Friday, June 12, 2015

There is a time to sell and a time to wait

I have no problem with the nationalised banks going back into the private sector. The gradual winding down of the public holding in Lloyds Banking Group is the right approach. The shares are being sold at a profit to the taxpayers, the people who have had to bail out the banks. Putting them in tranches for sale means the market is not flooded with shares and therefore the price is maintained at a reasonable level. Unlike an initial flotation, in which the price has to be set at a level which reflects the overall value of the company, the likely dividend and trading prospects, all of which involve guestimates, selling shares in an already quoted company means there is a benchmark by which the sale price of the shares can be judged. In the case of RBS, which the Government are planning to sell, the benchmark is the price paid by the Labour government in 2008.

I've played the stockmarket for 30 years. In that time, the underlying principle is that I'm in for the long term. Shares are held for many years, some I have had for decades. Sadly, some of the bank shares I have are worth a great deal less than I paid for them. I certainly won't be selling them until their value has  recovered and even then, if the dividend income is reasonable, I will continue to hold on to them. It seems to me that selling shares at a loss when there is a good expectation of a recovery in the price is the wrong long term decision. In 5 or 10 years' time, the value of the shares is likely to exceed the cost paid for them. Indeed, the growth in their value is likely to be greater than the cost of servicing the public sector debt that could be eliminated by the sale of the shares, especially as interest rates are currently so low and will continue to remain low for some time to come.

Reducing the National Debt is absolutely the right thing to do but using short term solutions to long term problems makes solving the long term problem harder.

No comments: