10 things I found interesting this week

The title says it all so I’ll just jump right into the list:

  1. Is it time to buy GlaxoSmithKline? (There’s Value)
  2. [VIDEO] Social class in the 21st century (London School of Economics) (if you want to see the slides you’ll have to download them and manually sync the video and the slides)
  3. Emerging markets are cheap (This is Money) (includes list of CAPE ratios for countries)
  4. UK population growth: Implications for investors (ShareSoc)
  5. Beware the scammers who claim to be from Talk Talk (This is Money)
  6. What is the equity risk premium (Monevator)
  7. [VIDEO] Two talks by John Kay about Other People’s Money (John Kay)
  8. 101 Dividend investing tips from the experts (Dividend Reference)
  9. What I learned from value investor Guy Spier (Guru Focus)
  10. The most important podcast with Howard Marks (Brewin Dolphin)

Author: John Kingham

I cover both the theory and practice of investing in high-quality UK dividend stocks for long-term income and growth.

12 thoughts on “10 things I found interesting this week”

  1. Thanks for the mention John.

    Mostly, thanks for the link to the emerging markets are cheap article. I was just looking over my SIPP earlier today and looking at where to put this month’s contribution, as I got rid of my emerging markets exposure back when it was still flying high – lucky me, I also timed the market somewhat well, for once! I was thinking about buying back in during the rocky times of August and September, but I thought it was just too volatile. Now that things have calmed down a bit, I agree with Simon Lambert:

    ‘Over the short-term things look rocky – there’s a good chance of a slip into the red – but the long-term looks promising.
    Perhaps it’s time I tucked a decent emerging markets investment trust away somewhere I can’t check up on it.’


  2. “I’m not a huge fan of the pharma industry, and by that I mean the drug manufacturers, rather than companies like Reckitt Benckiser or Johnson & Johnson who are ancillary healthcare companies”

    I’d be a little wary of this statement, since J&J’s biggest investment activity right now is pharmaceuticals and this is highlighted in their recent annual report.
    Also whilst Glaxo is considered cheap, it’s dividend is not covered (perhaps in the short term by cash flow yes), perhaps it’s cheap for a reason.
    The recent statement by Andrew Witty after the sale of the oncology division to Novartis was naive in the extreme, almost indicating that Novartis were somewhat foolish to buy up what he stated as old technology. Not exactly an endearing statement towards Novartis, and possibly leaving himself open to litigation.
    Glaxo have not done well under Witty’s stewardship and it’s difficult to see where the top line growth is coming from.

    Maybe their only hope is a break up or sale outright.

    Interesting also that Terry Smith ripped their accounting practices apart by highlighting the disingenuous way that the accounts refer to core earnings, when things like litigation and several other “one off” items in the accounts have a growing habit of being errr – well, not “one-offs”. The real P/E of Glaxo and Astra Zeneca are much higher than reported.

    Having said that, Terry is also a little disingenuous in stating he doesn’t invest in big pharma, as Johnson & Johnson is in his top 10.


    1. Hi LR, I find Glaxo interesting because it’s such a big holding for a lot of income-focused funds (including a certain Mr Woodford who is apparently nudging for a break-up of some sort).

      I do hold Glaxo but I wouldn’t be surprised at all if there was a dividend cut as revenues and earnings have gone nowhere for years while the dividend has kept going up and up. That is of course unsustainable, so perhaps a dividend cut, a new CEO and a much more aggressive shake up is just what the doctor ordered.

    2. Re JNJ – in terms of revenues, the pharma segment of JNJ has been growing over the last 5 years, that’s true. In 2014 it overtook their medical devices segment by a few billion so it is roughly $27bn medical devices, $32bn pharma, and $15bn consumer healthcare.

      1. Hi Value, re JNJ, the numbers are correct for 2014, which historically gives 43% of the company for Pharma. Going forward, the lions share of the investment in R&D is going to Pharmaceuticals where JNJ is already the 6th largest in the world – so on an absolute scale basis it carries more risk than many independent pharma companies.

        The medical devices division (Cordis – expected $2bn), is struggling and is up for sale, this following on from the recent sale earlier last year of its blood-testing unit, called Ortho-Clinical Diagnostics, for $4.15 billion to private-equity firm Carlyle Group LP

        Only 20% of the company is focussed on consumer health and is expected to shrink further. JNJ had a dip in it’s share price to $81 reflecting the risks in the declining medical devices divisions and the potentially significant litigation under way for this division – it has recovered, surprisingly, back above $100.

        JNJ is heading more toward a pure play pharma company, which is completely the opposite of RB which has moved away from more of it’s risk based pharmaceuticals with recent divestitures. This process started some time back with the JNJ’s sale of KY brand to RB.

  3. Emerging Markets are cheap!!

    Are they?
    Given that during the last 10 years they have been borrowing loans linked to the US dollar, they are all suffering not only from the slow down in their end markets, including China, but their currencies are collapsing or have collapsed endangering the very existence of many of the companies who may never be able to service their $US linked loans.

    Is it possible to make a sensible and considered investment in a “market”, which is essentially a scatter gun approach to investing – somewhat blindly as it’s impossible to understand the finances of all constituents of an ETF or high charging Fund for example? Perhaps this is not really investing but akin to having a punt on the horses.

    Is it not far better to make an investment in a known company, with a known track record, asset base, debt knowledge and an understanding of the strength of it’s product, competition and hold on particular IP?

    1. Hi LR,

      It depends on what you mean by investing.

      In the article Simon Lambert is talking about emerging market (EM) funds rather than individual companies and is using CAPE as the valuation tool of choice. He has two EM funds that make up 6% of his portfolio and is thinking about tilting his portfolio towards EM because of the low valuations. So for example he might buy into another EM fund and take his exposure there to 10% or 15%. I think that’s an entirely sensible approach and is a reasonable definition of investing.

      As for investing in individual companies on an EM-listed exchange, that would indeed be much more like gambling. But then again investing and having a punt on the horses are not that far apart as they both involve potential gains and losses based on an uncertain and largely unpredictable future. At least with investing a sensible plan should produce good returns over the long-run whereas I don’t think the same can be said of gambling!

      And your final point on sticking with known companies with known track records, etc: I couldn’t agree more.

  4. “But again the UK benefits to some extent because a lot of migrants are young and also they have a higher birth rate than the rest of the population.”

    Is this really a benefit, given the move to mechanisation and robotics?
    Millions of people already live in a negative equity type scenario in the UK. Not negative equity on their house ownership, but in their real net contribution. These millions all earn less than it costs to live, service their housing, healthcare, education and huge welfare costs.

    This is true, otherwise we would not have a tax credit system.
    The UK is borrowing £100Bn – 150Bn a year more than it collects in taxes. This means that the UK is growing it’s debt (currently £1.5 Trillion) at approx 7% a year. Simple exponential theory indicates that the debt will therefore double every 10 years and in that 10 year period the amount of additional debt accrued is more than all the cumulative debt taken on since the first government started to borrow.

    I’d argue that the net effect could be very different than the general assumption that growing populations make countries richer. After all GDP is rather a course measurement of wealth generation. Consider this — 1. I mow your lawn when you go on holiday and you do the same for me when I vacate – we both agree to do this for free so no increase in GDP. 2. We both then agree to charge each other £10 — net effect GDP rises by £20. Are we any richer?

    1. I’m not sure it’s reasonable to just extrapolate the current deficit out to infinity, or even ten years! I would say wait for ten years and see where we are then.

      More generally, Roger was talking about increasing population being good for certain sectors that would benefit from a rising population, and infrastructure as well, with the downside being packed roads and trains, apparently. So population growth can be good for certain businesses and certain investors, even if not for the population as a whole.

      Personally I think it’s barmy to want the population to keep growing, especially if you want (or if an economic model needs) it to grow exponentially, i.e. at a particular percentage. Even 1% growth means a doubling ever 72 years. It reminds me of the quote about economists, indefinite growth and a finite planet.

  5. “I’m not sure it’s reasonable to just extrapolate the current deficit out to infinity, or even ten years! I would say wait for ten years and see where we are then.”

    Hi John, Fair point, but given the last 10 years has been a failure on this, I see nothing (and I mean nothing) that indicates the UK’s government spending will decline — in fact it looks like it will increase with rising populations demanding more housing benefit, health care spending and education costs – the latter two are somewhat ringfenced.

    Look at the attempt to cut $4bn tax credits from the $350BN welfare budget was a failure, blocked by the Lords in coalition even with Cameron’s own party members. This was an attempt at a tiny relative cut of 1.1% of the welfare budget.

    Neither political party has the power or the will to change this — only a default or a fall in sterling will make these cuts a reality.

    If anything I see the deficit and the debt rising and possibly faster than the last 10 years.

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