As Serious Money reaches its first birthday it is appropriate that we look back on some of our investment recommendations - warts and all. The objective of any investment adviser is to get more things right than wrong and I think we can claim some success, at least in terms of that objective.
The very first column argued that Vodafone was going to be a dull investment, likely to perform in line with the broader market. Dull is not the word for it - Vodafone's share price is almost exactly the same as when I wrote the article. As it happens, until the end of 2004 the global telecommunications giant did perform in line with the UK market, but since then has been a bit of a dog, in line with many other telco companies in Europe.
In that same first column, I also suggested that a much better bet than Vodafone, but unlikely to set the pulses racing, would be AIB. Well, that was almost a great call - AIB is up over 20 per cent since then - but, of course, it was quite wrong to suggest that a bet on AIB would be unexciting.
I wrote two articles about Eircom. One, just before the IPO, got things spot on: Eircom's reappearance on the stock market was less than sparkling. Some time later I made the mistake of repeating my scepticism about the company's long-term ability to grow its business. Since then, the share price has soared as investors bet that Eircom's promised forays into broadband and mobile telephony will enable it to maintain, if not grow, its attractive dividend more or less indefinitely.
I still think that "disruptive technology" will prove to be the undoing of the basic business model of many existing telephony businesses. Even if they can reinvent themselves as providers of wireless broadband services - which is how I think we will all be making our effectively free telephone calls in the years to come - I find it difficult to imagine that the current rates of return being earned by these companies on their invested capital can be sustained for very long.
WiMax - the successor to wi-fi - is about to be trialled in the UK and, if it works, I will be able to make all my phone calls via VOIP and will no longer have to pay line rental to my incumbent phone company.
But the lesson that arises from the bad call on Eircom is that it is all very well to argue that a business model has no long-term future: investors will always have a "show me the money" attitude and have noticed that Eircom is throwing off lots of real cash. My forecasts of problems are far less tangible than hard euros, particularly mountains of them. Declining businesses are still worth something; they are not worthless.
Perhaps my best call has been in the area of so-called cyclical companies. One of the very first columns tipped commodity and oil stocks as likely beneficiaries of the ongoing Chinese economic boom. Mining stocks have a very poor history and this was a controversial call: companies who dig holes in the ground for a living have usually been very ill-disciplined when it comes to their capital. Typically, just as we reach the peak of a commodity demand cycle these firms go out and waste billions on digging more holes that cause, via commodity over-supply, a collapse in prices and profits.
By contrast, I argued that both supply and demand conditions for the industry have changed. The ongoing fall in commodity demand (caused by deindustrialisation of the major economies) has ended (with China and India's industrialisation). And many companies have learned the joys of capital discipline: they no longer shoot themselves in the foot with a huge investment boom that leads to excess capacity.
Two stocks that I mentioned favourably in at least two articles were the global mining giant BHP Billiton and BP, both UK listed companies. BHP has risen nearly 50 per cent since we first highlighted the commodity boom, while BP has returned a more sedate 28 per cent. I am now tempted to close the bet on BHP: the rise in the share price is beginning to look a little over-cooked. But the structural story remains intact.
Perhaps there are cheaper stocks within the mining sector: Antofagasta, the Chilean copper miner, is one to consider for a switch idea.
Oil stocks still look like a no-brainer to me, particularly for the patient investor. The basic premise is that the oil price stays high longer than current valuations for oil stocks currently discount. If this happens we will see a mini re-run of 2004, where analysts had to play catch-up all year and continuously raise their earnings forecasts as oil prices kept rising. While we won't get the same oil price rise this year as we saw last year (at least I hope not), we will see prices staying stubbornly high. So I expect more earnings upgrades, albeit not as large as last year.
Such a scenario will not see a sudden re-rating of oil stocks but should ensure that the sector once again appears near the top of performance league tables at the end of the year.
Old-economy cyclicals, engineering companies and other capital goods producers have been featured in a more recent column and are part of the basic idea that growth prospects are good, capacity is relatively short and that pricing power will support further profits growth. Some of the stocks mentioned in that article, like Atlas Copco, have continued to do well.
If a lot of my recommendations have been stock and sector specific, old habits die hard and there has always been a cautiously optimistic market call lurking behind many of the individual forecasts. It has generally been absolutely right to be bullish of equities, but recent events surrounding fears over the dollar and those tiresome US imbalances so beloved of the pessimists have reminded us how things can go wrong.
I remain optimistic about markets in general but will keep a watchful eye on potential triggers for a serious market setback. Perhaps it is always like this.
Chris Johns is an investment strategist with Collins Stewart. All opinions are personal.
