I've just taken a look at my holdings in my defensive fund over on Stockopedia. It is convincingly ahead of the FTSE350 since inception - undoubtedly helped by investors becoming more risk-averse.
The most expensive stock is BATS (Brit Amer Tobacco) at 15.6X earnings, which isn't too bad. Everything else is on pretty reasonable multiples, and I just can't see anything that needs tweaking. The cheapest shares are MKS (Marks & Spencers) at 8.9X, and AZN (Astrazeneca) at 6.7X. AZN look set to struggle with growth. MKS doesn't rightly belong in my portfolio. It's not as defensive as the name of my portfolio implies. Given how cheap it is, I'm going to stand pat on it.
Analysts are expecting double-digit earnings growth out of MRW (Morrisons), BATS, RTN (Restaurant Group), and HLMA (Halma). They're all on reasonable multiples, so I think investors are going to do well out of these stocks in 2012.
The other stocks in the portfolio are reasonably priced. I can't think of anything to change in the portfolio. I think it's a pretty sane portfolio.
Thursday, January 5, 2012
Wednesday, January 4, 2012
Diary: How China works
Saw this interesting post over on ADVFN's GNG thread:
Sounds like a recipe for disaster.
In China, under the Communist system, nobody paid for anything, debts were just passed on to others and passed around and payment was made in all sorts of weird and wonderful ways, or it was not made the State took the hit bailing out the firm by writing of their debts.
This is the system before what we have today, but the way things work today is very similar to the way it was.
Nobody wants to pay, everyone wants payment deferred for a year, or two, or five.
It all works on the principle that if you do not let me not pay for a long time, I will not order anything from you again, and also not pay for a long time.
Therefore, its better to accept more work, and run up larger debts, as you then have more business - but you have to take the hit on the cash.
This is rampant all over China - one of the many pitfalls of Chinese companies which people outside of China or who have no experience with China cannot understand. And most of these long term debts get rolled into bigger and longer long term debts.
Its very easy to see when its happening, its when companies keep raiding the banks, or their shareholders, for more cash - when in fact, they should not be.
Sounds like a recipe for disaster.
Tuesday, January 3, 2012
Diary: Portfolio review
Another year older, but not necessarily another year wiser. In a year when the Footise dropped 5.6%, my portfolio performance needed much to be desired. I haven't been able to get a final tally on my result, believe it or not, but I'm somewhere down around 8%, although that might be 12% on an IRR basis, and down more on just my stock picks - my OEICs are mixed in with that return figure. I wont get a proper picture until I've finished my Fortran program to get a rate of return that is of more use to me. It looks, though, that my stockpicking has been "lacklustre", to put it kindly.
I don't want to go through a blow-by-blow affair with every investment, that will be too long and boring. So I'll just try to stick to some general observations.
I think the first one is that I over-traded, and own too many stocks. The stocks that did well were the good-quality companies, and the stocks that did badly were the more dubious companies.
The most insightful thing I did in 2011 was dump Aviva and Barclays near the beginning of the year. I started 2011 with heavy bets in both. Around about March/April time I figured that the markets were a bit toppy, and that I was heavily exposed to financials, which could cost me a packet if things turned sour. With hindsight, this turned out to be an amazingly prescient call. I sold out pretty much at the top, and watched them take a major drubbing in the market thereafter. I saved myself an absolute packet with that call, and if I hadn't made the move that I did, I would have taken a much bigger hit.
As regards the least insightful thing I did, I'm not sure I could say. "Everything else" might be the best I can manage by way of explanation. I did buy Aviva and Lloyds later in the year - so far, it's not working out. My exposure is very much reduced from what it was at the beginning of the year, so I am much more comfortable with the risks involved.
My best idea. I think there are two. My decision to hold onto BATS (Brit Amer Tobacco) was sound - it's up 24% in 2011, and has been thrashing the market since I bought it. Plus I've had high and rising dividends since purchase. The growth in dividends has been high, too. My greatest purchase was in CTN (Clearstream Tech) - a small company in the stent market that appeared to me on the cusp of great growth. I copied the idea from a post on TMF - which shows that you don't have to be original, you just have to recognise a good idea for what it is. I think Buffett said as much himself - just use the best ideas of others. CTN went down a lot in price over the course of the year, along with the rest of the stock market. I had figured that its story was unchanged, and used the stock market decline as an opportunity to top up. This turned out to be exactly the right thing to do. CTN was taken over during the year, allowing me to book a healthy profit. I purchase the shares in two separate accounts, so I can't quite gauge the exact return I obtained from it. I can tell that it's "a lot", though.
My worst idea? Oh boy, let's just restrict that to one. FCCN (French Connection) was a bad idea on my part. I bought in at 103p in April, on account of the large cash position and improved trading statement. Things went downhill for FCCN since then, and I decided to sell in November at 51p. Trading had declined. It currently stands at 37.5p. I am aware that there's some very good private investors buying at around the 50p mark, so it could be that I have made a faulty buy decision, and a faulty sell decision. What FCCN has going for it is the healthy cash position - so it provides for considerable safety on that front. I see that FCCN now stands as a net-net, so it may be worth rethinking that one. It would be well worth checking the operating lease obligations, though, as that might materially affect one's assessment of whether it's a true net-net. One of the problems with FCCN is that it has has the thinnest of the thin operating profit margins. In its latest interims, it had negative net cash flow. It seems to have severe difficulties making any headway. Whether it can recapture its former glory is an open question. It's got its wholesale operation which seems to be doing well. I think its business in America must be in flux at the moment, as it supplies Sears, which is having difficulties of its own.
If I could sum it up in a single sentence: 2011 would have been better for me if I had less trades, fewer shares, in good solid companies with reasonable growth prospects, and had steered clear of the junkier stuff.
2012 should be interesting. Many value investors have taken a bath last year, so maybe 2012 will be its comeback year. I honestly don't know. It's all 50:50. There's a lot of fear in the market at the moment, with lots of talk of recessions, government debt, and the Euro crisis. The question is: how much of what we think will be bad news is priced in to what will actually happen? Maybe 2012 wont be a bad year for many companies at all. Some of them seem to be doing quite well, actually. We'll only know for sure at the end of the year.
I think 2012 will be a year in which I dedicate a lot more time to learn about investing. I've spotted some great resources that I hope to learn from. I shall hopefully use 2012 as a "sitting out" year, and look to buy quality companies at reasonable prices where I think that there is room for growth and nice dividends. I'm going to try to avoid all that value stuff for awhile, even though I accept that 2012 could be a great year for value.
I don't want to go through a blow-by-blow affair with every investment, that will be too long and boring. So I'll just try to stick to some general observations.
I think the first one is that I over-traded, and own too many stocks. The stocks that did well were the good-quality companies, and the stocks that did badly were the more dubious companies.
The most insightful thing I did in 2011 was dump Aviva and Barclays near the beginning of the year. I started 2011 with heavy bets in both. Around about March/April time I figured that the markets were a bit toppy, and that I was heavily exposed to financials, which could cost me a packet if things turned sour. With hindsight, this turned out to be an amazingly prescient call. I sold out pretty much at the top, and watched them take a major drubbing in the market thereafter. I saved myself an absolute packet with that call, and if I hadn't made the move that I did, I would have taken a much bigger hit.
As regards the least insightful thing I did, I'm not sure I could say. "Everything else" might be the best I can manage by way of explanation. I did buy Aviva and Lloyds later in the year - so far, it's not working out. My exposure is very much reduced from what it was at the beginning of the year, so I am much more comfortable with the risks involved.
My best idea. I think there are two. My decision to hold onto BATS (Brit Amer Tobacco) was sound - it's up 24% in 2011, and has been thrashing the market since I bought it. Plus I've had high and rising dividends since purchase. The growth in dividends has been high, too. My greatest purchase was in CTN (Clearstream Tech) - a small company in the stent market that appeared to me on the cusp of great growth. I copied the idea from a post on TMF - which shows that you don't have to be original, you just have to recognise a good idea for what it is. I think Buffett said as much himself - just use the best ideas of others. CTN went down a lot in price over the course of the year, along with the rest of the stock market. I had figured that its story was unchanged, and used the stock market decline as an opportunity to top up. This turned out to be exactly the right thing to do. CTN was taken over during the year, allowing me to book a healthy profit. I purchase the shares in two separate accounts, so I can't quite gauge the exact return I obtained from it. I can tell that it's "a lot", though.
My worst idea? Oh boy, let's just restrict that to one. FCCN (French Connection) was a bad idea on my part. I bought in at 103p in April, on account of the large cash position and improved trading statement. Things went downhill for FCCN since then, and I decided to sell in November at 51p. Trading had declined. It currently stands at 37.5p. I am aware that there's some very good private investors buying at around the 50p mark, so it could be that I have made a faulty buy decision, and a faulty sell decision. What FCCN has going for it is the healthy cash position - so it provides for considerable safety on that front. I see that FCCN now stands as a net-net, so it may be worth rethinking that one. It would be well worth checking the operating lease obligations, though, as that might materially affect one's assessment of whether it's a true net-net. One of the problems with FCCN is that it has has the thinnest of the thin operating profit margins. In its latest interims, it had negative net cash flow. It seems to have severe difficulties making any headway. Whether it can recapture its former glory is an open question. It's got its wholesale operation which seems to be doing well. I think its business in America must be in flux at the moment, as it supplies Sears, which is having difficulties of its own.
If I could sum it up in a single sentence: 2011 would have been better for me if I had less trades, fewer shares, in good solid companies with reasonable growth prospects, and had steered clear of the junkier stuff.
2012 should be interesting. Many value investors have taken a bath last year, so maybe 2012 will be its comeback year. I honestly don't know. It's all 50:50. There's a lot of fear in the market at the moment, with lots of talk of recessions, government debt, and the Euro crisis. The question is: how much of what we think will be bad news is priced in to what will actually happen? Maybe 2012 wont be a bad year for many companies at all. Some of them seem to be doing quite well, actually. We'll only know for sure at the end of the year.
I think 2012 will be a year in which I dedicate a lot more time to learn about investing. I've spotted some great resources that I hope to learn from. I shall hopefully use 2012 as a "sitting out" year, and look to buy quality companies at reasonable prices where I think that there is room for growth and nice dividends. I'm going to try to avoid all that value stuff for awhile, even though I accept that 2012 could be a great year for value.
Monday, January 2, 2012
Diary: Guardian's 3 portfolio
The Guardian recently published an article, where they created 3 portoflios at the end of the year: one by pros, one by students, and the other by a cat. Here's the selection:
Pros: BG. (BG Group), GSK (GlaxoSmithKline), ELM (Elemensis), AVON (Avon Rubber), IMG (Imagination Tech)
Students: MUL (Mulberry), MRW (Morrisons), SVS (Savills), BATS (Brit Amer Tobacco), CWC (Cable & Wireless)
Cat: HILS (Hill & Smith Holdings), (MRW) Morrisons, TNO (RSM Tenon), SCAM (Scot Amer Inv Co), SPX (Spirax Sarco Engineering)
It's interesting to hear about how the various groups thought about their investments. The pros talked about macro and good performance not yet recognised by the market. Apparently past selections have been been "mixed". One pro was beaten by a by a chimp with a banana, and another one only outperformed a radio presenter with darts marginally.
The students were mainly thinking about companies with good brands which they think will do well and considered to have room to grow.
Should be interesting to follow up down the road. I actually think that the students are in with a shout on this competition.
Pros: BG. (BG Group), GSK (GlaxoSmithKline), ELM (Elemensis), AVON (Avon Rubber), IMG (Imagination Tech)
Students: MUL (Mulberry), MRW (Morrisons), SVS (Savills), BATS (Brit Amer Tobacco), CWC (Cable & Wireless)
Cat: HILS (Hill & Smith Holdings), (MRW) Morrisons, TNO (RSM Tenon), SCAM (Scot Amer Inv Co), SPX (Spirax Sarco Engineering)
It's interesting to hear about how the various groups thought about their investments. The pros talked about macro and good performance not yet recognised by the market. Apparently past selections have been been "mixed". One pro was beaten by a by a chimp with a banana, and another one only outperformed a radio presenter with darts marginally.
The students were mainly thinking about companies with good brands which they think will do well and considered to have room to grow.
Should be interesting to follow up down the road. I actually think that the students are in with a shout on this competition.
Sunday, January 1, 2012
There's hope for humanity yet
When I went to Disneyland in 2008, I was leaving the park at night, and one of the attendents said "Have a safe journey home". Maybe it's a sign of my middle-age, but I thought that it was the best wish that anyone could make to me at that time.
In these times when the economy is looking very rocky, everyone is suspicious about the integrity and competency of politicians, company directors seem to be raking in more than their fair share, China may or may not have a hard landing, and countries are overburdened with debt, it's worth reflecting that being human is a very precious gift, and that it is our basic intelligence, goodness and morality, however imperfect, is what qualifies us to be called "human".
As the monk Sumedho said: "Gladden your heart, and put a smile on your dial".
What gives me hope for humanity is that when the new year arrives, we say "happy new year". When you think about it, this is the very best wish that you can give. We don't usually say "may profit margins improve". Humans have more of a heart than you think.
So, I wish everyone a happy, healthy ... and indeed prosperous ... new year.
In these times when the economy is looking very rocky, everyone is suspicious about the integrity and competency of politicians, company directors seem to be raking in more than their fair share, China may or may not have a hard landing, and countries are overburdened with debt, it's worth reflecting that being human is a very precious gift, and that it is our basic intelligence, goodness and morality, however imperfect, is what qualifies us to be called "human".
As the monk Sumedho said: "Gladden your heart, and put a smile on your dial".
What gives me hope for humanity is that when the new year arrives, we say "happy new year". When you think about it, this is the very best wish that you can give. We don't usually say "may profit margins improve". Humans have more of a heart than you think.
So, I wish everyone a happy, healthy ... and indeed prosperous ... new year.
Diary: Seth Klarman
Some wise words from Seth Klarman, in Margin Of Safety, p 108:
When the underlying value changes, when management reveals itself to be incompetent or corrupt, or when the price appreciates to more fully reflect underlying business value, a disciplined investor can reevaluate the situation and, if appropriate, sell the investment. Huge sums have been lost by investors who have held on to securites after the reason for owning them is no longer valid. In investing it is never wrong to change your mind. It is only wrong to change your mind and do nothing about it.
Diary: Equity premium
The Equity Premium has increased to 5.89%, more than 2% higher than in July 2011. This is due to a combination of both a lowering of PE ratios and a lowering of the 10-year gilt since then. You can see my spreadsheet of calculations. Unfortunately, I am unable to offer a wider historical perspective of the premiums.
10-year gilts now have a yield of 1.98%. I chose 5 defensive shares at random, and they all had higher yields: Diageo 3.0%, Brit Amer Tobacco 4.2%, Tescos 3.8%, Scot & South Energy 6.2%, Uniliver 3.5%. These shares seem to offer much better value.
10-year gilts now have a yield of 1.98%. I chose 5 defensive shares at random, and they all had higher yields: Diageo 3.0%, Brit Amer Tobacco 4.2%, Tescos 3.8%, Scot & South Energy 6.2%, Uniliver 3.5%. These shares seem to offer much better value.
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