Why You Shouldn’t Buy Telstra Shares – Ever!

There comes a time when investors just need to let go.

Some things are just not meant to be.

Yet even so, the fascination with and the desire for some investors to buy Telstra [ASX: TLS] shares is unwavering.

Personally we don’t get it. If Telstra was the only share listed on the Australian Stock Exchange, we still wouldn’t touch it. In fact, I think I’d rather buy an over-priced property with a 100% mortgage and negative gearing than buy Telstra shares.

That’s how bad an investment in Telstra is.

Given where the share price is, we’d say that most investors agree:

TLS Weekly

 

But amazingly, there’s still a bunch of investors out there who keep lapping it up. They keep believe it can’t possibly get any cheaper.

Remember the scam last year with the sale of Telstra shares by the Future Fund? The fund managers and brokers were falling over themselves to grab a piece of the action.

So excited were they, that as we recall, the Future Fund ended up flogging more shares to meet the demand.

Yet still the share price has done nothing. And odds are it never will do anything.

But that doesn’t stop the brokers from trying to hoodwink their clients into the stock. Look at the chart below that we got from the CMC Markets Stockbroking website:

CMC Markets Stockbroking

 

Source: CMC Markets Stockbroking

 

Of the five analysts surveyed – which granted, isn’t many – all five of them reckon Telstra is a cracking buy right now.

Then there’s the broker consensus on the Investsmart website. Seven buys and three holds. The analysts obviously reckon they’ve picked the bottom of the market for this dog:

 

Source: Investsmart

 

But when I look at Telstra I just think, “Why would you bother?”

It’s not as though Telstra is the only share available to buy on the ASX. At the last count there was something like 1,800 listed stocks.

And not only that, it’s got so much going against it only a mentallist would consider the stock a good buy.

Think about it. Do you really want to buy or own a stock that owns and maintains technology that is up to 100 years old? And which faces stiff competition from better companies in the new technology areas.

Do you really want to buy or own a stock that has a quasi-government department in control of a big stake in the company?

Do you really want to own a stock where the government could destroy it at the single stroke of a pen? And where the same government is plotting to establish a taxpayer funded competitor?

We don’t. But plenty do.

But then we always hear this one, “Oh, but it pays a good dividend.”

Really? If you’d bought Telstra shares back in 1997 and held on, you would have picked up $2.98 of dividends.

Right now, Telstra is trading at roughly the same level as the initial float price of $3.30. So, taking the dividends into account you’ve almost doubled your money in thirteen years.

Factor in the real cost of inflation and your investment would be well under water.

And if you were unlucky enough to pay $6, $7 or $9 then you’re seeing on a fat loss right now.

We like dividend paying stocks, but that doesn’t mean you should forgo capital value.

The dividend with Telstra just isn’t good enough to justify holding it. There are plenty of other stocks on the market that will give you a decent dividend yield, plus the potential for some conservative growth as well.

But, I’m sure you know why nearly all the brokers and analysts have a buy recommendation on Telstra. The simple fact is, they’re keen to get their snout in the trough the next time the Future Fund decides it wants to flog some stock.

The millions in fees that UBS earned from the last sale is evidence of that. And as for the fund managers, well, it’s not their money anyway, and they’re always keen to do a favour for their broker mates, and vice versa – “You scratch my back…”

Look, maybe we’re wrong and maybe the Telstra share price could double or triple from here. But so what? Who cares? There are so many other opportunities on the market that staying with Telstra is just a monumental waste of your capital.

Our advice to anyone that’ll listen is to just sell the thing and be done with it.

Buy something else. Heck, I’d rather tell you to buy bank shares than Telstra shares – and that’s saying something!

Cheers.
Kris.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Fat Tail Investment Research, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.


Money Morning Australia