Battle of the British stocks

Alright. Big news below on the counter-offensive against quantitative easing (QE) being led by London Investment Alert’s Time Price. But let’s start with markets before we get to politics.

To begin with, let’s take this conversation about how you can increase your portfolio returns and reduce your risk out of the realm of theory. Let’s look at two big British stocks you’re sure to know and may even own. And let’s look at the one number that could be the key to figuring out which is the right investment, right now.

By the way, if you haven’t had a chance to watch Monday’s broadcast with Richard Smith from TradeStops, it will be rebroadcast tomorrow. I’ve also just received the transcript from the agency. I’m editing that (right after I’m done with Money Morning) and will make it available tomorrow as well.

That’s if you prefer reading to watching

But let’s get stuck into BHP Billiton and Vodafone. I spoke with David Stevenson from Lifetime Wealth about Vodafone during our interview yesterday. It’s widely tipped as one of the UK’s “safe” income stocks. BHP? Not so much.

The “Big Australian” reported a shocker overnight. It confessed to a $6.39bn net loss. It took $7.72bn in impairment charges, nearly $5bn of which was related to the decreased value of on-shore US petroleum-related assets. And it cut its dividend by 77%.

London-listed BHP is still Britain’s largest miner by market capitalisation of £60bn. It’s bigger than Rio Tinto (£45.5b), Glencore (£27.8b), Anglo American (£12.23b), and Antofagasta (£5.49).  Its UK share price is up nearly 40% year-to-date. And Bloomberg reports that the forecast annual gross dividend yield is 2.09%.

But my, how the company has fallen from the heady days of 2011 when it reported a $22bn profit. It was the largest corporate profit in Australian history at the time. And the directors couldn’t increase production of iron ore, coal, copper, uranium and oil fast enough to meet both soaring prices and (stimulated) Chinese demand. But now? Look at the chart below.

BHP’s VQ is nearly 30%

Chart showing the evolution of BHP Billiton VQ

(Source: www.tradestops.com)

The chart is a screen grab I took from TradeStops this morning. Sorry if it’s a little hard to read. There are two pieces of information on it I want you to pay attention to. The first is the number in the middle I’ve circled in the red. That’s the Volatility Quotient (or VQ). What is it?

The VQ is the proprietary indicator Dr Richard Smith developed to help set a smarter trailing stop level for each new stock you buy or each stock in your portfolio. BHP is a volatile stock. But volatility doesn’t automatically mean higher risk. It DOES mean if you own BHP, or if you’re thinking of buying it, knowing how volatile it is ahead of time will help you know where to set a trailing stop.

Setting the trailing stop in the right place has two benefits. First, it disciplines your selling so you minimise losses. In this case, the “SSI stop price” is at £7.43. That’s about 30% below the closing high of BHP set in early August.

The second benefit is that a wider trailing stop – based on a higher VQ – prepares you for bigger swings in the daily trading of BHP shares. Instead of being alarmed by what looks like a gut churning swing in the share price, you’ll know that unless the share hits the stop determined by the VQ, you’re probably better off staying the position.

Alternatively, if you have the sort of stomach that doesn’t like being churned, the VQ score will tell you that BHP may not be right for you. You might prefer, based on your own personal comfort with risk and volatility, a share like Vodafone. Mind you, a lower VQ on Vodafone doesn’t make the share less risky. You can still lose money. But with a VW of 19, you’d set a tighter trailing stop on Vodafone, knowing that big price swings are more notable in Vodafone than they are Billiton. 

Vodafone’s VQ tells you where to set your trailing stop

Chart showing the evolution of Vodafone VQ

(Source: www.tradestops.com)

There you have it. Two British blue chips. A telecom and a commodities producer. Both with market caps around ÂŁ60bn. Both pay dividends (4.84% forecast annual gross dividend yield for Vodafone). And both are stocks you may own directly or consider buying (or selling) in your personal portfolio.

The VQ is just one tool within TradeStops. Another key one is the position sizing tool. That tells you how much you can invest in any one position, given the amount of money you’re willing to lose. Again, the size of the position you take is determined by the volatility of a share.

Here’s how Richard described in during Monday’s broadcast: “Different stocks have different volatility profiles. And conservative stocks, you know, they tend to fluctuate a lot less than more speculative stocks. So the resource sector is a classic   example of a space where you have a lot of volatility and, you know, you need to account for that as investors in deciding where to put your stop losses. So I came up with this algorithm and in TradeStops you can go in, you type in a stock and you find out exactly what the optimal stop loss should be for any stock.” 

There’s not a serious investor out there who can’t benefit from that kind of knowledge. By improving your knowledge, it improves your risk management. But improving your risk management, it keeps you from selling too soon, or holding on too long. That’s two sides of the same coin. The coin?

The coin IS coin. The goal is to make more money by doing less, taking out the guesswork, and adding some precision and measurability to your portfolio management decisions. Whether you’re an experienced investor or brand new at the gig, TradeStops is a powerful tool that can help. I’ll send you details of the re-broadcast later today, including a readable version of the transcript.

Savers, pensioners, and sound money lovers of Britain, your country needs you

Tim Price from the London Investment Alert has taken up the challenge. Last Friday, he wrote and submitted a new petition to the government to end QE. I forwarded Tim your many, many messages of support to end QE. He took it from there.

Today I’m asking you to support Tim’s call to end QE by signing the petition he created. You can do so by clicking the link below. Please note it’s a government website and they will require you verify your signature by sending you an email. Here’s the link.

Tim and discussed what the petition should call for. In the end, this was the wording he chose:

Establish a commission to limit the mandate of the Bank of England and end QE.

Quantitative easing (QE) attempts to create economic growth by unconventional, unproven  methods. QE has been accompanied by unprecedentedly lower interest rates on savings accounts and Government bonds. These low interest rates threaten the real wealth of British savers, investors and pensioners.

We the undersigned, as concerned citizens of Great Britain believing in sound money and responsible public finances, do call on Her Majesty’s Government to:

1) Establish a commission for limiting the mandate of the Bank of England and its Monetary Policy Committee (MPC);

2) Make clear to the MPC that the Government does not support QE and calls for its immediate end;

3) Declare that it will not favour the interests of large banking groups over those of individual British savers and investors.

If you agree with that, sign the petition. There’s no guarantee it will change anything. But if you want to make your voice heard, this is one way to do it. And if you feel strongly about it, forward this email to family and friends, share it on Facebook, or Tweet it.

Based on my feedback, I’d say there’s a huge gulf between how ordinary Britons feel about QE, and how the financial authoritarians feel about it. Whatever QE was originally designed to do, it’s an ongoing disaster for savers and pensioners. And the distortions it created in the bond and stock market threaten to wipe out even more hard-earned wealth.

Enough is enough. Sign the petition if you agree!

Dan Denning's Signature

Category: Economics

From time to time we may tell you about regulated products issued by Southbank Investment Research Limited. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment. Southbank Investment Research Limited is authorised and regulated by the Financial Conduct Authority. FCA No 706697. https://register.fca.org.uk/.

© 2021 Southbank Investment Research Ltd. Registered in England and Wales No 9539630. VAT No GB629 7287 94.
Registered Office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN.

Terms and conditions | Privacy Policy | Cookie Policy | FAQ | Contact Us | Top ↑