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Independent view

It is amazing how a bear market and a couple of reports can completely change the industry&#39s priorities. There has never been any doubt in my mind that the most important thing in any wholesaling or manufacturing business is the quality and coverage of those manufacturers&#39 retailers.

I suspect the distance and the amount of broken glass across which Heinz, Unilever and Procter & Gamble have to crawl to get to the Sainsbury and Tesco buyer is considerably longer and more hazardous than that which Norwich Union (or should I call it Aviva) has to crawl to get to the Misys panel.

However, I do not see Unilever and Procter & Gamble paying stupid money to buy an overvalued stake in William Morrison supermarkets. I suppose I could forgive many of the straight out of university bright young management trainees putting forward the wisdom of these stakes as they were only in their early teens when their bosses made the mistake over the estate agents.

What really surprises me is that the life companies have not learnt that there are only three things that matter in investment – profit, profit and profit. When I see life com-panies chucking millions of pounds at dotcom businesses (yes, honestly) only two years after it was categorically proved that you do not value a business on a multiple of how fast they can spend the shareholders&#39 funds (known as burn rate) they are chucking even more astronomic sums at untried, untested, unproven dotcom businesses presumably with equally astronomical burn rates.

It is hardly surprising that investors have lost confidence in these companies. It does not matter if these companies are using the poor long suffering (paid for the pension misselling debacle) life fund or whether in the case of composites they are using their shareholder funds, the result will be the same. Either shareholders or the customers will lose out. I wonder if the people that suggested this will lose their jobs? They damn well should do.

I do not know what these companies think they are going to achieve. If someone had a 10 per cent stake in my business I think I would almost do the reverse of what was possibly expected for someone paying a price arguably 10 times more than the stake was worth.

I would be fearful to recommend that company&#39s product on the basis that if it was not the top-performing, lowest-charging, best-administered and most flexible product,I would be open to severe criticism. It is interesting to note that the companies which are most active in this “strategic stake” game are the ones that fail miserably on most counts.

What really amazes me is how life companies&#39 eyes glaze over and pound signs start flashing when the chief executive or chairman of one of the very unprofitable networks or national brokerages start talking up the possible valuation of their business at float.

First of all, none of these businesses is going to float within the next two years. You only have to look at the value of the market today and the fact that most investors are not stupid to realise that most investment and personal financial planning brokerages are double-geared in the market.

The investors are shrewd but the young hotheads from the life companies just cannot get enough of it – do I hear £100m at float, do I hear £300m, do I hear £1bn – just give me a chequebook, any chequebook. Scottish Inevitable or Shire Life cannot wait to pay more than Legal & Invincible or Precious Life.

Well I just thought I would repeat my message in case someone thought it did not refer to them. There are only three reasons for investing in any business and they are profit, profit and, you guessed it, profit. Keep smiling all you network chief executives. I am sure you will find there are going to be another six born during the next six minutes.

Peter Hargreaves is managing director of Hargreaves Lansdown


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