Buy Top 10 Irish companies

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Rocy1

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I see that the askaboutmoney.com guide to savings and investments still says (in the top 10 tips) that an investor should buy and hold shares the largest 10 Irish companies.

Does the collapse of the Irish stockmarket index in the last 12 months (it has lost more than half of its value) not suggest a re-think?

I recall the original proposition was that these companies operate across the globe - thereby providing geographical diversification.

Surely this has proved to be a fallacy and the guide should now be amended?

I have always considered this a flawed investment proposition and feel that the askaboutmoney.com community should debate this openly.

Any takers?

Regards,

Roxy
 
If I was investing in shares tomorrow it would be in a large food company and then a company which provides the equipment for oil exploration. Also a number of penny shares after doing a lot of research.

The safe bet is always the bluechips but that won't make you big money but might loose you it as we have seen!
 
Hi Rocy

Always a good idea to review one's approach.

This is the more detailed advice from Chapter 5

[FONT=Verdana, Arial, Helvetica, sans-serif]The top Irish companies in Table 5 are well diversified in terms of industry sectors and overseas earnings. Pick any ten of these shares which take your fancy. It's impossible to tell which will be the best performers over the coming years.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]
[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Three of the stocks are financials and three of the stocks are in the food industry. Don't select more than two from any sector or you could by overexposed to that sector.[/FONT]
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I haven't done a statistical review to see how it holds up, but the advice is not far off. There have been huge drops in all the major stockmarkets worldwide. It's not as if the Irish stockmarket has halved while the other markets have risen.

Which is really the key point. Most of the stockmarkets rise and fall together and the Irish stockmarket is well diversified.

You will frequently hear journalists pointing out that "over the last 7 months, the Irish market has been the worst performer". But that is not the point. It's a long-term game.

If you get a chance to do 10 year figures, it would be very interesting to see what they look like.

Brendan
 
Brendan,

Appreciate the response; and wish I had time today to devote to this debate.

I've a few minutes so here goes .....

Let's use a well established benchmark for world equity prices: the Morgan Stanley Word Free Index. In the last 10 years this has grown by a paltry 8.7%. The ISEQ 20 has fallen by 3.3%. Not much in it.

Having said that, I would argue that 10 year figures are a distortion. We're looking at a period of substantial growth in the Irish economy. Ever to be repeated? And since the middle of last year we have seen a fall of 50% in the value of Irish shares. It's very likely to be higher for the Top 10 given banking and construction dominance.

I don't think it's an adequate defence of the Top 10 investment concept to say that other equity markets have fallen also. Since 1st July 2007, the MSWF Index has fallen by 17.4%. This is a long way from losses suffered by investers in Irish shares.

The notion that a sufficient geographical spread is achieved by investing in the Top 10 Irish compnaies has been proven to be incorrect. The international investment community has all but given up on Ireland inc for the moment and even companies with very little exposure to property or other market activity in Ireland have seen the share price tumble. Baby and bathwater comes to come.

Perhaps you are right and in 10 years we'll look back at the '07/'08 collaspe as a blip. I suspect not.

Any novice investor reading the AAM guide to savings and investments and investing accordingly mid 2007 will have lost half of the investment - versus perhaps 20% in a well diversified portfolio of shares.

We are a small and open island economy; and insignificant on the world investment stage. To invest primarily in the largest 10 companies in Ireland, in my opinion, was always a dangerous tactic.

This is especially the case if you own property here and earn your living here. To tie up you're entire financial well-being and future in the economic fortunes of one country is daft.

No chance that some more caveats could make their way into the guide (page one as well as Cahpter5)?

Good wishes,

Rocy
 
Hi Rocy

Having said that, I would argue that 10 year figures are a distortion.
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But then you say

Since 1st July 2007, the MSWF Index has fallen by 17.4%. This is a long way from losses suffered by investers in Irish shares.
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This is extrardinary. You dismiss ten year figures because they are a distortion and then quote one year figures without any caveat!

But that is not your only reasoning error.

You argue that the 10 year growth spurt is never to be repeated. But you have no such comment on the 50% drop over the past year.

The issue is very important, but to arrive at the right answer, you would have to devote more time to it. You can't just select the evidence to suit your argument and dismiss the more substantial evidence against as a "distortion".

The main weakness in my suggestion is that while Irish companies are well diversified, the international investment community don't bother with this level of detail and see all Irish shares as plays on the Irish economy. So when Ireland was in fashion, Irish shares were "overpriced". Now, Ireland is out of fashion, so Irish shares are probably "underpriced".

It's better to buy things which are out of fashion. For this reason, now is a particularly good time to be buying Irish shares.
 
Brendan,

Of course I agree I'm being highly selective in the dates I'm using to emphasise the point.

The 12 months figures counter-act your argument that:

"There have been huge drops in all the major stockmarkets worldwide. It's not as if the Irish stockmarket has halved while the other markets have risen"

World equity markets have fallen in value; the Irish market imploded.

Do you see any logic in the argument that if you derive your employment income in Ireland and own property in Ireland, this should be sufficient exposure to the fortunes of this peripheral isdland economy. And that prudent investors should cast their investment net further afield?

BTW, I also agree that now is a good time to buy Irish share (as part of a well diversified investment portfolio!!!) Well, certainly better than 12 months ago.

I would be interested to hear from others have to say on this.

Rocy
 
Geographical diversification? I think not.

The Irish banks still derive much of the profits (and soon losses?) from the Irish and UK economies. If you want to analyse this further - the Irish bank least exposed to property probably still has over 50% of its loan book in this sector (and this ranges to 100% of ALL loans for one of the quoted Irish banks).

Both Elan and CRH do, I will admit, offer geographic diversification but CRH is in effect another bet on property and construction.

The food groups are still too exposed to the Britsh Isles.

Ditto the one large quoted media company.

Not only does the Irish stock market lack genuine geographic exposure but there are many large and important economic sectors that have little or no representation at all. These include;

Aerospace
Logistics and Business/Support Services
Oil refining (not just oil exploration)
Gas
Autos /Trucks
Chemicals
Technology (and I know that there are a few leftovers from the dotcom boom but I am looking for blue chips)
Engineering
Retail (i.e., non-Irish and non-DIY)
Telecoms
Utilities
Health Care (medical devices, hospital management etc)
Renewable energy (rather important nowadays)
HCP (Household and Personal Care - just think of a billion Chinese people washing themselves every morning)
Tobacco

..need I go on? I am sure that there are AIM listed Irish stock that are involved in the above sectors but we are looking at 10 large quoted companies.

And I have not even mentioned the 1% stamp duty that you pay when you purchase Irish shares.
 
ok the iseq has dropped a lot across all sectors, financials, construction, air lines, media, agri, with elan being the only brightness.
I believe we are only leading the pack.
The dow, ftse, cac etc are now in bear territory, and will catch us up! (down) very shortly.
 
The Dow aside (as it is too narrow an index) the ISEQ is not leading the pack because the ISEQ is unique in that it only really provides investors with exposure to the Irish economy (and a narrow set of sectors at that).

Also bear in mind that indices such as MSCI Europe or the S&P have industry subsectors that are actually up on the year (S&P trucking +46%; S&P Coal +27%; S&P Oil and Gas +23%; S&P Railroads +21%) and these sectors have offset the decline in the Banking and Consumer oriented sectors. This is why the S&P is only down 14% for the year and the ISEQ is down over 32% YTD. Irish shares do not provide adequate geographical or sector diversification.

I think that you fail to understand that not every country is working its way out of a prolonged economic boom like Ireland. What quoted Irish companies have benefitted from China's economic boom? What Irish quoted companies give you exposure to the fastest growing regions of the globe (South America and parts of Asia)?

The ISEQ is basically just a way to play the health (or lack thereof) of the Irish economy. The rest of the world does not follow where the Irish exchange leads. In fact, the severe sell-off in banking and construction stocks is far from being unique to Ireland -the S&P Mortgage Bank Index is down 60% on the year and the falls in the UK banking stock mirror those of Ireland.

Choosing only Irish equities is, IMHO, a poor way to invest.
 
I'm of the opinion that Ireland like other western economies has has a 30 year up cycle till the turn or the century, and this is usually followed by a 10 or 15 year sideways market. Failing to see this big picture is dangerous as if you invest for your pension 15 years before retirement at the wrong time you don't make any money. None of the western stock markets have gone up really in the last 10 years as the op correctly pointed out.

There are however emerging stock markets with rapidly expanding and westernising populations who will see many years of growth unless oil and commodity shortages put and end to that, but thats another story.

The aam guide was written probably 10 years ago now and in a time when access to international markets was not so easy?
 
badabing said:
I'm of the opinion that Ireland like other western economies has has a 30 year up cycle till the turn or the century, and this is usually followed by a 10 or 15 year sideways market. Failing to see this big picture is dangerous as if you invest for your pension 15 years before retirement at the wrong time you don't make any money. None of the western stock markets have gone up really in the last 10 years as the op correctly pointed out.

There are however emerging stock markets with rapidly expanding and westernising populations who will see many years of growth unless oil and commodity shortages put and end to that, but thats another story.

The aam guide was written probably 10 years ago now and in a time when access to international markets was not so easy?
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I do not know enough about economic cycles to debate your point but whether you are correct or not with Irish equities you can only really participate in part of the economic cycle whether it is in an upswing or a downturn.

Diversification seems to be a poorly understood term in Ireland. Many Irish wealth managers and fund managers (not to mention the average investor) seem to believe that by holding positions in Irish bank A and Irish bank B you have diversified your portfolio to an extent. If you suggest that you buy Swiss logistics company A or Finnish engineering company B few want to listen.

Ireland's economy represents perhaps just 1% of the Eurozone economy. You might as well limit your investment universe to all companies that begin with the letter A.
 
I would also be interested to hear a response to the line that has been trotted out here repeatedly for the last couple of years, that 'cash' is the riskiest place to leave your cash as it erodes over time with inflation.

Well, perhaps in the very long term, however I'm glad I didn't heed to that advice and kept 90% of my savings on cash deposit to ride out this inevitable shake down in the markets.

Could be a long long time until the markets get back over their highs, if ever.

Cash is and has been king for the last couple of years imo, and the advice trotted out here as been very, very costly for anyone who listened to it. Shame
 
mollser said:
I would also be interested to hear a response to the line that has been trotted out here repeatedly for the last couple of years, that 'cash' is the riskiest place to leave your cash as it erodes over time with inflation.
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Who exactly said that it was the riskiest place? Obviously your money is losing real value if the net deposit returns are less than inflation and this has been the case with many accounts in recent years. Maybe not so much lately with the plethora of high rate lump sum and regular saver accounts on offer but no everybody with significant amounts of money in deposit is opening these.
 
Rocy1 said:
I have always considered this a flawed investment proposition and feel that the askaboutmoney.com community should debate this openly.
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"Hindsight is an exact science"

I'll ask the question on behalf of all those who did invest in the shares the largest 10 Irish companies, Why didn't you say so before?
 
Rocy1 said:
"There have been huge drops in all the major stockmarkets worldwide. It's not as if the Irish stockmarket has halved while the other markets have risen"

World equity markets have fallen in value; the Irish market imploded.

Do you see any logic in the argument that if you derive your employment income in Ireland and own property in Ireland, this should be sufficient exposure to the fortunes of this peripheral isdland economy. And that prudent investors should cast their investment net further afield?
Click to expand...

Another poster suggested that the guidelines may be 10 years old now. Given that we are now part of a much larger monetary union, should the advice perhaps be updated to "buy and hold shares in 10 large companies spread throughout different sectors and different Eurozone countries"?
 
Persius said:
Another poster suggested that the guidelines may be 10 years old now. Given that we are now part of a much larger monetary union, should the advice perhaps be updated to "buy and hold shares in 10 large companies spread throughout different sectors and different Eurozone countries"?
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YES,but 10 companies is not diversification enough,minimum25,you must reduce the odds of loosing large percentages,as has been seen in the banking and construction industries.
for example if you had 25 companies in portfolio,2 are banks,that just represents 8% of your total portfolio.but if you have 10,and 2 are banks your losses are 3 times higher.
 
It is odd that in the light of recent events in the Irish stock market this thread has not seen any further comment.

I would be interested to know if anyone really believes if the advice to buy top 10 quoted Irish companies is still valid?
 
I believe that giving generic financial advice to "buy the top 10 quoted Irish companies" is not providing any assistance to would be investors. In my opinion if you are interested in investing for yourself in equities you need to educate yourself, take control and do detailed due diligence on potential sectors, companies, new trends, economic cyles etc. This certainly would not mean limiting yourself to the Irish market where you are down 1% before you even start.

If you are not interested in taking control and doing the groundwork then there are other options available i.e. Mutual Funds, Index funds etc. You could also subscribe to a respected Investment Advice company who will recommend companies for you to invest in. I'm not a big fan of these funds as I believe the average person should take control of their own investments.

I'm surprised to see AAM providing this kind of generic advice to be honest. I think they would be better advised to removeit or provide much more detail on the various options available.

JohnBoy said:
It is odd that in the light of recent events in the Irish stock market this thread has not seen any further comment.

I would be interested to know if anyone really believes if the advice to buy top 10 quoted Irish companies is still valid?
Click to expand...
 
JohnBoy said:
It is odd that in the light of recent events in the Irish stock market this thread has not seen any further comment.

I would be interested to know if anyone really believes if the advice to buy top 10 quoted Irish companies is still valid?
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I never thought it was valid to be honest. It is dangerous advice and should be removed.
 
"The notion that a sufficient geographical spread is achieved by investing in the Top 10 Irish compnaies has been proven to be incorrect. The international investment community has all but given up on Ireland inc for the moment and even companies with very little exposure to property or other market activity in Ireland have seen the share price tumble. Baby and bathwater comes to come."

I agree totally with this, however I think a rally in the iseq is long over due and it may rise by 20% or more, I think you are better off opening a trading account with a London discount broker trading on the London stock exchange. That way you can by the biggest iseq companies that are traded there if you want or sell them if you want and still have a huge diversity of stocks to chose from, you can apply stop losses to protect your principal and gains something which is not discussed on this site
 
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