Business Diary: March 19

The renowned ‘contrarian’ investor – who is portfolio manager for the memorably-named Investec UK Special Situations and Cautious Managed Fund – visited Leeds last week to attend an event organised by the UKWM Group.

During his visit, Mr Mundy used the collapse of HMV to illustrate how not to do contrarian investing.

He said: “With 20/20 hindsight goggles firmly attached, it may seem obvious that HMV was doomed and that its recent move into administration was inevitable.”

However, if you hopped on a time machine and headed back to 2009, there was no shortage of analysts who were fans of HMV.

“As recently as November 2009, when it had a market capitalisation of £500m, over two thirds of investment bank analysts who followed the stock were bulls. As innocent bystanders, its demise provides us with an interesting case study into how not to do contrarian investing.”

Here, in Mr Mundy’s words, are 10 lessons that can be taken from the HMV saga:

1: Underestimate the speed of technological development at your peril.

2: It is very difficult for management to cannibalise its own business, however much it may claim it is willing to consider all strategic options.

3: Even if the management is good, which is very difficult to assess as an outsider, this may not be sufficient.

4: Businesses in difficulties often try to buy their way out of trouble.

5: Do not bet on the cavalry arriving on time.

6: Cheapness is not always enough.

7: Having highly incentivised management does not increase the chances of success.

8: Retailing is a much riskier business than it seems.

9: Taking on too many battles simultaneously can stretch management.

10: Low margin businesses leave little room for error, and can quickly fall into a loss.

Diary was impressed with Mr Mundy’s take on recent high street failures.

“Retailers have always come and gone,’’ he said. “Where are Rumbelows, Freeman Hardy Willis and John Collier now? Many retailers are selling volatile fashion items and others are simply acting as a commodity distributor for a brand, often with little barriers to entry, and high barriers to exit.

“Is it any surprise many do not last the course?”

Just talk to us

Sticking with the shopping theme, a new survey suggests that retail employees have some of the lowest morale, poorest development and worst management in Britain.

A lack of leadership and motivation in stores up and down the country could have a crippling effect on the High Street, according to Tom Debenham, managing director of People Insight, which carried out the research. More than 23,000 responses from retailers were collated in the survey.

The research makes painful reading. Six out of 10 respondents weren’t consulted about decisions that directly affected them, while seven out of 10 had no coaching or development.

Research by People Insight also found that the office noticeboard is dying a death, while many staff detest company intranets and e-newsletters. They really just want their boss to talk to them.

A neat swerve

Ian McCafferty, the newest member of the Bank of England’s Monetary Policy Committee, wasn’t one for being caught out by Diary.

The former chief economic adviser to the Confederation of British Industry was asked if he has met the incoming Governor, Mark Carney, who takes over from Sir Mervyn King this July.

Not yet, he said, but he is due to in the next couple of weeks. Is he expecting much change?

“I really don’t know until I’ve had a chance to talk to him,” retorted Mr McCafferty, nimbly swerving the question about how things might be different under the Canadian – which Bank officials said was a no-go topic ahead of tomorrow’s Budget.

Mr McCafferty was in Yorkshire to visit companies and get a feel for what is happening on the ground of UK plc.

Juliette Healey, the Bank’s agent in Yorkshire, hosted the visit, which included a tour of Maple Leaf bakery in Rotherham.

The bagel maker is investing millions of pounds in its facilities. Mr McCafferty also met companies in Doncaster, Sheffield and Leeds.

Ms Healey, who took over from Paul Fullerton, is the Bank’s “eyes and ears” in the region and feeds back valuable information to the MPC.