Peter Sharkey - My nephew the shrewd investor
13:12 16 March 2012
It’s often difficult to erase long-established images seared deep into your memory. Our recollection of faces and people’s behaviour remain unchanged until those images are freshened up when acquaintances are renewed.
Such situations are especially true when you see friends or relatives living in different parts of the country only periodically, either through choice or circumstance, though new, updated images created after you have seen each other can be both welcome and refreshing. Let me give you an example.
Just over a decade ago, my nephew was a regular visitor with his parents, but they divorced and sadly, the visits became less frequent. Yet the image the family had of our nephew was unchanged. As a boy of six or seven, he would spend the weekend at our house in a different collection of Liverpool football kits. To call him devoted would be an understatement, so when I went to collect him off the train last weekend as he paid us his first solo visit, my eyes initially scanned the horizon for a young man in a red shirt.
Instead, a tall, long-haired (that was a shock) young lad who looked remarkably like the student he’s about to become tapped me on the shoulder. I almost asked him where his kit was, but instead shook his hand and threw his holdall into the boot. Regular readers may recall that this is the same youngster (now 17) who showed a prolonged enough interest in investing for me to send him a book on the subject, since when his ISA has started taking shape.
“I’m thinking of putting Vodafone shares into my ISA,” he announced as we drove home. Naturally, I countered with a set of awkward, have-you-thought-this-through-type questions, but in an appro-priately avuncular manner.
By the time we arrived home, we had reached the risk question. Did I think it was a good idea?
Last Friday night, Vodafone’s share price closed at 168.7p, so excluding brokerage and stamp duty charges, assuming you had saved £3,000 in an ISA, you could buy 1,778 shares.
Now, we know that Vodafone’s dividend in the second half of 2012 (the reason many people are buying them) will be 6.46p a share, meaning our virtual shareholding would generate £114.90, or £103.41 after tax, with which we could buy another 59 shares. If this process is repeated in the first half of 2013, when the dividend payout is expected to be 3.27p a share, the net effect would enable us to acquire a further 30 shares.
If Vodafone’s share price rose by say, 3.7pc (to 175p) and by a further 2.8pc (to 180p) over the intervening 12 months, our 1,867 shares would be worth £3,360.60, an increase of 12.02pc. But what if they lost a similar amount of value? The dividend would still be paid, but the share price would have fallen to 158p (though we could buy more shares), leaving us with a value of £2,968, an overall loss of 1.03pc.
“So that’s the risk?” asked my nephew.
“Actually, I replied, “losing £32 when you’re 17 means you have negligible risk because you’ve got quite some time to make it up.” He nodded, sagely.
With that, my image of a little boy scampering around in a Liverpool kit was consigned to memory and replaced by one of a confident young man who should make a lot of money.