|"Today, as always, I shall mostly be talking bollocks"|
Diethelm was speaking on the possibility of an 'endgame' for tobacco. Part of his brilliant plan was to impoverish tobacco companies by not buying their shares. It was difficult to keep a straight face as he described - with the cute naivete of a teenager - how this simple strategy would soon bring the tobacco industry to its knees.
It's sad that he was lecturing further education students about this because it is fundamentally flawed stupidity, as I explained in July.
You see, the price of a company's shares is entirely separate to the profitability or true worth of the business. Unless the company concerned is thinking of announcing a rights issue to raise funds - something tobacco companies don't have to do because they are highly profitable - the share price is irrelevant to them as far as income is concerned.
Profitability and worth are real things, share price is just a measure for those who wish to make money on the back of that profitability and worth by way of yield and dividends.
Righteous types can sell billions of shares on principle but it doesn't matter one iota to 'Big Tobacco'. The share price may wane but nobody will stop smoking because of it, but whoever buys the shares after that makes a lot more money.
Tobacco company shares have always been under-valued relative to dividend yield or profits - when compared to other industries - simply because of perceived dangers of the global war against tobacco, so whoever has been clever enough to ignore all that guff has earned very well for a long time now. This is why tobacco shares are almost a constant in being flagged up by proper investment analysts as some of the best that any investor or pension fund can own.
The only possible result of Dr King's campaign will be that the stocks might be even more under-priced, even more attractive to investors, and therefore offer even more super profits than they already do for people who aren't financially stupid on the back of ignorant teen-like ideology.But you don't have to take my word for it, because yesterday a proper expert in investments made the same point writing for the Telegraph.
[T]he tendency for some investors to shun these businesses on ethical grounds can result in them trading below their intrinsic value. An unpopular investment will tend to offer investors a higher yield – and because income is the principal component of total return over time this can lead to investment success. Even if the stocks remain at a valuation discount, they will benefit from the compounding of their high dividends.
A fund that played to this theme, the Vice Fund, turned $1 into $3.37 between 2002 and 2015, according to the LBS report. That compared with the Vanguard FTSE Social Index Fund, an ethical fund, which turned $1 into $2.68 over the same period.
Tobacco illustrates the potential of investing in sin. Prior to the mid-1960s, before smoking became a sin, tobacco stocks underperformed the market. Once the health issues became well-known, cigarette companies started to outperform and they have been key components in the portfolios of some of the most successful investors
That was the painful experience of the California Public Employees’ Retirement System (Calpers), which had a policy of country-level exclusions between 2002 and 2006 that backfired badly. Steering clear of “bad” countries cost its pensioners $400m (£260m)Which kinda resonates with what I said last summer.
Of course, the superannuation funds which now don't count tobacco stocks amongst their portfolio will be deprived of these super profits, meaning that eventual payouts will be inevitably lower than they could have been if Dr King hadn't embarked on her funny campaign. The only 'blow' here is to the people who will now have to suffer a smaller pension when they retire.So there you have it. Pascal Diethelm - a tobacco controller whom Martin McKee considers a 'genius' - is as ignorant of science as he is of financial matters. Trusting what he says will render you slightly more stupid and harm your wealth, so perhaps his comical utterances should come with a warning.
On a wider note, if Diethelm is one of tobacco control's top thinkers, it doesn't say much for the rest of them, now does it?