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

News
Taylor Swift is applying to trademark song lyrics from 1989
people
Voices
The popularity of TV shows such as The Liver Birds encouraged Liverpudlians to exaggerate their Scouse accent
voicesWe exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
Life and Style
Parker says: 'I once had a taster use the phrase 'smells like the sex glands of a lemming'. Who in the world can relate to that?'
food + drinkRobert Parker's 100-point scale is a benchmark of achievement for wine-makers everywhere
News
i100
Life and Style
Shoulder of lamb with herb and hazelnut dressing
food + drink
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: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
    How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

    How to make your own Easter egg

    Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
    Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

    Bill Granger's twist on Easter Sunday lunch

    Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
    Joe Marler: 'It's the way I think the game should be played'

    Joe Marler: 'It's the way I think the game should be played'

    The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
    Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

    Cricket World Cup 2015

    Has the success of the tournament spelt the end for Test matches?
    The Last Word: Justin Gatlin knows the price of everything, the value of nothing

    Michael Calvin's Last Word

    Justin Gatlin knows the price of everything, the value of nothing