ARE FALLING STOCK MARKETS PROVIDING OPPORTUNITIES?

Whenever I mention the expression ‘world dominator shares’ in a column it generates some extra e-mails and letters from readers who already directly own shares, or would like to buy some, but are unsure what to buy. (They may not know it, but chances are their company pension funds include such shares already.)

Whenever I mention the expression ‘world dominator shares’ in a column it generates some extra e-mails and letters from readers who already directly own shares, or would like to buy some, but are unsure what to buy. (They may not know it, but chances are their company pension funds include such shares already.)

‘World dominator’ is a just another way to describe some of the best, highest quality public companies in the world. They may be more familiar with the expression, “blue chip” shares, which refers to the highest value blue chips used by poker players.

All investing involves risk, but buying global dominator shares for the right reason isn’t a poker game: these are companies that are considered to be the strongest in their sector or industry, dominated all the others because the tick all the right boxes in terms of the products they make, the percentage of market share they have, size of profits, capital, money in the bank, ability to control costs, develop new markets, depth of management, etc.

Above all, nearly every share you see listed as a world dominator share (WDS) is (nearly) a household name, including the following: Abbot Laboratories, Apple, Coca Cola, Colgate Palmolive, Exxon, GlaxoSmithKline, Intel, Johnson & Johnson, Kraft, Mattel, McDonalds, Microsoft, Unilever, Walmart.

Key in ‘world dominator shares’ into Google – another WDS, by the way – and many lists come up. Today, the caveat against all of them is that since the stock markets have fallen again, they are all cheaper than they have been since the first big collapse of this recession in late 2008 and nearly all of them are both paying higher dividends (because of their lower share and price/earnings ratio) and because most of them have always rewarded their faithful shareholders with dividend increases (as profits remain steady or increase.)

There are other reasons why people buy world dominator shares – in good and bad times. First, they want to diversify their savings and wealth. We’ve plenty of negative experience in this country of putting all our eggs in one basket: property, bank shares come to mind immediately.

Savers are beginning to realise that paper money carries its own risk – as anyone who held Swiss franc discovered three weeks ago when its central bank devalued the currency by 9% overnight and pegged it to the desperately compromised euro to ‘support’ exporters. (The Swiss franc had been considered a ‘safehaven’ currency because 17% of the paper money supply had been backed by actual gold reserves.)

The current, nine year old euro itself could disappear and be replaced some day, but while the share value of world dominators can fall (and have), their dividends are still being paid and the chance that they will disappear is far, far less than some debt-engorged paper currency.

There is increasingly interest in world dominator shares because their price and p/e ratio is more attractive right now. (When p/e is under 10, investors usually consider the share to be within ‘fair’ value and you can expect to get the money you paid back in at 10 years from the annual dividend payout.)

It’s certainly worth looking at what’s happened to say, Intel’s share price and dividend (a great Irish company too): As I write, it’s price is $22.80, its p/e is 10.19 and annual dividend is 3.80%. In mid-August the share price hit a low of about $19.20. In December 2007 this great share was nearly $28, yet Intel keeps raising its dividend, expanding its business.

The best commentators I read - Porter Stansberry and his team at S&A Digest; the Agora Financial stable of authors; Brian Durrant at The Fleet Street Letter; James Ferguson and others at MoneyWeek magazine, all acknowledge that the stock market is a scary place right now and is hugely volatile. It is not for the fainthearted or for people who cannot bear price falls. Some suggest the market is heading steadily downwards to average p/e’s of 5.

So before you consider buying any individual shares or funds you need to be informed, to understand about risk and reward and to appreciate that defensive investing is a skill worth learning.

Yet I still kick myself for not taking €1,000 of the €2,000 that was left to my son by his late grandmother six years ago to buy Apple shares.

Like the rest of our family, the child (even at 12) is also a big fan of Apple products (especially iTunes). We have used only Apple computers since 1999.I can still remember him asking at the dinner table one night if it made sense for him “use some of Granny’s money to buy Apple shares. Had I taken him seriously, that €1,000 would be worth over €4,000 as the share price rose from about $75 in 2005 to nearly $390 as I write (having been as high as $422, and as low as $277 in the last 12 months alone.)

Knowing about these kinds of high value shares is certainly in every pension fund holder’s interest. Ask your company trustee or your own broker/advisor if your pension money is being invested in some. And for people who prefer to spread their risk further, world dominator shares are available as investment funds or ETFs. Check out the popular Irish life and pensions companies for their versions of these funds and study their costs, charges and past performance.

You can also learn about such shares by taking an investment course: I recommend Rory Gillen’s www.investRcentre.com

Money Express with Jill Kerby in association with Aviva