Funny that just a few days ago I was looking forward to the monthly review of my portfolio. On Monday it still seemed like a good idea but then once again something unexpected has come out in the first few days of the following month which forcibly throws the monthly performance into the category of historic. And, as we all know historic performance is not a guarantee of future performance!
However, the portfolio has had a number of boosts in October notably:
- Rolls-Royce's deal with United Technologies re. its stake in the shared International Aero Engines venture (see earlier post:- Rolls-Royce update: IAE stake sale and new joint venture.) has added a long overdue boost to the shares which have also gone ex-dividend in the month with an entitlement worth 6.9p per share.
- I have to mention the EU Summit (pre and post) which has boosted markets and, despite the Trojan Horse gift of Mr Papandreu, markets continue to be higher than pre-summit levels. But who knows where they will go from here?
- BP has also managed to recover a little poise with a reasonable reception to its Q3 update; a contribution from Andarko towards the Gulf of Mexico fund; and news that the company has been granted its first permit to drill in the Gulf of Mexico since the Deepwater Horizon disaster.
As expected NG has fallen back slightly in the short term as investments are recycled out of defensives and into other recovering sectors (although you might see that being recycled back given recent events).
No changes to the line-up this month but a couple of dividends also came in from IG Group and GE.
The forecast yield for the portfolio, if held for the next 12 months, looks a satisfying 4.11% against its current valuation.
I am starting to think of this yield as the backbone of the portfolio as it provides a tangible return on an investment which is then locked in to the portfolio's valuation (I can then re-invest it of course).
For me it beats any share buyback program hands down unless a company can prove that its also buying value when it instigates a buyback. Too many companies seem to flash the cash at the top of a bull run and pay a premium which inevitably disappears when the bears come to town.
Perhaps they need to act more like investors rather than Directors!
Anyway I digress slightly so here is the portfolio as at close of play on the 31st October 2011:
However, the portfolio has had a number of boosts in October notably:
- Rolls-Royce's deal with United Technologies re. its stake in the shared International Aero Engines venture (see earlier post:- Rolls-Royce update: IAE stake sale and new joint venture.) has added a long overdue boost to the shares which have also gone ex-dividend in the month with an entitlement worth 6.9p per share.
- I have to mention the EU Summit (pre and post) which has boosted markets and, despite the Trojan Horse gift of Mr Papandreu, markets continue to be higher than pre-summit levels. But who knows where they will go from here?
- BP has also managed to recover a little poise with a reasonable reception to its Q3 update; a contribution from Andarko towards the Gulf of Mexico fund; and news that the company has been granted its first permit to drill in the Gulf of Mexico since the Deepwater Horizon disaster.
As expected NG has fallen back slightly in the short term as investments are recycled out of defensives and into other recovering sectors (although you might see that being recycled back given recent events).
No changes to the line-up this month but a couple of dividends also came in from IG Group and GE.
The forecast yield for the portfolio, if held for the next 12 months, looks a satisfying 4.11% against its current valuation.
I am starting to think of this yield as the backbone of the portfolio as it provides a tangible return on an investment which is then locked in to the portfolio's valuation (I can then re-invest it of course).
For me it beats any share buyback program hands down unless a company can prove that its also buying value when it instigates a buyback. Too many companies seem to flash the cash at the top of a bull run and pay a premium which inevitably disappears when the bears come to town.
Perhaps they need to act more like investors rather than Directors!
Anyway I digress slightly so here is the portfolio as at close of play on the 31st October 2011:
| Merchant Adventurer's Index | |||||||||||||||
| Forecast | 1 month | YTD | 22 mnth | ||||||||||||
| Price | % holding | Div. yield | % gain | % gain | % gain | ||||||||||
| R-R | 702.50p | 30.82% | 2.48% | 18.07% | 12.76% | 45.29% | |||||||||
| National Grid | 617.50p | 18.03% | 6.33% | -3.29% | 11.66% | 13.77% | |||||||||
| Aviva | 340.80p | 8.24% | 7.89% | 11.59% | -4.87% | -2.65% | |||||||||
| Inv. Perp. High Inc. *** | 508.12p | 6.88% | 3.78% | 5% | 7.33% | 20.26% | |||||||||
| BP | 461.00p | 4.48% | 3.75% | 18.66% | -0.98% | 5.91% | |||||||||
| Apple ** | $404.95 | 4.28% | 0.00% | 3.21% | 22.10% | 108.38% | |||||||||
| IG Group | 466.10p | 3.28% | 4.65% | 4.25% | -8.61% | 54.92% | |||||||||
| William Hill | 216.00p | 2.67% | 4.31% | -4.51% | 26.54% | 26.32% | |||||||||
| BG Group | 1356.50p | 2.63% | 1.13% | 9.26% | 4.67% | 24.44% | |||||||||
| Morrisons | 302.20p | 2.53% | 3.56% | 4.03% | 12.93% | 19.43% | |||||||||
| Centrica | 296.70p | 2.47% | 5.15% | -0.34% | -10.52% | -6.05% | |||||||||
| SSE | 1344.00p | 2.46% | 5.90% | 3.78% | 9.71% | 16.78% | |||||||||
| General Electric ** | $17.25 | 2.32% | 2.72% | 8.26% | 9.98% | 9.98% | |||||||||
| Microsoft ** | $26.98 | 2.30% | 2.14% | 5.31% | -6.02% | 9.01% | |||||||||
| Vodafone | 172.85p | 2.22% | 6.89% | 3.97% | 7.27% | 7.27% | |||||||||
| Tesco | 401.75p | 2.13% | 3.86% | 6.28% | 0.71% | 0.71% | |||||||||
| BAE Systems | 276.60p | 1.83% | 6.74% | 3.48% | -16.18% | -13.36% | |||||||||
| Cash | 0.44% | 0.00% | |||||||||||||
| 100.00% | 4.11% | ||||||||||||||
| 1 Month | YTD | 22 Mnth | |||||||||||||
| Portfolio gain (incl. Dividends) | 7.76% | 9.16% | 37.99% | ||||||||||||
| FTSE gain (excl. Dividends) | 8.11% | -7.15% | 2.43% | ||||||||||||
| - 1 month gain 5128.48 - 5544.22 | |||||||||||||||
| - YTD gain 5971.01 - 5544.22 | |||||||||||||||
| - 21 month gain 5412.88 - 5544.22 | |||||||||||||||
| Transactions: | |||||||||||||||
| 11/10/2011 | Div. | IG Group @ 14.75p pershare | |||||||||||||
| 28/10/2011 | Div. | GE @ 7.97p pershare | |||||||||||||
| Notes: | |||||||||||||||
| * US Dividends are adjusted for exchange rate and 15% withholding tax) | |||||||||||||||
| ** Sterling : Dollar exchange rate = £1: $1.60772 as at 31/10/11 | |||||||||||||||
| *** Invesco Perpetual Accumulation units (Dividends re-invested). Yield shown is based upon most recent payments. | |||||||||||||||
Very, very pleasing to see the performance in a chart which, courtesy of Rolls-Royce, has seen the portfolio keep pace with the October recovery shown by the FTSE.
Year to date the portfolio is showing a 9.16% gain compared to the FTSE100's loss of -7.15%.
And, over 22 months the portfolio is up 37.99% against the FTSE's meagre showing of 2.43%.
Again I need to caveat that all dividends are re-invested and included in the portfolio's performance whereas the FTSE100 index does not include dividends re-invested.
 |
| Double click to enlarge and back to return. |
However, with October's performance now consigned to the past, I have to say that I am increasingly nervous about what happens next following the Greek debacle and its potentially huge knock-on effect on global markets.
Greece is fast turning itself into a pariah and its place in the EU really needs to be resolved now. The opportunity to ringfence and plan an orderly default from the Euro has probably passed thanks to the questionable tactics deployed by the Greek Prime Minister.
I applaud the democracy of the decision (if that truly is the driver) but to undertake it after the event when it should have been considered in the weeks running up to the EU Summit makes the whole thing questionable and unforgivable.
As an example Angela Merkel was standing in front of Germany's 620 member Bundestag as late as the morning prior to the summit's final extended session. The result of which gave her a clear mandate at the negotiating table.
Should Papandreu not have been doing something similar?
Waiting for Greece's referendum will likely delay being able to focus on the next inevitable problems in Italy, Portugal and the future of the Euro.
I find myself really considering whether or not there is a way through this now as the stakes seems to get higher and higher.
It feels like we are once again so close to the abyss that the margin for error has gone.
As a result, the "flight" instinct in me is coming to the fore with the inevitable consideration that I should review my strategy and turn some or all of the portfolio into cash.
But which ones and how much?
They say that its always darkest before the dawn but I do find myself in a very uncertain place at the moment.
It would be nice to feel there is time to consider these things but there seems to be so much political uncertainty and inadequacy it is difficult to see where the leadership will come from now to resolve a situation that is at times fast moving yet still being drawn out!
My resolve is being severely tested and I can feel that contagion flu coming over me again.
Related articles:
- http://bizmology.com: BP wins permission to drill in the deepwater Gulf of Mexico
Earlier posts:
- Rolls-Royce update: IAE stake sale and new joint venture.
- BP gushes up on Q3 update.
Links to previous Portfolio updates:
- May 2011: Portfolio Update- April 2011: Portfolio Update
Hi MA
ReplyDeleteIn continuation of our recent chat the last few years have caused me to do a lot of re-thinking about investment. None of it wasted I suspect. Batting ideas about and trying to exorcise the problems , devising a more workable way forward. I sense that it would be possible to lose a lot in these new markets as we go forward from here.
Looking at the portfolio performance its creditable to be decently ahead like this. I find that my individual holdings , possibly half of them , do not rise if the market stays flat and a few of them account for large losses. Unloading any of the underperformers would improve things but it’s a difficult judgment that I usually do badly , often only noticing it when its thought to be too late. If I saw something in the share then I am loathe to be quickly shaken out of it. But as you say it’s a bit disconcerting not knowing what others know about it. Any thoughts ?
Fenchurch
Hi Fenchurch,
ReplyDeleteI do think it is all to easy for us to get sucked into the paranoia of markets and media.
Reading some of your thoughts I would guess that you are probably doing yourself an injustice but need to review what it would take for your underperformers to perform.
Is there a strategy or foreseeable catalyst for a rerating, what kind of market sentiment would it need and what kind of horizon do they need to prove themselves. If you can't see a means for this, or the return or horizon is not acceptable, then the shares are probably going to continue to wallow and your emotional attachment is clouding the decision.
My guess is that you do understand this but that the short term profiteers driving the markets volatility are casting a temporary shadow over some of your investments (future of the Euro notwithstanding of course).
Like you I have also stewed on this and have gone right back to basics trying to buy into a longer term horizon than the market is currently exhibiting and focussing on real returns (in dividends).
It is a risk but gives me a chance at rationalising short term losses as fluctuations and that the markets will eventually catch up to my view.
In the meantime, many of the "blue chips" I find that I have bought are at yields that suggest they are about to fail (they may do) but cashflow, cash balances and interest cover suggest that they won't.
Let me know what you think?
best regards
Hi MA
ReplyDeleteMarkets and paranoia , Indeed. I have just recalled a line from Prings TA book of 20 odd years ago. A very excellent tome. He talks of how draining the short term view is. The quotron machine always beckoning for attention. You can see why Templeton spent his time far away in Barbados. & Buffet in Nebraska. I decided a few months ago to spend a little less time on the markets. It may be a profitable move. Patience is a virtue , I wish I had more.
Underperformers – I find that my ideas change over time and holdings that I thought good look less good as the market environment changes. Often they are underwater and I am reluctant to sell them but I should. They are small in value but have a disproportionate effect on my thinking. But they do have a sort of value. It makes me realise that the sort of uncertainty is set to go on. Can you imagine what it might be like in 10 years time when caution and good fundamentals lead to mediocre results as one is underinvested on a value slant as there may be no value at all !
The point about rationalising short term losses as fluctuations is a very good one. I often do that. Its very tricky. I have been trying to visualise how to buy into holdings and not have this problem. Capital preservation is a must but often hard to achieve on an individual stock. I usually try to view the chart perspective that I equate to the “beauty parade” aspect. As you said the prices are controlled by short term operators with little reference to value.
I like BA. , NG. AV. (???) MRW , TSCO , BP , SSE in your portfolio. I find WMH a bit odd. I know nothing of US shares. RR. I think toppy. I would buy VOD , BG. And CNA if they were cheaper. I hold BA. and AV.
Regards
Fenchurch
Hi Fenchurch,
ReplyDeleteI enjoy your insights and there is a lot to be said for excluding yourself from the day to day travails of the markets and the overweight influence that this can have.
With regard to undrperformers I have long discussions with a friend about this difficult aspect and trying to break our emotional investment. We use the analogy of ladders and escalator. A share might well recover, eventually, but is there a more secure and faster moving escalator that we climb onto instead.
WMH is an odd one, it was bought as a value play with a record of paying dividends and the catalyst for rerating was its online betting arm and the World Cup.
It has satisfied all my expectations and, once I finally realised that, was due to be sold ahead of the ex.dividend date last month.
However, on the very day I came to that conclusion the company issued its first statement re. the disruption to its Israeli offices and the share price has steadily drifted down by 10%. At which point I am now reluctant to sell as I feel (wrongly no doubt) that I have lost 10%.
Best regards
Hi MA
ReplyDeleteToo true , Behavioural Investing ! I notice that I am influenced by things especially if I have an emotional investment in something. BBs are often the worst like when you hold something that falls and people say there is going to be a buyout or a takeover at this price. It’s a very difficult area and I often get into a mindset that I do not notice that its going down.
I did not like the look or WMH and LAD when I looked at them a while back. WMH seems a bit better than I recall although I doubt its cash generative at the end of the day and has a lot of intangeables in the balance sheet. I thought that they were bad businesses to be in at present. The markets say that. I have spent more time with promises of jam tomorrow and I get fed up with them. These are bad times to be waiting for good news.
I think that about 40% of my choices fail my expectations as events unfurl that I did not notice (but should have done). If it happens slowly then I lose ! If it happens quickly then I have lost !
Asset allocation and diversification reduce the financial blow but it’s the knock to ones confidence that I find most damaging. It impedes decent decisions which makes investment life less fun.
Having a difficult job with plenty of panics and deadlines does not help. One needs to be calm to do this well (I do). I try to be a bit more mechanical but often forget and am inclined to be a bit impatient , better suited for raging bull conditions. As Lefevre says we are the biggest threat to investment survival.
Regards
Fenchurch