the cause of radically boosting Britain's growth potential which these measures will do.  This will steal Labour's main criticism of George Osborne: they will have to either applaud the move or look stupid criticising what they have been asking for for months.  The coalition should also argue that some of the tax cuts will be self-financing, particularly no 1.

Obviously there is no chance of the government doing anything half so bold but I would love to see them try!

From our website:  Massive tax rises for Spain in 2012

And 2012’s most annoying Americanism is . . .

Although I consider myself something of an Americophile, I still get annoyed by teenagers, z list celebs and reality TV contestants peppering their speech with inane Americanisms.  

English is a perfectly good language which was good enough for Shakespeare and the King James’ Bible but not, it would seem, cool and hip enough for a certain breed of modern Britons. 

Before I reveal the one that is getting under my skin at the moment (even when uttered by Americans) let’s recap and look back at some of the Americanisms we have been subjected to in the recent past:

1. We have had decades to get used to the word “like” uselessly and endlessly punctuating the speech of the vacuous but it still manages to grate somehow particularly when combined with the habit of turning a statement into a sentence.  That’s really, like, annoying?
2. There’s a whole series of urban African-American speech habits that are often used by Brits for comic effect but it long ago ceased to be funny to say “girlfriend”, “talk to the hand” etc
3. Saying that you, or someone else, doesn’t “do” such and such.  For example: “I don’t do ordinary”.  I am not sure this habit originated in the States but I would be surprised if it didn’t and I wish it hadn’t spread over here. 
4. Adding a “not” at the end of a sentence to turn an affirmative into a negative, again for supposed comic effect.  That’s still really funny . . . not!
5. “Can I get a coffee to go”.  Enough said.
6. Anyone who says “math” for “maths” has watched too many imported shows (sorry, programs) on E4
7. I am fed up with Americanisms … period.  It’s quite a useful verbal device to end with “period” but surely saying the same with “full stop” at the end would be more appropriate in this country.

But to bring things right up to date, the one Americanism that I find increasingly creeping into British speech is “my bad”, as in “I forgot to get you a birthday card.  My bad”.   

Judging by a Google search to find the origins of the phrase “my bad”, it is not new to express contrition with this nonsensical phrase but it hadn’t registered with me until recently.  Now I seem to hear it more and more and I find it cringeworthy.

Just to repeat I love America and most of these expressions sound OK coming from the right lips. I just don’t like non-Americans talking like they have just stepped off the set of Beverley Hills 90210 or American Idol.

From our website: Spanish Wealth Tax Guide

Spanish electricity bills set to soar?

I have always thought electricity was rather pricey in Spain.  Despite plenty of effort to keep the bills down, mainly involving use of cumbersome gas bottles, the monthly bills seem to roll in higher and higher.  It is therefore surprising to learn that Spanish electricity bills are subsidised and the consumer does not pay the full cost of production.

The subsidy relates to renewable energy.  Spain takes great pride in its renewable energy sector and has encouraged hydro, solar and especially wind power to the extent that these sources supply 30% or more of the electricity Spain needs (it varies with wind strength).

But this success comes at a price: feed in tariffs which are generous to renewable suppliers but which are not passed onto the consumers (like they are in the UK by and large).  Spain manages to get all the green benefits, including much trumpeted jobs, without the inconvenience of higher bills for end users.  The trick is that the government set up a fund called FADE to carry the accumulated additional costs of the renewable energy and it has a deficit of €24 billion.

This in turn is funded by selling bonds to the market but given that this is effectively the government borrowing, the markets are starting to lump it in with general Spanish debt which is reckoned to be a major default risk.  So the government doesn’t want the FADE deficit to swell any further and has pulled the plug: no more green subsidies.

It is supposed to be a temporary suspension but the renewable sector, and some regions like the Canary Islands, are up in the arms about the lost industry and employment.  Even the WWF has weighed in bemoaning the effect on CO2 emissions.  There are lots of quotes in the papers about 300,000 jobs that would have been created by 2020 being under threat. 

I am somewhat dubious about alleged jobs being funded by secret slush funds and am not too sad about the decision.  The big question for householders though is how long before the government puts up electricity bills to pay down this €24 billion deficit.  That would be a painful “stealth” tax rise we could do without.

From our website:  Spain brings back the wealth tax