James Burn: FastJet is dead and buried

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IN APRIL, the Investment Club underwent an extremely painful operation with the cauterization of the suppurating financial wound caused by our FastJet investment.

FastDebt would be a more appropriate appellation, as we were haemorrhaging funds at a life-threatening pace. Hopefully, though, the patient is on the mend now that our holding in FastJet has been sold. This is reflected in the club’s unit price climbing 5p to £2.93.

After our decades in the benign investment climate of government debt finding our investment feet in the harsh world of equities is proving very difficult. While the FastJet experience has been traumatic it has also been a learning experience for the club.

For instance, we decided on our investment choice of FastJet from other peoples’ reviews of the company’s prospects. What we should have done was look more closely into the company ourselves. We would have learnt contrary to what was being said about a new company and new idea of a pan-African airline that it was neither.

With the departure of FastJet the club still has four of its original investments: Scottish & Southern Energy in the utility sector; First Group in travel & transport; Aviva in insurance and Afren in oil & gas. The club is making a good profit on SSE and First Group but losses on Aviva and Afren, giving a small but welcome surplus at the end of April. Where to from here?

Well, last month, the club was proposing restructuring its investments with the purchase of a tracker fund and trying a different angle on the traditional buy-low/sell-high strategy to a buy-high/sell-much-higher one.

This we still intend to implement in the month ahead if we come up with suitable candidates to fill the roles. The club will not need to sell any shares to make the new investments because we have a small cash pile of about £10,000 that’s doing nothing but giving some stability to our portfolio. However, the recent bull run in shares is getting quite long in the tooth and the club must militate against getting in at the top of the bull-run. So where is the top?

The club’s paper and pencil (pap) analysis sees the FTSE climbing to about 6,625 points, where it should start to find some resistance to any further advances without some consolidation. It came to rest at 6,430 at the close of April giving it only 195 more points
before it starts hitting resistance. But it is America which is the dominant market that sinks or floats the others. Currently, pap analysis has the Dow reaching a ceiling at around the 16,000 point mark. At the end of April it was sitting at 14,840, giving us about 1,000 points to play with.

The pound, after hitting a low of $1.49051 on 12 March, 2013, had climbed back up to $1.5536 at the end of last month. It should, however, end its run up at $1.5589, the half-retrace mark to the previous fall, this should initiate another decline.

Therefore, the club is going to try to find a suitable North American tracker fund where we should get the benefit of a rising Dow Jones with a falling £/$ rate. Let us hope we do not select another FastDebt share in May.