What have your investment priorities been in 2019? With the uncertainties and economic pressures we’ve faced, it’s been a bearish strategy of avoiding mistakes for me, with a focus on Warren Buffett’s advice to not lose money.
I think my best stock tips of the year have all been sells, focused on steering clear of duff recovery prospects.
Crumbling bank
After Metro Bank (LSE: MTRO) shares crashed 30% in one day in January, where many saw a recovery possibility, I saw potential for disaster.
I’d like to have been wrong, but since then Metro Bank shares have lost a further 85% of their value. The bank had shocked us with the revelation that an accounting error had led to some loans, including some commercial mortgages, being assessed in too low a risk band, and that blunder was compounded by further failures.
It left Metro’s balance sheet a bit short, and a £350m cash call was needed to shore it up. And with memories of what happened the last time banks were a bit squeezed fresh in their minds, savers rushed to withdraw their cash.
Metro has probably got itself back on track now, and the departure of founder and chairman Vernon Hill has restored some confidence. But what convinces me to still avoid Metro Bank is the lack of competence implied by such a howling error.
Where’s the oil?
I examined perennial disappointment UK Oil & Gas (LSE: UKOG) in January too, deciding that it was a 50/50 gamble at the time – and I don’t do those. The biggest risk to me, which has played out through the year, was that the firm’s proven resources appear to be scant, despite the much-touted possible billion barrels or whatever that might lie beneath the Weald Basin.
Though the share price spiked up in late January, as with so many UKOG share rallies before, the trajectory soon turned back down again – and so far in 2019 the price is down 33%.
What’s the situation looking like now? Though we had another share price rally later in the year, I see little changing at UKOG. The company has acquired further interest in the Horse Hill site, is still producing trickles of hydrocarbons from its test wells, and we’ve still seen no sign of a Competent Person’s Report and have no clue about likely commercially viable oil and gas levels.
No commission?
My third “not with a bargepole” tip is Purplebricks (LSE: PURP), whose shares have lost 35% of their value since I wrote about the estate agent in January.
At the time, we were already looking at a fall of around 70% since Purplebricks shares hit an all-time high in 2017, after it became clear the firm had severely overstretched itself.
But the big problems for me were, and remain, that Purplebricks is still in net spend mode, is still set to record a loss this year, and I can’t even attempt to put a rational valuation on the shares. There’s a tiny profit forecast for the year to April 2021, which gives us a price-to-earnings ratio of 95 – but that’s a meaningless valuation at this stage, and confidence in it can at best be slim.
I still wouldn’t touch any of these three, at least not until I see profits and genuine recovery progress.