Sunday, February 26, 2012


Google's Blogger is giving me bother. My blogging fun is continued here ... MY NEW WORDPRESS BLOG

Saturday, February 25, 2012

Change from blogger

I've decided to change, at least for awhile, from using Google's Blogspot to Wordpress. I am becoming more interesting in Linux, and have found that Blogspot was rather finicky with privoxy, my web proxy. BTW, I highly recommend using privoxy to filter out a lot of the garbage that is pumped onto web pages. It looks as though Privoxy is blocking some crucial aspect of the way that Blogspot works. So it's a case that either Blogspot goes, or Privoxy goes. Importantly, Wordpress has a search facility. So there now doesn't seem much of a reason for me to stick with Blogspot. Even better, I can author posts in "Blogilo" - a neat little offline tool for KDE, and perform an upload from that. It's not looking good for Google. Google: Wordpress:

Thursday, February 23, 2012

Mr Market smells a rat

There is an interesting comment on Paulypilot's pub regarding EROS (Eros International) - a worldwide distributor of Indian films.It was entered as part of the NFSC competition. Earnings are expected to grow at double-digit rates over the next couple of years, and it trades on a PER of only 7.

CantEatValue responds as follows:
The story looks good, the profits look good and the potential looks even better.
 There's a "but":
I'm now going to argue that not everything is as rosy as it currently seems. ... If the accounting were to be more conservative and they expensed all this asset build up directly they'd have made no profit at all. ... the huge capex spends haven't even been all that successful in producing growth even with the generous accounting, with return on equity having dropped every year in the last five.
He elaborates, but you already get the idea where this going.

It seems to all fit a general pattern, too, along with the likes of GNG (Geong International), RCG (RCG Holdings), ACHL (Asian Citrus Holdings) and my new entrant, PTEC (Playtech).

What I notice is: less than a decade listing, it's India, increasing number of shares in issue (although EROS doesn't seem too bad), decreasing ROE, and low PER.

It's very interesting, isn't it, that EROS is on a PER of 7.2 with forecast earnings growth in double-digits. Why so low? It has a market cap of £272m, so it's hardly off everyone's radar. The more I look at blogs, read ADVFN (I'm not get paid to mention them, BTW), and Twitter, the more I doubt that there's such a thing as a company that's under the radar, anyway.

Mr Market is giving a clear signal that he doesn't like this one. I know we're not supposed to take investment advice from Mr Market, but still, I think he smells something fishy.

I think I know how this works, too: people see the growth and value characteristics, buy, become disappointed, and leave. The company "eats up" its pool of potential investors, leaving the share languishing.

It's also interesting to take a look at major shareholders. ACHL is a £443m company. It has as major shareholders Market Ahead Investments Ltd, Sunshine Hero Ltd, Wellington Management Comany LLP. Never heard of them. Now compare them with a company like CWK (Cranswick), which makes Jamie Oliver sausages, amongst other things. Alas, it doesn't actually use Jamie Oliver as one of its ingredients; that's just clever marketing. CWK has a market cap of £388m - a bit less than ACHL - and counts amongst its major shareholders Amvescap, Legal & General, Jupiter Asset Management.

See the difference? One has a list of major shareholders none of whom anyone as heard of, whilst the other, smaller, company is owned by a clutch of well-known insitutions. Makes you think, right?

Look at what the brokers say. EROS has 3 analysts, and all 3 rate it a "strong buy". CWK has 5 analysts, 1 of which has a strong buy (presumably the house broker), and 4 have a neutral. So why aren't the institutions investing in the larger, "better" company? My answer is: because the the institutions know that EROS is junk, whereas CWK has merit.

I'll tell you this straight ... if you were to offer £1000 of shares in any company that I have talked about in this post, with the proviso that I couldn't sell for 5 years, I would choose CWK. And by the way, CWK is trading on the biggest multiple.

Wednesday, February 22, 2012


Stockopedia has a recent article entitled "7 Ways to Find Stock Ideas". At the bottom, they suggested using a watchlist. This is something that I have started recently wrt to my defensive portfolio. I believe that this idea has much more merit than is generally recognised. No-one missed what happened with Tesco, of course, but there are plenty of other companies that you hold, or would like to hold, where the usual Brownian motion (not a reference to a certain self-proclaimed world-saving ex-chancellor and Prime Minister) of the  share price pushes it too low, or too high. 

I'm developing my own bit of software that looks at price levels of a company I am interested, and flags up the cheap and the expensive. I'm also starting to use ADVN a lot more. They have an excellent price alerts page. If a company looks interesting to you, then why not set a price that you are interested in buying. I have 24 entries in my list - although some of them are sales, and some for testing purposes. Here's a sample of my buy prices: DNO (Domino Printing Sciences) at 440p, OPTS (Optos) at 160p, RR. (Rolls Royce) at 670p, TSCO (yes, that again) at 260p, VOD (Vodafone) at 148p.

Now, some of these numbers look a little unrealistic; but you never know. I think TSCO will prove to be too resilient to fall as far as 260p. I already have some TSCO, so there's little point in me setting a price near comparable levels. If I am to top up, then I want it to be in the absurd price range. VOD is at 173p, and its share price tends to trade in a narrow range. So setting a price of 148p looks like a stretch. On the other hand, its 52-week low was 156p.

I think that a watchlist also adds another important dimension: maintaining discipline. It is too easy to become carried away with one's own ideas, and rush to invest. A watchlist helps maintain an air of detachment.

Tuesday, February 21, 2012

Top of the Pops

Oh, that's neat.

My defensive portfolio over on Stockopedia has actually made it to a year. The thing that makes me really proud is that it's the top-performing fund over the year. It returned 13.28%, against the FTSE350 of -2.41%. A nice little outperformance. AFAIK, spreads and dealing fees are factored into the performance - although I have no control over how that is calculated. No share has been sold at a loss.

I only wish my real-life portfolio performed that well.

In the portfolio, I recently sold off BATS (Brit Amer Tobacco), which is towards the high end of its valuation. In real-life I still hold it.

Looking at the portfolio, I think the selection of MKS (Marks & Spencers) was a mistake. It has not been a huge mistake performance-wise, but on reflection it doesn't quite fit the criteria I was looking for in the portfolio. It is currently so cheap that I am reluctant to eject it from the portfolio.

One thing I do observe is that there have been no really bad calls (again, unlike in real life). Sure, there are some that are down. AZN (Astrazeneca), the worst performing share, is down 6.4%. I don't call that a disaster, though.

The portfolio has 12 companies in it, although there's about 3 that are quite small. I would like to aim for about 10 companies, of roughly equal weighting. At the moment, nearly 10% of the portfolio is in cash, due to the recent sale of BATS. I haven't figured out a good replacement yet.

Most of the companies fall in the "acceptable valuation" range. None I consider daftly overvalued. Astrazeneca, Reckitt Benckiser, Morrisons and Smith & Nephew are at the low end of their historic valuations (which I define to be less than the 20th percentile of their decade PE) . Marks & Spencer is edging towards its low region of valuation. So actually, I'm encouraged that the portfolio hasn't "run out of puff".

I would like to make some general observations. The first is that the companies weren't selected on a "cheap as chips" basis. AZN does have an amazingly cheap valuation of PER 6.35, but BSY is on a PER of 15.05. Last year, HLMA (Halma) reached a valuation which was too high, and I should have been more alert and sold it. The valuation level has come back down, so I missed a trick there. I hope that I have learned my lesson. Hence my reason for ejecting BATS from the portfolio. Another observation, mentioned above, is that the portfolio has had no disasters. It seems to have followed Buffett's dictum that you don't have to do many things right, just as long as you don't do many things wrong. Just look for good solid companies at reasonable (they don't have to be fantastically cheap) prices, and you'll do OK.

I don't think my method for finding safe companies is fool-proof. I could well imaging that I might have short-listed HSV (Homeserve). It has had over a decade of high ROE and increasing revenues, but it has been under investigation by the FSA (Financial Services Authority). It is on a PER of 8.35. This is a company that I'll keep away from. Too risky. It might, of course, make a strong rebound, and it looks like a Greenblatt Magic Formula company. I've seen enough of these companies where the magic died that I wont be adding it to the portfolio. 

In this portfolio, slow and steady is definitely winning the race.

And yet, of course, whilst I'm busy congratulating myself on a job well done, it's much harder to really know how much of it was luck, how much was judgement, and how much of it was market dynamics. Was it luck, for example, that kept me from noticing HSV and including it in the portfolio? And didn't I just benefit from the general "risk off" attitude of the market? My shares in Pace, for example, which wasn't in the portfolio, have had a torrid time last year. No-one could have really predicted the travails that Pace had encountered. Also, some of the shares that I have liked a lot have had a bad performance last year. Shares like AFF (Afferro Mining) - admittedly a riskier mining play (of all things) - but when you look at the cash position, and its resources (which are being counted for nothing), I think it is a good selection. It was taken down by the general market. There's nothing I can do about that. YTD (year to date), it's up 35%. The market has suddenly decided that it likes miners again. Another share that I like - SHG (Shanta Gold) - is up a monster 61% YTD. I still don't think it's anywhere near its true value.  Yet in 2011 it was all over the place, by which I mean "mostly down".

Sometimes Mr Market gets it wrong, and sometimes you get it wrong. And it's often difficult to decide which one of you is wrong. The recent suspension of CPP has been another humbling lesson in why I'm not as smart as I like to think. Fortunately, CPP was not a huge part of my portfolio. But it was definitely a drag on performance. Something that I would have preferred to avoid.

I think there is a general kind of lesson here that keeping a steady ship is likely to be the better course of action; with the proviso that you can go against Mr Market if you're pretty sure you're right. I would say that, in general market panics, where everything is being marked down, that is usually the better time to buy. i think you cna get a "sense" that the market is just throwing itself off a cliff. If there are company-specific problems, then that requires special caution. With something like HSV, discussed above, you're doing a high-wire act. It's very impressive if you can pull it off, but there's going to be a lot of mopping up to do if the situation deteriorates. Unless you know for sure, you're taking chances.

Operating Profit Margin deciles

I've dug through Sharelock, and obtained operating profit margins for companies having a market cap of at least £200m.

Here are the deciles:
P0   -235.43
P10     3.50
P20     6.22
P30     8.37
P40    10.86
P50    14.22
P60    18.11
P70    21.54
P80    30.43
P90    49.24
P100  109.40

I have excluded companies that do not have OPMs. These are mostly financials.

Monday, February 20, 2012

CPP - shares suspended

CPPGroup Plc (CPP) is an international company engaged in Life Assistance business with operations in 15 geographical markets in both developed and developing countries. CPP has launched range of products, which include card protection, mobile phone insurance, legal assistance and identity theft protection. CPP is also engaged in the provision of Packaged Accounts where it sources products and services to create a tailored package for bank account customers. CPP also provides a range of travel support services, such as translation and lost-and-found luggage services, as well as access to airport lounges worldwide. Its joint venture with Mapfre Asistencia provides assistance for plumbing, drainage, gas, electrical and other home-related emergencies.
Today it announced that trading in shares will be suspended:
follows communications from the FSA over the weekend concerning its investigation into certain issues surrounding the sale of the Group's Card Protection and Identity Protection products in the UK. The FSA has requested CPP to undertake a review of certain past business sales and to make certain changes to its renewals process. The request comes as a result of the FSA's findings into CPP's sales practices.
Needless to say, I deeply regret buying this dog. I shouldn't have let it's good returns on equity and cheap price influence the fact that, at base, the company provides a pretty skuzzy product. I ignored Buffett's first rule: don't lose money. You don't have to do many things right, just so long as you don't do many things wrong. Sigh. I live and learn. Hopefully.