Crash Bang Wallop

grey_gym_sock

Glen_Clark wrote: »

I thought that as people have to economise more would change to cheaper brands, and finding them just as good, would not go back to Unilever and Reckitt. But it doesn't seem to have happened much so far?

partly because they have a lot of emerging markets exposure. so they're selling to an expanding middle class in many countries.

perhaps also because they've identified which products ppl are unlikely to economize on. who would use cut-price condoms?

(i hold reckitt.)

redbuzzard

Linton wrote: »

Some share sectors are known as "defensive". These are industries that people have to use in good times and bad. Examples include the utilities, the major supermarkets, basic shopping needs - eg Unilever and the other major food and provision manufacturers. Many such companies pay good steady dividends.

To which you can add pharma and tobacco. That touches on the reasons why, even though I incline to passive investing and index funds, I still hold IP Income for example. It might not beat the index long term, (though it seems to be doing a reasonable job) but it isn't so frothy and even though it's still nearer the risky end of the spectrum than the safe end, the strong solid yields when the market drops are a comfort. You can of course just buy defensive shares yourself at lower cost, but one mistake when your eye is off the ball can lose the benefit of somebody like Woodford watching your back (sorry to mix metaphors).

This volatility dimension is usually overlooked in the "most fund managers don't beat the index" articles.

gadgetmind

Glen_Clark wrote: »

ompanies like Unilever and Rekitt make most of their profits from their brand names which enables them to sell average products at above average prices.

Yup, it's called "turning commodities into brands" and it's a good business model.

I thought that as people have to economise more would change to cheaper brands, and finding them just as good, would not go back to Unilever and Reckitt. But it doesn't seem to have happened much so far?

Adulteration scandals are what drove the creation of brands and partly what keeps them in business. This is why brands are hit *very* hard by any whiff of taint regards their products.

My wife owns shares in Unilever, Reckitt and many more of the usual suspects.

Glastoun

gadgetmind wrote: »

Bonds, defensives, and (if you're patient) gold.

"Ah, Mr Bonds, we've been expecting you..."

I know nothing about bonds or bond funds. In my mind it's something that pensioners have, so maybe there's some research to be done there.

The main thing I've been reading recently is that they're due a fairly severe drop....

"No, Mr Bonds - I expect you to die."

MoneySaverLog

Glastoun wrote: »

"No, Mr Bonds - I expect you to die."

Shocking, positively shocking

gadgetmind

Glastoun wrote: »

I know nothing about bonds or bond funds. In my mind it's something that pensioners have, so maybe there's some research to be done there.

Yes, definitely. "Smarter Investing" by Tim Hale is a good start.

Note that the word "bond" is heavily overloaded with the same word used to cover many different things. When talking about investments, it's lending money to governments or companies for a (usually) fixed term in exchange for a (usually) fixed interest rate. There are many permutations once you move away from "usually".

The main thing I've been reading recently is that they're due a fairly severe drop....

Recently? People have been saying that for years!

jamesd

They are due a severe drop. The problem is knowing when. Higher interest rates after an end of fiscal easing are the likely prompt for that unless it's anticipated by markets but knowing when those events will happen depends on how recovery goes. Watching the US for clues might be best. But like all bubble popping it's really hard to know the timing. Bond rates aren't zero yet and until they get there that still allows some room for more price growth that could last years.

bugbyte_2

This is something I cant really get my head around. I can understand Gilts (Gov bonds) being in a bubble, as funds of these can pay less than a savings account - and that is saying something! But the bond fund I hold pays an underlying yield of 5%, so for this fund to collapse in value, interest rates will have to go up to 5% from 0.5% - possible long term but it (probably) wont happen over night.

jamesd

A rate increase from 0.5% to 1% would be expected to cause that fund to drop in value by 9.9% to get its yield to increase from 5% to 5.5%. The 4.5% increase to take it to 9.5% and match a 5% bank rate would be expected to cause the value to drop to 52.6% of current value. That's because the same £5 distribution would be 9.5% of £52.60.

The actual drops would be less. Those numbers assume it has to pay out at the new rate forever. Most bonds don't last forever so they drop by an amount that depends on how long it is until the bond reaches the end of its term. Less of a drop for a bond with one year remaining - it only has to pay out the extra 4.5% for one year, so it wouldn't drop by more than about that much. This is why you may read about short-dated (maturing within up to a couple of years) bonds being defensive bonds when compared to long-dated.

gadgetmind

I'd like to thanks JamesD for giving a very readable 186 word answer when he could have been glib and just said "Convexity".

http://en.wikipedia.org/wiki/Bond_convexity