Sometimes I think that the Financial Conduct Authority does actually hate private investors…
These wretched little people want to run their own financial affairs when there are professionals out there who are so much better qualified!
The professionals study finance and investment; they take arduous exams and then spend their entire working lives demonstrating their continuing competence (continuing incompetence as it is known on the trade).
How dare mere private individuals like you and I claim that we can do a better job? How can it even be possible for us to negotiate the perils of financial markets? Well actually it is not only quite easy but much better for our financial health – and that despite the latest obstacle placed in our way….
It concerns the flotation of a new entrant to the Stock Market. I have been weighing up a possible investment in TekMar Group, which has just made its shares available to the public.
Based in County Durham, TekMar has many of the attributes I look for. It is a small but dynamic company. It is an established business, but has been growing nicely – with an annual revenue of £22m. And with some of the cash raised in its stock market flotation used to pay off its debts, it should be profitable.
TekMar supplies polyurethane covers that protect sub-sea cables. Buffeted by currents and smacked against the ocean floor these cables are liable to damage and the cost of repair and more importantly the lost output of the windmill far outweigh the £32,000 cost of safeguarding them in the first place. TekMar has a 70% market share of the European market and names only one significant competitor, Norway’s Seaproof Solutions.
This gives it a powerful position in a market that looks set for growth. In common with other sources of clean energy the cost of wind power has fallen sharply, making it competitive with fossil fuels and allowing projects to attract finance even without government subsidy.
Forecasters say that wind energy will be cheaper than natural gas by 2022, that offshore wind will produce 11% of the EU’s electricity by 2030 and that global offshore wind capacity will grow from 17.1 Gigawatts in 2017 to 102.7GW in 2026, representing annualised growth of 22% and a whopping investment of $444bn.
If TekMar can simply keep pace with this expansion it should do pretty well. The remainder of its work comes from supplying protectors for subsea cables and flexible pipes to the offshore oil industry, which is climbing out of a trough as the oil price recovers. TekMar wants to expand overseas and says that it want to acquire complementary businesses – although since all new companies say that they would like to grow by acquisition we can only wait to see what this means in practice.
On the face of it this looks like the sort of business that should reward investors. It has a leading position in a market that looks poised for growth, a decent track record and identifiable opportunities for expansion.
So when I saw that TekMar was coming to the market I was interested. But I was missing some crucial information…
Does TekMar depend entirely upon supplying new build wind farms, or is there an element of repeat business – for example replacement, renewal or service work? What do the financials look like, especially in terms of cash generation? Does TekMar intend to pay a dividend? Who are the major shareholders? What is the background of the Directors and is their remuneration excessive or otherwise?
For these details I needed to see the Admission Document. This always used to be produced several days before the shares started trading, giving potential investors plenty to time to do their research.
But this is now deemed unnecessary. The earliest I was able to locate the Admission Document was on the morning of June 20th, the very day that the shares started trading, giving me almost no time to do the research necessary to make a properly informed decision.
As it turned out I discovered that there is very little in the way of repeat business, that TekMar’s Chief Executive is just 28 years old, and that the forecast cash requirements of the business are such that shareholders cannot expect a dividend.
On these grounds I have chosen not to invest in TekMar at this stage. But that is not the point…
Should I become a shareholder in TekMar? I can take it or leave it. But what sticks in the craw is the fact that I was not given a fair chance to come to my decision before trading in the shares commenced…
Unlike institutional investors who would have seen drafts of the Admission Document, met the management and probably toured TekMar’s facilities in Newton Aycliffe way ahead of the date trading started.
It seems there is one set of rules for institutional investors and another set for private investors and the former are always favoured. This is unfair but it is also misguided.
What is the purpose of the Stock Exchange? It allows companies to raise money by selling shares to holders who, crucially, are not stuck with them but can sell them if they so wish. The Stock Market plays a valuable role in the economy by allowing companies to present themselves to investors in a sort of corporate beauty contest that sees capital directed to the most attractive opportunities.
So the question is – who is best placed to judge these attractions? City professionals or private individuals?
In my experience, a lot of City fund managers simply go through the motions of attending a PowerPoint presentation, asking some cursory questions and ticking the boxes. Of course there are notable exceptions, but especially at the small company end of the market decisions will often be left to youthful fund managers with little experience of the real world of business.
Many private investors, on the other hand, are highly experienced in business, finance or both. In the case of TekMar they might have worked in the off-shore business. They might know some of the people involved. They might like nothing more than reading a set of accounts line by line and they understand the tricks of the trade. Unlike fund managers who invest other people’s money, private individuals are investing their own and that concentrates the mind.
So private investors can play a vital part in ensuring that shares are correctly priced. They have more of the most important investment attribute, experience, than most of the professionals and they have no agenda other than to make a decent return.
Not only do many of the professionals have little real experience of the business world but they worry about sector weightings and indices and are instructed by the absurd rules of the FCA to treat all small companies as high risk investments even though many of them are in fact low risk.
But here’s the thing…
Neither the regulatory authorities nor the financial services industry really want people to invest their own money.
The regulators are scared that individuals will pour their money down bottomless holes and they will have to deal with the fall-out of financial scandals à la Standard Life.
The financial services industry simply wants you to hand over all your money to it, so that it can fleece you with its outrageous fees for years to come.
You need to understand these things.
You need to realize that none of the powers really want you to take control of your own financial future.
But I have never met anybody who has been made rich by their fund manager – have you?
So if you want early retirement and a life of ease you must do it yourself – even while accepting that the playing field is not entirely level.