Q1 2015: 3 Sells, 2 New Buys And 1 Top-Up

31 March 2015
By Maynard Paton

Happy Tuesday! I trust your shares are doing well and that you are finding my Blog useful.

It’s now been three months since I started this full-time investment lark — and I am pleased to confirm that I have not gone broke just yet!

On the contrary, my portfolio has registered a small gain since the start of the year — although I must admit it has lagged what’s generally been a strong market. I just hope some buyers will soon alight on my marooned holdings!

Anyway, during the last three months I have found writing this Blog very helpful. This quote from Warren Buffett sums up why:

There is nothing like writing to force you to think and get your thoughts straight.

I can agree with that. You see, I have found writing about my shares has always prompted me to double-check my investment analysis in a bit more detail — knowing that there is an audience out there that may question my dodgy logic.

Plus, writing about my shares has generally led me to simpler investment opportunities — because writing about such opportunities is so much easier! Indeed, I have discovered that the more complicated the write-up is — and the longer the ‘what could go wrong’ section is — the more likely I am to lose money.

This is how my portfolio has changed since the start of the year

As part of ‘getting my thoughts straight’, I’ve decided to publish an update after every quarter to round-up what’s been happening within my portfolio. This Blog post is the first of these quarterly updates.

To get started, the table below shows how my portfolio stood at the start of the year.

The column on the left was the actual position on 1 January 2015, while the column on the right adjusts the one on the left for some extra cash that I transferred into my pension a few weeks later. I will be using the right-hand ‘restated’ column to calculate my portfolio’s performance at the end of this year.

HoldingWeighting
01 Jan 2015 (%)
Restated weighting
01 Jan 2015 (%)
Andrews Sykes3.13.0
Burford Capital4.74.5
City of London Inv13.813.4
Electronic Data Proc3.43.3
French Connection9.79.4
Getech5.55.3
Mountview Estates10.910.6
Pennant International5.25.1
Record4.84.7
SeaEnergy7.77.4
Tasty9.18.8
FW Thorpe6.46.2
Tristel13.513.1
M Winkworth0.80.8
Cash1.44.4
TOTAL100.0100.0

The next table compares that ‘restated’ starting position to how my portfolio stood at 31 March 2015:

HoldingRestated weighting
01 Jan 2015 (%)
Weighting
31 Mar 2015 (%)
Andrews Sykes3.03.0
Burford Capital4.5-
City of London Inv13.413.3
Electronic Data Proc3.33.3
French Connection9.48.0
Getech5.36.4
Mountview Estates10.610.1
Pennant International5.1-
Record4.78.3
SeaEnergy7.4-
Tasty8.810.5
FW Thorpe6.26.7
Tristel13.111.2
M Winkworth0.80.8
TBA0.03.1
TBA0.04.7
Cash4.410.6
TOTAL100.0100.0

You will see three of my original shares have disappeared. Here’s what happened:

Pennant International (PEN)

I sold PEN following the defence engineer’s 2014 results. The statement revealed some disconcerting cash-flow movements alongside plenty of other irritations and worries. The business has only really prospered since 2011 and I was left doubting the sustainability of its recent profit levels. It was all a bit disappointing really, as I thought PEN had shown some promise with its cash-rich accounts and long-time boss. Oh well. I exited at 79p.

Burford Capital (BUR)

I sold BUR after calculating the upside potential of this litigation-investment business was limited to about 7-8% a year. This share is not the easiest to evaluate and I felt more comfortable exiting at 136p to set aside some cash ready for a more straightforward opportunity. I see BUR’s results this month provided additional disclosure and I must admit a quick scan of the figures suggested the group was doing well.

SeaEnergy (SEA)

I sold SEA after I decided to become more disciplined with my portfolio. This marine services operation fails two of my important checklist tests — proven management and a respectable financial history — while its upside remains questionable as the business runs at break-even. There could be a strong software subsidiary within SEA, but profits there are being absorbed by hefty executive wages and other central costs. I left at 27.4p.

Supporting all three of my sell decisions was the fact that I wanted to have some cash ready to bag any potential bargains as and when the market suffers a setback. I just didn’t want to be extricating myself from those three shares — possibly at awful prices — when I suddenly spot a great buying opportunity.

Sorry, but these two buys must remain confidential for now

So the intriguing rows on that second table above contain TBA — To Be Announced.

Yes, I have acquired two new companies for my portfolio. However, I am not going to disclose their identities as I still wish to buy more of their shares. Sorry about that.

When I’ve bought enough — or their prices have risen into ‘fair value’ — I’ll publish a write-up explaining why I invested. Until then, I shall leave you in the dark.

(Edit 15 April 2015: See comments below for details of one of the TBA shares!)

But I can confirm this top-up

What I can disclose is that I’ve recently topped-up on Record (REC). I have increased this holding by 75% at 35.4p and my average buy price for this share is now 23.8p.

Now I may have got this completely wrong, but this update from the currency manager suggested that an existing client had temporarily increased its funds with REC by a substantial $1.75bn. What’s more, the increased funds were placed into REC’s higher-margin ‘Currency for Return’ programme.

The update appeared to be a very positive development, as REC’s client count and funds under management now seem to be creeping higher after years of declines and stagnation.

But REC’s share price has not budged since the update, so perhaps I am being too optimistic.

Nonetheless, before the update my sums suggested REC’s underlying P/E was 9.4 with the shares at 35p and £1 buying $1.49. Factor in the full $1.75bn of additional funds, however, and the P/E drops to 7.9.

Either way, I have topped-up on a single-digit rating — which should provide a decent re-rating opportunity should REC’s earnings advance as the firm captures further new business.

I have not touched my other ten shares

There’s nothing much to add about my other ten holdings.

There has been:

* Satisfactory results from City of London Investment, FW Thorpe, Tasty and Tristel;

* Somewhat mixed developments at French Connection and Getech;

* Confirmation from M Winkworth that its 2014 dividend will be raised 15% to 6.2p per share, and;

* Nothing from Andrews Sykes, Electronic Data Processing and Mountview Estates.

I have not touched any of those ten shares so far this year.

I did say I would start and maintain a watch list

One of my commandments for 2015 (and beyond) was to start and maintain a watch list.

I’ve made some reasonable progress to date, with five names appearing on the list:

Ashmore
Daejan
Goodwin
Latchways
Shoe Zone

They all seem good companies for the long run, and I shall keep watch for attractive buying opportunities.

I must say, I have struggled to find decent companies trading at reasonable valuations of late. But I will endeavour to add a few more names to my watch list during the next three months.

Forget GARP and BLASH, I am BOOB and TABOO

So that rounds-up my portfolio and Blog for the last three months. I’ll publish the next summary during early July. But before I go, just one last thing…

I am going to steal two investment acronyms I have found on Stockopedia.

janebolacha writes:

BOOB (buy only obvious bargains) and TABOO (there’ll always be other opportunities) are a couple of investing acronyms that have served me well.

I now describe myself as a BOOB and TABOO investor.

Until next time, I wish you happy and profitable investing!

Maynard Paton

Disclosure: Maynard owns shares in Andrews Sykes, City of London Investment, Electronic Data Processing, French Connection, Getech, Mountview Estates, Record, Tasty, FW Thorpe, Tristel and M Winkworth.

11 thoughts on “Q1 2015: 3 Sells, 2 New Buys And 1 Top-Up

  1. Eiron

    Im having a grubby time of 2014 so far as well. It didn’t help a share I bought had a profit (99% sure temporary) warning. I will be rather curious to see what you end up buying in the small cap arena.

  2. James

    Dear Mayn

    Thanks for the update and for committing to posting this quarterly update. I will continue to read your site with a high level of interest. I enjoy your common sense approach.

    One question, you mention that there are a number of holdings you have not touched. How often do you look at these holdings? Only when they produce an update or do you try to broadly follow their progress through as many info sources as possible? If you are now full time investing, there must be a temptation to ‘fiddle’…

    Regards

    James

    1. Maynard Paton Post author

      Hello James

      Thanks for the comment. I monitor the RNS news from all of my holdings and post updates on this site when there’s some material news. I am a bit sloppy on other sources of news — but major stories such as, say, the oil-price slump, I can follow and then worry about the ramifications for certain oil-related shares in-between RNSs. There is a temptation to fiddle, but Terry Smith always says ‘don’t just do something, sit there’ so I tell myself to do nothing. I like to keep myself occupied by looking at companies that could make for decent watch-list candidates.

      Maynard

  3. janebolacha

    Maynard, welcome to BOOB and TABOO investing.
    There is one other acronym which, unfortunately,
    perhaps conflicts with the other two and comes
    along far less often. It’s “TOOL”.

    Don’t be alarmed. I simply mean:

    The
    Opportunity
    Of a
    Lifetime

    Best of luck with your investing,
    Jane.

  4. Steve Artingstall

    Maynard

    New to your blog but I find I have a lot in common with your investment style: I also hold Record, burford, pennant, thorpe, zytronic, andrews sykes, and character. Clearly some of these names you’ve passed over or sold, but still it’s nice to come across a fellow quality value investor!

    In a spirit of reciprocity and in appreciation for your blogged insights, here are some other names I hold that I’d be interested in your thoughts on, and/or which might be of interest to you: flowtech fluidpower (unusually high profitability for a distributor..), sprue aegis (impressive growth, strong b/s, not expensive), scisys (high quality, steady little business with some property on the balance sheet), ULS, sagentia, vianet (CEO keeps adding), Harvey Nash, Cenkos (the FCF has been prodigious), GLI Finance, Treatt, XP Power – I own most of these, except the latter two that are on my watch list. I like net cash, high margins/returns, strong free cashflow generation, long term growth potential, and low valuations..!

    Best
    Steve

    1. Maynard Paton Post author

      Hello Steve

      Thanks for the comment and list of shares. Much appreciated. I will endeavour to look a bit closer at those names — some of which I have skimmed over but not written about here (yet!)

      Regards
      Maynard

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