Have a read of the following list and see if you can guess its significance: lubricants, iron ore, steel, oil, pharmaceuticals, ships, telecoms, food packaging, oil, property. With the exception of telecoms and property, and perhaps pharmaceuticals, are they just boring, old, dirty industries which are part of Britain’s industrial heritage but play a declining part in our dynamic, 21st-century service-based economy?
In fact they are, in order, the principal business interests of the British residents who occupied the top ten places in this year’s Sunday Times Rich List. It is little surprise that there is only one representative from the aristrocacy: the Duke of Westminster, at number ten. But what is remarkable is the almost complete absence of people who made money in the ‘new economy’ — internet, social media or service industries. Even David and Simon Reuben, whose position at seventh in the list is largely thanks to the sale of a telecoms data business last year, made their first billion in aluminium.
Here is a paradox. While the UK economy has done well out of a switch towards a service economy, when it comes to making a multibillion-pound fortune there is nothing like a big old dirty industry. You might object that some on the list are elderly and that their wealth represents success in businesses established decades ago. Yet the fastest-rising fortune on the Sunday Times list, too, comes from just about the biggest, dirtiest old industry of them all: Jim Ratcliffe, owner of the Grangemouth oil refinery, rose from number 84 to number 26 last year.
As for service industries, the highest representative is Sir Philip Green at number 21. The highest representative from the entertainment business is Sir Richard Branson at number 23 and the biggest sporting fortune is Bernie Ecclestone at 29. Yet among them are legions of shipping magnates, chemical tycoons, mining kings, textile manufacturers and lairds of vast estates of serviced offices.
What’s the lesson in this for investors? If you want to build up wealth in the long run, stick to the boring stuff. Any business with a dash of glamour or excitement, or which is touted as being the future, is best left alone.Boring things are boring for a reason: they have been around a long time, and they look like being around a lot longer. No one gets excited about soap powder, because it has become part of the furniture of everyday life. It is neither likely to undergo some dramatic reinvention nor to disappear from our lives. As a mature product it has fallen into the hands of a few big manufacturers who, such are the low margins of return, are unlikely to be usurped, or to go under. Demand is not expected to explode, yet demand is bound to grow along with the world population. Take Unilever, then, whose shares are up 150 per cent over the past decade.
But companies get much duller than that. Unilever does after all have brands, which feature in TV ads. For a really tedious turn-off of a product, what about slurry-handling equipment? When did you last hear a pub bore telling you that slurry–handling is the future? You can name where the social media whizzkids hang out (Old Street roundabout), but can you name where the nation’s top slurry-handlers do their business, as it were? When did you last read anything about slurry-handling? Exactly. That is probably why the Weir Group — the go-to people if you need any slurry handled, who hang out in Glasgow — has proved such a good investment over the past decade, with shares up 720 per cent.
Such companies are immune from the excitement which drives bubbles. The absence of speculators in search of a quick buck makes it less likely that their share valuation will go out of line with reality. You can have relatively high confidence that professional analysts have got the value right. Moreover, the boards of such companies know they have to perform; they can’t just spin a tale of riches in the distant future.
Here is my suggestion for a boring portfolio. Without knowing anything about the investment history of the companies concerned, I went through the FTSE 100 and picked out the ten companies whose main products and services struck me as the most tedious-sounding. I doubt whether many readers will disagree with the choice. I then looked at the performance of their share price over the past decade. This was the result, in alphabetical order.
|Aggreko Supplies temporary generating equipment||+970%|
|Bunzl Everything for offices, from paperclips to toilet paper||+280%|
|GKN Gear wheels and little bits of cars and aircraft||+40%|
|IMI Nozzles and valves||+220%|
|Meggitt Aircraft brakes||+65%|
|Melrose Buys and turns round grubby engineering businesses||+350%|
|National Grid Owns pylons||+110%|
|Rexam Tin cans||+10%|
|Unilever Soap powder etc||+150%|
|Weir Group Slurry-handling equipment for the mining industry||+720%|
By comparison, the FTSE 100 index is up about 40 per cent since October 2004. Every one of my tedious portfolio, except Rexam, has matched or outperformed the index. I know that is a misleading comparison: the FTSE 100 has changed composition many times over the past ten years, and some boring companies which haven’t done so well will have been kicked out of the index, but you get the idea. In fact, most of the shares on my boring list have done better than the above suggests because they are relatively high-yielding, boosting total returns.
In one of my favourite scenes from The Graduate (1967), Benjamin is lounging around by the pool when he is awoken by some advice from Mrs Robinson’s husband: ‘I’ve got one word to say to you, Benjamin: plastics.’ Mr Robinson was right: within a few years of the film being made, virtually all household goods and food packaging had turned into plastic. And yet who apart from Mr Robinson, and perhaps Hans Rausing, ever got excited by it?
Mr Robinson, as we know, was insufficiently interesting to retain his wife. But I bet he wound up rich. I know how I am going to invest in future. I am going to say that line from The Graduate over and over in my head, replacing ‘plastics’ with ‘slurry-handling’, ‘office supplies’, ‘nozzles and valves’, and other things made by companies in which I am thinking of investing. If the product fits the line as well as ‘plastics’ did, then I will take it as a sign that the company is probably going to be a very good, boring investment. I am already yawning with anticipation of a comfortable retirement.