[shark]

Pete’s thread about investing is focussed on high growth companies which can do spectacularly well or the opposite.
My investing focuses more on companies where the upside is less exciting but seems to limit the downside typically from tangible assets held by the company.
If this is of interest to say a dozen or more I’ll post a bit more about value investing. If not I’ll delete the thread.

[MischaHY]

Definitely interested in learning about what less volatile options you find interesting.

[abarro81]

I'd be interested.. I've never invested until this year, now beginning to dabble. Mostly trackers but also some funds that invest in companies owning/developing renewable energy assets (which may fit with your preferred style).

[shark]

Definitely interested in learning about what less volatile options you find interesting.

Value shares don’t take into account volatility as a measure. There is a measure (VIX) that does focus on it as a measure if that’s your key criteria.

[petejh]

Pete’s thread about investing is focussed on high growth companies which can do spectacularly well or the opposite.

I feel this is quite a profound misrepresentation actually Si.
If I *was* invested in high risk growth shares I’d be invested in stuff doing very poorly at the moment, typically tech growth stocks on Nasdaq and elsewhere. I’m not invested in a any stocks on the Nasdaq, and my portfolio this year is beating the S&P500, Nasdaq and FTSE - all are suffering corrections while my commodity investments are doing well.

There’s a big difference between thinking something is a growth stock because it actually is, versus not understanding certain sectors as they pertain to your preferred investing style. Maybe ‘riskier’ is a more apt description?

The investment thread title is supposed to be tongue in cheek btw ‘buy the dip sell the rip’ sounds gung-ho but the reality for me at least is very different and boring, hrs and hrs of reading.

I invest predominantly in the following:

One major gold producer (Agnico Eagle, formerly Kirkland Lake). A ‘value’ stock in these times if ever there was one.

I invest in two major tin producers (MLX and Alphamin). Again these are value investments to make any value investments that should make all value investors take notice. I mean they really are the definition of a value approach to investing in that they’re profitable but undervalued and they have a very solid fundamental asset backstopping their market value.

High quality resource exploration/development companies in the nickel and copper sector, that are in the stage of either early exploration or development. You ‘could’ class these as high risk (certainly), and growth..
..but knowing what you’re doing in this space can make it the most rewarding of all investing. To be clear - there is a whole ‘explorer/developer sector jam packed full of speculative shitco’s being ‘promoted’ by.. ahem.. cunts.
This is not that.
I’d like anybody to review the exploration companies recco’s  I’ve made public and see how they’re doing in this current correction, since the date I mentioned them on the thread.
My point being, if these were growth stocks by the common understanding then they’d be tanking. They aren’t, because the commodity thesis sitting behind them and the quality of the asset they’re developing is solid.
Currently still holding:
- Filo
- Meridian Mining
- Centuras Metals

There are two or three other explorers I’m invested in that are doing excellently but are at a stage before I’d feel comfortable mentioning on the investing thread.

Then there’s the periphery stuff, which yes you would class as growth stocks - a medical device developer at FDA approval stage (Polarean), two battery developers (GMG graphen aluminium, and Ilika solid state). One company that manufactures lightweight printed wiring harnesses - growth certainly but potentially at that point where growth turns to good levels of sustainable revenue.

Finally there are the recent things such as US fertiliser investments - CVR Partners, Mosiac Company, and CF Industries. These are again the very definition of a value approach to investing. I’ve mentioned these but not bought.

The common theme in my investments is tangible assets. A producer or developer/explore with a high quality defined resource of tin, copper or nickel, now more than ever, are pretty much the OG of tangible asset : )
So yeah I feel a bit misrepresented there by being categorised as someone who invests in ‘growth’. I think you have a fundamental misunderstanding of the sectors involved.

All said in good faith btw. No issue with a value investing thread - fertilisers a great one, tin producers another. 
Just wanted to correct your assumption.

[petejh]

Edit: Double post

What I also meant to say regarding risk..

Maybe ‘riskier’ is a more apt description for the sectors I invest in but even that concept isn’t really accurate, what’s riskier at the moment - holding a supposedly ‘lower risk’ fund tracking the ‘wrong’ sector or holding a well chosen individual stock in a ‘good’ sector?

[kelvin]

Can someone define value shares for me please?
I've a few different definitions in my head.

[shark]

Can someone define value shares for me please?
I've a few different definitions in my head.

Great question!

In the generic sense every shareholder believes that there is sufficient value in their investment that the share price will rise otherwise they’d sell.
However, value investing has a more specific meaning and weighs up the value of the tangible assets owned by a company (cash, property etc) it’s dividend payout, its earnings (profit) record and its level of debt. The key metrics are P/TNAV (share price to tangible net asset value ie assets minus debt) PE (share price to earnings) and Dividend Yield (share price to dividend).

[shark]

Ok - reached a dozen in the poll - just! 

I’ll try and do a blog post each rest day on my thoughts about investing in individual companies

I’ll start with my own investment history. I think with investing you have to find a style that suits your mindset and it takes several years of successes and failures to find what suits you.

Most people stick with choosing trackers and funds which are the collective investments that make up corporate pensions rather than get involved with investing in individual shares. There are fees and costs associated with funds and trackers but with trackers in particular these are minimal these days.

In effect with buying a low cost FTSE tracker (or similar) you are buying the market and into its long term compounding growth.

I first started investing when I transferred a smallish company pension into a SIPP (Self Invested Pension Plan) about 20 years ago. I can’t recall what prompted me to do it at the time but I posted on a forum called the Motley Fool asking which was the lowest cost tracker to get.

On the thread someone posted suggesting looking into buying individual shares. I said that I had no knowledge and I thought it was gambling. However, I was pointed to another board on the forum called the High Yield Portfolio (HYP) as an alternative approach to a tracker or fund which was devised by one of the Motley Fool writers Stephen Bland. I posted questions on the Board and read Bland’s articles which related to the HYP approach and also his articles on Value (Sadly the whole forum was closed 7 years ago though a copycat forum was started)

The semi-mechanical HYP approach was to buy a dozen of the largest listed FTSE companies that produced the highest (secure) dividend yield with each company representing a different sector as sector diversification offered some risk protection. If for example you buy a FTSE100 tracker the dividend yield is currently 3.4% so by cherry picking the largest yielders like Glaxo (5.2%) and BP (4.3%) for your HYP you can boost the overall yield either for income or for the beautiful effects of compounding.

The other ‘rule’ was once you’ve bought your HYP was to never trade to keep costs low and for the observable fact that most investors make lousy traders.

For reasons I’m happy to discuss dummy and live HYP portfolios outperformed the FTSE over the long term in terms of capital gain because yield is a value indicator (though not the strongest value metric) which is a point I’m happy to discuss. 

Surprise, surprise I became a regular poster on the Motley Fool and also opened Share ISA’s and increased the money I put into the stock market and tinkered with the HYP approach.

A couple of years later I lost what represented a lot of money for me at that time which I’ll post about next time.

If anyone has questions about the High Yield Portfolio approach fire away.

[steveri]

most investors make lousy traders.

Data point here. In my younger days, I thought investing was an evil capitalist conspiracy and I was too pure for that. Slightly older, I realised I needed to think about saving for retirement and putting stuff away. All pensions are in bed with The Man, ergo purity lost. I then had a dabble with individual shares, made some ok and some poor decisions. Put some money into tracker funds so I don't have to think about it.

I've also got a small handful of stocks and because of point 1 above, I look at dividends and diversity. If I can get a bit back every year, regardless of what the share price does I'm ahead. I usually reinvest if a DRIP is on offer, its free money after all. If I get some or all or more of my stake back on selling all good. But I don't tend to sell.

Hopelessly naive but the more research I do, the more mistakes I make. So now I'm basically just throwing darts, given the above.

[seankenny]

“Just one in four active fund managers that invest in large US-listed companies beat Wall Street’s S&P 500 share gauge in 2021, as stockpickers again struggled to match the returns delivered by cheap index trackers following the US equity market.”

https://www.ft.com/content/d1f96d83-1a72-47d7-a4af-2483bd49b024

[shark]

I don’t think you are being naive and the approach you are taking of insuring diversity and dividend income and not selling are the same principles championed by the HYP approach

Hopelessly naive but the more research I do, the more mistakes I make. So now I'm basically just throwing darts, given the above.

The point you make about research is excellent. It’s very easy to get your head turned by opportunities in a sector or being impressed by what a Director has to say about their companies prospects. I also think that in depth research can create a narrative in your head that can lead you to be too emotionally wedded to share.
I recall Stephen Bland writing an article about ‘strategic ignorance’ where he wouldn’t try to guess a companies prospects but would make his investment decision on the current numbers - but he was an accountant by training. On the other hand I know someone who has been amazingly successful by schmoozing with Directors, attending Board Meetings and arranging investor events and clearly loves that shit. That’s what I mean by finding an investment style that suits and works for you.

[shark]

“Just one in four active fund managers that invest in large US-listed companies beat Wall Street’s S&P 500 share gauge in 2021, as stockpickers again struggled to match the returns delivered by cheap index trackers following the US equity market.”

https://www.ft.com/content/d1f96d83-1a72-47d7-a4af-2483bd49b024

I think you should use longer time frames than a year when comparing fund performance to market indices but yes funds in general don’t do as well as you might expect - Ive never invested in one.

To be fair fund managers have a lot of baggage to deal with that compromise their performance. First of all the internal fees and costs will be a drag on performance. Second they are managing large sums of money so can move the market with their purchases so can’t build or  sell a stake as cheaply as a private investor. I’m sure politics comes into play as well - dumping stocks that they might still personally believe in but have a hard time justifying holding to clients. The most successful investors by definition make decisions that are contrary to the market and institutional fund managers aren’t predisposed to making contrarian decisions.

[shark]

I'd be interested.. I've never invested until this year, now beginning to dabble. Mostly trackers but also some funds that invest in companies owning/developing renewable energy assets (which may fit with your preferred style).

See my post above re Funds. Given your day job it could work well for you to listen out for successful, growing companies in the sector that are listed on the stock market then having a look at their debt/asset position and P/E level relative to other companies in the sector. Also factor in how vulnerable their business is to changes in government policy.

[abarro81]

I've wondered this before (with respect to my job) - I have a good (IMO) view on which companies are likely to do well, but what I've never delved into is how to understand how much of that's already "priced in", if that makes sense.. I guess thinking in terms of yields and not stock price may partly be the answer to that. Main problem is mostly it's Chinese stocks so I suspect harder to trade (based on an idle assumption!)?

[shark]

I’d give Chinese stocks a wide berth in general. There have been a number of Chinese companies that have listed on the FTSE AIM market in the last few years that have been recommended by reputable writers whose accounts have turned out to be largely bogus and duly gone bust.

[kelvin]

Can someone define value shares for me please?
I've a few different definitions in my head.

Great question!

In the generic sense every shareholder believes that there is sufficient value in their investment that the share price will rise otherwise they’d sell.
However, value investing has a more specific meaning and weighs up the value of the tangible assets owned by a company (cash, property etc) it’s dividend payout, its earnings (profit) record and its level of debt. The key metrics are P/TNAV (share price to tangible net asset value ie assets minus debt) PE (share price to earnings) and Dividend Yield (share price to dividend).

On that count, then Pete's recommendation of Alphamin completely fits the bill. Being in the DRC might be against it but as far as being a value stock, it's bang on and everyone received their first dividend last week.

Value is everywhere, even junior miners it would seem.

[shark]

Not very racy but VLE (Volvere) is a cautious turnaround operation with a great track record of buying distressed companies cheaply turning them around and selling them for multiples of the purchase price. They have recently raised a lot of money through a placing so have a sizeable war chest to take advantage of the current market conditions. There is a lot of downside protection as their market cap is roughly equivalent to their ‘true’ NAV. There is a great thread on ADVFN if you want to look into it further. Because of some recent stupid rules it’s classed as a complex investment (it isn’t) so you can’t buy it in an ISA. I hold mine in a SIPP. It’s by far my largest holding.

Good results from Volvere today and it’s up 7.5%.

It’s main investment (80% holding) Shire Foods has increased revenue
by 13% to £30.6m, and PBT is up a 18% to £2.14m - an excellent result in the face of general rising raw materials, energy, logistic and staff costs

It’s more recent smaller turnaround investment - Indulgence - increased revenues by 21%, but made a £1m loss so still work in progress.

They have cash of £21.9m for new investments and the Shire investment is likely to be worth in excess of £18m against a market cap of £31m so plenty of downside asset protection and upside opportunity when they flip Shire but patience is required.

[AJM]

Not very racy but VLE (Volvere) is a cautious turnaround operation with a great track record of buying distressed companies cheaply turning them around and selling them for multiples of the purchase price. They have recently raised a lot of money through a placing so have a sizeable war chest to take advantage of the current market conditions. There is a lot of downside protection as their market cap is roughly equivalent to their ‘true’ NAV. There is a great thread on ADVFN if you want to look into it further. Because of some recent stupid rules it’s classed as a complex investment (it isn’t) so you can’t buy it in an ISA. I hold mine in a SIPP. It’s by far my largest holding.

Good results from Volvere today and it’s up 7.5%.

It’s main investment (80% holding) Shire Foods has increased revenue
by 13% to £30.6m, and PBT is up a 18% to £2.14m - an excellent result in the face of general rising raw materials, energy, logistic and staff costs

It’s more recent smaller turnaround investment - Indulgence - increased revenues by 21%, but made a £1m loss so still work in progress.

They have cash of £21.9m for new investments and the Shire investment is likely to be worth in excess of £18m against a market cap of £31m so plenty of downside asset protection and upside opportunity when they flip Shire but patience is required.

Yeah, I saw these results come through earlier on. I have a small amount in this one - still sitting on a loss currently, but todays rise has tempered it a bit and it looks promising enough that it might be worth topping up, especially if it dips for unrelated reasons the next time the market flutters.

Mine is in an ISA, by the way, so you can get it in one.

[shark]

Mine is in an ISA, by the way, so you can get it in one.

Yes - my bad. Some providers don’t - notably IWEB.

Think the market is confused about VLE thinking it’s like an investment trust (when it’s more like a Venture Capital business) and so judge it by the declared asset value which doesn’t take into account the increased worth of Shire as it grows revenues and profits. Consequently it’s long been the case with them that the share price lags until an investment is sold. I doubt they will repeat the level of success they had with Impetus (bought for £1.25m and sold after 3 years for £31m) but it demonstrates how much upside is possible. However, they’ve had Shire on their hands a long time now and haven’t made a significant acquisition for years - though have said that the market for buying businesses to turn around is improving.

[shark]

I mentioned above about my early adoption of the High Yield Portfolio (HYP)  where you take an equal stake in a dozen or so shares within the FTSE100 different sectors.

The diversification of sectors helps reduce sector specific risk ie changing government regulation in the utilities sector or a collapse in oil price for the likes of Shell and BP. The shares are also screened in terms of having sufficient cash generation or dividend cover that a cut in the dividend is unlikely at least in the short term. This provides a higher than average dividend income and a portfolio constructed like this usually outperforms the FTSE in terms of capital gain too.

Why should an HYP outperform in capital gain? I think it is because the market in the short term is schizo overly marking down shares that are boring, have gone ex-growth or subject to negative news flow. If a share price goes down then it’s dividend yield goes up. A higher than average dividend yield for a company in a particular sector is a reflection that it is out of favour with the market for whatever reason.

Another similar but older approach was ‘Dogs of the Dow’. You picked a selection of shares that had performed the worst for the previous 12 months and then dumped them at the end of the next 12 months and did the same again. This approach over the long term outperformed the Dow due to the markets excessive pessimism at one end (and also excessive optimism at the other). The market doesn’t always get it wrong and sometimes the pessimism proves to be justified which is why a portfolio of shares is a good idea to spread the risk.

I was sold on this approach initially selling my trackers in a SIPP to buy high yielding shares and then ploughing more money in via ISAs and normal trading accounts.

At this time the banks and building societies were yielding high and I went overweight in this sector. It seemed a safe bet. The banks balance sheets were on the face of it strong as their net assets (assets minus debt) were often in excess of their market capitalisations (the whole market price of their business ie share price x number of shares).

Then word of a ‘credit crunch’ started circulating. Stephen Bland who invented the High Yield Portfolio was dismissive of the credit crunch thinking that the market was over-reacting. He was wrong of course.

The use of derivatives and leverage had made the financial institutions more profitable but more risky. Some banks such as RBS and Northern Rock ran out of cash when confidence collapsed and the music stopped in a worldwide game of musical chairs when banks and other institutions stopped lending to each other. A lot of the assets were far more risky than the credit agencies rated them and worth less - The Big Short is a great film explaining how incestuously fucked up the system was.

Governments had to bail out the banking sector before the economy collapsed and the whole process of unwinding has taken a long time.

On a personal level my shares tanked but weirdly my recruitment business continued to do well until Lehman Brothers collapsed. Recruitment is sensitive to the ups and downs in the economy and after Lehman’s none of our clients were interested in recruiting for a period and I ended up folding the business leaving as in a precarious financial position.

I remember discussing with Sonia about whether to dump the non-SIPP shares so we had some extra cash to hand. We weren’t sure and considered flipping a coin. Tommy who was 6 or 7 at the time came in and Sonia asked him to choose ‘stick or twist’ and he said ‘stick’ (“because I like sticks”). So I stuck at it and subsequently more than made up for those early losses.

I abandoned the HYP approach as I was too much of a tinkerer and trader by inclination to stick to a semi-mechanical approach. Instead I went down the route of using value principles to invest in smaller listed companies following the views of commentators and posters who thought the same way but were far more experienced.

So going back to dividends - yields can be a value indicator but are not as strong as tangible assets. Those juicy bank dividends were cut and investors saw their share prices collapse or even go to nothing with the likes of Northern Rock.

A problem with banks in evaluating them in terms of their assets is that the net asset value is just the relatively small difference between two very large set of numbers because that is the nature of their business - borrowing and lending on a massive scale.

As low debt is a preferred requirement for value investors it is arguable whether a bank can ever qualify. I’ve not invested in one since.

[petejh]

Si do you read the 'moneyvator' weekly blog/website? I imagine you're well aware of it. But if not, it's the best generic commentary on investing I've come across for a UK audience.
As well as overviews the site has weekly links to other excellent commentators so you can go down holes learning more about whatever investing niches you like. The search feature brings up various useful articles on value investing, also some good in-depth articles on the pros/cons of investing for yield versus investing for growth (yield approach traditionally far more popular in the UK versus N.America due to the make-up of the ftse).

https://monevator.com/

[shark]

No I haven’t Pete. Will take a look

[shark]

Guess I’m talking to myself with regard to boring value plays but further to previous posts on LDG the proposed changes to the investment policy and the share buyback has been approved.

An exemption has been approved such that the reduction in shares from the buyback won’t automatically trigger a takeover requirement for DBay and concert party if the threshold is crossed. The proportion of equity held by them is a concern and the risk of a future stitch up for private investors is concerning but given their activities reputational damage is important.

The announcement has triggered a small rise today but only to 13.8p whilst the current cash per share stands at 18.7p (I think). That cash per share figure will rise as they buyback shares at a discount to cash.

The change in investment policy now gives DBay in its role as investment manager virtual free rein to invest in a wide range of sectors in unlisted and listed companies. Their track record in this respect is excellent. If the buyback clears out disaffected shareholders such that the gap closes between the market SP and the Cash per Share then I’ll most likely sell out. If not I’m happy to wait and see how they invest the remaining cash.

LDG announced today their first investment since the investment policy was broadened. £6million in a large listed care home operator where management have announced an intention to take the business private. It’s unclear whether this is an opportunistic punt or they are looking to build a stake. It’s hardly dented the cash pile but good to see they are acting quickly. Modest rise in the share price to 15p today. So far they have bought back 10m shares of their own shares as part of the large buyback.

I have inadvisably large stakes in this and Volvere mentioned above together representing about 80% of my portfolio which is very unwise but given the levels of cash per share the downside protection could scarcely be better. I’m promising myself that I will be more diversified when I sell down these holdings.

[shark]

Took some profits by halving my holding in VLE at a fraction under 16p. The buyback is happening quickly and at the current rate the permitted shares allocated for the buyback will have been bought (and cancelled) before the end of April. It is possible that the shares might not reach fair value of ~17/18p before then and slip back after the buyback. Still retain an uncomfortably large holding.