While EU leaders have had opportunities to run a tightly-regulated ship, I reckon one of the potentially most calamitous mistakes was fudging the rules to allow Italy to remain a core part of the euro, despite that country’s inept fiscal state.

The Italian farce is raising its head again, as political machinations are badly hitting the continent’s stock markets. With the ongoing power struggle between populist eurosceptics who did well in March’s election and the incumbent pro-EU parties failing to make much headway, it looks like we could be in for fresh elections in September.

Italy’s debt stands at around 130% of its GDP, and that soars over France’s still-high level of around 96% and dwarf’s Germany’s mere 68%. Do those sound like three countries that can comfortably share a currency and common banking rules? Hmm.

There’s been a bit of a panic sell-off of Italian debt on Tuesday, which the head of Italian bank UniCredit has described as unjustified (well he would say that, wouldn’t he?) And that’s led investors to fear for the health of Italian banks, with share prices of a number of them tumbling.

Markets falling

The Italian FTSE MIB index is down 2.4% as I write, with France’s CAC 40 down 1.2% and Germany’s DAX down 1%. And even the FTSE 100 has lost 1.2%. Those aren’t massive falls just yet, but they could presage a worse downturn if investors’ biggest fears should be realised.

And those fears, surely, must be of a populist attempt for Italy to quit the euro. It’s probably unlikely to happen, but even a growing anti-euro movement based on the rejection of EU-led austerity could deepen a longer-term north-south divide within the EU.

The possibility of that scenario is already pushing some investors away from euro risk, and European markets could be in for a few shaky months ahead of the likely new Italian elections.

What should we do as private investors? The obvious thing is don’t panic. Next, think back to what the Greek crisis did for us, and which Brexit then massively eclipsed. Brexit gave investors some great bargains, especially in the banking and finance sectors.

Shares in Lloyds Banking Group plummeted when the referendum result was known, but investors who took advantage of it have enjoyed a 19% gain since that date, plus bigger effective dividend yields through buying when the shares were being punished.

And Lloyds has been a relatively poor performer, with Barclays shares up 44% since that Brexit date (albeit without the big dividends). And Royal Bank of Scotland shares have soared by 64%.

I reckon continuing political uncertainty in Italy is likely to put downward pressure on banking shares again, including British ones. In fact, they’ve all lost ground on Tuesday — Barclays down 2.2%, Lloyds down 1.6%, RBS down 2.5%, and even HSBC Holdings shares have fallen 1.2%.

And other than finance stocks, I say we should just keep on buying shares in top UK companies to help fund our retirements, and thank the Italians for helping push prices down a bit for us.

The post What should investors do as Italian crisis sends euro stock markets crashing? appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Better together?

Indeed, only yesterday The International Monetary Fund, one of the pillars of the global economic order, charged with overseeing the international monetary and financial system, waded into the debate.

In short, the organisation believes that if the 23 June referendum in the UK were to produce a vote in favour of leaving the EU, it would expect negotiations on post-exit arrangements to be protracted. This, it warned “could weigh heavily on confidence and investment, all the while increasing financial market volatility“.

Additionally, the IMF felt that a UK exit from the EU would “disrupt and reduce mutual trade and financial flows” and restrict benefits from economic co-operation and integration, such as those resulting from economies of scale.

However, the Fund said that domestic demand, boosted by lower energy prices and a buoyant property market, would help to offset the impact on UK growth ahead of the EU referendum.

With all of this uncertainty in the public domain, like it or not, as an investor I couldn’t be more aware of the potential impact that the build-up to the referendum could have on stock markets as the day of reckoning approaches. After all. Mr Market hates uncertainty.

Sell in May?

Selling in May and going away can be used as an investment strategy for stocks or indices based on the theory that the period from November to April inclusive has significantly stronger growth on average than the other months of the year.

In such strategies, holdings are sold at the start of May and the proceeds held in cash before buying again in the autumn, typically around November time.

However, as we saw in 2015 with the General election approaching in the UK, there were many sectors such as utilities and housebuilders that were under pressure. Investors were uncertain of the outcome of the election and the potential impact of differences in policies such as the mansion tax. Of course, when the Conservatives won an overall majority, these sectors bounced back strongly.

Turning to the chart below, it’s quite clear that the best thing to have done in May 2015 was to have sold the FTSE 100 as it breached 7,000 points and to have stayed out of the market completely. The market has slipped steadily, even entering bear market territory in the first quarter.

And although we’ve seen a recovery of sorts with the price of oil now well off its lows, I still think that there’s plenty of potential to worry investors going forward, the impact of which could well be amplified in such a nervous market.

Will you grow richer in 2016?

So it could well be wise to take some money off of the table as we approach 23 June. However, with uncertainty comes opportunity, and as investors we should be ready to pounce on the right opportunities as they arise.

The post Why You Should Sell The FTSE 100 In May And Go Away appeared first on The Twelfth Magpie.

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• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

In fact, they have been a strong performer in recent months, increasing in value by 8% in the last year, versus a flat FTSE 100. A key reason for this appears to be that investors are beginning to factor in an improved period for the company, with the Eurozone economy likely to enjoy better growth in the next five years than it has in the last five.

A crucial part of this is the single-currency region’s adoption of a looser monetary policy, with the ECB stating that its quantitative easing programme has room to significantly expand. This, alongside a near-zero interest rate, should mean that the performance of the economy picks up and benefits European-focused stocks such as Vodafone.

Furthermore, Vodafone’s strategy of investing in its infrastructure appears to be a sound strategy that positions the company for future growth. In fact, Vodafone is investing around £19bn in its network between 2014 and 2016 and this should mean that it has a highly efficient fixed and mobile network that provides its customers with a unified communication offering. This means that the 20% rise in earnings which is forecast for next year could prove to be longer lived than the market currently anticipates.

Meanwhile, Vodafone continues to be an excellent income play. It yields a very impressive 5.5% and has a superb track record of dividend per share growth, with it having risen at an annualised rate of over 5% during the last five years. And, with Vodafone having a relatively stable business model, additional dividend rises are likely to take place over the medium to long term, not least because, as mentioned, its bottom line is due to rise.

A potential catalyst to boost Vodafone’s total return even further is the scope for additional acquisitions, with the company’s aim being to buy undervalued assets which offer strong cash flow and growth potential. With the European economy now seemingly on a more stable footing than in previous years, it would be of little surprise for Vodafone to engage in further M&A activity in the region. That’s especially the case since it has only a modestly leveraged balance sheet which could accommodate further debt, as well as relatively resilient cash flow.

Of course, Vodafone’s decision to sell its 45% stake in Verizon Wireless in 2014 may have caused investors to worry about its potential overexposure to Europe. However, its strategy to add value while asset prices are low in the single-currency region now seems to be on the cusp of delivering improved financial performance.

With a high yield and growth potential, Vodafone’s total return could be relatively high moving forward, thereby making it a strong buy for long term investors.

The post 1 Big Reason To Buy Vodafone Group plc! appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Vodafone. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

With the FTSE in one of its worst periods of stagnation for some years, and still below 2007’s pre-banking-crash peak, I can see the attraction — and I’ve even done it myself in my younger days, doing not very well at all investing in emerging market funds and the like. But I reckon it’s almost always a bad idea to invest in markets outside of the UK, with the exception of America’s NYSE and NASDAQ.

China my China

China was the latest darling, and sure enough the Shanghai Composite index more than doubled from a year ago to June’s peak. But it was a manipulated boom, with Chinese state organisations obliged to buy shares and the government talking it up at every opportunity. And trusting Chinese private investors, sadly, piled in without really understanding valuations, often with seriously high gearing.

The crash since then has wiped 40% off the index’s value, all apparently due to foreign forces intentionally unsettling the market if you believe the Chinese authorities, and not down to the bumbling incompetents who thought they could buck the market.

No, if you’re going to invest in a stock market, it really needs to be a free-market one. And for me, the Chinese tale also rules out all the other emerging markets in the world — few are as openly political as China’s, but oversight and regulation is usually woeful at best (and corrupt at worst) compared to the developed markets of the world.

Eurotrash

What about the bourses of the eurozone? Well, the big problem with those (and I’ve already provided the clue) is that they’re in the eurozone. By its very nature, its business environment cannot match the free market ones of the world. The eurozone is run for political ends and not economic ends, and its economic levers cannot possibly be adjusted correctly for business across the zone.

I still reckon it’s doomed in the long run, but while the eurozone lives, it’s fated to underperform the world’s free markets.

Other than an important exception, the UK and US markets are the freest and best regulated in the world, and they’re home to the only indexes I’d ever directly invest on today — the FTSE, the NYSE and the NASDAQ. The exception? That’s AIM, whose history is a litany of failing to enforce even its own woefully inadequate regulation and allowing fraudulent companies to rip off investors for years — and the LSE’s courting of Chinese companies and trying to get them to list on AIM is shameful.

Home sweet home

If you want serious overseas exposure (and you really know what you’re doing), there are surely enough Investment Trusts and ETFs listed on the FTSE to cover most requirements, though most emerging situations would still be in bargepole territory for me. Other than that, the companies listed on the FTSE 100 provide all the foreign risk a long-term Fool would ever want, don’t they?

The post Here’s Why The FTSE 100 And US Markets Are The Best appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

What it means in the short term is that Greece should get a new €86bn injection over three years, and will be able to repay the €3.2bn that’s due by 20 August. But will it signal success in the longer term?

One of the key points of contention between Greece and the EU has been the country’s failure to make sufficient headway with its privatisation plans — €50bn was supposed to have been raised from the sell-off of state-owned assets by 2015, but nothing close to that has been achieved. That target has now been reset, to be achieved over the life of the new bailout loan, with the key difference that the sale will now be managed by an independent fund with a degree of EU oversight.

Don’t be fooled

But if you believe this is the turnaround point for the Hellenic Republic and that a rosy future is now assured, think again — at best, it’s only just the start of a very painful road back to economic health.

For one thing, the EU has been revising its economic forecast for Greece, and until the recent crisis it was actually forecasting growth! Now, horrors, the EU admits that Greece might even be back in recession. Of course Greece is in recession, and it’s going to be a hard one — that much is obvious to anyone who can see beyond the stream of deluded gobbledegook that pours out of Brussels.

Greece is now allowed to run a deficit this year (as if it had any alternative), but must target a surplus of 3.5% by 2018 and then sustain it. I’ll repeat that — a sustainable surplus of 3.5%, by 2018. Is there anyone in their right mind reading this who thinks there’s any chance of that happening?

Then there’s the level of Greece’s debt, which is expected to represent around 200% of GDP over the next couple of years. That can simply never be repaid, even though Germany (the country that has benefited from by far the largest amount of debt forgiveness in Europe over the past 100 years) insists on getting every last eurocent back.

Demands like that would condemn generations of Greeks to lives of penury, and it is unreasonable to expect the country to just suck it up while they see their richer Northern neighbours exploiting the eurozone for their own benefits.

More fudge

No, it has been fudged yet again, and unless there are material changes to Greece’s debt (which means writing off a large chunk of it, in whatever face-saving way the EU wants to word it), in another few years we’ll be right back here again with exactly the same crisis unchanged. And that will put yet more pressure on the eurozone — we’ve even started to see divisions between Germany and France over the latest crisis, and they can surely only widen if Germany continues to live its fantasy.

I still reckon it’s only a matter of time before the eurozone is rightfully consigned to history, but the real injustice is that Greece is having to suffer the pain of its death throes.

The post Is It Third-Time Lucky For Greece? appeared first on The Twelfth Magpie.

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Fortune favours the brave, however, so how tough are you feeling right now?

Because if you are feeling bold, now would be a good time to play the game by seizing the opportunity to pick up stocks at panic prices.

Lucky Dip?

After news broke on Sunday that Athens was shutting down banks and imposing credit controls, the FTSE 100 was only going one way this morning.

And so it proved, instantly falling almost 2%, although it has since steadied at around 6650 at the time of writing.

The index has now fallen 6.7% since peaking at 7122 in April. Investors who prefer to buy on the dips rather than the peaks will see that as a positive signal.

But are there more dips to come?

Greek Tragedy

With a referendum to come this Sunday on 5 July, European equities face a week of worry, as does the UK stock market.

This isn’t the time to sell, however. If you are investing for the long term, you can afford to look far beyond short-term disruptions like these.

Wise investors have been expecting this for months if not years, and despite today’s drops, markets are actually relatively calm.

Greece, after all, accounts for just 2% of European GDP.

This may be a heart-wrenching tragedy for the Greeks, but it isn’t the end of the world.

Blast Off

The big worry is whether “Grexit” will be contained or spark contagion across Europe.

If Greece goes, markets could turn their attention to other troubled states, such as Portugal and Italy.

But I suspect that, unlike black sheep Greece, the European Central Bank will defend them to the last ditch.

President Mario Draghi won his remit to hose down the eurozone with QE for exactly this reason: he has the power to blast Europe off the rocks with hot money if need be.

Steady, Aim, Fire

Investors have a lot more to worry about, such as the Chinese stock market correction and the prospect of a US interest rate hike as early as September.

Perversely, our sea of troubles could prove good news for stock markets, by persuading central bankers to stick with monetary easing for even longer.

If you can screw up your courage, now could be a great opportunity to top up your favourite stocks.

Just don’t blaze away and expend all your ammunition in one go, Grexit uncertainty will only intensify in the run-up to Sunday.

And knowing Greece, it will continue next week and beyond.

The post The Greek Endgame Is Here: Are You Playing? appeared first on The Twelfth Magpie.

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Despite this, several shares on my buy list have lurched lower today, making now a good time to take a closer look.

Standard Chartered

Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) is focused on Asia, Africa and the Middle East. In my view it is the bank that’s least likely to be affected if Greece defaults on its debts and is ejected from the Euro.

Despite this, Standard Chartered shares have fallen by nearly 3% today, and trade on a 2015 forecast P/E of only 12.

Against this backdrop, Bill Winters, the bank’s new chief executive, is taking decisive action to strip out unnecessary layers of management and cut costs.

According to a recent report in the FT, Mr Winters is also planning to “update, centralise and harmonise the bank’s technology and compliance functions”. What this should mean, in my view, is that Standard Chartered is able to improve its regulatory and spend less doing it.

Mr Winters may yet decide that Standard Chartered needs to raise some fresh cash, but this risk is already reflected in the share price in my view.

Standard Chartered is down by almost 50% from a 2010 high of 1,950p, and trading in-line with its tangible book value. For me, it’s a strong buy.

Hunting

Oil services provider Hunting (LSE: HTG) is heavily exposed to the US shale market, in addition to its activities elsewhere.

At the start of this year, this exposure to the US market was a big concern for investors, who expected the shale market to collapse. However, shale oil production has turned out to be more resilient at lower oil prices than expected.

Although Hunting’s full-year profit is expected to be almost 50% lower than last year, the firm appears well positioned for a medium-term recovery and has made big cuts of its own by reducing headcount by 20%.

Hunting currently trades on 15 times its average earnings from the last four years. That doesn’t seem excessive to me, given the company’s low debt levels and strong track record of growth.

I think Hunting shares remain a decent buy on any short-term weakness.

Unilever

Consumer goods giant Unilever (LSE: ULVR) (NYSE: UL.US) slipped 2% lower today, perhaps because much of its business is carried out in euros, which is also the company’s reporting currency.

As we saw last year, a weak euro can eat into Unilever’s profits.

However, as a long-term investment, I believe Unilever remains very attractive. Earnings per share have risen by an average of 4.2% since 2010 and the firm’s dividend has risen by an average of 6.3% per year over the same period.

Unilever does have a moderately high level of debt, but the cost of this is quite low. For example, Unilever recently borrowed €1.25 billion for 3-8 years at an interest rate of just 1%. That’s cheaper than some European countries can borrow money.

Unilever shares are now down by 10% from their 52-week high and offer a 3.2% prospective yield. That’s close to the FTSE 100 average of 3.5%, but with better growth prospects, in my opinion.

The post 3 Grexit Fallers To Buy Today: Standard Chartered PLC, Unilever plc & Hunting plc appeared first on The Twelfth Magpie.

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Roland Head owns shares in Standard Chartered and Unilever. The Motley Fool UK owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

A Weak Eurozone

Of course, staying in the EU may be viewed as the ‘safe’ option by many people and, as such, the US and many other countries across the globe seem to be keen on that idea. They may argue that since the UK has been part of the EU for a number of years, keeping the status quo is unlikely to cause too much upheaval and is unlikely to mean falling employment, declining demand for UK exports and reduced inward investment into the UK. And, in the short run, this is likely to be the case, since investors, business people and people in general do not like sudden change.

However, looking a little further down the line, remaining part of the EU is a huge gamble. That’s because most of its participants are in the single-currency region, which is a very imperfect system. Evidence of this is widespread; the economic performance of the Eurozone has been disastrous in recent years, economic growth is still extremely slow, employment levels are relatively low and even a major quantitative easing programme launched by the ECB may not be enough to push Europe towards economic prosperity.

Certainly, the question is whether the UK should remain part of the EU, not join the Euro. However, by remaining part of a system that, from an economic perspective, does not appear to work (and, ultimately, may never work) could compromise the UK’s long-term economic growth profile.

A Known Unknown

Of course, leaving the EU will almost certainly mean major upheaval, uncertainty and, quite possibly, fear among investors, businesses and the wider public. As such, it is viewed by many as the riskier option, with it being unclear exactly what the UK’s relationship with the EU would be. For example, would we have a loose manufacturing, but not financial services, agreement with the EU (as Turkey does), or would we sign up to the European Economic Area (as Norway does) and, to all intents and purposes, have a very similar arrangement as that at present, with a subsidy still being payable for access to the single market?

Clearly, these questions will be answered in due course. However, in the short run, the UK leaving the EU could cause a sharp deterioration in the macroeconomic outlook and cause the UK to experience another recession. This would likely be caused by fear for not only the UK economy and its future performance, but also for the outlook for the EU, too, which would essentially be losing one of its three most powerful economies.

As for the long term performance of the UK economy, we simply do not know what the full impact of leaving the EU will be. Various studies have said that the impact will be negligible, others have said we could see a 10% fall in GDP. Ultimately, though, there is no precedent for such a major change and so there is no comparator from which to base future forecasts and expectations. Indeed, much of its impact will be decided by the terms agreed with the EU upon exiting the union, which will take place after the vote. Punitive terms would clearly be bad for the UK’s long-term economic performance, while more accommodative ones may not be such a bad thing in the long run.

Looking Ahead

So, while the referendum may appear to represent a clear choice, it is rather akin to making a bet on a horse race. Do you stick with a disappointing performer which has a long and proud history of race wins, but that has lost its way in recent years? Or, do you twist and go for a new runner with no track record and which none of the other jockeys are too keen to back? Ultimately, the decision is ours and, in reality, nobody really knows the answer.

The post Would A UK Exit From The EU Cause ‘Credit Crunch Part 2’? appeared first on The Twelfth Magpie.

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There are no bones about it: clearly, Greece is insolvent and, arguably, needs to default. Only then can it move forward. By prolonging the pain, it is not doing anyone any favours; indeed, in the end, it seems to be simply putting off the inevitable… how long can the can be kicked down the road?

Some might say that the market has priced this eventuality in. I suspect that is not the case: I wouldn’t be surprised to see plenty of volatility as events unfold. I wouldn’t rule out a market rally whichever way things turn out. One thing is clear, however: the sooner the situation is resolved, the sooner the market can move on to worrying about something else.

Whilst all this noise can be deafening at times, it is sometimes useful to seek out some defensive plays that can offer some protection to your portfolio. As it happens, I have three suggestions that I think fit the bill:

GlaxoSmithKline

GlaxoSmithKline (LSE: GSK) is currently in the process of working through the Novartis deal announced last year.

Mr Market is currently a little uncertain regarding the strategic review coupled with the fact that the dividend is being held at 80p per share over the next three years. Additionally, the proposed return to shareholders of £4 billion of proceeds from the Novartis transaction was reduced to £1 billion. This will be paid in the fourth quarter along with the final dividend. Whilst this creates more breathing room for the company, the market was disappointed by the news.

At current prices, though, investors know that they have a rather safe 6%+ yield for the next three years.

That’s not a bad return whilst we wait for the strategic review to work through the company. Whilst some might argue that the lack of growth makes Glaxo unattractive, I believe that dividend growth could well resume in 2017 should the company’s strategy play out as expected — it should be in a stronger financial position, allowing it to resume growing the dividend.

Going forward, the company intends to target emerging markets for much of the company’s growth, with an increased focus on vaccines and consumer healthcare. Helpfully, the vaccines business grew sales by 10% and revenue is forecast to grow at a CAGR (compound annual growth rate) of mid-to-high single digits out to 2020. This is an area the firm has invested in increased manufacturing capacity in anticipation of strong demand for its products.

National Grid

Another mega-cap, seemingly in the doldrums, is National Grid (LSE: NG). The shares seem to have suffered following a number of brokers maintaining their neutral stance after the company announced its final results in May. I believe that the fall has been overdone, and the shares are currently changing hands on a forward PE ratio of a little over 14 times earnings and forecast to yield over 5%

Personally, I think investors should note the defensive qualities of the sector – after all, householders and businesses need to keep the lights on and the country’s ageing infrastructure needs to be updated. While energy suppliers need to remain competitive to avoid excessive customer churn, National Grid knows that it will be getting paid by whoever supplies the gas or electricity that runs through its infrastructure.

Last But Not Least…

Sometimes investors need to hold their nose before investing in some sectors. For some, British American Tobacco (LSE: BATS) is one of those investments.

If, however, you can bring yourself to take a look at this company and its metrics, you may be surprised at what you get for your money.

This company boasts excellent quality metrics:

• ROCE = 26.1%;
• ROE = 51.3%;
• Operating margin = 32.5%.

Personally, I think that the shares priced at around 16 times forward earnings and yielding over 4% are at least worth a second look. Like them or loathe them, they have defensive qualities and quality metrics that many listed companies can only dream of.

Final Thought.

If I’m honest, I think that investing based on the ever-changing macro picture can be a costly game: one should try to look for stocks of good companies trading on reasonable valuations, rather than worry about which way Greece will go in the short term.  Instead of trying to second-guess the market, try to pick companies that allow you to sleep at night.

The post 3 Defensive Bargains To Protect You From A Greek Exit: National Grid Plc, GlaxoSmithKline Plc & British American Tobacco Plc appeared first on The Twelfth Magpie.

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Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

What is QE?

QE is simply a central bank putting some big numbers into a computer and buying government bonds.  As is the case when you take medication, there are side effects: from here, we should see asset prices rise as investors search for a better return than they are receiving on bonds; the Euro should weaken against other currencies, making European exports more attractive; and the banks should lend more to businesses.  As a result, the economy should grow and wealth should trickle down through the cracks into the masses.

Sadly, QE can often simply have the effect of making the select few rich.  Indeed, in his recent blog post ‘QE in an unequal world’, Neil Woodford presents a chart that shows the percentage of global wealth held by the top 1%  It currently stands at almost 50%  This figure has been rising since the low in 2009.

Sticking to fundamentals

In his blog, he argues that there are several reasons to be cautious:

“Firstly, past performance is not necessarily a guide to the future and there is good reason to believe that risk assets may ultimately behave differently this time.”

This statement is based on the fact that asset prices are not trading at low valuations, as was the case in 2009, and are much more ‘fully valued’ now.  Indeed, he argues “it is much more difficult for markets to move materially higher”, with asset prices at risk of earnings downgrades, and global stock markets are “pregnant with risk.”

Whilst indices have many constituents, I think he has a point and one should tread carefully, not getting carried away with the mood of the market — remember, the tide can raise all boats.  As we know, this can turn on a dime!

Still uncertainty with Greece

Whilst we currently have some breathing space, this issue is far from being put to bed.  Indeed, there will need to be further talks.  Woodford commented:

“Even if negotiations do conclude successfully, it is difficult to see how a compromise can provide a permanent solution to Greece’s problems whilst keeping the Germans happy at the same time.”

I think my main concern would be the fact that if Greece did exit, it could open the door for other indebted nations to follow suit.  Whether that happened or not, the fear of this event would cause panic in the markets.  I wouldn’t want to be holding an hyped-up stock — or index — in those circumstances.

The way forward

Whilst I don’t know Neil Woodford, I have read many of his interviews and I think that it is fair to say that his view on assets hasn’t changed.  He notes that: “I remain focused on identifying attractively valued businesses that I believe are capable of delivering long-term returns in spite of all the headwinds.”

I think that he should be commended for this, an approach that he has stuck to for as long as I have been following him.  Indeed, I try to look past the daily goings-on in the markets and, like Mr Woodford, I try to identify companies that should continue to prosper whatever the weather and share their profits with me with increasing dividends and share buybacks.

The post Why Neil Woodford Will Be Sticking To Fundamentals Despite QE In Europe appeared first on The Twelfth Magpie.

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