I ended up buying some shares for my Isa at about 2,044p apiece. The price has since sunk to 1,969p, partly because the first-quarter dividend came and went - the shares 'went ex-dividend' in the jargon - but I remain comfortable with the purchase. My investment timeframe is at least three years, probably much longer. Commodity markets are cyclical, so a recovery should come eventually – and meanwhile the dividends offer a healthy return.
I have since bought shares in another company: Shaftesbury (SHB). The West End landlord could hardly be more different from Shell, but that's one reason I like it. Shell offered value; Shaftesbury, whose shares have risen 32 per cent over the past year and yield just 1.6 per cent, does not in any conventional sense. So why have I bought in?
The fundamental reason is that the company has an unassailable position in a market with compelling demand and supply dynamics: West End property. Over the long term, its stock should therefore act as an effective store of value, which is exactly what I want from an investment.
For the uninitiated, Shaftesbury has over the past 25 years pieced together a patchwork of real estate in tourist London, notably around Carnaby Street, China Town and Seven Dials in Covent Garden. Its strategy is to buy as much as it can of a specific street or series of connected streets, and then to upgrade and reconfigure both the individual properties and the streetscape. This creates modern retail units and - ideally - a new 'destination' for shoppers and diners, pushing up rents.
It's a very simple premise, but it has reliably generated increases in the so-called 'estimated rental value' of Shaftesbury's estate - what surveyors reckon properties could be rented for at current market rates. These have only dipped once in the past 10 years, in the year to September 2009, and then only by 2 per cent. Since estimated rental values are the basis of commercial property valuations, this is the mechanism by which Shaftesbury's asset base - and hence its shares - should continue to rise in value.
Of course, the company has been buoyed by the strong London economy and the growth of the tourist trade. Changing consumer habits have also helped: the restaurant and leisure sectors have grown consistently faster than the retail industry in recent years, as Britons increasingly spend their disposable income on experiences rather than goods. Buying Shaftesbury shares is partly a bet on these trends continuing.
While the West End has become ever more crowded, the supply of properties has barely expanded. This is particularly true of the kind of real estate Shaftesbury owns - typically period pieces built between the 17th and 19th centuries. The supply constraints are unlikely to change. The result is that the rents and values of West End retail units have been, and should continue to be, much less cyclical than those of City offices or regional shopping centres, which face the very real threat of having their lunch eaten by a newer, shinier rival.
The big risk with an investment in Shaftesbury is a reversal in the low interest-rate environment. As bond yields have plunged to ever more extraordinary lows in recent years, global investors have been prepared to pay ever higher multiples of rent for West End properties. As a result, Shaftesbury's property values have outstripped rental growth by some margin in recent years, fuelling unsustainable increases in book value. When this process unwinds, my investment (at 869p, roughly equivalent to expected book value in a year's time) will probably suffer.
But this threat hangs over just about all investments. As a yield play, my Royal Dutch Shell shares are another likely victim. If one is to invest at all, one has to accept that the normalisation of interest rates will at some point shift the goalposts, possibly in unexpected ways. Sitting in cash in anticipation is simply not a sensible option.
The hope, with Shaftesbury as with other investments, is that the underlying growth in the business will compensate for the deflation in asset prices when it eventually comes. And to my mind Shaftesbury's underlying growth story is about as close to a sure bet as investments come.
