The private investor: I'm not crying wolf - he's at my door

All this talk about industrial militancy and Trots running trade unions puts me in mind of a Trotskyist economics tutor I once had, a very pleasant, not to say brilliant, man and one of the best teachers any of us had come across.

All this talk about industrial militancy and Trots running trade unions puts me in mind of a Trotskyist economics tutor I once had, a very pleasant, not to say brilliant, man and one of the best teachers any of us had come across. One of his most endearing qualities was the limitless patience he displayed when trying to explain to the more obtuse students aspects of economic theory.

The author of books with titles such as British Capitalism, Workers and the Profits Squeeze, he didn't think much of capitalism and what's more, didn't rate its chance of survival very much. Twenty or thirty years ago, he told us that "the wolf is at the door" of capitalism.

I suppose he might have been right at the time, but Margaret Thatcher scared the wolf off and I sometimes wonder what my old tutor made of the subsequent longest boom in economic history. Anyway, one of the economic tools he lent us could be called the "hammer and anvil" theory.

The anvil is workers' resistance to pay cuts and the general downward resistance in the economy to actual price/cost reductions: the hammer is the increasingly global economy that means increasing competition for companies which slowly but surely robs them of their pricing power. Between the heavy hammer and the iron anvil lies corporate profitability, being relentlessly squeezed between these two formidable forces.

Of course, when "workers resistance" was smashed in the Eighties the anvil suddenly cracked and gave way, profits were restored and we witnessed the long stock market bull run. This, it might be argued, was a one-off because the step change in labour markets and the general liberalisation of western economies were one-offs.

Once these effects have worked their way through the older story may reassert itself. The hammer – globalisation – is still hammering at those profits.

As Hamish McRae wrote in his column in the business pages yesterday, recent surveys in the United States show that profits in America are falling faster than at any time since 1960. This means that even though interest rates are low, a lot of money is still swilling around looking for a suitable place to call home, but not finding that home in the equity markets be-cause shares are still (relatively) expensive.

All this suggests that the long-term investor should perhaps avoid those companies most exposed to these chill winds, and take refuge in those enterprises which are not about to be undercut by the Americans or the Chinese or the Brazilians. Which doesn't leave that much.

Of course, it may all never come true, but it is an interesting bit of theorising and it looms at the back of my mind because I may well need to sell some shares to deal with a threatened tax bill by 31 January, rapidly approaching.

So on what basis should I choose which to dispose of? The ones that I have made a decent profit on, such as Diageo? Those where I should have cut my losses long ago, including Marconi? Or the the Marks & Spencer types where I should feel jolly lucky to be able to get out in one tattered piece?

Or should I heed the decades-old words of the old Trotskyist economics tutor also lurking in my memory and drop the shares most likely to have their profits squeezed betwixt the hammer and the anvil? I have to confess I have only just started to come to terms with having to think about this, and have yet to self-assess the awful size of my liability for the hungry maw of the Inland Revenue.

But right now I have an awful inkling that the wolf is at my door, and I just might be the one to do the howling.

s.o'grady@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Operations Manager

    £30000 - £38000 per annum: Recruitment Genius: They are a financial services c...

    Guru Careers: Stockbroker

    £Basic (OTE) + Uncapped Commission: Guru Careers: A Stockbroker (qualified / p...

    Recruitment Genius: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Day In a Page

    Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

    The acceptable face of the Emirates

    Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk
    Nepal earthquake: One man's desperate escape from Everest base camp after the disaster

    Escape from Everest base camp

    Nick Talbot was sitting in his tent when the tsunami of snow and rock hit. He was lucky to live, unlike his climbing partner just feet away...
    Adopting high fibre diet could dramatically cut risk of bowel cancer, says study

    What happened when 20 Americans swapped diets with 20 Africans?

    Innovative study in the US produces remarkable results
    Blake Lively and 'The Age of Adaline': Gossip Girl comes
of age

    Gossip girl comes of age

    Blake Lively is best known for playing an affluent teenager. Her role as a woman who is trapped forever at 29 is a greater challenge
    Goat cuisine: Kid meat is coming to Ocado

    Goat cuisine

    It's loved by chefs, ethical, low in fat and delicious. So, will kid meat give lamb a run for its money?
    14 best coat hooks

    Hang on: 14 best coat hooks

    Set the tone for the rest of your house with a stylish and functional coat rack in the hallway
    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?