Perceptions of investment risk #finance
Since the credit crunch of 2008 investors have demanded higher returns on the perceived risks associated with the stock market. Perceptions of investment risk changed in 2008 and made investors more risk averse and Brexit reinforced their fears of another meltdown. We nervously wait for article 50 to be triggered which is another storm warning that could devastate the market once again.
We assess the risks and look for higher returns. Diversity will protect us from many risks but not from a market crash. We can expect a few companies to survive the triggering of Article 50 quite well. I have in mind the big pharmaceuticals that are benefiting from the lower pound. Investing in companies that pay good dividends reduces the risk a little too. Brexit also had more of a negative effect on the FTSE 250 than the FTSE 100 so diversity across markets can help. Even AIM shares can do well when the popular shares are getting hit.
Insurance companies have been going through a bad patch for all sorts of reasons, but they have increased premiums by an average of 20% over the past six months and so their prospects look good. I expect the AA to benefit from higher premiums after paying their first dividend this year too.
Solo Oil got its first payment for the supply of gas in Tanzania this week. They will get regular payments now and according to my calculations, this will give the company a massive boost. They might even go into profit and the perceptions of investment risk, as far as Solo is concerned, is much reduced and so they can now find additional investment.
GSK continues to rise, albeit more slowly as sterling refuses to rise after the Brexit vote. Together with quarterly dividends, investors see a safe bet in big pharma at the moment.
I’ve held PFD for a long time and even bought the rights issue and so I’m very pleased to see some progress of late. I see a lot of upside for PFD and a pound a share could be a reality before long. They suffer a lot because of negative perceptions but the reality of profits could quickly change that.
Perceptions of investment risk
Perceptions of investment risk can change very quickly. Perceptions of risk can even change with the weather with traders feeling more positive on sunny days. The Christmas spirit can also produce a ‘santa rally’ in the run up to the festive celebrations. It is a good idea to be aware of all these external influences that change psychological factors and the mood of traders.
Overall, I think we will see higher dividends in the next 12 months to tempt private investors to blue chip companies. If you would like to follow this blog, just enter your email address at the top of the sidebar or follow me on Twitter for updates. You can also find more ideas on my Facebook page.