In my perusal of the FTSE 100, I’ve been looking to identify both good and bad shares for novice investors, at least according to my standards — and I just want to recap what some of those standards are.
I’m not just looking for any old share that I think will go up. No, what I’m doing is looking for those that are among the best in their fields, as those are likely to provide fewer shocks, be easier to understand, and provide more education and encouragement than the rest. I reckon buying “best of breed” shares that will provide good, if not stellar, returns is more likely to keep novices committed to investing in shares for decades than taking on too much risk and getting hurt early on.
For every 10 who start out, I’d rather see all 10 reaching a comfortable retirement than see one getting rich quick, eight doing the happy-old-age thing, and one crashing and being put off for life.
The best supermarket?
With that in mind, I’m going to tell you why I don’t think Wm. Morrison (LSE: MRW) (NASDAQOTH: MRWSY.US) should be in your top ten, and it’s largely for all the opposite reasons that make Tesco one of my favourites.
Over the past five years, Morrisons has actually done pretty well for investors, and when we account for dividends it would actually have beaten Tesco. Every pound invested in Morrison shares five years ago would be worth around £1.40 today, with the Tesco pound worth only about £1.20 — although, if we pick different start and end dates, we’ll see different comparative figures.
But a better track record is only part of the story.
Morrisons has expanded well from a local chain to one with more countrywide appeal. But there is a limit to how far a smaller operator in the supermarket business can grow in the UK, and Morrisons has surely reached it. The UK market really is saturated today, with Tesco enjoying around 31% market share, with Morrisons capturing less than 12% — Sainsbury’s has about 17%. And despite jostling for a percent or so each year, I really can’t see that changing much.
Where next?
Future growth is overseas, and Morrisons simply isn’t there.
Morrisons’ business is 100% in the UK, while Tesco has a headstart of many years with about a third of its operations now overseas. That provides it with valuable inroads (and insight) into Thailand, Korea, Malaysia… and the potential biggest, China.
Morrisons is behind Tesco on just about everything else, too — banking, insurance, even online retailing. Morrisons has been woefully late in selling stuff on the internet, and it’s taken until this year for it to strike a deal with Ocado to finally get it into motion.
In fact, I can’t think of anything that Morrisons does that I can honestly point to and say it does better than the rest — even Sainsbury’s has found a niche in the “slightly upmarket” section of the business.
Shun mediocrity
When you’re just starting out, there’s no point investing in the third or fourth-best in a business, especially not a company that has no real positive distinction from the rest, and no unique proposition.
I doubt you’ll crash and burn if you buy some Morrisons shares, but I think there are better places for a novice’s cash.