Wednesday 23 October 2013

Royal Mail Sale - Berkshire Buy

Unfortunately I didn't get the full amount of Royal Mail shares that I subscribed for, instead getting £750.00 worth, which I believe is what every retail investor who subscribed actually received.

The shares shot straight up to about £4.50 (from £3.30) at commencement of trading, and have drifted up quickly since then on the back of huge demand. I sold today at £5.26 banking about £400.00 profit after expenses. At £3.30 the shares were obviously undervalued, but I'm not sure they are worth a great deal more than their current value, and am hoping I will do better invested elsewhere.

I have bought two new holdings. Firstly about 3% of my portfolio has gone into Berkshire Hathaway, the American conglomerate chaired by the sage of Omaha himself, Warren Buffett. I wish I'd bought this stock a long time ago, but hopefully the 'better late than never' mantra will apply. At 83 years of age Buffett is getting on a bit, but as well as being a great manager himself he is also a magnet for talent. I believe that succession won't be an issue when he finally throws in the towel.

Note I bought the B listed shares at $117.00, the A shares being slightly out of my price range at $175,000.00 a pop! The trading costs involved in purchasing the US shares were over double that I normally pay for buying UK stock; not too much of an issue in this case as I do intend holding long term.

As this investment is priced in dollars there will be some exchange rate risk, but luckily because of all the debt commotion caused by the US congress, the value of the pound against the dollar is close to it's 52 week high so it's been a favourable time to buy in that regard.

My second move was to invest about 1.5% of the portfolio into JPMorgan Russian Securities Investment Trust. This is a purely contrarian play as Russia is about the second most unpopular country in the world with investors, with the RTS index trading on a PE of 3.5. Only Argentina is more unpopular with their headline index trading at a PE of 2, although their economy is in terrible shape with inflation figures running into double digits.

Russia has a bad reputation with investors largely because of inconsistent regulation and a generally absent rule of law, yet Putin's government has pledged to tackle these issues. Furthermore the country benefits from a younger demographic than many of its European peers and its growing consumer class should prove a positive factor going forward.

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