Tesco falls and cuts short the post vote relief rally!
Well that relief rally we had on Friday got cut short awfully quickly didnt it? On Monday one of the giants of the FTSE 100 issued a new profits warning admitting that they had overstated group profits for the six months to 23rd August by a whopping £250m. This has lead the index considerably lower, including so far a drop of 1.2% today alone on the FTSE All Share. In particular the FTSE 100 has fallen from around 6860 on Friday to 6684.71 at the time of writing. It’s not all down to Tesco of course, the first air strikes in Syria and weak Chinese data have also contributed.
For us the result is that our decision last week to sell many of our UK shares before the Scottish Referendum has worked out surprisingly well even though the result was a No vote. In fact we’re quite a bit better off for it at the moment. On average we can buy back into those same shares 2% more cheaply this morning should we wish to. I cant be too smug about this, I took the step to sell them as a precaution against a Scottish Independence Yes vote not because I foresaw a general drop in the index. This just reinforces a point I often make about the market in general – it doesnt matter how smart you are, what systems you devise for stock picking etc.., no one can accurately predict whether a share or the market as a whole will go up or down. No one can predict global conflicts, political revolutions or one of the UK’s leading companies overstating their profit by £250 million…. There will always be curve balls in investing. Fortunately though, these typically are merely speed bumps that affect matters short term only. If I was a Tesco holder I’d be upset and concerned about the share price going forward but for shares that are knocked down by problems outside of the company itself that effect the whole stock market I dont tend to worry too much. Only if the problem is with the company does it affect my strategy with that particular share. And if it’s not, then times like these just throw up a new buying opportunity. We made a number of new purchases yesterday which we will detail shortly and will be making more today while there are some great prices on offer.
Interestingly though, another effect of us overhauling our stock holdings like we did is that it’s given me the impetus to do a lot more research and I’ve found many shares I like better than most of those we sold. So for the most part we wont be buying back a lot of the shares we previously held, but instead investing in companies that I think will provide more growth and in many cases also higher dividends.