This is a simple point, but it’s one that some people who should know better seem to keep getting wrong. Share price movements are unpredictable and there is no more reason to think the price of shares will be higher next year than to think that they’ll be lower. Which means that there is no ‘right time’ for the government to sell its RBS shares.
If we thought that RBS shares would each be worth 50p more by Christmas then we’d be buying them now and bidding up the price towards 50p now. The price wouldn’t quite reach 50p because there’s still the chance that we’re wrong.
And indeed that is exactly what happens, and why we can only assume that share prices reflect what we expect them to be worth in the future. Because share prices can go down as well as up, we get a return from investing in the stock market above what we get if we invest in safer assets, like government bonds.
You would think this was obvious, but the BBC quotes:
Ian Gordon, a banking analyst at Investec, told the BBC’s Today programme: “The taxpayer is being short-changed.” The shares could have been sold for a higher price in February, when they were changing hands for more than 400p, he said.
But of course we had no idea in February that they would fall, and we have no idea what will happen to them next. Like the Royal Mail shares they might rise after we sell them off, or they might fall. Or they might not move at all.
BusinessInsider’s Mike Bird makes this point very well, and as well as reminding us that the RBS bailout was always going to be a money-loser, he points the people who think we can just wait and hold on to the shares until they rise back up to their 2008 level to this chart showing RBS’s share price since 2007:
To be fair, quite a lot of RBS has been spun off so it’s a much smaller company than it was in 2008 anyway, but the point still stands that there is no rising trend that we should be riding, as many people seem to think.
The flipside of all this is that Gordon Brown is equally blameless for selling off the government’s gold at ‘historically low levels’, except to the extent that we might want the government to own gold for other reasons.
So there is no ‘right time to sell’ except to the extent that we do or do not want the government to own shares in the banks, or to try to make money by taking risks. If we don’t want the government playing the stock market, the ‘right time to sell’ is always now.