01 April 2021
By Maynard Paton
Happy Thursday! I trust your shares have enjoyed a positive start to the year.
A summary of my portfolio’s first quarter:
- Q1 gain: +5.4%* (FTSE 100**: +5.0%).
- Q1 trades: None.
- Q1 winners/losers: 6 winners vs 3 losers (and 2 non-movers).
(*Performance calculated using quoted bid prices and includes all dealing costs, withholding taxes, broker-account fees and paid dividends. **Total return index)
What a difference twelve months can make. This time last year I was conducting an emergency portfolio review as Covid-19 created a national crisis. I wrote at the time:
“I am hoping for the best, but have accepted many [of my] dividends will be cut (or axed) and perhaps one shareholding will go to zero.“
I am happy just the one portfolio dividend was axed and no shareholding went to zero. I have certainly welcomed the pandemic-resilience shown by holdings such as FW Thorpe, S&U and M Winkworth. Backing cash-rich companies with sensible owner-managers — and not panic selling! — has helped my portfolio rally 30% from a year ago.
Recent RNSs from my portfolio have been encouraging, and I expect boardrooms generally will become more optimistic as the vaccination programme continues and social restrictions are eased.
Also helping matters is the recent market switch from ‘growth’ to ‘value’, which should favour proper company analysis over speculating on momentum.
I have summarised below what happened within my portfolio during January, February and March. (Please click here to read all of my previous quarterly round-ups). I will then explain my ABC of investing.
- Q1 share trades
- Q1 portfolio news
- Q1 portfolio returns
- My ABC of investing
Maynard owns shares in Andrews Sykes, Bioventix, City of London Investment, Mincon, Mountview Estates, S&U, System1, Tasty, FW Thorpe, Tristel and M Winkworth. This blog post contains SharePad affiliate links.
Q1 share trades
Q1 portfolio news
As usual I have kept an eye on all of my shareholdings. The Q1 developments are listed below:
- Profit down 46% and dividend down 25% at S&U (review coming soon).
Q1 portfolio returns
The chart below compares my portfolio’s weekly 2021 progress (in green) to that of the FTSE 100 total return index (in blue):
The next chart shows the total return (that is, the capital gain/loss plus dividends received) each holding has produced for me year to date:
This chart shows each holding’s contribution towards my portfolio’s 5.4% gain:
And this chart shows my portfolio weightings at the end of Q1:
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My ABC of investing
My ABC of investing derives from the ITV police drama Midsomer Murders. DCI Barnaby once said to his sergeant: “The ABC of policing, Jones: assume nothing, believe nobody, check everything”:
I am pretty sure the scriptwriters stole the line from this Guardian article featuring crime-scene manager John Cockram:
“The anticipation kicks in as soon as I get the call. I get in the car, put on some classical music and start thinking. Every crime scene is different. It’s nowhere near what you expect.
When I arrive, I get a briefing from whoever’s at the scene. You listen but you don’t necessarily agree. I call it ABC. Assume nothing. Believe nobody. Check everything.”
Investing can be like a police investigation; you have to work out whether the witness/director statements match up with the forensic/accounting evidence. As Mr Cockram says: “you listen but you don’t necessarily agree”. Here’s how I applied the ABC mantra to three of my SharePad articles.
Assuming Argo Blockchain was a speculative bubble just waiting to burst would have been all too easy. After all, this company:
- Has some involvement with bitcoin;
- Had seen its shares soar 25-fold in just two months, and;
- Is followed on social media by numerous ‘less sophisticated’ investors.
I was fully expecting nothing but hot air before I looked closer. But I was surprised to discover Argo could become very profitable and perhaps even justify its soaring market cap. After the article was published Argo issued this blockbuster update that implied earnings had rallied even further.
Yes, Argo’s profitability is dependent on the bitcoin price and that could unravel quickly. Questions also remain about the cost of future expansion.
But making assumptions about Argo — or any share — before actually delving deeper could leave you with entirely the wrong conclusion. You must instead investigate, because you might be surprised at what you find. You could even unearth a buying opportunity. (As somebody did with Argo before the shares soared 25-fold!)
One thing worse than relying on your own assumptions (instead of checking the facts) is to rely on somebody else’s assumptions (instead of checking the facts).
Fund managers, brokers, tipsters, bloggers and Youtube gurus all give opinions on their holdings and typically you have no idea how much (or little) research underpins their verdicts.
Even company directors can say one thing while the evidence piles up to say another. Take LoopUp, the developer of conference-call software.
LoopUp’s interims last year talked of the second half seeing “major new customer wins set to roll out [and] a healthy new business pipeline…” But nine weeks later management owned up to lower-than-expected sales and the shares crashed 50%.
Go through LoopUp’s annual report and you will discover the upbeat boardroom narrative was rather contradicted by the footnotes accompanying a large acquisition alongside peculiar ratios derived from company KPIs. (And the directors still have their heads in the sand about the value of their acquired intangibles!)
Shareholders and directors are naturally optimistic about their companies… and you can’t always trust them to have realistic and unbiased views. Best if you investigate the evidence and then decide for yourself.
Okay, checking absolutely everything is impossible with shares. But you should certainly check everything you can.
Here’s one mad example. For almost every company I look at for SharePad, I manually transcribe the income, balance sheet and cash flow statements for at least the last ten years into my own spreadsheet.
I do the transcribing because I want to check as much as I can. That way restatements, exceptional items, pension deficits and other nasties come to light and help form a judgment.
As well as the accounts, any statistic or KPI a company mentions should be checked. Best of the Best, or BOTB, provides a good example.
The win-a-supercar website regularly publishes the size of its Facebook audience and comparing revenue to Facebook followers seemed logical to calculate (at least to me). Was there any correlation? Draw you own conclusion.
What surprised me, though, was the feedback I received — many BOTB investors had apparently not performed the same calculation. They may have assessed BOTB differently if they had.
My ABC summary
So that is my ABC of investing. Nothing particularly revolutionary is involved; just a bit more research work.
I like to think the extra effort creates an advantage over all the investors who instead depend on being spoon-fed information. In summary: do your own research, make you own conclusions and do not rely on anybody else… including me!
Until next time, I wish you safe and healthy investing.
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