Growth portfolio prices
John Abernethy’s December 21 article Taking stock from a market upturn refers to his ‘Clime Growth Portfolio’ which he states has attained “Returns since Inception (April 19, 2012)” of 18.39%.
However, I noticed that the equity purchase prices used to calculate this fantastic return differ significantly to the purchase prices contained in the original, April 20, article, Introducing our growth stock portfolio.
I hope that there is a reasonable explanation for this.
John Abernethy’s response: The table was reset to value the stocks as at June 30. You will notice that the returns from inception are slightly lower than the returns from June 30, 2012 because of the market decline in April/May 2012.
In future we will drop the original purchase value and use the June 30 market values to assess the portfolio returns each financial year. This is industry practice.
In passing, we are reinvesting income into each stock at December 31 and June 30 each year. The first reinvestment was at December 31 of accrued dividend income. This was noted in my December article and I will cover this again in my first article in January.
BHP in the long term
L Smith's view on BHP Billiton (not his preferred stock) in Letters of the Week, December 19, is a short-term or short-sighted view. BHP was $8.50 in 2003. Indeed it has been up to $50 and is $36 now, but this year the $1.06 dividend per BHP share works out as a 17.8% return on those particular shares invested at $8.50. With this sort of return it is of no great concern to me that the share price fluctuates, and at times I add to my holding. What is important to me is that the company remains relevant, for if not, I would have to sell it, pay a huge amount of capital gains tax, then find some other reliable company to invest in long term – not so easy.
Climate and market change
It would be nice to see Eureka provide some analysis on what the impact on the markets is going to be as companies revise their strategies to cope with the impact of climate change. There have been a few articles which give it a sideways glance, such as saying that the energy sector is going to be difficult, but I have not seen any substantive analysis. Eureka seems to be very short term in its outlook.
We are seeing companies revising their strategies to reduce their carbon footprint. We are seeing enormous change in the profitability of electricity suppliers due to the inroads of wind and solar power. There must be opportunities for sustainable energy sources to replace liquid fuels for transport. The airlines are looking for sustainable fuels, and the US military is rapidly reducing its reliance on fossil fuel.
I don’t think Eureka is providing a long-term view of where industry and the markets will go over the next 10 years, and I fear we’ll be left high and dry with unsaleable stocks, like the people who already are finding that the value has dropped out of their seaside homes due to the inevitability of rising sea levels.
For more letters of the week, click here.