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What would you buy instead of Gareth Bale? We ask 10 investment pros
by Charlton Lumsden on Aug 14, 2013 at 12:30
Real Madrid could pay hundreds of millions to sign Tottenham Hotspur superstar Gareth Bale in a world record football transfer fee. But will the Spanish giants be spending their money wisely - we get the view from 10 of our readers.
Graham Duce: Aberdeen Asset Management
Daniel Levy must have been pulling his hair out this week. He has been bestowed with the decision of deciding whether or not to sell Tottenham’s star player for a record £85 million (this could rise depending on protracted negotiations) or snub Real Madrid’s offer and get the best out of his prized asset for a few more years. But surely there are better ways of spending this sum of money?
If it is all about medals then you could argue Gareth Bale is an ideal investment, but he would only be a short-term gain and has no guarantee to future success. We have seen many a star go further afield for huge swathes of money with the promise of delivering consistent returns season after season yet never deliver. Veron, Shevchenko, Torres and Carroll but to name a few. Besides, how do you value the worth of medals in a two horse race that is La Liga.
On the other hand do you look to future returns? If this was the case, I would have Wenger buy 100 French under 19’s and build a squad that would not only compete over the long-term but add value through the hefty premiums accrued from future sales. Surely this is a better return on capital than Bale picking up a medal or two in Spain.I find it similar to large cap v small cap, with preferable diversification, and Wenger being our bottom up stock picker. And anyway, one man does not make a complete team (oh yes it does I hear the Spurs fans cry!). It is better to blend various styles to achieve a greater sum of all parts and create a balanced team of players that complement one another – a bit like our Multi-Manager capability where the focus is on the construction on an optimal stylistic blend of talented managers.
If I was in Daniel Levy’s position I would cash in and build a team that can compete regularly with Arsenal. However, fund management is more my style, so I would rather invest a £100 million into a fund that diversifies across asset classes with a proven fund manager and offers a regular quarterly payout, or in Gareth’s case, a medal.
James de Bunsen: Henderson
It's hard to see where there is screaming value in any major asset class at the moment therefore I'd either be looking at smaller companies in the developed world or resources related stocks/ markets which are deemed to be driven by the commodity supercycle.
The former have outperformed their larger peers by a considerable distance since 2009 but stockpickers in that area can still find some hidden gems, particularly as the number of sell-side analysts covering these stocks has plunged. The latter - particularly miners and countries like Brazil - have meaningfully underperformed on concerns about China. The weakness could persist as we don't expect Chinese data to excite anyone in the near term as the government is clearly trying to cool credit growth.
However they've also said that growth of under 7.5% is unacceptable. It's also worth remembering that other countries consume commodities too. Economic recoveries in Japan and the US would also be helpful. The key however is valuations. Miners look fundamentally cheap but I wouldn't want to try and guess the timing of a re-rating so I'd dollar cost average the purchase of those stocks over time.
I'd still keep enough cash to buy a Caravaggio though so I might only have about a million left to put into the markets.
Richard Philbin: Harwood Capital
Three Years ago, Gareth Bale was a flop, and potentially being offloaded for £3 million to Birmingham City. Fast forward and it looks like Real Madrid are going to fork out £100 million which is only the start of their outgoings. With a six year contract and with bonuses and middlemen paid, the actual number that Real Madrid are likely to pay is closer to £200 million. A colleague would buy Wolverhampton Wanderers – which is odd being as he’s a West Brom fan. The reason? To flatten the ground and turn it into a Tesco!
You could buy yourself the freehold of a very large Greek Island with 1335 acres for €40 million which has fantastic development opportunities (property – a European challenge to Richard Branson and his Necker Island?), or farming perhaps as there are over 4,000 olive trees on the island – for the entrepreneur there has to be some form of opportunity there and one that will last a lot longer than six years. First rate property in first rate locations will always be a store of value irrespective of whether it is residential or commercial. It can also deliver a good rental stream.
Apart from building a globally diversified portfolio of equity and fixed income positions to provide both a yield and capital appreciation potential, I would diversify across some unusual assets assets too – ones that I could get a great deal of use from, but long term would get both growth and income from, but being a self-confessed “petrolhead” I think you can’t go wrong with a fully stocked garage. A future classic – The Aston Martin One-77 taking pride of place, that’s only £1.5 million though. I also adore the LaFerrari (Ferrari) and raw ugliness of the Lambourghini Reventon. Just looking at them in my opinion is art. Talking of art, I would spend quite a bit of time on Bond Street understanding this market too before splurging.
From an investing perspective, I prefer equity markets to fixed income markets, but that is predominantly because I really don’t like government debt markets. Interest rates are staying low for a long time, so risk assets are where you should be. I think the UK, US and European markets are set fair, and even though emerging markets have experienced a sell-off for the last couple of months, they are still the growth drivers of global GDP, so with a bit of timing you should be able to deliver good returns if your time horizon is long enough.
Maybe the easy money has been made in Japan, but with an open cheque book, as is Japan’s wont at the moment, anything can be bought, which takes us neatly back to Gareth Bale…Being a Man City fan and seeing Bale rip us apart last year toward the end of the season, without him Tottenham wont be as strong a force this season, therefore meaning one less competitor which can only help us win back the title.
Simon Brett: Parmenion
Apart from the obvious purchases of a very luxurious car and some amazing holidays, the rest of the monies should be invested in central London real estate. London is one of the world’s great cities which attracts both foreign talent and money. Given its legal system, stable government and most importantly the English language, from a business point of view, it faces no real competition from any other city in Europe.
This gives London great attraction as a “safe haven” investment. Combined with upwards only rent reviews, the income from property can also provide an inflation hedge, with the added attraction of capital growth. It is also a less volatile investment than say bonds and shares.
To paraphrase Mark Twain and 'buy land, they’re not making it anymore', how about 'buy central London property, there’s only so much space'.
Tom Becket: Psigma Investment Management
£100 million for a Welshman? I’m pretty sure you could buy a big chunk of Wales for that. Footballers are now rivalling US defensive stocks for the most insane valuations of 2013. Having said that, I wouldn’t mind a bit of Bale down at Vicarage Road rather than the comedy Italians that have been turning up in Watford over the summer.
If I had the sort of cash that Real are splashing around this summer I would be all over north Asian and European value equities. Anyone with a tolerance of volatility and a time-horizon of longer than six months should be buying to such opportunities that have the potential to outshine the dazzling Bale and provide sensational returns over the next five years.
At least the valuations there are reasonable and cheap, rather than the lunatic £100 million bid for a player with 1 ½ good seasons behind him, who has only played for second rate clubs (well there’s not much bad about Southampton) and has no major honours. You can see that growing up in Watford didn’t make me bitter about any other teams in North London...
Andrew Morris: Signature
Wow, a £100m! What a staggering amount of money – on the face of it.
However, football and particularly Premiership but notably Champions League participation can derive extremely lucrative revenue streams for clubs. Given Gareth’s age his “brand rights” over the future years, has the potential to dwarf the record high transfer fee.
What Real would appear to have been clever in doing is reportedly staggering the payments, thereby mitigating their commercial risk. With a high profile in the Champions leagues pretty much expected for many years, the face of their new brand image or “poster boy” signing Gareth, could potentially be a very smart move.What would I do?
If we are talking sport related? This size of war chest would be very handy to develop and help sustain grass roots sports in the UK. This would not only extend the Olympic legacy, but help/assist the guys, many of which who give up their time for free, greater scope to find England’s next generation of sporting heroes.From an investment sense?
Potentially launch a low cost invest vehicle with sporting and charitable ambitions to similarly achieve the above.
Gavin Haynes: Whitechurch Securities
Given Bank of England Governor Carney’s indication that interest rates will remain low for some time to come, then Spurs will in all likelihood see the real value of their £100 million eroded by inflation if they hold it on deposit for the long-term.
Therefore, risk assets are going to have to be favoured to make a positive return and there is no greater risk than buying footballers!
Rather than speculating on short-term success by buying some over-paid prima-donnas, maybe Spurs should take the long-term view and invest heavily in a global leading youth academy. This would not only help bring them success in the future, but provide more home grown talent for our ailing national team!
Freddie Lait: Odey
Investing in the best players has been a reasonable strategy for some clubs. However, it is clear from the rise in wages and the increasing number of bankrupt clubs that the footballers themselves extract far too much profit from the value chain. I would urge investors instead to consider the UK mid cap market; the home of domestic UK equities.
It’s now five years since the crisis and nominal wages have proved resilient. Consumers feel richer as they have saved far more than usual and their investments and houses have risen in value. It should be no surprise that we are seeing the highest levels of consumer confidence on record, and stocks have yet to recognise this in their share price.
Many corporations have continued to invest and will now see the benefit from operational leverage i.e. an ability to support far higher profits from the current fixed asset base. These will be strong quarters for Travis Perkins, Sports Direct and Ocado. All key goal scorers within the fund for some time but certainly not being considered for transfer at the current prices.
James Gardner: Signature
I’m a Tottenham fan so I’m probably slightly biased but I don’t think he should go. I can’t really think of any player from the UK doing well in Spain but we’ll have to wait and see. In general, great football players, as with any rare commodity, are always highly prized, and Bale does have the ability to alter matches. He’s somewhat similar to Ronaldo in his gameplay, so with Ronaldo’s price tag of £80 million+, plus a few years of inflation, who knows, maybe he is worth £100 million?
I’d probably do something more sedate with the money like invest it, or even start a local charity. I’m not sure many people need £100 million to enjoy themselves, although I’m sure many have the imagination to spend it!
From an investment point of view I would revisit the UK small cap sector notably AIM. The recently introduced tax changes for the inclusion of AIM stocks in ISAs have the potential to rerate the constituents. Add to this the removal of stamp duty from April 2014 and the potential IHT benefit, this makes for a strong 'hat trick' of investment credentials. Furthermore investment in the area should benefit the UK economy allowing entrepreneurs to raise cost effective capital to help create employment.
On a note of caution, AIM companies would typically be classified as higher risk. Furthermore broker coverage on this area has been savagely hit in recent years due the economic climate and lack of investor attention. You’ll need to tread very carefully and manage various risks to avoid scoring an own goal.
Stephen Peters: Charles Stanley
I’d construct a diverse portfolio that would include Scottish Mortgage, Brevan Howard Macro and Aberforth Smaller Companies – the opened ended fund version so I could reinvest the dividends. All of which I own in my portfolio today.