Are UK Stocks Really a Bargain?

[Music] welcome to many happy returns where we aim to make you a better investor I'm romen and I'm Michael in recent years UK stocks have lagged Global markets unloved by investors and underweighted by institutions is the UK really a bargain hiding in plain sight I want to know what's holding British equities back and if they're about to turn a corner and in today's dumb question of the week when a company goes private are you forced to sell your shares all right let's get into it so Roman I saw recently you did a video which was S&P 500 versus footsy 100 and you caused uproar in the comments by Plumping for the footsy 100 what's going on what are you doing well I had to be honest you know I've got an overweight and it's in UK stocks although it's very small to be fair and it's because of valuations I just think the UK looks very cheap at the moment and I just thought well why not have a little punt on UK stocks it's contrarian foolish some might call it but look I think the UK is so unloved okay it's got problems I admit that but you know we'll talk about that but I think overall if you look at the valuations in the UK it's pricing in something pretty bad and the reality isn't quite that bad what's the definition of Madness again I think this is the first UK overweight I've had for a long long time but to put this discussion in some context the UK stock market has been struggling for really quite a long time now if you go back a couple of decades the UK accounted for around 8% of the msci all country World index today that's less than 4% and if you go back even further I think if you go back to 1900 the proportion was even higher I think it was about a quarter of global markets yeah we've been on a long relative decline compared to other countries but even in recent years like if you look over the last decade or at least since 2016 I don't know what happened then but the trend seems to have accelerated right so almost 50 billion pounds has been withdrawn from UK Equity Funds by retail investors since 2016 and that's obviously impacted valuations yeah I think there are lots of reasons for it the outflows are definitely one of them and the domestic Market doesn't have much faith in the UK stock market and I think there are also some institutional investors in the UK which for reasons which maybe aren't their fault have divested from the UK are you talking about Pension funds there because there's a specific issue isn't there around defined benefit Pension funds and how they've basically had to sell all their equities over the last 20 years because of changes in legislation so legislation came in bit by bit with the intention of making pensions safer right you'd match the liabilities that you have to pay to your retirees with the assets you have and you do that with bonds so if you go back to 1996 defined benefit funds had almost 80% of their Assets in stocks and the majority of that UK stocks and if you roll forward to today they have less than 10% in UK stocks a lot less than 10% so this ldi approach which actually I I did quite a lot of work on it it's your fault it's your fault it is my fault yeah personally I think it has created a problem now part of this is also due to an accounting change in 2000 which forced companies to recognize pension fund deficits on their balance sheets and that means that if you do have something which is very volatile well you probably don't want it and so having bonds perhaps would have reduced the volatility although recent experience doesn't suggest that's true but that certainly didn't help we were in this situation where companies were perpetually having to put more money into their Pension funds to top up the Gap right as interest rates were falling and bonds weren't delivering the returns they needed that's kind of turned around now so I think we're now in a situation for the first time in decades where defined benefit Pension funds are actually in Surplus and companies are flogging them off to insurance companies so that could be good news for UK corporates now it came across some research by Andre which was titled Britain PLC in liquidation and that laid out some facts which they thought are behind some of these big sell-offs that we've seen in the UK and they describe it as a sort of self-reinforcing liquidation process so the first stage is what we just discussed Pension funds and insurance companies selling their Equity Holdings and they describe that as systemic Capital leakage nice I like that and then in the second stage you've got reduced Equity issuance for investment m&a is absent and that creates his kind of negative signaling effect and then we have needless excess pension contributions reduced earnings growth leading to lower multiples and then finally we have a lack of capital appreciation that requires higher distributions in compensation so the gist is if you haven't got growth you have to pay out dividends and that's how we got into this toxic state where we have a high dividend stock market with very little Capital Growth Yeah you mentioned at the top that the UK does have problems and I think underpinning almost all those problems is this chronic lack of growth we've had since the financial crisis growth just makes everything easier right you have more money for corporates to invest you have more money to spend on public services and you have more money that people can save for retirement what we've seen is that UK companies have really backed off investment like if you look at capex figures they're so low compared to some other countries that British stocks are yeah they're paying high dividends but that's kind of a bad thing in the long term because they're not investing for the future and they're being left behind I would argue yeah if you're not investing in research or developing the next source of profit in the future then that's going to be a problem and this is something which US companies are very good at researching innovating and also exploiting that technology once they've developed it with capital that's pretty readily available in the US not so much here so it is a kind of self-perpetuating downward spiral which which has caused a lot of these problems but that sounds too gloomy it sounds like it's all over but I just don't think that's true I think it will turn around did you see that crazy stat I posted on the slack Forum yesterday no I don't remember that I saw Ethan molik he tweeted that the R&D spending of Amazon so just one US company is greater than the R&D spending of all companies and government in France that's astonishing so Amazon's got an R&D spend of over $70 billion a year year it's just on a different scale isn't it to what we're talking about here yeah and they've got an eye to the Future and they are really building a company that's going to be successful for decades to come and this is another reason why I think the Magnificent 7 have got this very difficult Advantage relative to the rest of the US market but also relative to markets like the UK where we don't spend as much on Research if you're talking about one of the reasons for UK underperformance sector composition surely has to be a big part here we don't have any big technology companies yeah I mean it's like the land of no Tech I remember when I first did this I just had two pie charts one of them was the UK msci UK on the left the other pie chart was msci Global msci AI they call it and what really stood out when I did it sector by sector was no Tech I mean literally almost no Tech at all and that's pretty worrying because that's been a really successful story over the last 20 years and the UK has simply been left behind and it's not because we don't produce Tech we do a lot of these Innovations like the internet for goodness sake you know a lot of that came from people who were from the UK some of it came from CERN the partical physics Research Place in Switzerland but a lot of that was based on Research done by UK researchers and if you look at AI Deep Mind which was one of the companies at the Forefront of artificial intelligence was a British company right and then Google came in and bought it out in 2014 and now yeah it's kind of an American company part of alphabet we seem to be good at getting companies at the early stages of R&D but then they turn to America for investment when they want to become you know a real unicorn so perhaps it's more a matter of taking ideas and implementing them that's where the problem is in the UK and that's something we're not particularly good at scaling once we've got a solution to people's problems so having the capital available for that the expertise to do that but also it's often the people who aren't the technology developers who are the ones who are best suited to scaling it so you've got to take the buffins drag them away from the uh CEO's chair and have someone else take over in order to actually exploit the ideas yeah there's a weird tradeoff here though isn't there because you don't want to tell companies in the UK that they can't go and take American Capital and get bought out for you know a load of money down the line because if that was the case then companies wouldn't start up in Britain right if they didn't have that big check down the road from you know Microsoft or Google or Apple but also you know we'd rather they listed on the UK Stock Exchange and became a British Google wouldn't we we'd love that it would be amazing if it did happen and I think the other problem is the UK's approach to failure and success if we have a successful company we tend to do it down and I think that's just a cultural thing also if we have a failure we treat it as something awful whereas in America you often have someone who's created three startups that didn't work and then created a fourth one that did and learned from the previous experiences so I think that kind of cultural problem is another thing we've got to overcome but that comes with success and I think there will be successes I think governments aware of the problem they've put a lot of thought and money behind incentives for R&D and investment and there's lots of initiatives around start startup companies but I think you know there's that Gap that we mentioned that when you're beyond a startup you're being successful then how do you grow internationally while staying headquartered in the UK with UK Capital that's the Gap so if we say that the UK doesn't really have any Tech at least large Tech what do we have like what is our stock market comprised of yeah so if we just list the top stocks in the footsy 100 Astro zenica is top then we've got shell then HSBC then unil then riotinto then BP so lots of commodity producers oil companies it's very tied to Energy prices which a lot of people don't realize the UK actually does pretty well if oil prices rise but also things like copper and Industrial Metals that would be good for the UK lotss of defensive Consumer Staples companies like unil diio British American Tobacco and lots of financials Banks like HSBC and lots of pharmaceuticals astroica GSK hm it makes me think that with our concentration in Commodities producers and consumer staples are UK large caps kind of a defensive play Then is the reason we've not done so well perhaps partly because we've been in this long bull market for the last decade plus and you know that's not the kind of environment that's going to favor our companies yeah I think what we do is just not seeing as sexy I think that's one of the problems and I think that's not always going to be the case I think there would be the the possibility that people think stuff is sexy rather than ideas so instead of software you switch to producing things or manufacturing things I'm not talking about a return to the dark satanic Mills of the past you know that's that's very unlikely but a kind of new Innovative and clean manufacturing process for various things Yeah you mentioned clean manufacturing but then you got shell BP British American Tobacco we are you could car addresses the evil Exchange in some ways but also a value exchange because a lot of the stuff that we are very good at and where we have the biggest exposure are companies and sectors which are considered value stocks and of course the last 20 years is characterized by underperformance of value and outperformance of growth and growth is something we just don't do if anything what we saw in 2022 where stocks globally did really badly but the UK did okay it's kind of a demonstration of the environment where we might see UK out performance right do we need bad Global times for us to catch up well we need another tech wreck I mean that's what we need and I think I think that's possible you know I think that something like the overvaluation in the companies which have some kind of exposure to AI as that narrative starts to wne there's the possibility that the UK could do better and that value could outperform again as it has done for over a century before it started underperforming so perhaps this is just a temporary blip a 20-year blip when these kind of things don't do well the other thing that differentiates the UK versus many of the other developed markets is our extremely high dividends relatively speaking and you know we've kind of mentioned that a double-edged sword because it's in some ways an indication that the companies don't have anything better to do with their money than return it to shareholders yeah we couldn't think of anything so have the cash back yeah one of the charts that I was looking at in preparation for this which I found really interesting was a comparison of Revenue per share generated by us companies versus UK companies and the line for us companies looks quite pretty it goes up and to the right like every good graph in finance whereas the UK one it's bumpy but it's basically flat over the last 20 years earnings have been growing because margins have gone up a bit but fundament m al our companies are not making more sales and that can't happen long term so I think that's the fundamental problem you're right I think if revenue is not growing then your stock prices won't grow either unless it revalues upwards and that's not sustainable certainly if you're a domestically focused UK company it's been hard to grow right because like we say we've had stagnant growth in the domestic economy you can't squeeze blood out of a stone you're right I mean if productivity growth has just not been there which it hasn't really since 2008 20076 somewhere around there if you look at real wages right now in the UK they're roughly where they were then and so it's a real problem and I'm not sure how we can fix it there aren't any quick fixes but that's definitely one of the sources certainly for domestic companies like you say but one of the things that could fix that as a temporary measure is not to depend on domestic markets so Market UK stuff abroad better in economies which are growing and are very vibrant and that hopefully could bootstrappers out of this Quagmire I mean the thing is as a British person I am quite instinctively self-depreciating about myself and you know Britain as a country but we do do a lot of stuff well right if you think about the things where we punch above our weight the creative Industries for sure but also early stage R&D you know biotech we have an amazing un University system with some of the best universities in the world lots of intelligent graduates and we should have really good Capital markets like we've got massive Financial firms we've got one of the top stock exchanges in the world even if it's been struggling of late if we could get all these things to play nicely together presumably we could get some growth going so there's a real question of what the UK is good at and it's not easy to put your finger on it banking is something we were good at now not so much perhaps but if you actually look at the GDP numbers and dig into them then there's a category called other business services miscellaneous Services is what we're good at it's hard to Market that isn't it Well Service is superpower I think that sounds good doesn't it and there was a substack article by Dan Davies who said we dominate the world when it comes to doing miscellaneous stuff nobody can touch us when it comes to things that don't fit in any other category yeah I remember the article he compared it didn't he to Germany's speciality because they say of Germany they have this Mel stand of like small manufacturing companies that make the thing that makes the thing inside the thing which kind of does sum up the German economy it's a patchwork of these companies and it all feeds together to make cars and Industrial machines but that's the kind of ecosystem you want to Foster and create because you that's going to create an economic Powerhouse so Davies talks about this he says this is the British meland and I think any industrial strategy for the UK has to take into account the things we're actually good at rather than what seems wizzy and cool the UK has an equally significant hint land of businesses based out of the old rectory somewhere all based around someone who knows the person who knows the answer to the question yeah we're a knowledge-based economy that's our thing but you're right it's hard to Market that or even describe it it's also the case that it's more difficult to sell Services abroad like most of the free trade agreements have much less provision for services sales so you look at banking for instance and after brexit the EU didn't grant us the same level of equivalence I think they called it which made it harder to sell Financial Services overseas and things like TV shs you know that's a bit of my background it's not a completely free market like for example countries like France have quotas where a certain amount of content on French TV has to be made in France by French producers and this is common throughout the world so you can't just go and completely dominate culturally even if our TV shows are really good but here I think the UK's language certainly helps because a lot of rich countries speak English you've got the US you've got Canada you've got Australia did I miss anyone out New Zealand obviously New Zealand yeah but there are something the government can do for example don't piss off the people you're exporting to that's probably a bad idea have infrastructure which kind of helps so fast Broadband would be nice especially in h m green can I just say and education the one that everyone doesn't want to talk about because it doesn't have instant benefits so all of these things I think could help but really it's a kind of Catch 22 because you got to break into this Doom Loop somehow to get things started but the impact on UK Capital markets has been severe so there's a real lack of new companies entering the stock market if you look at IPOs increasingly companies are choosing not to list in Britain and who can blame them right you go to America you get a higher valuation you make more money for your shareholders yeah I mean you can literally have twice the money for the same amount of equity you give away so it's a very difficult decision to make there probably have to be some incentives to start off in order to start the bull rolling but there's no question you've got lower volume so if you trade in the UK markets there'll be a smaller volume low valuation and really less interest in the IPO it's just more exciting if it's listed in New York than in London less domestic investors that's one of the things that makes our Market different from other markets we've mentioned pensions like in most countries around the world their domestic pension schemes are big highers of domestic equities where you know we've had the opposite effect going on for 20 years now I'm not saying the government should step in and sort of force everyone to start buying British stocks I kind of hate that idea but it has been a factor at play here and you mentioned the lower volumes for UK stocks there was an interesting piece from Robin Wigglesworth in the Ft called the atrophying UK stock market which talked about this liquidity problem so to quote from that article today there are just 319 UK stocks where the six-month average daily trading volume is $1 million or more according to Sock jens's Andrew lapthorn yeah Robin makes the point that the UK is actually the only major developed Market where the number of liquid stocks has shrunk over the past two decades and that's not good is it when you're talking about attracting foreign investors to buy our stocks because a lot of institutional investors have like minimum levels of liquidity and they literally can't go buy stocks if they don't trade enough each day because the risk is just too high to them it means they can't exit easily if you have a low volume like you say it becomes expensive to exit a position or enter a position the bid offer spreads are larger that really is a problem but I think this is more of a symptom rather than a fundamental problem the volume problem and if things improved in other ways with productivity with certain institutional investors investing more in the UK and foreigners investing in the UK then that would turn around very quickly so you've talked about it as a symptom I guess the big question really is is the UK a bargain right now so maybe the first place to start on that question is the valuation metrics so if we look at forward price to earnings ratio based on the MCI indices the UK is 10.8 as we record this which is below Germany which is 11.4 and remember Germany is having a really tough time at the moment it's the only G7 country in recession yeah and its industrial output is shrinking as they're struggling to come off Russian gas supplies so you know being below them as a multiple is quite worrying and we're a long way below the US which is 20.3 as a multiple you know our valuation is kind of half that of the US and Japan somewhere in between 15.1 so there you go you compare us with a country in recession and we're actually at a lower valuation and just looking at that it makes no sense to me and that was of the reasons why I thought it would be a bargain you know the UK right now I'm not expecting fireworks I'm just expecting a reating upwards to something closer to normality which better reflects our economic situation which is just not a lot of growth and inflation coming down so I think it's not a massively bullish position but yeah I think those valuations are just too brutal too negative I mean the danger is always putting too much weight on any one metric right the that caught my eye was The Price to Book value in the UK is actually below one I think versus around 2.5 times for the rest of the world yeah that's shocking I mean everyone got excited when Japan was trading below Book value and that proved to be a decent bet last year yeah why are we a value trap that's not right but maybe we are a value trap romen like if the country was going to be a value trap and in long-term decline you know if you had to think around the world who's the next Italy it could us right we could be that country yeah I just don't think that's going to happen I just don't believe it because I think you know in terms of creativity and education and the ability to come up with new ideas we're pretty powerful as a nation it's just a matter of harnessing that ability that's looking kind of longer term shorter term I think it's just the case that we've been unduly beaten up I guess partly because of brexit it partly because of what's going on in politics and some rather unwise comments by some politicians about business which suggest that we're not business friendly and just looking back over time to see how we became successful in the first place it was due to the Royal Navy it was because we became an outward-looking Society maybe in a bad way of course because of colonialism but you know we traded we became a Mercantile nation and that was really what led to Our Success so it was a focus on business support from the government for that outward-looking stance and that led to incredible benefits later on things we could never have foreseen like the US for example I mean we're not going back to gunboat diplomacy well look we wouldn't do it like we did it in the past yeah but I'm saying you know if you had to create a kind of recipe for how you become successful it's an outward-looking way of thinking rather than an inward-looking way of thinking I'm not going to argue with any of that but I do want to quickly go back to valuation while we're here because some people have said that sure the UK looks cheap but that's largely a compositional effect we look cheap because we have value stocks and value stocks trade at lower multiples however even if you adjust for sectoral composition the UK still looks cheap so if you compare just the UK energy sector for example versus the US Energy sector ours trades on a forward P of around six to seven times whereas the US is around 10 times if you look at our biotech sector we trade around 15 times as a multiple the US is over 20 and in fact the median discount for UK sectors is around 26% versus the US and that's research from schroers and again if you look at the reason why UK energy companies have been beaten up literally over the last week and it's a specific part of the UK energy sector it's battery storage there was some kind of mistaken legislation which affect effectively overnight made the whole battery storage solution not viable and if you look at the share prices of some of these battery storage companies they've literally fallen off a cliff overnight in fact people were talking about it on slack in our community if that's the kind of environment in which these companies have to operate it's kind of like China you're worried about whether it's a good place to do business one thing I've wondered about though is whether the UK is is actually undervalued or whether it's more the case that the US is just overvalued so I mentioned those sectoral compositions and you know we look cheap compared to the US even when you drill down to the company level that discount more or less goes away when you compare us to European countries so maybe it's more the fact that Europe as a continent is unloved we've got aging demographics we were relying on Russian energy which was a mistake and we've got maybe burdensome regulation compared to some other parts of the world so maybe the UK is just part of the European continent which is struggling right now rather than it being specifically us which is undervalued yeah I think that's definitely part of the problem no doubt about it I think that's certainly true I mean just speaking personally I would be reluctant to overweight the UK because I live in the UK have property in the UK I'm tied to UK inflation and political risk like I already have eggs in the UK basket without you know doubling down by owning more stock here than is appropriate I think like if I was completely neutral and living on the moon yeah maybe I would overweight the UK right now it does look cheap so you're saying you're already long I'm already long but why not monetize your UK exposure what do you mean well I mean it's one thing to live here but if you actually want to turn that into into cash then if you believe in the UK and you buy the stocks you're turning that belief into into returns yeah but here's what I'm worried about concentration risk let's take a scenario where inflation in the UK is stickier than elsewhere and runs high for a long time that would be bad for my personal finances obviously yeah but it would also be really bad for the UK stock market because we generate a decent amount of money from the UK market right so if inflation's high in the UK UK stocks will suffer I have a double risk there if I'm overweighting UK stocks which I don't want to take well if you look at the footy 100 right large caps a lot of their revenue comes from abroad and if that's the case and we have higher inflation than elsewhere then you get this effect kicking in where the currency devalues any profits you generate abroad get repatriated and get repatriated into more pounds so that actually acts as a hedge if we do have higher inflation would the bank of England not have to height rates though if we get higher inflation yeah I mean it will mean higher rates for longer potentially from the bank of England higher cost of capital for UK firms yeah assuming that you do get this inflation Spike lasting a lot longer but I think you know how much longer would it last if we see disinflation elsewhere and just look at the graphs comparing us to the rest of G7 what it looks like is we're just operating with a lag so perhaps there are specific reasons why we're taking longer but it's not the case that we're not coming down at all we are and disinflation is really noticeable for the UK no I agree with that my central case is that the UK is just like everywhere else in Europe at least and will do the same as everywhere else but what if I'm wrong I don't want to take that risk yeah you could be right you could be right there could be a specific problem about the UK which keeps inflation high but do you think that the valuations that we see right now are justified by that risk do you think that risk is likely enough that it warrants a 10 times multiple no UK stocks do look cheap particularly the midcaps and small caps right the footsie 250 valuation looks incredibly cheap compared to its history I would say it's trading more than 20% below its long-term average and I saw a nice stat where if it was to revert to mean this is the footy 250 the midcaps if that reverted to mean that would mean 6.8% per year earnings growth which is the average over the last 20 years and its Cape multiple would go up from around 17 times now to 22 times if you combine those two things so earnings back on track and Cape reverting to mean that would imply the 4250 going up by almost 40% in price you could be a strategist Michael look 40% there you go that's Michael's forecast there's no forecast and as I said if I was living on the moon maybe I would overweight the UK at the moment but I don't want to do that see I've taken even more risk I've created my own small cap value momentum quality portfolio which is actually doing pretty well it's a stock Pickers market right the UK is that what they say I never thought I'd say that but the trouble with saying okay the UK looks cheap is that everyone can see it looks cheap right there's a Charlie Monga quote which I like which is when you locate a bargain you must ask why me God why am I the only one who could find this bargain and that's I feel about this here is that we're not the only ones that can look at a price to ear multi go oh yeah UK looks cheap yeah but I guess you know if you buy during a crisis these are the kind of opportunities which takes a little bit of bravery and I think sometimes people see the opportunity but aren't just willing to take it maybe they don't believe it's going to recover maybe they just find better opportunities elsewhere the thing is it's been cheap for quite a long time now it would need a catalyst to yeah change the narrative change the story get us reverting to a more reasonable multiple I mean in the meantime it seems that private Equity is having their day they're coming in and taking lots of UK companies private plucking them out of the stock exchange so towards the end of last year we saw that with Hotel Shaka and the Restaurant Group you know that kind of made the press that quite high-profile British companies were being bought out and Dlisted and in fact there were 40 deals last year worth more than1 million each and the kind of Staggering stat is that the bidders the private Equity coming in they paid an average premium of 50% versus what the company was trading out at the time so they clearly think the market is cheap well certain parts of the market that's for sure but of course they're very selective they'll be looking for companies where they see value and usually that'll be within a particular sector as well but you're right it is a vote of confidence I've heard it said that if we don't buy our stocks someone else will yeah I mean the question though is the Catalyst like what is going to turn this narrative maybe a change of government the current government's been in power for a long time so maybe they're just bereft of ideas they certainly haven't turned things around yet and it does take a fresh set of heads in order to come up with new ideas and a clean slate so perhaps that could turn things around although I'm loath to think the politicians could fix problems rather than create them yeah I don't know if the change of government if we get one is going to turn the tide I mean they're certainly not being super ambitious with Market reforms or investment plans or anything as I can see maybe just the new face could do it but I don't know I think it's more that the macro environment would have to change around the world and people would have to start looking to Value again I think it's often really difficult to see what these catalysts are before they happen and if you look back in history and look at countries that have suddenly become super successful who could have predicted that Norway would have all of that money from finding all those oil and gas reserves underground I mean it wouldn't have been predictable now you can probably tell Michael and I don't agree on everything we sometimes disagree about the finer points of investing but that's what makes a community so if you want to enter into these kind of discussions with other investors and thrash out your own beliefs more clearly then why not join our community just go to pensioncraft tocom to find out more okay today's dumb question of the week actually comes from one of our listeners Andrew when a company goes private are you forced to sell your shares well the short answer is no what's the longer answer well what you can do is hold on to them but then once it stops being something which is traded on markets the liquidity obviously is very different and you then can sell it but only to qualified investors right so you'll sort of end up with stock and you're on the phone so Bill Gates saying come on give me a good price bill but yeah I mean I think the key Point here is that if it's going to go private you're probably better off selling the stocks straight away I mean let's just walk through the process here so we own a company it's listed on let's say the London Stock Exchange or the New York Stock Exchange a big private company comes in and says I'm offering all the shareholders a 30% premium on the stock price and they make what's called a tender offer but once they do have one of these so-called tender offers then the management can choose to recommend that to their shareholders or not to recommend it but ultimately it is up to the individual shareholders whether they accept it or not and it probably will go down to a vote of shareholders and I think it depends on the company about what level of agreement you need like it might just be a majority or it might be a super majority and then if enough shareholders vote to accept the deal then that company's going private and there are certain rules in the UK where if some entity acquires more than 30% of the voting rights for a company they're forced to make a bid for the company and to go back to the question of are you forced to sell generally no but you might be depending on where the company is domiciled and the Articles of Incorporation of the company it might be the case that if a buyer acquires a very high level of stock maybe it's over 90% something like that then they can force the remaining holdouts to sell their shares the thing to remember as well is that usually the tender offer will be at a price which makes it attractive because the bidder will want to create an attractive incentive in order for the shareholders to agree to what they're suggesting and offer you can't refuse yeah but here's the thing if we're saying the UK Market is undervalued and lots of private Equity is coming in and picking off the company it likes is there not a case that UK boards and shareholders should be standing up to them more and turning down these offers because even if they're a premium to the current price the current price is artificially low is what we might be saying I think you've got to think about why people invest in the first place and often it's just a return so really do they care whether the capital is allocated to that specific company or to another company I think in most cases the answer is no un unfortunately Take the Money and Run is what you're saying yeah and it's hard to turn it down when someone comes in with a 50% premium on the share price isn't it but you can go off and buy another UK company if that's what you really believe in so that maybe that's the way to think of it that you can talk up to an investment success and then you can go off and place your Capital with another UK company and more of your capital for that matter I mean is an investment strategy isn't it to invest in companies you think are going to become takeover targets because you get these quick wins potenti of people coming in and bidding 30 to 50% premiums yeah and that could be another reason why the UK could perform temporarily quite well yeah in certain sectors I mean certain sectors are attractive others aren't but yeah you're right I mean there is a takeover strategy but clearly it depends on the ability to select the stocks which will be taken over which I'm not convinced that anyone can do no it's the kind of strategy which often requires a sort of under the table tip off isn't it special knowledge yeah which is illegal by the way let me just point that out thank you for joining us for many happy returns do send us your questions no matter how dumb at the email address mhr pensioncraft docomo remember to check out pensioncraft docomo options many happy returns is a pension craft production co-hosted and executive produced by Roman Nisa and Michael Pew this podcast is for informational and entertainment Purp Pur and is not Financial advice we do not provide recommendations or endorse any decision to buy sell or hold any security we cannot be held responsible for any actions listeners may take and investors are encouraged to seek independent Financial advice