Week 14: Let’s Prepare For The Worst

Background

We are all scared, afraid and worried about the pandemic. It’s an unprecedented time, probably the worst natural calamity in our lifetime. As working from home or self-isolation are becoming the norm, we should start thinking about life after the lockdown. If you are following the market and business news, it is clear that we are heading towards the worst economic disaster. Plus, one of my blog readers got an amazing opportunity – you can find out what it was in my Freetrade portfolio section

Market Summary

The market in the UK is down -2.2% over the past 7 days with the Oil and Gas industry up 12.6%. My Portfolios outperformed the market but still down an average of -0.9%.

• We just ended another grim week, and all the market indexes dropped. However, it was not too bad, as daily dips are considered the “new normal” now. However, a perfect storm is gaining momentum every day, as the coronavirus pandemic continues to create fear and the lockdowns imposed by governments are slowing down the global economy, and we are facing the sharpest downturn since the Great Depression during the 1930s.
• Last week started with the bad news that about 20% of UK small businesses are at risk of collapsing within a month as they struggle to secure emergency cash support. Despite Chancellor Rishi Sunak announcing “unprecedented” aid to companies, many small and medium-sized businesses (SMEs) won’t be able to obtain the cash from the government to survive for a four-week period, according to the think tanks.
• On Tuesday, Britain’s largest banks, including Barclays, HSBC, Lloyds, RBS and Standard Chartered, agreed to scrap nearly £8bn worth of dividend for additional leverage for the economic downturn. The Bank of England (BoE) also ordered the banks and lenders to cancel all bonuses for their executives.

• Although the number of deaths is rising in the UK, we are hearing positive news from Spain and Italy, and even from British medical teams, that the numbers of infections are dropping in Europe. It seems like lockdowns and social distancing throughout Europe are working. Amen! 🙏🙏🙏
• However, news coming from America is not as good. New York has become the coronavirus epicentre in the United States, with around 19 deaths per 100,000 residents. New Orleans emerged as another death trap, and has the highest death rate now, with almost 38 deaths per 100,000 people. While mayors are trying to control the pandemic and arranging equipment, the President keeps spreading unscientific theories, promoting unproven medicines and unrealistic expectations. The other day he said he won’t wear a mask because he is meeting presidents, prime ministers, dictators, kings, queens, etc. What an idiot! Didn’t he see what happened to Boris Johnson when he refused to stop handshaking? He is now enjoying home isolation.

• Jobs are being wiped out as the virus hits the global economy. According to the latest report, about 710,00 jobs were lost in early March and the jobless rate hit 4.4%. This number is almost the same as the 2009 recession. The worst part is that the US is not the only one, almost every country is in the same situation. It will be very hard for the government to keep the lockdown order on and pay salaries to its citizens. Government debts are rising, and it looks like a recession is inevitable.
• The US and Canadian officials are planning to impose tariffs on Saudi and Russian oil imports unless they reach an agreement during the Opec+ meeting. The meeting has been delayed, and will be held virtually on 9th April. The oil price rose during business hours on Thursday and Friday. I hope that the meeting will end in a positive outcome, and stabilise the market slightly.

My Portfolio Summary

If you are a regular reader of my weekly posts, you might know that I compare my portfolio with FTSE 100 movements. Last week my main stock trading portfolio dropped by 4% week-on-week, while FTSE 100 dropped by 2.02%. Gladly my SIPP portfolio was up by a massive 9.8%… Yesssss! 🏆🏆🏆

• Dividend cancellation and the current manufacturing situation have made Maggitt (LON:MGGT) the worst performer of the week. It lost almost 30% this week alone. Despite losing more than 67% in the last 90 days, it is undervalued according to Simply Wall St, by 44%, from a fair value.

• Both easyJet (LON:EZJ) and Legal & General (LON:LGEN) lost more than 20% week-on-week. Surprisingly LGEN’s board has recommended a dividend increase, from 11.82 pence (2018) to 12.64 pence. That will make the 2019 dividend 7% higher than in 2018. However, shareholders are not buying this promise, and the price keeps dropping throughout the week. With LGEN shares now trading at a rock-bottom valuation, I think now is a great time to be buying. I am just staying away from easyJet right now. I have a large position in the company and have no intention of increasing it.
• There’s not much to say about the Lloyds Bank (LON:LLOY) stock. It dropped 19.4% in the last week after dividend cancellation. I don’t see it going up any time soon. It is a good price to pick up right now in my opinion, but I will have to wait for a while to see any profit on my original position.
• Metro Bank (LON:MTRO), Royal Mail (LON:RMG), BT Group (LON:BT.A), Evraz (LON:EVR), and Smith & Nephew (LON:SN.) dropped between 8% and 4% in the last week. This has become normal now. Smith & Nephew withdrew it’s the Full Year 2020 Financial Guidance and expects that underlying revenue growth for the first quarter will be around -8% down on the first quarter of last year. Out of the five shares mentioned above, Smith & Nephew has the most solid business model, and I feel confident that it will recover faster once the situation improves better.
• Royal Dutch Shell (LON:RDSB), British American Tobacco (LON:BATS) and BP (LON:BP) were the best performers in the last week and were all up by more than 10%. Speculation of an agreement between Russians and Saudis during the Opec+ meeting pushed the oil price up. However, the news so far is not looking positive after the Saudis directly criticised the Russians not cooperating during the first meeting and claiming that the Saudis were trying to destroy the US shale producers. The price might drop again on Monday. Fingers crossed!
• British American Tobacco has managed to secure a new credit facility and said that the pandemic has had no effect on business. In addition to this, on Wednesday, the company announced that its US biotech subsidiary, Kentucky BioProcessing (KBP) has a potential coronavirus vaccine in development using tobacco plants. I hope BATS will bring good news out soon.
• I accumulated dividends from a number of companies in the last few weeks, and added some from my savings, and purchased Plus500 (LON:PLUS) shares last week. This stock has been performing well in this unstable market. So, I decided to make use of the situation, and improve my portfolio. This has no debt at all, and it is very safe compared (Beta -0.25) to its industry (Beta 0.95). The share price has gone up by an impressive 29% in the last 90 days.

• There are a lot of discussions about buying X company because they are working on vaccines, or buying Y company as they make sanitisers. I am staying away from investing in any AIM or risky stocks right now for two reasons. Firstly, I bought Fitbug and Sirius Minerals in my early days to see quick growth, both of which failed miserably. Although both investments were tiny amounts, I learnt an important lesson – never buy a risky share for a long-term investment portfolio. It might bring you a profit quickly, but your risk seeing your investment vanish even more quickly.

• Secondly, I am preparing for the recession predicted by financial experts. I am saving my emergency fund as much as possible for the worst situation, at least to survive on the savings for at least 5/6 months or more. Once that is accomplished, I will only invest in a company which has a track record of surviving a recession. I created a chart of the FTSE 100 YTD Profit / Loss chart which shows the dividend-paying history of the UK’s top companies. Some of them have been paying dividends 20+ years consecutively. They have the “moat” and solid financial backing to survive the dark days.

Freetrade Portfolio

Nothing much is happening with my Freetrade portfolio as I am concentrating on my other FTSE based portfolios. I mostly hold US shares in my Freetrade portfolio, as you might know already.

The portfolio dropped slightly, about 0.6% last week. While Microsoft and Coca-Cola were up, AMD, IBM and JD.com dragged the portfolio’s overall performance down. I received Microsoft dividend last week. The other three shares, World Mining (LON:BRWM), Invesco Income & Growth (LON:PLI) and Boohoo (LON:BOO), are free shares I received from Freetrade, for referring my friends and colleagues to the platform.

It seems that Peter has opened an account at Freetrade, as it notified me that I have earned a free share. Peter posted a comment asking for a referral link on my last blog post. Congrats Peter! I hope you have a successful investment portfolio.

Let me know if you want a referral link, too. Using a Freetrade referral link would allow both of us to win a share worth up to £200.

Other Thoughts

We rarely see fine weather in the UK. This week the sun is out and sadly, despite all the cautions and warnings, many Britons are out in the parks and streets to enjoy the amazing sunny days. I am staying at home, no matter how beautiful the sun is! I also hope that you are doing the same. Please don’t put your family and your life in danger. Stay home, and I sure we will all enjoy many sunny days together in the future. Also, please don’t abuse the health care workers, and stop spreading any conspiracy theory messages you see on your Facebook wall or WhatsApp group messages.

Conclusion

It seems like the situation might get far worse than everyone expected before it gets better. Nobody knows when the good times will start. Staying safe and surviving should be our top priorities right now. I wish you good health and an amazing future.