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Two wise men

As traders wind down their positions ahead of Christmas, so markets should enter a period of relative calm. Of course, given the extent of recent share price swings, relative could still mean some pretty alarming moves and there is still much going on that will affect investor sentiment.

The continuing fall in the value of the pound, the failure to find a buyer for Woolworths and the trenchant criticism by the German finance minister of Gordon Brown’s conversion to Keynesian policies do not provide much in the way of comfort to the owners of UK plc.

Against such an uncertain background, it has been interesting to hear what other experienced investors make of the current scene. It is never wise to operate in a vacuum, so I take what opportunities are available to learn how the rest of the investment community are thinking. Two seasoned souls have shared with me their vision of the future in the past week and there were some remarkable similarities.

The first insight came from an acquaintance who is without doubt one of the most meticulous and successful private investors I have known. A retired investment banker, he still lectures on how analysts should read a balance sheet. Imagine my surprise when he phoned to ask for my advice on corporate bonds. Knowing him to be a committed long-term equity investor, I did not know whether to feel flattered or alarmed that he was seeking my help on making a purchase in this field. His logic was undeniable. Yields on corporate bonds suggested a failure rate that, if it proved correct, would mark much the end of the capitalist system as we know it. A fund seemed the best approach to take and he did not do funds. I, on the other hand, did.

Trawling through the funds I would be prepared to buy, I had to admit that the yields were most attractive, given the current level of short-term interest rates and the returns available on Government bonds. Of course, there is a lot of fear in the corporate bond market at present and he and I agreed on the risk of inflation picking up a few years out as the various stimulus packages come home to roost. Still, as a medium-term opportunity, it had merit.

The second idea came at the end of one of G&N’s investment trust seminars. A lot of opinion was shared on what was happening in the world economy but it was Gartmore’s Brian O’Neill who made the most impassioned comments as the event drew to a close. He was asked how optimistic he was for shares. Now, I am sure Brian will not mind if I point out that he has been around for a few years and has seen more bear markets than most. He did not paint a cheery picture.

However, he pointed to one ray of sunshine. With deposit rates so low and with equities yielding more than gilts, at some stage, investors will buy shares simply to gain a decent return. So there you have it from two seasoned managers. Income will point the way out of the current malaise. You heard it here first.

Brian Tora ( is principal of the Tora Partnership


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