Why Avoiding Risk Is Much Riskier

By Heather D'Alton Dec 07, 2005

*** Sainsbury’s mini-comeback?

*** More growth to come from BP

*** Don’t get too PC when it comes to risk...China’s slowdown should stir things up...why men are really from Mars, and women are from Venus...and more

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– Butt-slapping Asda may not be a “retail straggler”, says chief executive Andy Bond, but the supermarket will still have to slash some 1,000 jobs in order to re-ignite its ailing business.

– The job cuts shows that even the retail giant, owned by Wal-Mart, has been affected by the pullback in consumer spending...and also that former supermarket wobbler Sainsbury is staging a mini-comeback. Sainsbury recently reported a 1.3% rise in like-for-like sales – far from impressive, but sufficient to tempt a number of former Asda customers into its aisles.

– Yet other than Sainsbury and Tesco, the gloom has far from lifted in the retail sector. Yesterday the British Retail Consortium added that like-for-like sales fell last month by 0.5%, following May’s 2.4% plunge. As a result, the BRC are demanding an interest rate cut from the Monetary Policy Committee when they meet tomorrow. Yet while their calls are unlikely to be heard, the retail industry continues to struggle, with the sector falling 1% on Tuesday. French Connection shed 4% yesterday, while Woolworths closed 3% down.

– The FTSE 100 meantime inched 5 points up, to trade at 5,190. The mid-cap 250 index fell 0.4%, closing at 7,407.

– BP’s trading statement released yesterday would have made perfect bedtime reading for insomniacs. The statement – awash with great results and impressive growth – was simply rather boring. So just a brief rundown of the statement: barrels of oil equivalent per day are up from the second quarter last year, refining margins remain high, and production rose some 3.5%.

– The real story behind BP at the moment? Well, perhaps that’s the fact that its share price currently discounts a long-term Brent Crude price of around $34 a barrel. With the crude price trading closer to $60 per barrel, it means that BP’s share price could still be in for impressive growth. The group’s shares traded 1% up yesterday, at 622p.

– And housebuilder George Wimpey has warned that its profits are likely to take a tumble on what it calls “considerable softening” in the UK’s housing market. With house sales down some 18% on last year, and Wimpey’s order book down 12% by value in comparison to 2004, profits will fall well below last year’s record figures. Its shares fell 4% on the news, while Bovis Homes shed 3%. The sector closed 1% in the red yesterday.    

------------------    Why Avoiding Risk Is Much Riskier– All risk is bad and should be avoided at all costs:that’s the consensus that has formed within much of the institutional community, says MoneyWeek’s Tim Price. But is it right? For those investors looking for long term returns, short term market risk is “inevitable”, and should in fact not be considered at all. Instead it’s true that nothing is more risky than avoiding “prudent risks”...and funds are sacrificing longer term returns, all for what is perceived to be “political correctness”.

The Optimism of a Pessimist– The US is still expected to experience a shift from deficit back towards balance, a move that is likely to be accompanied by a weaker dollar and higher interest rates, says Morgan Stanley economist Stephen Roach. But before that happens, something else is likely to stir things up a little: a temporary slowdown in China...which in turn would lead to a deceleration of pan-Asian GDP growth, and a fall in commodity prices. This slowdown may only be a “temporary detour for a high-growth Chinese economy”, but it could lead asset- dependent Americans even further into debt...and widen the current account deficit in the process.

Girls Can’t Read Maps, But We Know Where To Invest– There’s certainly some truth to the stereotypically accepted differences between men and women, says MoneyWeek editor-in-chief Merryn Somerset Webb in The Sunday Times. Like the fact that men refuse to stop and ask for directions...while women’s map-reading ability’s generally leave much to be desired. But this is also true for investors: the differences in temperament could just explain why the average women’s portfolio grew some 17%, while the man’s managed a meagre 11% in comparison.

 

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