Taking the pulse of recovery stocks

In some ways, corporate financial health behaves rather like our own. A company’s health may be good, it may be dragged slowly downhill by a concealed long-term malaise, a more obvious chronic ailment may affect it, an acute condition requiring more urgent treatment may emerge, or a major medical emergency or accident may require a blues-and-twos response and some form of life support.

The concealed long-term corporate malaise may arise from poor management, lack of response to changing markets and a failure to invest for the future. Where these shortcomings are substantial or prolonged, the symptoms of chronic financial illness may become more apparent through declining sales and profitability. Waning demand for a company’s core products or services is often the underlying cause.

Acute conditions that may affect a company’s finances can include situations where a major contract is lost unexpectedly, mass-produced goods are found to be defective by users and must be repaired or replaced, or where a competitor launches a far superior product and thereby grabs a huge chunk of market share. As for those rushed to A&E, the cause may be a physical disaster hitting the company’s operations or perhaps some form of financial irregularity that leaves a big hole in the balance sheet.

Quoted companies do not have immunity to these financial health problems and we can all probably think of some examples in each category. In most cases, the financial ill-health of a company is reflected in a substantial fall in its share price, due to fear either that it may not respond to treatment at all or that it may need the equivalent of a blood transfusion – an emergency rights issue that could water-down share values.

It is in this context that we often hear the expression ‘recovery stocks’, meaning shares that have fallen substantially in price when companies have hit hard times, but are seen to have some prospect of a return to good health. This sounds like a promising investment formula but it is important to remember that, in the way that sick people don’t always pull through, some ailing companies end up in the hands of liquidators.

One strategy for exploiting the opportunities presented by recovery stocks is to spread the risk across a number of companies, by investing through a specialist collective investment scheme. Its managers should also have diagnostic capabilities that few individual investors possess. But this is not an area for the risk-averse; the best approach may be to discuss the recovery fund option with your professional adviser to decide whether a holding would be compatible with your objectives and risk profile.  We are here to help in this regard.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

An open letter to the new Chief Secretary

While the loss of a highly talented and apparently well regarded Chief Secretary to the Treasury is unfortunate, Danny Alexander may have one great strength that David Laws lacked; he has no track record in finance.

Some comentators view this as a weakness and, while accepting that the new incumbent is intelligent – he did after all, not only write the Lib Dems manefesto but also ran the coalition negotiations for his party – suggest that he may not be the best man for this very challenging job. I beg to differ.

Too many insiders
One of the problems in government, especially after 13 years of the last lot, is that you frequently get people in political jobs who think they understand the complexities of administration and economics.

What we actually need in the Treasury, I would suggest, is someone who has political skills (apparently Mr Alexander is an ex-PR, so he must have some political “nous”) but is not too close to any financial faction; including the Treasury itself.

What do we want from a Chief Secretary?
We need someone in the Treasury’s number two slot who can think for himself and take an outside view. After all, his most important role is to look at departmental spending plans – and challenge the departments to make real savings.

All he needs is sufficient intellect not to be confused by the “Sir Humphrey’s” of his new world and an ability for clear thinking. It also requires the strength of character not to be browbeaten by people who think they know better than him.

He is, after all, our representative; not a puppet of Whitehall’s mandarins. He has a clear objective of forcing real savings out of most government departments. There is little doubt that Mr Laws would have done the job admirably – with both his party and the Conservatives breathing down his neck, he had no option! But I suspect that his successor (for whom he presumably did not leave a message saying that there is no money left – he will already know this) will prove up to the task.

The five “whys”
To give him a helping hand I would like to offer this simple advice, gleaned from the “Customer Care” work improvement programmes so popular in the 1990s. Don’t just ask why? Do so five times in a row.

The logic behind this principle, which was developed to help employees challenge any supervisors who appeared to be rejecting change without good reason, was to make people justify their decisions.

So when departments say they cannot save money. He should ask “Why?” They will then trot out a prepared answer intended to confuse matters. He should then again ask “Why?”

A further reply will probably have been prepared, but this will give away a little more of the truth behind the thinking. By continuing the probing – simply refusing to accept what he is being told without convincing and cogent arguments – he is likely to get to the truth. This will lead to the revelation that there is no reason at all why substantial amounts of money cannot be saved from government savings.

More importantly, it may reveal some very real fears about potential reductions in front line services and help to minimise the possibility by putting them into an overall context.

Getting advice
As ever, when it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Government waste

At a time when the country is supposed to be drawing its collective belt in, I was surprised that the government decided to hold its 16th April Cabinet meeting in Glasgow. So much so that I made a Freedom of Information Act request to find out just how much of our money had been wasted on this “grandstanding”. Actually, this is one of a series; more of which later.

For normal Cabinet meetings, just about everyone concerned is already in London, so the costs should be no more than time and a quick ride in a ministerial car. Going to Glasgow obviously involves much more time for each person, as well as additional costs in terms of transport, security and even some overnight accommodation and food.

So what was the cost?
The information has finally come via my MP, because The Rt. Hon Tessa Jowell MP (Minister for the Cabinet Office, the Olympics, London and Paymaster General) apparently prefers not to write to ordinary people (in case they bite?) so she tends to communicate with MPs.

Apparently, the cost was some £54,300; but they have no idea how much of this relates directly to the Cabinet meeting because another meeting took place at the same time. I suppose we should be grateful for that, although it is not said how many of the Cabinet were involved in the second meeting, to necessitate their being in Glasgow. More interestingly, they actually do not know (or care?) how much a Cabinet meeting normally costs in London, for comparison purposes.

What really worries me about this response is that, on second reading, you realise how incomplete it is because: “Departments and agencies will have incurred costs in terms of travel, staff time and other support … (and) … the cost of any security provided by the police is a matter for the relevant force.” So much for joined up government!

They have held further Cabinet meetings in Cardiff (to make sure the Welsh didn’t feel left out, I suppose), Leeds, Liverpool and Birmingham.

In fact according to the Independent, each Cabinet meeting outside London really costs as much as £200,000. So thanks for the incomplete information about government waste, Tessa.

Does it matter?
One has to question why it is deemed important to spend massive amounts of public money on trying to give the impression that the Government actually cares what goes on outside London. At times like these, what really matters is that Whitehall is effective – not that it is seen to rush all round the place seeking popularity. High-profile activity is frequently a substitute for actually doing anything.

Do the Scots or Welsh really care about Cabinet meetings being held in their part of the world? I suspect that they are more interested what happens in the Scottish Parliament and Welsh Assembly, respectively. If Gordon Brown and his cronies (or to be honest, David Cameron and his) want to come to Northampton, I for one would prefer that they stay put. It is not as if they were asking real people about what we want; that is the last thing a Cabinet meeting would consider.

As ever, when it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE TAKEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

Manage your debt

The fact that the Bank of England held base rate at 5% in June should come as no surprise to anyone; the Bank is accountable for inflation and has no other weapons with which to fight it.

While it is recognised that to cut interest rates could be inflationary, it is also important to be aware that it is real people who are feeling the pinch caused by (relatively) high interest rate.

In fact, whatever rate the Bank of England sets does not always translate directly into mortgage and other consumer borrowing rates, because the banks usually lend between themselves based on the London Inter Bank Offer Rate (Libor) which is usually above base rate; recently by quite a margin.

Mortgage lending may be on the decline, along with house prices and completions, but according to Credit Action, personal debt in the UK is rising by £1 million every five minutes of the day. Secured lending on homes grew by 8.7% to £1,207 billion at the end of May 2008; consumer credit grew by 6.5% to £230 billion over the same period.

A more worrying statistic (and the last in this article, I promise) is that 123 properties are repossessed every day. That is families of real people who lose their homes.

Yet some simple steps can help you manage debt inspite of the credit crisis.

Protecting your interests
We wrote some time ago about the steps that can be taken to ensure that your credit rating is not adversely affected, but one issue we did not consider was identity theft. This can happen in a number of ways and usually only comes to the victim’s notice when unexpected items appear on their bank or credit card statement, strange bills start appearing or a legitimate loan is refused because of an apparently adverse credit rating that does not add up. In a worst case, a solicitor’s letter for a totally unknown bill could arrive.

It is vitally important to follow a few simple rules:
• Protect your personal data on the internet (always look for “https” in the address and a closed padlock) and over the telephone (never give credit or debit card details to someone you do not know);
• Shred bank/credit card statements as well as utility bills, as these can be used to create a fake identity;
• Protect passports and driving licenses; and
• Watch out for post going missing.

You may also wish to consider whether unsecured loans such as credit cards and store account cards should be moved into your mortgage. This can reduce the interest rate, but you could end up paying more in the long run, as the loan could last much longer.

Unravelling the mess of identity theft can take time and be stressful.

Protecting your family
Most people with a mortgage will have some form of life insurance that will repay the loan should they die, or in some cases, if they become critically ill. However, with economic uncertainty looming on the horizon, it is also important to ensure that you have income protection in case you should lose your job. Many schemes are set up by mortgage lenders at the start of a loan period, but these can be expensive and in some cases (particularly for the self-employed or those running their own businesses) may not provide any cover at all. Reviewing your arrangements would be a good idea.

It is important always to seek independent financial advice before making any decision regarding your finances. For further information, please contact Robert Bruce Associates on 0845 600 6080.

Personal debt

According to Credit Action, personal debt in the UK grew by £1 million every five minutes during 2007. We now owe more than £1,400 billion in the UK, based on all forms of borrowing. This is £120 billion up on a year ago.

So on average, every household now owes £56,588, including on mortgages.

This is not necessarily a bad thing, because debt involves spending on items that generate employment for others, whether we are buying goods or services. Even spending on imports can help third world countries.

But rising personal indebtedness can have potential adverse consequences for individuals and families, so thinking about debt is important.

Managing debt
Nothing in life is free … interest mounts up, especially if repayments are not made on time. Where borrowing is required it makes sense to look for the lowest cost option. Using in-store credit cards can be costly, but even if a significant discount is offered, there is no such thing as a free lunch and you will end up paying more in the long run.

Alternatives
Why not think about consolidating borrowings into secured loans, either with a bank or as part of your mortgage? This can represent a major saving in interest rates. Watch out though, as the loan is likely to be extended over a longer period, so you might be trading an immediate saving for greater overall cost.

Financial matters need to be seen "as a whole" rather than in isolation. Saving and borrowings are really two sides of the same coin; what matters is to understand how each is affected by the other and how to manage their relationship. Borrow too much early on, and the value of long term savings may be reduced.

Have your say
We would be interested to learn your experiences about managing debt in the current economic clmate. Why not add your comment below?

You should always seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact Robert Bruce Associates.