A Brexit 'buy' for Share Sleuth

It took me nine hours to come to terms with the fact the UK is leaving the European Union (EU).

Between 6am, when I Googled the result, and 3pm, when I finally started work I anxiously flitted from one social media app to another, from Twitter, where I could read what the whole World thought, to WhatsApp, where friends and family consoled and argued with each other.

In a bid to do some work, I decamped to the public library. Normally I find peace and solitude between the shelves in 920 Biography, but the change of scene failed to prompt a change in behaviour and by lunchtime I was so desperate to shake referendum shock syndrome, I went for a stroll around the city centre.

Cambridge, has many distractions: grand architecture, curious shops, a busy market, tranquil parks and decent buskers but, although it was a sunny day, there was a chilly breeze and the crowds looked sombre. I thought they too were probably in shock. Cambridge voted overwhelmingly (74%) to remain in the EU.

Outside Waterstone's (I thought the books might take my mind of the referendum), I bumped into my son, one of the few young people that voted. We started chatting about the result and the day was mostly lost.

I thought it was a defeat for democracy. I thought the EU extends our democracy, and the claims and promises made by the leave campaign were disingenuous (I didn't think much of the remain campaign either). If the politicians failed to live up to their promises or the economy tanked, both likely in my estimation, I thought the electorate would be even more disillusioned than before. And we'd be poorer.

I recount this story to show I was in a febrile state of mind last Friday. Distracted and jumping to conclusions, it was a bad day to make good investment decisions.

Thankfully, I didn't make any investment decisions. One thing I didn't worry about was whether my pension fund was falling in value and one thing I didn't do was trade.

Working out the consequences of Brexit on the companies I follow is beyond me. There are too many variables and they're changing all the time. It's tempting to believe we can see the threats and opportunities in the future and profit from them, but I set the bar I have to jump a little lower. I rely on entrepreneurs and businessmen to do that for me.

I expect the firms I own shares in to adjust as the future reveals itself. They have valuable property and the thousands of people who work for them will continue to work out how to profit from it. My job is to find these resilient firms, not predict every cataclysm and dodge it.

You might wonder why I don't do both, seek out resilient companies but bail out of them temporarily during times of uncertainty. The answer is I wouldn't invest at all. The future is always extremely uncertain even when we think it isn't.

The reason I'm shocked by Brexit is because, deep down, I didn't foresee it. Now it has happened, why would I think my foresight is better?

Next

Yesterday, I added shares in retailer Next to the Share Sleuth portfolio. Next has a triumphant past but a questionable future.

When I read the annual report and extracted ten years of data from it and previous annual reports, this is what impressed me (there's more detail in this article):

- Sustained high levels of profitability, perhaps due to its mainstream but not dowdy brand, pioneering catalogue, and buying and distribution capabilities:

- Willingness to return cash it does not need for profitable investment to shareholders through judicious buy-backs and special dividends.

- Some restraint in executive remuneration and some weighting towards the long-term.

- A degree of openness about the challenges Next faces, principally competition.

Although Next earns most of its revenue in the UK, my doubts about the investment aren't related to Brexit. Other things being equal, it would survive recession and ultimately prosper.

On Tuesday, I dragged my teenage daughter and her friend to Next to see what the next generation of customers think of the store. The clothes are Mumsy, they say. They might buy them, one day. My son doubts he will ever become a customer. He can buy everyday clothes more cheaply in H&M, and pricey stylish clothes in Ted Baker. On average he'll spend the same, he says, and look less average (he's an economics student, that's the way they think).

People change though, as they get older and Next's modest but more stylish than average look is its appeal. I've walked around our local store three times in recent weeks and I like it. It's tidy and well stocked with items selling at their full price. The staff are attentive but not pushy. They must be wondering when I am going to buy something. Maybe when I'm a 34" waist again.

It's the Internet I fear. Next admits competitors have caught up with the delivery and warehousing capabilities of its hugely successful catalogue business, Next Directory, and while more people buy online today, Next has been slow to launch mobile websites and get to grips with Internet marketing.

It thinks attracting and converting more Internet visitors into customers is an opportunity to improve the business. I think it's essential, if Next is to secure the custom of the Asos and Superdry generations when they grow up and tone down. The good news is, Next knows it must invest in its websites and marketing, and its adapting. The market, on the other hand, is pricing Next as though stalled growth, or perhaps a modest contraction, expected in the current financial year will persist indefinitely.

A share price of £48.40p values the enterprise at just under £10 billion, 11 times 2016 adjusted profit. The earnings yield is 9%.

I added 45 shares. After adding a £10 charge in lieu of broker fees and £10.89 in lieu of stamp duty, the transaction cost £2,199, approximately one thirtieth of the value of the portfolio.

Share Sleuth portfolio

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser