As ever, although I may get keen about a stock, what I put into print here is purely me sharing my rambling thought process and NOT INVESTMENT ADVICE to either buy or sell a particular stock. I try to offer balanced; both bull & bear views on stocks that appear in the Voyager Log. I will never ramp a stock & simply try to offer my honest opinion on a company. Like everybody who offers an opinion, sometimes that opinion is proved to be wrong.
The key to the colouring of text within these notes:
Text in normal black: just my thoughts.
Text in blue italics: direct lifts or copy & paste from the RNS issues by the business.
Text in green: loosely, the investment principles that I feel comfortable with.
Red is a disclaimer in that what I write is NOT investment advice.
Note: the purpose of the Voyager is simply to share my reasoning in relation to selecting what I deem to be quality stocks, buying, selling and generally managing capital within a portfolio whilst responding to relevant news about a stock and overall market conditions.
This month, it’s just a quick Voyager update for two main reasons. Firstly, nothing has changed regarding the current stock holdings within Voyager since the last log was published in early September and secondly, a rather painful hand injury makes any keyboard work less of a joy. In fact, whilst awaiting hand improvements, I purchased a rather comfy mouse; the Logitech Ergo, much comfier than any other mouse I have used.
As I say nothing has changed much and the holdings are as listed in the September log.
I still remain rather bearish on the immediate market prospects for stocks and for that reason, as stated before in earlier issues of the log, I moved heavily into cash once again at the end of June/July 2019. In reality, it’s a touch of Groundhog Day as I took similar action in the summer of 2018 and missed most of the October to December pains. Sadly it’s a market fact that no matter how convincing the fundamentals for a stock may be if Mr Market is grumpy your chances of making money are somewhat limited. I, of course, exclude those successful bargain hunters and value investors who have the skill to sniff out opportunities in these testing markets. However, analysis of my investments over 25 years shows that without a scrap of doubt my investment returns have been very significantly better when I buy into positive momentum rather than when one tries to bag a bargain on thinking “blimey that’s good value, surely it can't go down any further”. So often bargains become even bigger bargains as time goes by and then turn into the dreaded “long term hold” as an investor waits to maybe break even at some time in the future.
To add to my bearish outlook, we seem to be seeing more and more profits warnings, sometimes a little tucked away in the detail and also a higher proportion of H2 weightings/contract delays/macro-economic uncertainty etc that to my opinion, we would normally see. I should say that I am certainly not immune to profits warnings and took three in the first six months of 2019: PMP which I had been quite bullish about yet sadly once again the CEO did not have a clue how sales/stock were moving in South Korea: resulted in a small loss. TEF a small gain as it had been in for an age and SOM which overall made excellent returns as a long term hold but was sold over two periods; firstly, some at the time of the June profits warning and the remainder following the fairly poor results in September. Interestingly both PMP & SOM have declined significantly further since those sales but an agreed take-over was announced for TEF. I will keep an eye on SOM but sadly I reckon the management remuneration at PMP is inversely proportional to their overall competence. My general rule on a profits warning is simply to exit fairly early and protect capital.
As ever, I seek stocks that have amongst other things, the following attractive attributes: Increasing turnover, attractive returns on capital (ROCE + CROCI), good profit margins, low debt & so very importantly they show positive momentum. If we then throw into the mix some positive RNSs, we have a formula for success. Yet take away that positive momentum and the immediate reason to buy “right here, right now” tends to fizzle out & for my style of investing the stock remains on a watch list.
The table below shows the medium to long term residents of the Voyager and gives a flavour of the easy first six months of 2019 we enjoyed on the markets, particularly for quality stocks, and the tougher conditions encountered as from July. Note: from the table below I no longer hold SCT, DTG, BOY, FOUR, ARC, D4t4 & GRG as these were sold in early July and gratefully, profits banked. I also sold my repurchases of an old star performer, KWS in July having rebought earlier in 2019. In addition to these sales, during the summer I also took some profits and reduced exposure (sliced by at least 60%) on ABDP, GAW, IGR & SDI as the cash position swelled.
Note the table is included to demonstrate what I look for in terms of fundamentals. These stocks have been medium/long-term residents of Voyager that were held for all or most of the first 6 months of 2019: the ones still resident are listed in the second table. A handful of others not listed have been resident for a very short period & cumulatively had a zero-sum effect on the bottom line. Also for clarity, I took profits in the ISA held XPP a stock I have often written about, in FY 2018/19 yet had a small long-serving residual holding outside of the ISA wrapper that I sold early in FY 19/20.
The same style table but just including Voyager stocks continually held to date through 2019 is given below:
In addition to the above, relatively recent (mid-summer) cautious small starter positions sit in the portfolio: SPSY showing a modest profit, LTG currently treading water, LIT about 20% underwater as it got caught in the Burford tailspin and not to forget SND which has just left following a take-over.
The striking thing from the above tables is just how much the mood has changed within the markets since July. We, of course, have the various political worries & trade wars to wobble the market and indeed many investors feel that a hard Brexit is baked into the current stock prices. However, I am not so sure and feel that wealth may possibly be seriously damaged over the coming months should an acrimonious divorce happen. Conversely, should Trump make friends with China and an acceptable deal be concluded regarding Brexit, then Mr Market may well smile again. As ever, should that happen then I will be happy to maybe not be the first one to arrive at the party but will arrive a touch later when risk and signs of that crucial momentum returns to those quality stocks.
Oh yes, a few RNSs I should mention but is it really worth it at the moment with so few holdings and even as ABDP release an exceed market expectations RNS, there is a negligible effect on the share price; maybe that partly due to the fact that it’s had a cracking good year in terms of share price appreciation.
At the moment I am pondering the future for the Voyager log as I think that currently, the blog-space is maybe a little crowded albeit with some very good commentators. In many ways, I feel that the communication of the methodology I originally set out to describe has been delivered and it boils down to selecting high-quality stocks, buying with momentum/positive RNS & protecting one's capital.
Well, that’s it for now, stay safe in this unsettled market; catch you again soon, probably in November when hopefully typing is a touch more comfortable.