Diary: Dividend growth

An article at Dividend Growth Stocks got me to thinking about using dividend growth as a filter for investing. The aim would be to try to pick out low risk, high quality companies obtainable at a reasonable price. An investor could look at the current debt situation, and factor in some light-weight qualitative factors. By "reasonable price", I mean anything below 16X PER. It's not a cigar-butt technique; think Marks & Sparks, not Primark.

I just picked out a few examples off of the top of my head (I own all of them except Tescos), and compiled the following table:

     CDR   SPR

DNO  18% +483% Domino Printing Sciences

SN.   9%  +49% Smith & Nephew

BATS 16% +415% Brit Amer Tobacco

BLT  27% +534% BHP Billiton

VOD  24%  -10% Vodafone

Legend:

CDR: Annual Compound Dividend Rate over last decade

SPR: Share Price Return over last decade

All of the shares listed have had increasing dividends for the last decade; some of them spectacularly so. BLT increased its dividends a massive 27% pa for the last decade, which is truly staggering. The performance of the share prices was very good, too, averaging +255% over the decade - that's about 14% pa. By contrast, the FTSE returned 4% pa. all of them beat the FTSE, except VOD. They had a 7:8 share split in 2006, for which I'm too lazy to adjust the dividends for. Also, its share price plunged precipitously during 2002, which is what I think at a very high PER at the beginning. So a sensible investor would have been able to avoid VOD shares.

This is, of course, hindsight bias (except the VOD thing - a lot of tech stocks at ridiculous multiples could have easily be avoided by those with just a modicum of investment skill). We of course know what you should have done: buy companies that will increase their dividends steadily over the next decade. They'll likely do fantastically well. Ah, but which ones will they be?

I think this is where the "light-weight qualitative factors" comes in. You're looking at the historical record and asking yourself if it's likely to continue. You might look at BLT, and conclude that seeings as it's a commodity company, the future is too unpredictable, and you should avoid.

But there are other candidates, like BATS, which seems in a pretty stable industry. Analysts expect EPS to grow 12% in 2011, and a further 9% in 2012. It currently yields 4.4%, and is on a PER of 14.9. z-score is over 3, so that's pretty good. I look at it this way: I can probably get a better than 10% total return for this stock over the next year. Considering that the market has been flat for the last decade, that's a pretty good return. And remember, you're getting this with minimal risk.

If you look at VOD, analysts are expecting a whopping 31% increase in dividends in 2012 - although that is exceptional, of course. VOD trades at a PER of 11.4, and a PBV of 1.1. It seems to be doing OK in new markets, too. Probably not a choice that will astound Buffett with the depth of your insight into the company, but it looks like it will spit out the goods. Divvies have been growing at only 7% pa over the last 5 years, so it's probably entering a slower phase than in the early 2000's. Like I say, there's nothing I consider inspired about the pick, other than the fact that investors will probably do OK.

DNO looks pretty good on paper. It makes industrial printers - for stuff like printing expiry dates on food products, printing on eggs (no joke!) and printing despatch labels for packages. It's on a PER of 14.5, has a market cap of nearly £600m, and has net cash of £12m, and negative gearing. Interest cover is 201, z-score is 5.98, so the balance sheet is clearly very solid indeed. Its ROE is 21%, compared with a decade mean of 19%. It wins design awards. I like the fact that it has a very nice cash position, and is small enough that there's plenty of room for expansion.


I reckon that if an investor can put together about a dozen issues like DNO, and is patient, they'll do well. Not "Buffett well", but "market beating" well. Some of them will be duds, of course, as no-one can predict the future. There's a poster I respect who found good results over the last decade by buying good-quality low-risk companies at reasonable prices. It seems that the market tends to overlook them in favour of cheap junk or overpriced high-growth shares (some of which turn out to be junk in the end, anyway). BATS is up 19% YTD, compared with FTSE down 6% - a comparison that you are no doubt tired of. I like making that comparison because it just goes to show how a boring, non-esoteric, reasonably priced good-quality company can slaughter the index. That's a serious out-performance. Admittedly, we may be having market conditions that are conducive to such outperformance; but it still makes me think.

Diary: Buffett, STB

Warren Buffett on the Best Buys

Notes from a video. the best buys have been when the numbers almost tell you not to - so you get a good company and not just a cigar butt. i owned a windmill at one time. and windmills are cigar butts, believe me. bought at one-third of working capital. he made money out of it, but there's no repetitive money to be made out of it. he understands qualitative the minute he gets the phone call. if you don't know enough about the business instantly, you wont know enough about it in a month or two months. you have to have a background, and know what you do and what you don't understand. if your circle of competence only has 30 companies in it out of thousands, and as long as you know which 30, then you're OK.

STB - Secure Trust Bank

This is another company for which I'm unsure as to how it landed on my "things to look at" pile. It's interesting that Sharelock Holmes hasn't any records for it.

STB is a regulated bank that provides banking services to customers in UK who may not be "adequately served by banks". Sounds iffy for starters. It has five segments: personal unsecured lending, motor finance (cars on HP), retail finance (unsecured finance for in-store and online retailers), and "One Bill", which helps customers with their household budgeting and payment processes (that almost seems deliberately vague). Perhaps it's a little ironic that the company is called "Secure" when it specialises in unsecured loans.

Seems to have been floated on 03-Nov-2011. According to Google it has a market cap of £109m and a PER of 21.23. There are 14.17m share in issue. According to Digital Look, there are no director shareholdings - which might be an inaccurate statement.

Obtaining financial statements seems an elusive endeavour, although I did bind a PDF of their Admissions Document. I see on page 51 that they have total shareholder equity of £16.5m. given a market cap of £109m, that would put the PBV at 6.6. Given that I can buy the UK's best banks (isn't that an oxymoron?) for less than book, this makes STB an easy avoid.

Diary: Lies, damn lies, and statistics

I thought it would be interesting to look at my blog stats. For your edumatainment:

Pageviews by Countries

United States   
896

United Kingdom
    635

Ireland
    92

Germany   
  79

Russia
    64
Canada
    32
Brazil
    20
Spain
    18
Israel
    17
Singapore
    16

Interesting to see that Russia and Brazil like my posts. Israel and Singapore? What's going on there?

Pageviews by Browsers

Firefox
    1,198 (52%)
Internet Explorer
    493 (21%)
Chrome
    280 (12%)
Safari
    152 (6%)
Mobile Safari
    48 (2%)
UrlNormalizer
    38 (1%)
Mobile
    33 (1%)
Opera
    19 (<1%)
Instapaper
    11 (<1%)
GranParadiso
    7 (<1%)
   
Look at that - Firefox is the most popular browser, over double Internet Explorer.

Pageviews by Operating Systems

Windows
    1,257 (54%)
Macintosh
    733 (32%)
Linux
    127 (5%)
iPad
    97 (4%)
BlackBerry
    36 (1%)
iPhone
    21 (<1%)
Android
    12 (<1%)
iPod
    2 (<1%)
HTC
    1 (<1%)
hp-tablet
    1 (<1%)
   
Interesting to see that Windows is just over half my views. Macintosh seems to have quite a lot of presence. Too bad Linux doesn't get much of a look-in.

Diary: aff, kio, opts

First two stocks listed below are "buy" recommendations by Faraday Research on a video dated 10-Nov-2011.

AFF - Afferro Mining - Industrial Metals and Mining - 47.70p/£49.6m

Notes from video: west africa. contrary to popular belief, there is a lot of iron ore there, with big deposits being found (not just by aff). china has a big deposit in cameroon. they're building a 530km rail track to the coast. it runs 30km from aff's deposit in cameroon, so it's an easy way to piggyback when it's built. short-term catalysts expected: plenty of cash, mining feasibility studies in cameroon expected soon, potential expansion of 40% ownership of a mine in liberia.

I currently hold this stock - it's been a bumpy ride so far, I'll tell you that for nowt.

KIO - Kiotech Intl - Pharma and biotech - 88.5p/£16.5m

Notes from video: makes fish feed but going into other animal products. half of world's fish in china. china love carp. kio have discovered a food additive that naturally boosts a fish's appetite, so they grow faster. designed forfarmed fish, clearly.  kio is just breaking into the market. it's a play on global food demand. fish from sea is unsustainable.

Newsflow

11-Nov-2011 Will change its name to Anpario on 01-Dec-2011, EPIC ANP. This will ensure a clear distinction between the name of the holding company and those of the trading companies and product brands.

12-Apr-2011 Dividend up 74%

Financials

KIO is on a PER of 10.7, and has net cash of £3.4m. Analysts estimate 2011 EPS growth of 21%, and for a further 15% growth in 2012. Looks good. Director shareholdings are minimal, which is off-putting.


OPTS - Optos - Health care equip and services - 222.80p/£158.9m

This first came to my attention on at thread by AdamB1978 at Motley Fool. It was 186p at the time he suggested it, so it's since gone up in value by about 20%. He was the one who suggested CTN - so he's got my ear.


Background

It makes retinal imaging devices that create optomap images. The optomap is the only image that provides an ultra-wide 82% view of the retina. A simple optomap scan is an important tool for the screening, early detection and diagnosis of eye problems such as retinal detachment, glaucoma, cataracts, retinal holes/retinal tears and age-related macular degeneration. It can also indicate evidence of non-eye diseases such as diabetes, hypertension and certain cancers. Many of these conditions can be seen in the periphery of the retina as well as in the central pole which is why widefield imaging is so important. Optos believes that its technology provides an unequalled combination of widefield retinal imaging, speed and convenience for both the practitioner and patient.

There are a lot of IP barriers to entry. Their long-term target is to grow by 20%pa. They are entering new markets and launching new products so there should be plenty of growth left. Gross margins have been 60%-67% over the past several years.  WBIT has grown from $4.4m in 2005 to $18.1m in 2010.

Somewhat capital intensive, and the majority of their sales are in US. Their international sales are growing quicker.

Newsflow has been uniformly positive, and you get a sense of a company going somewhere.

BBS

What the bulletin boards have been saying

The company are looking at using the retinal maps as a marker for Alzheimer's disease. If this proved to be the case then the market for their products becomes vast. Unlikley to be a single test for AD but part of various other tests. The disease is associated with plaques in the brain. It is possible the vascular changes could be picked up from the Optimap that may indicate the onset of the disease . Might not be the case but if it was you could have one in every Doctors surgery.

I managed to speak at the weekend with a doctor I know who has had significant involvement in retinal imaging. His view was that Optos' wide angle views of the retina were incredibly clever (conventional camera based imaging cannot achieve those angles because the pupil is too narrow) but of limited use until the resolution can be improved. The resolution of the laser imaging is years behind that of conventional imaging, which is important because laser imaging's current resolution levels are too low for the majority of promising medical applications for retinal imaging, in contrast to conventional imaging.  However, if Optos can improve the resolution of their imaging then it would be a big breakthrough - the speed and, most importantly, the wide angle, would set this technology apart from conventional retinal screening. The doctor is convinced that retinal imaging has a huge amount of potential for diagnosing conditions - one area of medical industry where the hype is in his view justified as the retina is a unique window on the state of the body (he conceded that not all doctors share his view to the same degree). The more of the retina that can be imaged, the better. The million dollar question - how likely is it that Optos will be able to improve the resolution in a commercially viable way - "it's a punt". There is no certainty, or even likelihood, that Optos will be able to develop a successful laser imaging solution which has sufficient resolution for the many likely future applications, or even for many of retinal imaging's current applications. The "punt" comment relates to the possibility of technological breakthrough, not to investment in the company, about which the good doc said he didn't know enough to have an opinion.


Newsflow

02-Nov-2011 received CE mark clearance for its Daytona device. Remains on track to commence first product sales of its next generation, desk-top imaging device, Daytona, in the first calendar quarter of 2012 in its key markets of the US and Europe.


04-May-2011 Study revealed a highly significant association between AD (Alzheimer's Disease) and peripheral small hard drusen formation, suggesting that monitoring the peripheral part of the retina might become a valuable tool in the detection and monitoring of the progression of AD. Further work is being planned to investigate whether peripheral small hard drusen can be shown to act as a surrogate marker for plaque development in the central nervous system.

06-May-2010 In two clinical studies, results show that image-assisted examination using the Optos ultra-wide field P200C had a greater capability to detect retinal lesions compared to traditional ophthalmoscopy by approximately 30%. The study confirmed that there are wide ranging pathological retinal changes in the periphery even in those who have no central pathologies.

Financials

Beta 0.34. One director owns £11.4m of shares, which is pretty respectable. None of the other director holdings is significant. There have been no director deals in the last year.

Trades at a PER if 13.4, gearing 37%, interest cover 3.65, net debt 18.7m, and z-score of 3.14. These figures look fine. PFCF 11.3, which is very good for a growth company.

Diary: AZN, INTQ

AZN - Astrazeneca - Pharma an biotech - 2908.6p/£38.2bn

Big pharma company AZN just seems to be getting cheaper and cheaper. On 08-Nov-2011, its shares fell 3.2% due to news that its high risk/return experimental antidepressent (TC-5214) doesn't seem to work. On the the same day, the FTAS was up 1.0%. Panumre Gordon reiterates buy, morgan stanley downgrades to underweight. It's neil woodford's biggest holding in invesco per income, at 8.4%. YTD, AZN shares are down 0.4%, compared with FTSE down 6.0%.

AZN has a PER of 6.6, almost 0 gearing, net cash £19m, and z-score of 3.27. It has very large ROCE and ROE, making it a "magic formula" company.


INTQ - InternetQ - Media - 135p/£41.1m

I'm not sure how this one came to my attention, but I made a note to write up about it anyway. It's possible that I actually interviewed for the company, and was offered a job in it, at the back end of 1999. It was doing some website stuff, the specifics of which I forget. I took a job elsewhere at IQ Financial, which shortly after fell into difficulties, and I was slung out. I reapproached the other company, but apparently they had a surprise slump, too. Late 1999 was not a great time to get into tech, because it was the time that the bubble was bursting. I'm not sure if it was InternetQ that I was offered a position for, but the company name sounds awefully familiar. Never work for a company with a "Q" in its name, seems to be the moral here!

One director owns £24.5m worth of shares, and another owns £1.4m in shares, which I think is an encouraging sign. Always good to see skin in the game. I'm always a bit wary of directors that "go for growth" that have nothing to lose. Punch Taverns seemed a particularly egregious example over the last decade, taking on enormous debt and expanding. Anyway, that's neither here nor there.

According to Google, INTQ "offers mobile marketing solutions and digital entertainment". Meaning? Their website provides a couple of case studies, which will hopefully make things a little clearer.

Case study 1: Azercell Telecomm is Azerbaijan's biggest phone company, with 4m customers. It used INTQ to create a sweepstakes promotion for its mobile, the "lucky SMS" campaign. By downloading mobile content and sending a blank SMS message to a designated short code, Azercell customers had a chance to win prizes, including a luxurious apartment in Baku, which seems unusually generous; although of course there were many other cheaper prizes.

Case study 2: Brazil's Oi is a fixed line and mobile phone operator with 36m subscribers.

Under the theme of ?One Car per Day?, a cascade of PR events and creative television spots promoting Oi?s ringtone services aired over 80 days.  Oi subscribers were offered previews of the latest ringtones and urged to download them through an InternetQ shortcode, with the bonus of being automatically entered into a daily raffle to win a brand new Volkswagen Fox.

 A VW Golf was one of Azercell's prizes, so there's obviously a thing about VWs. I bought a Volksie a few months ago - a Fox as it happens. Good cars. May dad egged me on to get one instead of buying a cruddy Ford again. The Foxes are discontiued. Again, I digress.

INTQ has a number of other case studies, all seeming to involve texting an SMS number to win prizes, and play some games.

Posts on the BBS

Some snippets of posts that I've seen on Bulletin Boards. Interactive Investor gets a little bit of a following, although it's certainly not a dense following -  which is a good sign. LSE has only rare posts that are not particularly informative. Most of it is speculation on where the share is heading next (consensus is upwards).

• 05-Oct-2011 INTQ successfully settle breach of contract dispute
• 13-Oct-2011 First Columbus says: increased commoditisation of network operator's services has created a need for new mobile software and services which help push mobile forward. Companies mentioned are Bango, eServGlobal, Monitise, Parseq, 2ergo, InternetQ, Emblaze, Globo, Artilium, Mobile Streams, and Zamano.

The BBS aren't especially informative on this company.

6 m/e 30-Jun-2011

Highlights from their half-yearly report on 12-Sep-2011:

• revenues  €21.8, (2010H1 €18.8m)
• EBITDA: €2.9m (€2.6m)
• operating progit €1.6m (€1.7m)
• PAT €1.4m (€1.9m)
• penetration of new territories in Asia and Africa
• strong growth expected in second half
• £12m placing in July at 275pps (directors did not participate in the placing)
• demand for services continues to gather momentum from both existing and new customers
• new business pipeline remains strong

As an aside, I've noticed that Asia seems to be very up-and-coming amongst many companies, with Europe being more problematical. India is also a country that keeps cropping up, and maybe that's one to keep an eye out for. Africa also gets the odd mention, so there appears to be money to be made even here.

The numbers

INTQ was admitted to trading on AIM on 10-Dec-2010. Beta 0.51. PER 5.5, negligible gearing, neglible debt, z-score 4.9. 52-week low 127.5p, 52-week high 322.5p - so it's trading at the low end, and is "technically oversold". According to my calcs DB02/22, it has ROC 36.1%, UEY 7.3%.

Comments

It certainly has a growth story, although I'm not sure how sustainable that is. Return on capital is high, but it has UEY (unleveraged earnings yield) which is too low to be interesting from a "magic formula" viewpoint. Maybe OK as a growth play due to high returns on capital. At a PER of 5.5, it's not atrocious in terms of valuation, so maybe OK as a high-risk growth play. I'm not a holder of INTQ. It happened to cross my radar for some reason (grr, note to self: I should note down as to why these things cross my radar).


Defensive Value Investing

UKVI (aka John Kingham) recently publised a report "Defensive Value Investing: The search for value among large, prosperous businesses". I am pleased to accompany a link back to his PDF. Excerpts are below.

He covers rules for the defensive investor, taking them from Graham's 1949 edition of Intelligent Investor:

• Adequate but not excessive diversification - 10-30 companies
• each company should be large, prominent, and conservatively financed (most people have heard of, they've been around for decades, are typically the top three in their industry, can be classified as "blue chip")
• long record of continuous dividends
• price paid should be reasonable in relation to average earnings for the last five years or longer. Don't exceed 20X

One way to look for propserous companies is to select only those that have made aprofit for every one of the last ten years. EPS should be stable over the years, preferably showing an upward trend. Revenues should also have shown a similar pattern of increases over the long term. Dividends should have been paid in every one of the last ten years and never cut.

Avoid companies where interest bearing debt is more than five times the operating profits. Also, look for operating profits at least 5X interest payments.

"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earings are virtually certain to be materially higher five, ten and twenty years from now" -- Warren Buffett

"There is now an overwhelming amount of data to suggest that in many environments, simple [numeric] models significantly outperform human (expert) judgements" -- James Montier

Diary: PIC, CPP, IQE

Changing your mind

An author over at Seeking Alpha writes:

one thing I learned from Buffett was that the best companies to invest in are usually those you dismiss the first time you hear about them. It isn't until you move in for a closer look that you discover the true value of the company, and by then you have an edge over the market because most people do not bother to move in for a closer look.

PIC - Pace - Tech hardware and equip - 64.6p/£197.1m

The company's share price continues to fall, but Slashdot  reports that Logitech is stopping production on STBs (set-top boxes) for Google TV, calling it a "big mistake". Logitech Chief Executive predicted:

the "grandchild of Google TV" might succeed but not the current product. For now, that leaves Sony televisions with the Google software for people looking for the Google TV experience.

According to my calculations (DB02/21), it has a ROC of 96.6%, and UEY of 18.8%, putting it high on a list of magic formula companies.

CPP - CPP Group - Support Services - 145.6p/£249.6m

Some points from CPP's IMS on 25-Oct-2011:

• revenue grew by 6%
• costs and lost revenues associated with the ongoing FSA investigation have had a negative impact on margins. Discussions are ongoing.
• revenue growth in UK has been achieved despite the ongoing suspension of new sales of Identity Protection
• India and China drive revenue growth, and the directors see a lot of potetnial in those markets
• company has net cash at of £9.9m at 30-Sep-2011, compared with net debt at 30-Jun-2011
• anticipates continued revenue growth

For the 6 m/e 30-Jun-2011, revenues in UK amounted to £116.9m (68%) of the total revenues of £172.1m over all geographical regions.

On 09-Nov-2011, I estimated (DB02/20) that CPP had an EBIT of £49.1m, TEV of £17.2m, EV of £270.3m, implying a ROC of 285%, and UEY of 18.2%, based on a share price of 150p. It has since declined to 145.6p. Unsurprisingly, this company is ranking very highly as a magic formula company.

IQE notes

Here is a summary of some of the points made by Jessica Furseth in an article on IQE on 31-Oct-2011.

While other areas are becoming significant, IQE's success so far comes downs to the booming wireless tech industry.. "The smartphome cycle ... is still just beginning so we still see very exciting growth in this sector".

In 6 months to June, revenues increased 16%, pre-tax profits rose 28%, and it went from having £7m debt to £1m cash.

Only 28% of the world's mobile phones are smartphones, and this segment continues to grow rapidly. This increases the need for chips. Silicon is hitting its physical limits, so compound semiconductors, such as those from IQE, are more attractive. The economics of crystal chips are changing. IQE has 30% of global share. Dr nelson, co-founder of IQE in 1988, says that Intel believes these new integrated circuits may well become the future of chips, with the first products incorporating the new tech set to see the light of day by 2015.

Compound semiconductors use less power, and can store more data.

Intel's Light Peak cables, developed in partnership with IQE, will be launched in six to nine months.They are expected to replace USB-2 cables. Cost reductions are making this more economically viable.


The following information appeared in an article in Compound Semiconductor.

6" GaAs [Gallium Arsenide] epitaxial substrates will be the most prevalent, accounting for slightly more than 80% of total device demand over the 2010 to 2015 period. The demand in 2010 was for about 29,600 ksi (kilo square inches), and estimated to be 40,200 ksi in 2015.

Valuation Metrics

IQE has a share price of 20p, giving it a market cap of £105m. PER is 13.7, and it has net cash of £1m. PBV is 1.58, gearing -1.5%, and z-score is 3.21.

Diary: Kelly Formula

 A grab-bag of my notes about the KF (Kelly Formula).


My main gripe with the KF you don't know the odds, or the payoffs. If you knew that, then there wouldn't be much to investing.

Motley Fool article 13-Oct-2006

A commenter on a TMF article refuted the notion of applying KF to investing:

Kelly's formula gives the best size of your bet, if you were to SEQUENTIALLY (SERIALLY) bet on the same setup, such as in a casino. In stock market, you bet in PARALLEL on multiple scrips. In such times, Kelly's formula cannot tell you the best size of your bet. After all, Kelly's formula tells you what the best bet size should be to get the most returns after 'N' rounds. And it is to account for the drawdown (losses) that might occur in the process. In stock market, the ratio Edge / Odds is irrelevant. The Edge is the only thing that matter. Go back to the derivation of Kelly's formula. Kelly's formula can help a trader who has to take huge number of punts one after the other based on a trading system but cannot help a fundamental investor.

Value Buddies board

A reader on a discussion board writes:

Standard Kelly results could have you investing a large % of your portfolio in one stock. I'm adjusting Standard Kelly by a diversification formula I found in an Ed Thorp paper. (Ed Thorp popularized the Kelly formula in his book "Beat the Dealer"). The formula ends up close to the % difference between your winning % - losing % based on your historical trades. Using my standard inputs this results in a maximum of 10% in each stock. But a stock would have to be trading at 80% discount to fair value to get 10%. I've read Pabrai's books and much about him and I will go back and learn more of his experience with Kelly. I'm no Pabrai (or Buffet or Gross) but I will comment on my analysis of Pabrai's picks. I used to try to analyze his stock picks but couldn't understand what he saw. He seemed to be buying "cigar butt" stocks (ie. Ben Graham type) that I guess mostly ended up being just 'butts'. I'm looking for stocks with at least 10 years of growing free cash flow, and good profit and ROIC margins.

Calculation

A non-standard way of calculating the position size, which I happen to prefer, is detailed on a page at Reaper Trades. I reproduce their calculation method below.

The formula is: P_invest = E(r) / M(r)
where,
Proportion of portfolio to invest = P_invest
Expected return= E(r)
Maximum return = M(r)

One thing to consider is that the Kelly formula seeks only to maximize gains. If you wish to minimize portfolio variability as well, you should invest significantly less than the maximum allowed by the Kelly formula. Also, keep in mind that the formula is only as good as your guesses of probability. In order to minimize portfolio volatility and because it is very difficult to accurately estimate the expected return on a trade a priori, many traders stick to using a very small fixed percentage of their portfolio on each trade.