Business News

The Rinehart lead to buy stocks

| More

by Peter Switzer

While it was another ‘nothing’ day on Wall Street overnight, the big market news has been the Gina Rinehart raid on Fairfax Media where it is alleged she is trying to pump up her four per cent stake in the company to 14 per cent. This would give her a seat on the board of the company but John B. Fairfax recently departed the company’s share register as his 14.6 per cent holding had little sway over the board.

So why is she doing it? I reckon there are at least 20 billion reasons why she can do this!

On latest reports Gina’s stash went from $10 billion to $20 billion thanks to the South Korean steel company Posco increasing its stake in her iron ore deposit, Hancock Prospecting.

And over the last few years she has been exposing herself to media companies with a significant interest in TEN. This coincides with her aggressive public response to the Federal Government’s mining taxes, and this was quite a departure for her as she is not a media tragic.

You could argue that it is wise not to be dependent on mining for your wealth as commodity prices do go through booms and busts. So, there is sound investment logic in the play.

There is also the argument that many Australian tycoons have a penchant for media. The names Packer, Stokes and Murdoch adequately prove the point and even in the 1980s the Lowy family had a crack at the media owning TEN.

Some critics ask why Gina didn’t move on the company when J.B. Fairfax quit the company as the quantity of shares available was larger and the price was more attractive.

This shows how little these people know. In November, despite it being a month after stocks started to rise, negativity on Europe, China and recessions meant that it was the brave who were risking their dough then.

Also Fairfax has been attracting better management and from my point of view looks like a stronger team in 2012 than it did last year. And of course, despite what you read from doomsday merchants and the media messengers who are addicted to carrying their messages, this year looks like a better year to expose yourself to stocks.

I think there are a variety of reasons why Gina wants to extend her footprint over Australia’s media but I think it is also a sign that someone who has shown herself to be a shrewd operator thinks there is value in beaten-up stocks.

The wealthy don’t always make the best investment decisions but they often operate with the benefit of some very good information. I take this as another sign that we are heading into a time when holding stocks as opposed to safer and less rewarding assets is becoming the wiser strategy.

Another good sign was that the S&P 500 index finished up over four per cent for January and as I pointed out yesterday when this happens the index usually has a double-digit percentage gain for the year.

For the record, the S&P 500 index was down 0.05 per cent to 1312.41, and the Dow was 0.16 per cent lower to 12,632.91.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Wednesday, February 01, 2012

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Abbott deserves a Tony Award for that speech!

When do we dump stocks?

Abbott’s budget reply: is he really trapped?

Budget 2013: what are the real issues?

Labor’s trap for Tony Abbott