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Wealth Accumulated

Wealth Accumulated

By D J Thomas, a large-cap stock market value investor and financial writer

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value investing

Apple: the FAANG that hasn’t culled overhead. Yet.

January 22, 2023 by D J Thomas

Macbook on a wooden table
Apple did not go on the same hiring spree as other FAANGS during the 2020 lockdowns

I remember laying down next to my allotment plot slash community garden during the summer of 2020. There was literally nothing else to do. I was happy with my employer, with my work. There was no reason for me to leave or seek alternative employment. That was not the case for millions of people who began applying for roles at big tech firms with the extra time they had on their hands to re-orientate their working lives.

Amazon ended up hiring 500,000 employees in 2020, and another 310,00 in 2021 to “meet the needs of our customers while ensuring the safety of our employees… [and] investing for customers and employees during these unprecedented times”. Microsoft hired to a less aggressive extent but the real ‘winner’ was Apple who kept the same hiring rates since 2016, notching the lowest percentage increase in headcount among the FAANGS.

This week, Microsoft CEO Satya Nadella said he will be “making changes that will result in the reduction of our overall workforce by 10,000 jobs through the end of FY23 Q3.” The company will sustain a $1.2 billion charge in its Q2 earnings next week “related to severance costs, changes to our hardware portfolio, and the cost of lease consolidation as we create higher density across our workspaces.” Gotta pay off all those employees somehow. Amazon’s Doug Herrington, the company’s worldwide stores chief, said in a memo Wednesday that they will cull 18,000 employees “so we can continue investing in the wide selection, low prices, and fast shipping that our customers love.

Finally, Google and Alphabet’s CEO Sundar Pichai said he took “full responsibility” for announcing 12,000 job cuts and that the company had rapidly expanded headcount in recent years “for a different economic reality than the one we face today.” The perverse nature of capitalism means that these layoffs will prove profitable for shareholders 1-3 years from now. Traders have already jumped into these stocks on the back of them being huge winners over recent years, but the fact is that as a collective and a large component of the S&P 500, they are still repairing the damage that bloat can do to a business. It’s worth keeping an eye on their earnings in 2023 for sure.

Inflation is falling in the UK. Except for food

“Baked beans are up over 50% in a year. Tinned tomatoes from Spain, also up 50%.” Philip de Ternant, a food wholesaler sounds exasperated on the news that inflation ‘fell’ from 10.7% in November to 10.5% for December. But it’s just not food that continues to see a tsunami of price rises whilst the rest of the inflation basket trickles downwards. Airfares, hotels, restaurants. Basically, if you want to sustain yourself whilst having any fun at all, your financial masters have made it impossible.

When’s a good time to FTSE?

Early in my dating life, I would take a girl to places that had tables. That was my sole choice for the date venue. Didn’t matter if it was a pub, cafe, or restaurant. Tables were where the action was in my mind. I could work my magic charming damsels and the table was like a wingman, allowing me to draw closer, squeeze a hand, and of course play footsie. I remember one particular barman of a local who was a family friend was so impressed with my dating skills that he gave me and my girl free drinks all night. That story is in no way connected to whether or not I think the FTSE 100 is trading at a discount to intrinsic value. Which it isn’t, especially as it’s trading near all-time highs. Now is not the time to FTSE.

The Christmas high street numbers ain’t pretty

US retail sales fell 1.1% in December according to fresh data from the Commerce Department. On top of that, wholesale prices measured by the producer prices index dropped 0.5% for December, more than expected 0.1% showing signs that the US economy is slowing down. The Dow ended the day down 600 points in response. The last time PPI dropped by this amount was in April 2020 raising fresh concerns about a recession.

In the UK, December sales fell by a record 5.8% compared with December 2021 as inflation, and in particular energy costs for households have soared over the past 12 months. It’s well known that where sales growth has been recorded, consumers spending more has been down to corporations raising prices due to inflation. This is the vicious cycle that the Fed and central banks around the world want to stop. Their only weapon in this fight is higher interest rates at the risk of destablising the economy.

Stock in focus: Ferrexpo Plc

As with any stock that’s main business is the production of a commodity, the share price can see swings wilder that an Andrew Tate house party. Chill out nothing’s been proven yet. This FTSE 250 producer and exporter of high-grade iron ore pellets to the global steel industry is based in central Ukraine, which explains some of the most recent price extremes. In the fourth quarter of 2022, Ferrexpo produced 0.4 million tonnes of iron ore pellets v 3.1 million tonnes in the same quarter of 2021.

This reduction is primarily due to the loss of electrical power for the majority of the quarter, which was partially restored in late December, in addition to existing constraints relating to Russia’s invasion. As of the date of this release, the Group continues to produce iron ore pellets using one pelletiser line (out of a total of four)… Full year pellet production of 6.1 million tonnes in 2022, down 46% year on year, reflecting operational and logistical constraints throughout 2022 due to the war in Ukraine (2021: 11.2 million tonnes produced).

Trading update, 11th January 2023

I’ve chosen Ferrexpo this week to highlight the effectiveness of the value investing approach I pursue and specifically the difference between a large-cap stock going through a temporary period of unpopularity such as ExxonMobil in 2020 when the price of oil went to -$37 a barrel and Ferrexpo. Both are commodity stocks. But both face or have faced, different problems. The prolonged nature of Russia’s invasion means that Ferrexpo’s problems are not temporary therefore Ferrexpo is not ‘investment grade’, even though it has a PE Ratio of less than 5, iron ore demand (prices) has been increasing, and its earnings have been growing steadily over the past few years. When the conflict in Ukraine looks likely to end is when to revisit Ferrexpo and its prospects for a brighter future.

The best book on investing ever written

August 3, 2022 by D J Thomas

It’s a pretty bold statement: the best book ever written on stock market investing.

Thing is, I don’t even READ book reviews so I can’t see book reviews happening too often around here.

Twitter lists of top 10 books on investing, finance, or whichever subject catches my wandering attention, and buying the titles that have a habit of appearing most often is my preferred method of book shopping.

So when I do muster up the minerals to write a review, it means I’ve found a book so compelling that I have to share it with you.

Mercifully I can save you the hassle of trawling through the rest of today’s article and just put it out there: you need to buy The Intelligent Investor by Benjamin Graham.

This book is exceptional, especially if you:

  • are a bit lazy like me
  • want to understand the basis of my personal investment style
  • want the simplest low-risk and profitable investment strategy that you could ever find

That last one is a lie.

The simplest low-risk and profitable stock market investment strategy is to purchase a low-cost tracker fund every month from your wages or as a lump sum – depending on your wealth status – and keep purchasing it then leave it for 40 years.

Set and forget.

I want more CONTROL than that though, don’t you?

But not too much; remember we’re a little lazy. And that’s okay.

Don’t you want to make sense of the stock market that most people view as a giant casino?

Spoiler: the stock market IS a giant casino backed by trillions of dollars made up out of thin air.

But that’s an article for another time.

Here’s why the Intelligent Investor by Benjamin Graham is the best stock market investing book of all time

The investor’s chief problem – and even his worst enemy – is likely to be himself

Benjamin Graham

There is enough quote-worthy wisdom within the pages of The Intelligent Investor to fill a beer barrel.

It’s superb for the occasional tweet/social media post when you’re pushed for time to create content.

“The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.”

Benjamin Graham

— Wealth Accumulated (@djthomas) August 1, 2022

See what I mean? Even if you may not know what the margin of safety is. Chill.

Downsides?

It was written in 1949 with 1949 language.

It’s author, Benjamin Graham, was not only known as a superb mentor but also forhis intellectual acumen.

He would famously quote passages of Cicero .

From memory.

But it’s well worth the effort to get to grips with a transformative investment style that has helped professional fund managers and the general public, you’ll see.

Among the opulence of Graham’s guidance is his stated aim: to appeal to EVERYBODY, regardless of your station in life or financial literacy.

From the local parish priest to the multi-billion dollar fund manager.

Oh, and Graham’s strategies have stood the test of time since the book was first published in 1949.

It works. It still works. And it will continue to work, especially in developed Western financial markets.

The secret sauce of the value investing approach that Graham pioneered is a strategy for your lifetime and those of your grandchildren.

One strategy in particular called the relatively unpopular large company is a profitable, low-risk, value investing strategy that I use to this day with great success.

It appeals to both the lazy and risk-taker in me.

Perhaps it can for you.

These characteristics are suited to the value investing approach: buy stocks when they’re cheap, and sell them when they’re overvalued.

Do nothing in between.

The relatively unpopular large company

This investing strategy is about as basic and low maintenance as it gets.

You’re not asked to pour over financial statements, spend hours interpreting breaking news items from the so-called financial media or pull yourself away from the golf course.

Trigger warning: I’m assuming that you play golf, drive a Volvo, and own a labrador.

If you do then you’re winning at life.

The relatively unpopular large company is a paint-by-numbers strategy:

  • Buy only large-cap stocks
  • Buy them when they are experiencing a period of temporary unpopularity
  • Make sure you buy enough to diversify your portfolio

That’s it.

What’s more, there are different types of value investing approaches for you to choose from if you don’t like this one.

If you feel a more thorough approach to investing is your bag, then there’s one in there for you.

It just depends on how much time you’d like to spend away from the 18th hole.

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