"Looking at the 20-year chart of Shell, [which I bought for the yield, like yourself, last year] there is a long sideways process over the last 10 years, out of which the price [on a nominal basis] has just broken free of the previous highs going back to 2000, which is a bullish signal in some chartists eyes [eg Robin Griffiths] and the chart image and price levels may lead one to conclude that Shell has broken up from its base.

"But an inflation-adjusted chart would show a very different picture, with the 10-year choppiness having a downward slant, and the recent new high being much less visually significant. One might not be so happy.

"Do you think there is any distortion in the fact that charts are not adjusted for inflation? I suppose we could create a chart relative to inflation, but that is tricky over a longer time frame."

David Fuller's view Well done for seizing your market opportunities and thanks for a question certain to be of interest to a number of other subscribers.

I bought Royal Dutch Shell B-Shares (RDSB LN) (monthly, weekly, daily) on 28th June 2010. I wanted to increase my weighting in energy - a Fullermoney secular theme, and BP's misfortune in the Gulf of Mexico had created an opportunity by weighing down the sector. I also wanted to increase yield in my portfolio and the B-Shares yielded 6.25% at the time, slightly higher than the A-Shares.


While I am hopeful that RDSB will eventually break clear of historic resistance in the £22 region and although the price action has been favourable since 2H 2010, it would be premature to say that it has already done so, as you can see from the monthly chart above and perhaps even more clearly on this 3-box reversal point & figure graph. Moreover, and hoping not to sound like a pedant, I would not call this pattern a base because the current region has been a ceiling since the year 2000.

To confirm a break above the old ceiling RDSB needs to hold this ground, which it is doing so far, then break decisively higher, and finally find support above the old high on its next reaction and consolidation before resuming the medium-term upward trend.

If I did not think that RDSB will eventually do this, I would be reducing what is currently the second largest position, by weighting, in my personal long-term investment account, despite a yield of almost 5% at current prices. Inevitably, some people disagree. I saw an American hedge fund manager on CNBC say that he was short Shell and Exxon Mobile because they could not replace their reserves and he thought Shell was paying the dividend out of borrowings. Reserve depletion has long been a concern but I think these two western oil giants are in a position to remain sector leaders in oil and gas, either directly or via joint ventures.

The inflation-adjusted picture, shown here as RDSB's sterling price divided by UK CPI (absolute) inevitably lags, demonstrating once again that inflation is an insidious stealth tax. However you are looking at the nominal price. In other words, without the dividend yield.

Fortunately, RDSB's attractive dividend yield offers considerable protection against inflation. This chart, which we can only produce from Bloomberg shows RDSB's return since early 2000, compared to the FTSE 100 Index over the same period. While RDSB's nominal price appreciation over the period (shown just to the right of the ticker in the larger orange box) is a credible plus 45.05% against UKX's decline of 3.83%, RDSB's Total Return is 131.66% against UKX's total return of 39.24%.

The vital message which investors need to understand is that the best part of long-term stock market performance comes from dividend yield. Consequently, you may wish to manage non-yielding or low-yielding equities more actively, on a buy-low-sell-high basis, than high-yielding shares which generally offer better long-term protection against inflation.