Railtrack has been a disastrous investment but a great advert for the benefits of collective investm...
Railtrack has been a disastrous investment but a great advert for the benefits of collective investments.
For all those who put the one-time privatisation stock into their portfolios, often as a single company Pep, it has been a greater roller coaster ride than the stock market or UK equity funds could offer.
Just before Railtrack went into administration last October, the shares were trading at around £2.80. They then disappeared into investment limbo, with the City putting a prospective value on them of anything between nothing and 70p. At best that is a fall of 75%. The U-turn by the Government leaves them with an estimated share price of nearer £2.60, a rise of 271% from 70p. When it is remembered Railtrack shares were once around the £17 mark, the subsequent lows and ultra lows demonstrate that individual equities can be a lot more volatile than volatile markets.
One lesson from Railtrack is that blue chip stocks are not a guarantee of safe, perpetual growth. Buy and hold simply is not a credible strategy. Railtrack may have had a lot to do with Government intervention and less with a company truly facing administration but it is not alone. Marconi has also proved the fallacy of buy and hold, as did Polly Peck in the 1980s.
Even so, the future for Railtrack shareholders is not yet certain and has left a nasty taste in the mouth. The Government U-turn on shareholder compensation may be a victory but the possible 250-260p payout may not, at the end of the day, be fair.
It does represent a loss of 8% in six months but perhaps after the prospect of getting the nothing originally vowed by transport secretary Stephen Byers, anything near the administration price of 280p should be jumped at.
Legal challenge looks unlikely as the big institutional shareholders are apparently happy and intend to accept the proposals, which should be enough to see them carried despite the qualms of individual investors.
Fund groups are unsure of the valuation being provided by the Government. Many, according to the IMA, are in fact valuing the stock around 200p.
The fund groups are unwilling to talk about the basis for this valuation and it can only mean one thing. They are afraid 250p to 260p will not materialise, that Railtrack's assets and the value the market puts on Eurotunnel may not be correct.
With uncertainty and volatility continuing to dog Railtrack, there is a strong argument for trying to get out of that investment and into a collective as soon as possible.
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