Out with the old and in with the new
Jan 2nd, 2009 by Bert
On we go to 2009, and a happy new year to all readers of the blog. I’ll leave my resolutions for now (still a work in progress…) but here are my investments for the year;
2009 is already booked to be a pretty poor year - the recession is unavoidable and the earthquake that was the banking collapse is stull rumbling. Sterling has collapsed against the Euro - having traded at around E1.50 for so long we are now close to parity - E1.00. The price of oil is now around $40 having run up to $147 in the summer. These are huge moves. Gold ended the year at around $875.
Oil must recover in time, although the short term looks a mixed picture. Sterling’s move looks a bit technical and I suspect it will come back at some point, but it won’t come all the way back. I think gold has to go higher, possibly quite a lot higher, and it feels like a good investment for the year.
The world’s economy may be in a terrible state, but the show must go on and there’s going to be value in the equity markets for the selective investor. It might be an extreme case of “out with the old and in with the new” - 2009 won’t be easy for anyone who has fallen behind the curve. Woolworths is perhaps an example of a business that was past its sell by date long ago but had been hanging on - they had no chance in the new tougher environment but the online retailers will thrive at their expense.
The gambling industry will probably be fine - it has proved more recession resilient than one feels it should be in the past and there is sure to be consolidation at some point. The right tech companies will do well, although the market will be applying different models now and will not show much patience waiting for revenue. Ecology should still be high on the agenda and this maturing marketplace should hold opportunities.
Three picks then for 2009;
I’m very happy with progress at Betfair, but they are not quoted, so my betting industry pick is Sportingbet. I like SBT because;
- They’ve been a dog for a few years because of the disposal of their US facing business, but it feels like that stuff is fully in the price now. They’re not far off their all time lows.
- The Euro move looks big news. The bulk of their revenue comes in Euros, and in Sterling terms this just grew by 30%. Their operational costs of the business however are spread far and wide, but with plenty in sterling. They report in sterling. There is, to some extent, a “double whammy” here.
In the tech arena I’ll go for Phorm. This is a very tough read - they have complex technology that sits within ISPs and optimises advertising revenue. There are privacy issues which are tough to fathom (see Wikipedia), and they have no revenue yet - the revenue opportunity again is not easy to assess. Their share price has fallen from £35 in early 2008 to £2.90 now.
Phorm is a greed and fear play - the upside is huge, the downside is 100%. It has next to no defensive value and in a market running scared it is the first stuff that gets chucked out. It might be a bust but it could also be a ten bagger - I like the odds.
Hydrodec have a unique process that invigorates and cleans toxins from transformer oil (and thus recycles the oil). Transformer oil is a highly refined oil used in large quantities in electrical generators - it becomes toxic and has to be replaced regularly. Recycling this oil is clearly more environmentally friendly, and is possibly also more economical.
The value of HYR is, to some extent, a function of the transformer oil price - if oil is cheap it is cheaper to replace than to clean and vice-versa. There is a lot more to it - it takes a long time to build a recycling plant and it isn’t possible for companies to react quickly to oil price movements. There are potentially ecology type grants and regulation that could play a part. 2009 is a big year for the company as they go from concept to a revenue generating and hopefully profitable company.
That’s it for investments - I’m not an expert analyst and there could be horrible errors/omissions in the above analysis (also I am, to some extent, selling my own book as I have decent shareholdings in a couple of the above). I’m interested to hear any alternative investment ideas from any other blog readers.
7 Responses to “Out with the old and in with the new”
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Oil will be a safe enough investment imo. BP, Aveva are two solid outfits who should be capable of keeping your hard-earned cash safe enough.
Phil
I may have mentrioned before but I do not believe the “gambling” industry is definitely “recession proof”. It may have been in the past, but as you know, we are playing by a different set of rules. What was true in the past may not hold for today and tomorrow.
Obama takes over on Jan 20, so stock markets may or may not rise. Probably will go up as more details of the “rescue” package.
Back to the “gambling” front, I am predicting a “paradigm shift” in attitudes to gambling, particularly gambling on the internet. At the moment it is possible to lose an absolute fortune on the internet 24/7/365. I have recent experience of this destroying one friends life, and having a very serious impact on another friends life, not to mention both families and a wide circle of friends. I feel slightly culpable as I introduced him to Betfair. I thought he was a social gambler who liked the odd fiver on the gee-gees. 18 months later I find out he had discovered Betafir Casino where he had been wagering vast sums, which he had alledgedgly stolen form my other friends company. Consequently both parties are now seriously in debt.
For every winner there is a loser. It has definitely changed my attitude to gambling, and sometimes I can be “ahead of the curve” on these things. I don’t believe the story above is a one-off, and as these stories emerge over the months to come, I predict a change in peoples attitudes, and some sort of goverment legislation.
Sorry for this extended replay which is not strictly “on topic”, and please feel free to delete this comment if it is “too close to the bone”.
All the best for 2009.
I think there is a lot of sense in what Gambler says above. This gambling industry has grown into a monster ever since betting shops became “legal” in the 1960s. Prior to that people who did not have a credit accounts with Hills, Laddies or Corals could only place bets with “runners” in pubs, clubs and factories. I used to settle “clock bag” bets, written on fag packets and bits of scrap paper which the runner collected and placed in these backs with a timer lock on them. The “runners” used to get about 1/6d in the £ for the total amount staked. This was fairly harmless punting. Bets were smallish, usually sixpenny or one shilling stakes. Along came the betting shops and they were a licence to print money for the army of bookies who climbed aboard the bandwagon. However, the shops were strictly licensed and opening times were restricted. Punters were not supposed to “loiter” in the shops! Refreshments were strictly outlawed and the bookie could lose his licence if he broke these rules.
Then things started to mushroom. The government saw more and more ways of earning revenue from gambling. No doubt many of those in power promoted expansion and relaxing of the laws on gambling. You have virtual casinos within betting shops where the roulette games and other quickfire gambles are on offer. Then Betfair and other exchanges come on the scene … it is almost obscene the way things have exploded.
The ocean of debt that this country and the USA is now sinking in may be largely caused by gambling. Even the bankers and financial whizz-kids started taking massive punts on everything and anything.
As Gambler says, the government might well seek ways of curbing this mammoth industry … I certainly hope so.
Phil H.
At the time of the last downturn I took a more cautious approach and opted for Investment Trusts. My success rate varied but the only one I lost money on was a Japan trust and since then have steared clear of markets I do not understand. I will be going for Trusts which concentrate on the UK. Prices are depressed and they can only go one way. Believe IT’s offer better returns than Unit Trusts. Also have seen some very low new property prices at home and overseas although to make this pay would have to buy numerous and spread load. I have been talking to friends about this ideaand have a few interested.
I can understand Philip’s point but do not agree. Think you can change someone’s habits but not central core values and the majority of individuals are in the get rich quick culture which was encouraged in the 70’s. There has always been an urge to gamble before betting was legalised, card and tossing schools were common place, money was gambled on brawling, cock and dog fighting in backstreets. perhaps vast sums were not bet but the average individual did not have much and I would guess it represented as much if not more than the average sum wagered by individuals now. Poverty meant having to miss meals and inadequate clothing, few owned own home. If you legislate against one area the problem will just move on and in the days of having no fixed financial boundaries you would need widespread agreement across the world.
This is a big topic to respond to in detail, and I obviously have my vested interests, so keeping it brief;
TG - you have a recent bad experience of a friend with a gambling problem, but this is not a new problem or necessarily a growing one in the UK. It is a very important issue, but regulation already exists and I’d be surprised if much were to change in the short term. A sea change could come from an economic collapse but more likely would have to come from a party political change - we may get a new PM in 2009 but I don’t see a huge shift in political thinking in the offing. Europe is tougher to fathom.
In general terms - is 2009, a horrible economic year following a banking collapse, a year where political policy is likely to become more or less interventionist? People lost fortunes in 2008 just for having their money in the wrong place - the regulator failed us all. I think the “nanny state” probably gets weaker in 2009 - prohibition was repealed during the great depression.
In terms of the betting industry - 2008 was a pretty poor year across the board for quoted gambling companies. Ladbrokes share price is less than 50% of what it was 15 months ago, William Hill closer to 33% over the same period, with similar mark downs everywhere you look. These companies have already been hit.
Cheers Bert.
Thanks for replying.
TG.
TG
Sorry to hear about you and your friends problems, but we have to take responsibility for our actions.
My father was born in 1911 and in the late 20s or early 30s he helped a pal out at Brighton dogs while he was away on 2 weeks holiday, the first week he made £600 ,(100k plus now), the second week he lost the lot, he never moaned about his luck, just said it was the best 1st week of his life.
So enjoy it while you can, the good times will always be the ones you remember.
Cheers
Roger