WHY DEFENCE IS BETTER THAN OFFENCE
DICK TURPIN
MANAGING DIRECTOR, ARTEMIS
COMMENTING on a complaint last week from a Mr Arthur Purdey about a large gas bill, a spokesman for the gas company said: “We agree it was rather high for this time of year. It is possible Mr Purdey has been charged for the gas used up during the explosion that destroyed his house.” With the FTSE 100 now down some 10 per cent year-to-date as I write and as volatile as gas, investors know how Mr Purdey feels.
The key Baltic Dry Index, which measures freight rates for bulk goods, has dropped by 46 per cent since its peak in May this year – and has collapsed by 80 per cent from its all-time high posted back in May 2008. Alarmed about a slow-down in China, sovereign debt issues in Europe, weak US data that casts doubt on economic recovery, the meaning of life, everything and anything, investors sense explosion as, through higher taxes and tighter credit, they even have to pay for their own pyres.
It is certainly ominous that negative real interest rates, quantitative easing and $800bn from the EU/IMF to bail out peripheral European countries should have delivered so little. Once it seemed that governments could simply conjure away the Great Debt. But such supposed acts are, of course, mere illusions.
Consider the reality in Britain alone. UK banks and building societies wrote off £9.6bn of loans to individuals in the last 12 months. In the first quarter of 2010 alone, they wrote off £2.13bn. £1.25bn of that was credit card debt. And that’s before we turn to the real culprit – successive governments with net income and gross habits.
Well, the Romans knew a thing or two about both offence and defence. The main entrance to any military camp, for example, was always on the side furthest from the enemy – and called the Decuman Gate because it was guarded invariably by the tenth cohort of each legion.
In these testing times, defence matters. In quiet sorties from their Decuman Gate, prudent and defensive investors should look for companies with strong balance sheets, free cash flow yield, stable earnings, non-cyclical sectors, dividend growth and yield.