Extreme stock market volatility last week left short-term speculators looking silly and long-term shareholders, who prefer to remain fully invested, rather glad we did so.
Bears (or pessimists) had the upper hand at first, when Trump’s global tariffs — or taxes on imports — prompted one hedge fund manager to predict “a nuclear economic winter”.
Share prices slumped when the Chinese president, Xi Jinping, retaliated by slapping tax on American imports. But then the sun came out — when Trump paused most tariffs for 90 days and share prices jumped for joy.
Never mind the generalities, Apple (stock market ticker: AAPL), the iPhone-maker that is my third-most valuable holding, and Boeing (BA) the aerospace giant, soared 14 per cent and 15 per cent respectively on Wednesday.
Even the tractor-maker Deere (DE), my biggest holding, put on a 9 per cent burst of speed that day. Meanwhile, my second-most valuable stake, McDonald’s (MCD), with its 43,000 outlets around the world, of which 93 per cent are franchises with local owners, ignored the fuss, went on flipping burgers and served up a modest 1.3 per cent share price increase. But the stock market bulls — or optimists — were back in charge.
Serious worries remain about ongoing 10 per cent tariffs on most countries’ exports to the US and collateral damage from a trade war between the world’s two biggest economies. Nobody knows what either will do next.
Here and now, I am happy I stuck to my usual habit of investing the full Isa annual allowance on the first trading day of the new tax year (on Monday) although it has already been a very bumpy ride. Even so, this long-term DIY shareholder tries to look through short-term noise and build stakes in businesses serving real needs that are likely to rise in value in future.
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For example, can you imagine a modern world without steel or copper? Me neither. Both metals are likely to be needed for construction — everything from cars, ships and trains to tower blocks — plus electrification to replace fossil fuels and drive the digital revolution.
So it is a national tragedy that British Steel is threatened with closure by its Chinese owners — yes, really — citing high energy costs. An emergency nationalisation debate was due to be held in parliament yesterday. If our last two blast furnaces at Scunthorpe do shut down they will fall victim to the same sad trend that closed Britain’s biggest fertiliser plant, on Teesside, with very little fuss two years ago. Both businesses require cheap energy.
But the long-term demand for metals and fertilisers looks robust and so I topped up my stake in the world’s biggest miner, BHP Holdings (stock market ticker: BHP). Iron ore, for making steel, is its main product, followed by copper. But BHP also hopes to begin producing enough potash next year to eventually supply a tenth of global demand for fertiliser.
For those whose chemistry is as hazy as mine, perhaps I had better explain that potash is a natural mineral formed when prehistoric seas dried up. It is hard to imagine how the world’s population of 8 billion could eat without nutrients to replenish the soil.
For the foreseeable future, fertiliser — like food — will never go out of fashion. So, last Monday, when every single share price in the FTSE 100 index had fallen on trade war fears, I paid £16.65 per share for BHP in the hope it could continue to yield dividend income of 5.6 per cent. They fetched £17.11 at close of trade on Friday.
More importantly, high-yielding BHP provides diversification in a 50-stock portfolio led by low-yielders such as Apple. While the past is not necessarily a guide to the future, I also draw comfort from the fact BHP has survived since 1885.
So this old boy, who might have to live off the income from his investments soon, decided to allocate most of his £20,000 Isa allowance to the dividend machine that is BHP. Similar reasoning led me to invest the rest in topping up another existing holding, the pharmaceutical giant Pfizer (PFE).
Despite yielding 7.6 per cent income that increased by an annual average of 3.1 per cent over the last five years, PFE is unloved and unlucky. This business is hated by people who fear vaccines more than viruses.
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Pfizer has also been hurt by allegations, which it denies, that it delayed announcing its Covid jab authorisation until after Trump lost the presidential election in 2020. Daft though that sounds, this row may have played a part in the re-elected Trump appointing Robert F Kennedy Jr as health secretary.
Kennedy has recently softened his line on vaccines, since more than 600 Americans have fallen ill with measles. This disease was declared to be eradicated in that country 25 years ago, but recently caused the deaths of two people, the most recent last week.
Once again, I have no idea what will happen in the short term but I suspect Pfizer’s medicines will remain in demand for many years to come. Bear in mind that this business was founded in 1849, so it traded through the American Civil War, the Great Depression and both world wars, among other setbacks.
More recently, this small investor has survived five stock market crashes since I began work as a City reporter on Fleet Street in 1986. By far the worst was the first, in 1987, when the Footsie fell 22 per cent in two days but actually ended the year marginally higher than it began.
Trump’s about-turn on tariffs is a brutal example of how time invested in the stock market is a surer way to build wealth than attempting to time it. Or as City cynics used to say, bears sound clever but bulls make money.
Adidas could have a sporting edge
The share price of Adidas (ADS), the German sports shoemaker, tripped up and fell 10 per cent on the first day that China hit back at America on tariffs. As if to demonstrate how intertwined international commerce can be, Adidas makes 39 per cent of its trainers in Vietnam, whose exports to America were subject to 46 per cent taxes.
Those extra costs would have been bad for business, although might now be negotiated down. However, Adidas raises slightly less than 22 per cent of its global revenues in North America. By contrast, its bigger rival — Nike (NKE) — makes about half its trainers in Vietnam and, although not strictly comparable, 43 per cent of its global revenues arise in America.
So, while any extra tax is still a handicap, Adidas should be relatively less disadvantaged than its American rival Nike. The business of selling football shirts to Arsenal fans remains highly profitable and, from August, Liverpool FC will join its closest rival in buying kit from Adidas because it has sent off Nike. So fans of the top two Premier League clubs will soon be wearing kit made by the same company.
LSEG — formerly known as the London Stock Exchange Group — calculates that Adidas enjoys a gross profit margin of 51 per cent. That’s why I paid €193 on Monday for Adidas shares that cost €197 on Friday.
Having originally paid €61 for this stock in July 2014, as reported here at that time, I have no intention of leaving before the final whistle. As this week demonstrated, investment is a game of two halves.
£16.65: the price Cowie paid on Monday for BHP shares that cost £17.11 on Friday.
