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 Port Phillip Publishing, 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.


55 responses to “Why You Shouldn’t Buy Telstra Shares – Ever!

  1. Telstra should engage Christopher Joye to see if he can spruik its price back up to 8 bucks. But this time he may have problems, as Steve Keen recently said, ” Australia’s pool of fools is rapidly shrinking.”

  2. You just forgot one thing. the government is going to spend a lot of money on the nbn. Don’t you yhink we are going to see one of the biggest porkbarrelling in australian political history.
    Just imagine 1 in 10 people own TLS shares, with a year to go to the election and ratings approvals down. Let telstra take the lions share of 43 billion to create a nbn. Just watch it’s shares double or triple and romp it home in the next election!
    An opputunity to good for any party! START BUYING TLS AT ANY PRICE !

  3. I might have already referenced the video itself, which you will find embedded in this link, but Bolt also references a new article, a New Paper in Science: Sea level 81,000 years ago was 1 meter higher while CO2 was lower, which you can access from the link. Bolt also makes a very good point about climate scare not being a scandal of science, but also one of the MSM.

    “The greatest scientific scandal of our lifetime is unravelling before our eyes, and the ABC has to be dragged screaming to even notice. Don’t forget, the reason this scandal grew so monstrous was that the media refused for years to even question the deeply questionable. This has been a media scandal as well.”
    http://blogs.news.com.au/heraldsun/andrewbolt/index.php/heraldsun/comments/but_but_but/

    I wholeheartedly agree.

  4. A bit of sensorship going on here call a stock $hit or people fools Ok. Suggest the government might porkbarrel an election ooppps can’t be printed !

  5. “What will happen if decades of filth beneath the climategate iceberg come floating to the surface?

    The public will see the unholy, international alliance of politicians, publishers, federal research agencies and news media that have been manipulating science as a tool of propaganda to control the people.

    It is no mere coincidence when — the BBC, CBS, NBC, PBS, Nature, Science, the Climatic Research Unit (CRU) at the University of East Anglia, the US National Academy of Sciences, major newspapers, APS, ACS, AGU, major research institutions and universities, the Norwegian Nobel Committee, NASA, DOE, the UN’s IPCC, Al Gore, George Bush, Barack Obama, and the Met Office –- were all distributing the same misinformation.

    With kind regards,
    Oliver K. Manuel
    Emeritus Professor of
    Nuclear & Space Science
    Former NASA PI for Apollo”

    Indeed, Professor, what will happen?
    Perhaps then even our own public broadcaster, the ABC, along with the rest of the Australian MSM will be recognised for their sycophantic, corrupt and disgraceful part in the fraud, at which point Kevid Rudd and all the climate hypesters like, the current Chief Scientis, Wong, Flannery and Pittman will hide their red faces in shame. They certainly are not ready just yet to do that now. But the worm is turning and they will have to think of a different scam to keep themselves occupied.
    http://wattsupwiththat.com/2010/02/11/new-paper-in-science-sea-level-81000-years-ago-1-meter-higher-while-co2-was-lower/

  6. Telstra is a stock which does have 50% upside & 10% downside from current levels. stock is 3.12 cum div of 14c ff.If there was ever a screaming buy in the market at present then it is telstra. $ 6 bn free cashflow and integral part of any telecomunnications platform in Australia going forward it is a compelling buy. Price is what you pay value is what you get, dont get caught up with past performance, evaluate it on current fundamentals.Yes everyone at present is dumping the stock , that is the reason why it is ehere it is analyst community for a change is making the right call, but no one is listening.

  7. If anyone decided that they want to lie about something, then I reckon this would be the way to do it, a’ la Pachauri style. This guy really seems to belive his own BS. It has been well documented that claims about the Amazon, Africa, The Netherlands, etc., are all porkies like the one about the melting glaciers of the Himalayas.

    It has gotten to a point where journalists are putting these things to Kevin Rudd’s partner in thief (only just recently Rudd has given him a cool Million of our money), but this crook will not admit to any errors until he is pushed right over the edge.
    http://eureferendum.blogspot.com/2010/02/denier.html

  8. with telstra they will prob consilidate shareholders shares DOWN @ 10:1 ratio ie.$10k- $1k
    then re-value them back on the market
    and then go back down again
    & WALLAAAAAAAAAAAA

    then you have almost nothing like $257.12 c
    cost $50 to broker sell em
    & welcome to SCAMTELSTRA

  9. After being a long standing Telstra shareholder for all these years, I have accepted the verdict that Telstra is a dog. In the hindsight, Sol is the best CEO of all these years, but even so, he could not the turn Telstra around, so who can? I have given up my hope and will sell off!

  10. That’s probably as close to the truth as you can get, etch.
    Bottom line: If you are not an insider, you will be tricked and caught out. Trying to trade on fundamentals in a corrupt environment is like navigating the Great Barrier Reef without a chart. It is only a matter of time before you run aground.

  11. i posted the next two comments on DR

    Its possible that China is about to get social unrest due to working conditions (see second post). What do you expect when they see everyone snapping up cars and property – they want a bit of the action but are subjected to poor working conditions in factories.

  12. Prices in China, especially producer prices, are increasing. PPI is increasing rapidly, Lenovo is raising prices and Boasteel just raised its steel prices. So inflation is increasing in China faster than in the US. Therefore, when a US importer buys Chinese exports he will get a reduced quantity. E.g. The US importer was able to buy 6 pens for 6 yuan no he only gets 5 pens for 6 yuan.

    That will have a similar effect as raising the value of the yuan. It could also mean that China will devalue the yaun to the US dollar instead of appreciating it (if they have the balls to do it)

    Wouldn’t that make life interesting!!!

  13. This is interesting, it may be that chinese workers no longer want to work in terrible conditions in the factories. I guess human nature is kicking in and people have tasted a better life or seen others living a better life and want it for themselves

    That should lead to raised wages and better working conditions for workers further increasing costs

    Oil up, copper up, wages up, inflation up…. Cant see the chinese raising the value of the yuan on top of that

    http://www.reuters.com/article/idUSTRE61B3GO20100212?type=GCA-Economy2010

  14. GB – If wages rise in China, then consumer spending will automatically benefit, which overall should help consumption and therefore resources. Ditto if their currency appreciates. Anyhow, this may and may not be in line with your expectations. Are your expecations that China is going to choke and our exports, and hence our economy and therefore employment also will collapse, dragging with them housing and goodness knows what else into a downward spiral?

  15. cb, climate change or not, the fact is we are consuming huge amounts of NON-RENEWABLE energy source every day. Just look at oil – the world burns around 85 MILLION barrels of it every day and there are 159 litres of oil per barrel. To produce one kilowatt hour of electricity consumes close to 1kg of coal and the list goes on. Do you have any idea of energy? We cannot continue consuming non-renewable resources and must change to a more sustainable way of living if civilization is to remain as it is now. Also do you understand the difference between weather and climate?

  16. mt – a little argument from analogy for you.

    The titanic is sinking, and we don’t have enough lifeboats. Half of them are already on the water and before too long we are going to run out of the rest. So, to solve our problem, we should hold onto the remaining ones and force people to make a swim for it.

    Arguably, forcing the developed world prematurely onto currently hediously uneconomical sources of energy, while blocking developing nations in their development on the basis of the cheapest sources of energy available, are as moronic as the above solution to the sinking titanic. Worse, it can be, and indeed it has been argued by credible people who are far more in the know than I aspire to be that in certain manifestations of this retarded line of thinking amounts to no less than crimes against humanity. Here is one example:
    http://www.islamonline.net/servlet/Satellite?c=Article_C&cid=1203759006456&pagename=Zone-English-News/NWELayout

  17. cb
    Person A is paid $1 a day and buys 1kg of rice per day at $1

    Rice goes up in price because of inflation, producer costs seem to be the most prominent reason for price rises – the old cost push inflation – which also means the government cant turn off the stimulus tap.

    So rice is now $1.50 per kg and the worker gets an increase in wages to $1.50 per day. He is buying the same amount of rice – there is no extra quantity purchased because the wage rise is simply due to increased costs of living – that is important to remember.

    However, If China was a mass exporter of rice to America, then their dollar would no longer be able to buy a kg of rice because the price has increased so they only buy 800g…. Hence chinese exports fall. Its only because they have pegged it to the USD. So the solution is to devalue the yuan so the americans can buy the whole kg.

    The wages problem is actually quite important. It is a sure fire way to see riots on the street. Increased costs of living and other chinese people buying expensive property and cars when you are stuck in a 1 bedroom dorm with no electricity is going to make the worker angry. And there are a lot of workers. So to keep the peace lets raise wages

    So because of loose monetary policy globally, china is experiencing a huge increase in price of raw materials – copper, iron ore…. This is leading to increased costs and increased prices so now they will raise wages to cover the increased prices and keep the peace. Wages and raw materials are the two prominent inputs into a business, so if you raise wages you then must produce less or increase prices again. Normally business will produce less so GDP falls and unemployment rises, The government steps in and stimulates demand with loose monetary policy which increases prices again. Its cost push inflation and it feeds on itself. If the government doesn’t stimulate and reduces lending (which they are) then they will find themselves in stagflation.

    But if raw materials were suddenly to become cheap then this would ease the cost pressure on business. This may sound crazy but i think the world really could do with a few years of cheap oil and materials.

  18. The quality of comments on this site really is poor.

    Firstly we have people carrying on about AGW in a post about Telstra. And then reference GW sceptic sites like Pielke and others, which, if you actually know anything and steer clear of reading Bolt, you might sound like you know what you’re talking about (risk management, much?).

    Then we have people going on about the minimum wage. It’s all very confusing.

    In fact it’s like listening to a bunch of Herald Sun “readers” debate.

    In any case, Kris thinks they’re not worth the risk. People in the telco industry probably would take a very, very different view.

  19. Sorry, Tim. I am trying my best, but you seem to be on a path to make the quality of the discussion even worse by suggesting to exclude certain sources of information.

    My approach is to source whatever information I find, and share it with people who then can judge for themselves whether they give it credence, or not. You seem to be suggesting that there be some sort of filter imposed on this, no? Anyhow, if you want to save yourself from more of the same, you can stop reading at the end of this paragraph, becuse the next one will reference the latest report on Africagate by, you guessed it: Bolt.

    How the IPCC made Africa starve
    http://blogs.news.com.au/heraldsun/andrewbolt/index.php/heraldsun/comments/how_the_ipcc_made_africa_starve/

  20. Incidentally, just for the record, I do not share all of Bolt’s views. Far from it. But I happen to share his realism and scepticism on climate change, and for the rest, I largely use him as an alternative thinker about topics, where his sympathies and judgement tend to diverge from my own. Exposure to alternative viewpoints, I find, is rather beneficial. It helps me from too easily sliding into solipsistic, narrow views, even though I cannot claim to always succeed.

  21. GB – hmmm … thank you for all that. I will mull it over. In the meantime, I encurage you to watch that inverview with Bennett, as he does have a view on China towards the end of the interview. Would be interested in your thoughts on what he has to say.

  22. “Greece has taken umbrage at the lacklustre EU response to its plight and the suggestion that it might face further austerity in March if its existing plans fail to produce results.

    The Greek press has also protested vigorously against the EU’s decision to bring in the IMF to ensure the Greek government scrupulously adheres to its budget cuts, claiming that such a move amounts to setting a wolf among the sheep.”

    Let me make a few comments on this:
    1. Greece, Hungary, Roumania, etc., were accepted into the EU as the primary means by which Germany and a few other core Western countries wanted to find new, easily accessible markets for their products.
    2. I have seen first hand what this has meant for these countries. They have been encouraged to borrow and borrow on national credit cards for products and projects that were largely spent on those imported from the countries where lending them the money in the first place.
    3. Now that their rapid economic development has put them into hock for as far into the future as the eye can see, they are trapped and are being crushed by the weight of the debt, and with the IMF moving in with its own “rescue” lending, they are about to be reduced to poverty and debt slavery with the sorts of economic conditions the IMF is renowned for imposing on its helpless victims.
    4. This whole shemozzle follows to a T the blueprint described by the defector John Perkins in his “confessions of an economic hitman,” which I have referenced before.
    5. Hence, the description of the IMF coming into Greece is like a wolf being released among the sheep is more than justified. Here come the robber barrons, my dear greek friends. Who would have guessed that they will be key players in a greek tragedy?

  23. Bruce – I just noticed in an earlier thread that you asked about the best place to buy bullion.

    My experience is that the best thing to do is to shop around a little.
    Every big city will have a bullion dealer, and even coin shops will have straight laced bullion. Look them up on the internet. There is a company called Australian Bullion Company, so you could do a search for them, and also there is the Perth Mint, where you can see their daily price list at this link, where I tend to keep an eye on metal prices:
    http://www.perthmint.com.au/metalPrices.aspx

    The chief consideration, though, is not so much the price, or where you buy your gold from, although these should also be considered. If you buy local where you can pick up the stuff, then you will not have to pay for insurance, or delivery, so these should be taken into account, along with the bullion price quoted, by all means, but the single most important consideration in an environment of volatility and financial uncertainty is the FORM of bullion you choose for investment.

    By this I do not mean whether you shold buy bars, as opposed to coins, but whether you buy physical gold which you can control, or only a promise of gold, or paper gold, which is promised to you by the holder of the supposed bullion, to be delivered to you on demand. Such forms of gold represent a third party, or counterparty risk that diminishes part of the rationale for holding bullion in your portfolio in the first place.

    Some of your investments should be free of counterparty risk, and the metals are amongst the most well placed asset categories to give you just that. The critical difference is between metal and paper. Just keep that firmly in mind, and whether you spend a few hundred or even a few thousand dollars more, or less, on your bullion holdings, will matter rather little in the longer run. Have you checked out the Clifford Bennett interview I referenced above? It has a good, clear segment on the fundamentals of gold going forward.

  24. I have just found the Austraian Bullion Company’s website, but it looks like they do not publish their prices. You have to call them to get their price. The link is below, and they appear to be based in Melbourne. I have bought some of their 10 oz bars a few years back, but through a dealer in Brisbane, so they do appear to supply nationawide, both through direct dealing and through independent dealers.

    You should always check out your local dealer, I would suggest, and give them your business, provided that they are prepared to be competitive and match the best price you got from somewhere else. That’s how I tend to think, anyhow.
    Dealers are typically open for negotiation, so if you ring around and get a few prices, then you can always ask them to improve them on their offer in light of a competing quote you just got from somewhere else.
    http://www.australianbullioncompany.com.au/todays-prices

  25. cb
    Bennett: China will boom because it has lots of poor people and it will make Australia the richest country in the world

    GB: China will see lower GDP growth soon because of inflation an irresponsible monetary and fiscal policy linked with obscene bank lending

    One of us will be correct

  26. Spot on Tim….its a laugh sometimes how much people take themselves so seriously.

    Lets all stick to the topic of the day people…it makes for a much more open and fluid debate.

    Incidently cb: Do you do anything other than comment on blogs all day?

  27. I’m sure CB has many things he attends to apart from blogging, but i for one am grateful for the informed opinion he bestows upon us.

  28. Well, Richard – I recommend that you stick to your own good advice.
    As for the rest of us, let us stick to ours. Do YOU do anything all day but tell people what they should or shouldn’t do?

    You want to make a discussion more fluid? Then why don’t you contribute a thought or two to every topic? No idea?

  29. Richard – I forgot to mention that you should not feel obliged to read just anything people post here, but if you cannot help yourself, then your complaints should be directed to the editor. On the other hand, if you after a lesson or two in civility and courtesy, they happen to be very close to my field, so we can talk.

  30. Sandra – thank you for the kind words. I would myself describe what I am doing as ‘sharing’ and sometimes ‘venting,’ but I am also mindful of the fact that some in the crowd would be far more inclined to describe it as ‘hyperventilating,’ or worse. Anyhow, I will get bored with it one day, like Peter Fraser seems to have, and then I will be gone.

  31. CB @ 40:
    You said that it does not matter too much whether one buys coins or bars of gold.

    Looking at today’s price quoted by goldbullion.com.au

    1AUD = 0.889437USD
    1USD = 1.12431AUD

    GOLD 1 oz ingot/biscuit =AUD$1292
    GOLD 1 oz coin = AUD$1342
    GOLD BUY BACK per oz =AUD$1230

    So bars are cheaper to buy and presumably the price obtained when liquidating back to them is the same for bars or coins, so one would lose more with coins?

    For bars the differential is 4.8% lost between purchase and sales price.
    Probably not too much considering there is no risk of being stitched up as in the case of paper gold…

  32. Sandra – Yes, you are spot on. For whatever reason, buying coins tends to be more expensive than bars, and that is the main reason why, overall, I prefer buying bars, rather than coins. My favourites are the 10 oz gold bars, and in silver the 100 oz siver bars.

    Having said that, for anyone travelling to the US, I would highly recommend buying their coins for “small change.” And especially the silver and gold eagles, as they are legal tender, bearing face valus in USD. The silver eagle is a $1 coin, and the gold one is a $50 coin, but of course it would be silly to spend them as legal tender, as they both are worth multiple times more than their face value.

    One little detail for anyone taking them out of the US and bringing them back to Australia is this: While the eagles tend to have a little higher premium on them than the “rounds”, which are not legal tender coins, there is an advantage in getting your silver and gold coins in legal tender formats, and namely the lack of border controls on their export and import. If you buy bars or rounds, these will be subject to export and import regulations by customs, whereas the same regulations will not apply to the eagles, since they count as currency, rather than a commodity, due to them having the status of legal tender.

    Thus, you can bring in 20 or 50 kg of silver eagles and you will pay no duties, whereas you would be hit with massive taxes if you brought the same amount of silver in the form of bars. Or at least this is how things worked a few years ago – but currency controls are always on the cards, so this opportunity may not be open forever.

  33. Why You Shouldn’t Buy Telstra Shares – Ever!?????????????

    cos it would be like sticking both hands in a bucket of gooo

    OOOOHHHHHHHHH

  34. Forget the fact that the company is listed, it is a business that needs to make money. Having almost removed 100% of my private business to other telcos 7 years ago and in being in the process of moving our business contracts to other providers because of expense products and shocking service, its not hard to see why their share price is falling. They are a poorly run business with the apparent attitude that success is their right, its owed to them.

  35. Firstly, i wouldnt say never ever. The problem with telstra is like that of many large corporations, it needs better management but a corollary to that is that it is susceptible to bad practices and even corruption.

    When was the last time telstra was inovative? You could say 3G , and yes 3G is quite a success story. What you say is correct the gov hold over telstra will never allow it to innovate hence it will never bring in new markets. Second, the old telecom is still alive in telstra, it can never really function as a private enterprise.

    the key to a successful telstra lies in the genius of management in being able to innovate but also deal with its inherited issues. It has great advantage over its competitors but it has not been able to use its capacity in making its business better.

    At the end of the day remeber that telstra still owns 95%+ of all telecoms infrastructure and it still has monopolistic control over the nations infrastructure. It just requires the right variables to fall in place for it to very quickly turn around and be massively profitable, particularly when info tech is the way of the future.

    Companies can take a long time to turn around eg. Apple

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