In This Issue

Company updates
Electronic shares
Red October – feature article

Changes of note

Having carried out research into websites of publicly listed companies, we believe you may be interested in the following changes:

• Associated British Foods plc – Change Director
• BHP Billiton plc – Dr Xolani Mkhwanazi was today appointed as Chairman of BHP Billiton South Africa.
• J Sainsbury plc – Second Quarter trading statement to 4 Oct 2008
• Ovoca Gold plc – Introduction of Interim Results

Moving with the (paperless) times

For hundreds of years shares have been issued on paper and despite the encouragement to change over to the electronic system, many people are reluctant to make the change.

It’s easy to understand why companies would encourage investors to move over to an electronic system, the cost of buying and selling is greatly reduced and administration costs are also significantly lower. So what’s stopping so many investors from wanting to make the switch?

The initial fears appear to be of losing control; if you have a certificate, then ownership is undisputed, however, the proof of ownership is not defined by the possession of a share certificate, but by the listing on the company register.

Execution only brokers act as nominees for clients where nominee accounts are employed. Shares are registered in the name of the broker, although it is the client who has ownership of them and benefits from owning the share. The advantage of using this system is that it is quick and easy; however, the owner does not get sent the company’s annual reports and does not get voting rights.

So, holding on to the paper share means that the actual owner of the share retains company voting rights, receives company reports and any other benefits a company may wish to bestow on its shareholders. If this is a concern, then the Crest system is one that is advised by many shareholders as it covers the concerns mentioned above. In effect, the share holder has exactly the same rights as those of a share holder with a paper certificate. The only drawback that can be seen from this system is the small charge for setting up this type of account.

To conclude, it seems that the days of the paper share are numbered, especially as more and more investors use the Crest system to secure their interests.

Red October

‘An end to the boom and bust cycle.’ Those are the immortal words of misplaced confidence in the economy. It would seem that after unprecedented growth and a feeling of indestructibility, we have finally reached the bust and the bubble has indeed burst. What ever the reasons for it’s occurrence, be it bad credit, overly inflated house prices or bankers simply not having a clue I wonder if there is a pattern emerging?

After having a look at the history of the economic life cycle in the UK and across the globe, it came to my attention that, in modern history at least, the greatest of the economic bubble bursting has eerily occurred in the month of October.

Cast your mind back, the most infamous crash probably being the Wall Street Crash on 29 October 1929. Like recent times, the economy had been growing confidently for much of the 1920s on the back of new fangled technology, now being mass marketed, whilst individual investors borrowed to invest in stocks. In the eight year run up to 1929, the Dow Jones had increased from 60 to 400 points or 566%. This easy creation of money from investing on the stock market meant that increasing numbers of people spent an increasing portion of their wealth on stocks and shares. However, as some may argue of today’s stock market, stocks were over valued and poor banking structures created a situation where banks were insolvent. Greed took over, where common sense should have prevailed; money was invested with little thought on who was being invested in.

Black Monday, yet again a time of booming prosperity in a bullish run up of mergers and hostile takeovers. Companies were trying to raise vast sums of cash by selling junk bonds in order to buy out competitors in order to grow and survive in a hostile market. There was, as in the run up to 1929, a feeling of invincibility; that the market was always going to go up. However, this thought process was blown out of the water on Wall Street with the largest single day stock market crash suffered in continuous trading. And the day in question; the 19 October 1987. The FTSE 100 index had lost more than 10% and repercussions were felt across the globe.

Eight trillion dollars is for most of us an unfathomable amount of cash, even after it’s conversion into Sterling. This was the approximate figure that was lost in October 2000, where yet again stocks had been over valued, and the markets and the economy experienced a period of unprecedented expansion . Most of our old foes are present in this crisis, however a new variable was beginning to emerge thanks to the increased availability of the internet; the private investor. It would be wrong to suggest that private investment is a new phenomenon; however, greater accessibility had opened the market further and allowed rooky traders into the arena with little or no experience.

So what about now; over confidence, over priced housing, bad debt, easy credit? There are lots of factors that can be attributed to the global financial crisis and no doubt those implicated will try to wriggle out and lay the blame on someone else’s door step. However, there are a number of characteristics of this decline that are present in the previous stock market crashes of the past and that feeling of invincibility after another spell of unprecedented growth. Those same rooky traders are still evident and only serve to exacerbate the problem by selling shares at the bottom of the cycle, lowering values further as the fear of loosing so much gives the fledgling investor cold feet.

Interestingly however, all of the major declines have occurred in October. Does this coincide with a feeling of gloom after we return to the depression of work after a fantastic summer holiday, or is there another explanation? Perhaps it is just coincidence as the causes of stock market collapses generally have a long lead up time and our current economic woes have been unsettling the British economy for some time.

An end to boom and bust? I don’t think so, but will we ever learn? It’s doubtful we will, but it’s that bullish attitude we see in the years preceding any economic crisis that generates the wealth we all enjoy in the first place. Looking at the history of previous economic crises I would conclude however, that more gloom is yet to come, followed by more unprecedented growth in our economy.

I hope that you have enjoyed this first newsletter. Please let me know either way.

Bede Northcote
Editior
bede@northcote.co.uk