Year in Review

53.5% Total Return for the Year

This post is pretty much complete but I will tidy it up over the next few days. I hope you like it.

Introduction

I began the year pretty sanguine about where the stock market would go. I am an arch remainer and believe that Brexit is a disaster for the UK economy. I therefore anticipated that this would translate into lower stock prices. This has not been the case or at least not in the stocks in which I have been invested.

At the beginning of January, I was 19.5% in cash, not because of any sense of impending doom but because I am cautious about deploying my funds but when I do I tend to place large chunks in a small number of stocks and invest further as the price moves up.

I end the year with just 3.2% of my portfolio in cash.

Most of my holdings at the end of the year I had at the start but have topped up during the year as the price strengthened. It has been a year of steady progress but with most of the gains being made in the first 8 months.

I was up 69% on the 8th September.

I sold out of five holdings that I had at the beginning of the year

Character Group
CCT I only held for a month and so hardly counts as something I held. I simply sold because I actually did not know why I bought in the first place. Something I am still occasionally guilty of but less and less so as time goes on. It was fortuitous as I sold at 502p and the stock now stands at 435p

Dart
This is one of the few stocks that I have held, sold, bought back in to and then sold (I think it might be the only one). This was a mistake.

It is one of those stocks that re-enforces my belief that one of the few edges that the Private Investor has is to invest with a long time horizon. I first purchased back in February 2013 at 154p. I only invested £1,500 initially (the amounts I invested in those days were much smaller than now).

There followed three more buys at around the 250p and 270p mark, a nice stream of dividends as well. I then sold out in July 2016 at 476p, probably because of post referendum jitters. And while this was not the low, I should have continued to hold as the price is now around the 680p mark. DTG has a stock rank of 95 over at Stockopedia and is classed as a Super Stock.

Lamprell
LAM was my play on the low oil price but after 8 months of holding I decided that resource stocks are not for me, as they are subject to so many outside influences. In this instance it was a good call. I sold for a minute profit (£200) at 98p and the price has now fallen to 79p but it has been strengthening of late.

Laura Ashley
I have soft spot for ALY, as she was an acquaintance of my step grandmother and it looked like an greatly undervalued company in July 2016 and still undervalued in November 2016, when I bought some more. The market continued to disagree with me and I sold out in April 2017 for 44% loss. It was not a large holding at about 1% of the portfolio. The market still doesn’t like ALY as it currently stands at 7.7p and Stockopedia categorises it as a Value Trap.

Purple Bricks
This was an out and out trade. Very few stocks do I purchase with a short term horizon or rather do I have conviction to purchase with the view to making a short term profit.

I am convinced that one day the Estate Agency Market in the UK will be disrupted by the internet. I am not convinced either way as to whether that Purple Bricks will be the one to do it.

But in 2017 the market seemed to get the bit between the teeth as far as PURP was concerned and I road the price up from 155.8p (15/12/2016) to 408p and 381p when I sold out in early June to book a £19,172 profit on a £12,785 investment in less than 6 months.

I may or may not have the confidence to try and repeat trades like this again. It represented 4% of my portfolio at the time, so while not a huge position it was not without its downside risks.

HOLDINGS

So I finish the year with a total of 14 holdings; 11 I held at the beginning of the year and three (IQE, XLM and TAP) I purchased during the year. The breakdown as a percentage of portfolio as follows:

Stock VALUE AT 30/12/17 %age of Folio

BOO £63,920 12.87%

FEVR £57,585 11.60%

TET £55,637 11.20%

BVXP £51,401 10.35%

XPP £43,355 8.73%

XLM £39,309 7.92%

AIR £33,155 6.68%

SOM £31,451 6.33%

IQE £29,139 5.87%

ACSO £22,785 4.59%

DIS £18,363 3.70%

AVAP £15,646 3.15%

AVON £12,812 2.58%

TAP £6,389 1.29%

TOTAL £480,947

CASH £15,636

Total £496,583

I continue to run a concentrated portfolio with with my 5 largest holdings representing 54% of the portfolio and 75% of the portfolio being made up by just 9 holdings. I still believe that if you can’t name every stock in your portfolio, know what they do, have a good idea of the latest news on the company and where they are heading then you have too many stocks.  I don’t think you can do that as a part time PI with more than 15 at most 20 stocks.

Though meaningless I was hoping to end the year on £500,000 but as it was I finished just shy of this figure. But to say the least I am not disappointed with this years figures.

A total return this year of £172,865 and in percentage terms a 53.543% on my portfolio value at 1st January 2017. This compares with 34.19% in 2016 and 22.00% in 2015.

What do I attribute the above increases to.

  • Riding my winners. I did not (and to be honest I was never tempted to) take quick 20% profits when they arose.
  • Concentration
  • Don’t make things too complicated. I think if one over analyse a stock one will always find a reason not to invest.
  • Ignore drawdowns. That is Mr Market just messing with your head.

MISTAKES

It may be hubris but I feel my mistakes were ones of omission (thumb sucking as Buffett would say) than commission.

AMZN

I have been a long term bull of AMZN (and a long term fan of the company) but did not initiate a position of any size.

XLM

I was a bit late to the party on this one but now have an 8% position in my portfolio and about the same in wife’s. This holding is up 45% in 6 months.

IQE

Likewise I was late to initiate a holding but over two to three years I expect stellar things from IQE.

Lessons

My key principles were reinforced

• Long Term Horizon

• Trade infrequently

• Concentrated portfolio

• Continue reading

• Keep looking for ideas

• Record why you buy (you won’t remember!)

• Record various metrics (including Stockranks)

2018

I am going to resist making predictions for the coming year. Predictions are notoriously tricky especially when about the future. I will be more than happy if I achieve 15% in 2018 but I have some ideas that may enable me to improve on that.

However I will take a leaf out of John Rosier over at John’s Investment Chronicle (I can highly recommend subscribing, at £150 a year it is very good value) and give a brief overview of each of my stocks and where they might go in 2018.

ACSO

This maker of mobile ticketing and virtual queuing solutions finished the year ahead 31%. The stock trades on a pretty racy FPE of 55 but the market for its product is enormous. There are competitors but management have executed well over the past five years with sales up 300% and I believe company will continue to grow sales but also that new markets are very likely to open up for their offering. I will continue to hold through 2018.

AIR

This is my oldest holding, with my first purchase made in October 2012, back in the days when I knew less than I do now about what I am doing! It came to my attention through Lord Lee’s column in the FT and he has owned it continuously since 2003. It is has performed well for me and I see nothing to change my mind that this is a good company offering a niche serrvice. A threat that has been mentioned is that they could be “taken out” by an app but my experience is that the wealthy would rather make a quick phone call or use an agent and I don’t see an “UberAir” coming on the scene any time soon. A core holding with a near 4% dividend yield.

AVAP

This aircraft leasing company is perhaps misunderstood by the market. The company continues to grow steadily (it has tripled in size in five years and profits have quadrupled)but the share price has managed “only” a 2.7 fold increase, so I think there is more upside over the coming years.

AVON
This is one of my small holdings and lower conviction holds. That said it enjoys a Stockrank of 91, has great OM, ROA, ROCE and ROE figures. I think AVON could be a steady riser over the medium term but if I was looking for funds to redeploy AVON might be the one to go.

BOO
BOO really needs no introduction. Boohoo actually ended the year up “only” 38.9% but my holding is up 318% and the gain sitting in Boo represents a fifth of all my gains. Stockopedia’s computer has reclassified BOO as a “Falling Star”. I think in five years time the Stockopedia computers will be proved to have been wrong. Happy to hold with it representing 13% of my portfolio.

BVXP
BVXP is up 83% this year and my holding 102% (first purchased made in October 2015 but with top ups along the way). Most of the gains in 2017 were achieved in the first nine months of the year and since September the share has pulled back about 17%. I think partly because the price has been driven up on speculation and also because income stream from one of its products is about to drop out.

I remain firmly convinced that this is one of the greatest small caps on the London Stock Exchange.

DIS
I was in the short term a bit late on this one. I bought 23 shares for my son’s JISA back in January 2014 and with currency movements he is showing a healthy 80% gain. I think long term (10 years+) DIS will out perform the market. My only concern is that with a lack of deployable funds, would it be better invested elsewhere? TAP?

FEVR
This £2.5bil market cap is up 94% this year and has 10 bagged over the past five years and my original purchase is up 5 fold in the 27 months that I have held it. So what of the future? Coke turnover is around £1bill a quarter so with FEVR sales at around £133mil the company seems to have a lot of head room to grow.

The company trades on a very punchy FPE of 59 but the company has always managed to grow into its projections and OM(34.9%), ROA(29.1%), ROCE(41.7%) and ROE(42.7%) are all sparkling and gives me confidence to stay with the stock.

IQE
A new holding this year, with my initial purchase made in July and two subsequent purchases at the end of October. I have not done as much research on this as I should have and will rectify this this month.

SOM
Somero is a manafacturer of laser guided floor screeding equipment for commercial spaces in larger volumes. The stock continues to score well under Stockopedia’s Stockranks system, with an overall rank of 94 and trades on a low multiple of 14, is dividend paying and OM(27.4%), ROA(29.5%), ROCE(54.6%) and ROE(41.4%) all indicate a quality business and on top of all that shares in issue continue to drop.

There are concerns that the business is cyclical and that the next recession will bring problems but the company sits with the equivalent of 25% of sales in cash sitting on the balance sheet and I am confident that the company can ride out any economic storm that comes along. Very happy to have this as a long term hold.

TAP
My newest holding bought just before Christmas. It is a small holding at around 1% of the portfolio.

TET
Another core holding for me. This company has an in demand product protected by IP and management is predicting growth in demand and will be moving to a new site in the U.K. and are expanding their base in Florida. Stockopedia rates it as a Falling Star but over what period I don’t know. Another stock that I think in five and ten years time will prove the Stockopedia computers wrong and be substantially ahead of where it is now and of the market. 

XLM
Another dodgy internet advertising stock or growth engine?

XPP
This is one of my favourite stocks, which I have held for almost 6 years and has rewarded me hansomly. It is one of those stocks that I wished I had bourght more of back in 2012 but then I was still learning and taking things cautiously. I am still happy how I played things.

I hope to blog a bit more than in the past but this will depend on a few things.

Anyway thanks for reading and Happy Investing in 2018.

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Going to Cash

The portfolio finished the week up 0.95% on the week and 62.89% on the year.

XPP continued to perform well up 16.7% on the week and sits at about 10% of the portfolio.  Any significant pull back from these levels and I will certainly increase my position size.

The portfolio was helped along by ACSO up 7.87%, SOM up 4.91% and IQE up 4.89%.  The only real lagard was TET which was off 3.70%.

I have been listening to Howard Marks – The Most Important Thing and Nicholas Nassim Taleb – Fooled by Randomness, while driving or at the gym (much better for making the time pass that techno music!). Both of these have prompted me to put a little caution into my portfolio and I liquidated a small part of BOO, FEVR and BVXP on Friday afternoon.  This brings cash up to being my largest holding at 16.6% of my portfolio. This may just be a case of fixating on the latest piece of information but I think few would argue that the market might be getting ahead of itself. Of course the market (as someone more clever than me said) can stay irrational for a very long time, so it is a question whether I have liquidated to early or whether I should continue to liquidate further tranches of the portfolio.

It was a hard decision to sell even a small part of these holdings but as they represent nearly 50% of the portfolio selling part of these was the only option.

As for the future my inclination is to push this percentage up to 25%. That said I have fresh funds to deploy in the form of my wife’s SIPP, which is currently half in cash and is slowly being deployed with a strong valuation bias (with the exception of BVXP).

AVS

This should have been published the day after AVS agreed to a takeover but for some reason that didn’t happen. 

I posted back in September:
“I also topped up Avesco. This is a sound undervalued company with good metrics and Stockranks. I anticipate continuing to buy this on the way so that it joins BOO, FEVR and BVXP as fourth heavily over weight holding in the portfolio.”

AVS is currently 5% of the portfolio”

As many (though not if you read the FT, it is not even mentioned) of you will know now AVS was on the end of an agreed takeover offer from NEP Group Inc yesterday (RNS) at a 125% premium to the  Wednesday 16th closing price. 

To see the RNS come through and then take in what it meant was an amazing sensation.  Though whether it will ever be repeated to this degree I am not sure. 

It was Paul Scott over Stockopedia on his SCVR who lit the spark.  I would love to be able to say and as wrote in column yesterday:

“Unfortunately (or fortunately!) I don’t have the time to analyse the s@&t out of stocks and looking back at my notes I was simply attracted by the ROA etc figures, the divi growth and the fact that it on Stockopedia figures it was trading below book. That was enough for me.”

I still have a business test takes up huge amounts of my time and this simply does not leave the time to spend ages and ages on analysing a stock to make sure it is not a mistake waiting to happen. But I believe:

  • The only way to learn is to be in the market and learning from what you do wrong and right
  • In the current enviroment there is simply no point in leaving ones money sitting in the bank account

So I continue to invest, read and learn as I go along. Yes there have been some bumps along the way and we have been in a generally rising market but I am well ahead of any metric you want to use. Now I must make sure I am not complacent. 

Anyway back to AVS. Before yesterday AVS was about 6% of my ex-cash portfolio and was my 6th largest holding and it had been my intention to top up to the 10% of portfolio level. As I write (18/11/16 10:07) it is now 14.1% of my portfolio showing a gain of £20,592. Most, though not all, of that came yesterday.  

CRAW

Well didn’t Crawshaw take a battering today. Down 43.54% and 8% yesterday.  This is by far the largest one day fall I have been on the end of and while not great I am ok with it. It took, along with a 2.13% fall from BOO (probably spooked by disappointing update from NXT which seems daft to me) my portfolio down by 0.8% which is tolerable and nothing like the falls in the days following Brexit where half my all time gains were wiped out. All now recovered and then some.

This was always a bit of a punt and a stock that I should never have probably been in. No delete that should never have bought. But we are where we are.

After the fall yesterday I placed a limit order to top up my holding to 2% out of market hours. (something I learned from another book I read – Guy Spiers Education of a Value Investor I think but I can’t be sure. Place your orders in the cool of the night when you are less likely to be influenced noise and market gyrations.)

I then had to make a descison: exit the position or top up. Doing nothing was not an option I believe. See the book The Art of Execution for more on this. In the end I decide the market had over reacted and I placed a second order to take my holding up to 3.38% of portfolio ex cash or 2.93% of portfolio including cash.

Anyway I bought Crawshaw originally as a punt but also with the intention of sticking with it for the long term and I am sure that Noel Collett having been CEO for barely 18 months is not going to want to throw in the towel at this stage. I will be watching very carefully to see how things go. As an aside I am still holding around 12% in cash.

On the subject of cash I will cover that tomorrow if I have time.

AVON

Opened small position in AVON at 1% of portfolio. Reasons:

  • ROCE of 19.1%
  • ROA of 37.2%
  • Forward PE is 13.9 and the historic PEG is only .54
  • Growth in sales and profits have been steady.
  • There is a small divi.
  • Stockopedia are Q=79 V=20 M= 73 giving an overall rank of 62 so nothing special.
  • Qualifies for two Stockopedia screens Buffettolgy-esque Sustainable Growth and Buffettolgy-esque Historical Growth Green
  • Favourable comments from Paul Scott and commentators.

Only a small position to study some more.  I find it useful to put ones toe in the water as long as the fundamentals seem sound and then study some more before selling and moving on or adding to the position.

Holding Size

I tweeted yesterday about my holding in BOO  (Stockopedia) (Google Page). This is now up 100% since my initial purchase on 15th October 2015.  I then topped up in February 2016, April 2016 and June 2016.

The increase means that Boohoo is now 15% of my portfolio including cash and 17.97% ex cash.  It is not my intention to top slice while the outlook for the company remains the same or improves and even then any set backs would have to be permanent rather than temporary in nature.

This raises the possibility of the stock having a huge weighting in my portfolio.  For example if Boo doubles while the rest of the portfolio increases by 10%, Boo would become 28.5% of my portfolio.  If it goes higher than this, which I believe it will, then there is a prospect of it being 30% to 40% of my portfolio.

I am only aiming for modest returns (in the sense that if I can equal say the FT250 or All Share the journey will have been worth it) over say a 10 year period.  So if Boo can be up 20%/25% over a couple of years then I will happy but (and it is a big but) if it can three, four or five bag over a 5 year period then it can truly transform my investment returns.

My final thought on this for the moment is that if BOO was my business (that is I owned 100% of the stock) I would not be selling out now (to say Amazon) just because my share price had increased 100%, so I dont see the logic of selling out when when I own 0.00363% of the business!

That is all for now but this is probably a subject that I will return to again. Portfolio size, diversification, diworsification and running your winners is something that interests me a great deal.