Letters of the week

Swimming with sharks

I've just come back from a barbecue at my mate Steve's place. Chatham House rules apply, so I can't divulge any of the sources, particularly Steve's secret steak sauce. But I can give you the gist of things, at least the pearls of wisdom passed around before Bobby got really loud and everyone started telling dumb jokes. While the advice from our Eureka writers is good value and often indispensable, our poolside sages reckon ethics are just as important as return on equity. Regulation, while slightly better than some countries, has proved woefully inadequate.

What we need to do as investors is look behind the figures and try to establish whether the board actually represents shareholders, whether accounting constructs, intangibles and liabilities reflect the true picture, whether a company is growing for the sake of management bonuses (or simply because bigger must somehow be better), whether retained earnings are being managed for the benefit of shareholders, and whether management is being rewarded for long-term goals or cheap, short-term thrills.

In an equities pool full of sharks, we need to discard meaningless concepts of what constitutes so-called 'blue chips', and figure out what is run ethically, honestly and decently. While our regulatory regimes continue to fail us, we have to invest - as the saying goes - as if we're buying the company. This is more difficult, and more exacting than ever before in today's environment. All this was discussed at my mate's place, and the food was probably better than Hayman Island’s too.

– RJ

Courses in self-defence

Robert's insights on Hayman Island conference are great, but my quick research on what are good 'defensive stocks' in this market/period is not encouraging! Some guidance would be great, even if just thematic e.g. utilities, large food companies, especially those with low debt levels.

– C Thek

Editor’s response: Thanks for your letter. Eureka Report has been devoting some energy to locating decent defensive equities lately including Roger Montgomery's lead feature from today's edition but for more ideas take a look at the following: Under the radar: investor’s best friend, My safe, diversified portfolio, For your eyes only and Here’s to Foster’s.

Misery loves company

I don’t often do this, but I would like to thank Tom Lovell for the great work he does in analysing the market. The information is very important and very helpful, and he delivers it in a simple way that is never dull or flat. I have been following his comments for some time and have become more conservative at this point of time. He is of great value to the Eureka Report – thanks Tom and keep up the great work.

– Name and address withheld

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