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| Portfolio Snapshot | Held since | Buy Price | Price now | Chng | Profit/Loss | Value |
| Amiad Water | Apr 11 | 202.8 | 295.5 | +45.7% | +£234.51 | £747.92 |
| Judges Scientific | Nov 11 | 423.0 | 633.5 | +49.8% | +£343.69 | £1034.43 |
| National Grid | Jul 09 | 518.5 | 682.5 | +31.0% | +£222.33 | £939.57 |
| Alkane Energy | Feb 11 | 21.1 | 20.5 | -2.7% | -£13.48 | £486.52 |
| Allocate Software | Oct 10 | 75.6 | 78.5 | +3.8% | +£19.16 | £519.16 |
| Goals Soccer Centres | Jan 09 | 128.6 | 130.0 | +1.1% | +£13.27 | £1199.45 |
| Tesco | Apr 09 | 337.6 | 323.8 | -4.1% | -£43.60 | £1019.52 |
| Goldplat | Apr 12 | 13.6 | 11.9 | -12.6% | -£136.02 | £940.32 |
| Halfords | Jul 11 | 366.8 | 283.1 | -22.6% | -£214.97 | £736.05 |
| FirstGroup | Apr 10 | 338.8 | 210.1 | -37.9% | -£403.11 | £659.31 |
| TOTAL INVESTED £7000 | VALUE NOW | £8282.23 |
Watchlist: Carillion (292p)
| Sharecropper's Blog |
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13/5/12 Family affair Portfolio value £8282.23 (UP 0.8%): FTSE 100 at 5575.52 (DOWN 1.4%). This year: Sharecropper UP 8.1% FTSE DOWN 0.1%. Since starting blog: Sharecropper UP 12.4% FTSE DOWN 0.6%.
No time to write much this week: it was a good week for my underperforming large caps (FirstGroup up 16p to 210p, Halfords up 11p to 283p) and a bad one for Alkane Energy (down 2p to 20.5p) but nothing terribly significant news-wise. Still no news on Goals Soccer, but I did receive its dividend this week, which was a small bonus.
As a side-note, it's interesting to observe that the FTSE is now at almost exactly the same level it was when I started this blog in September 2010 - just shows how our economy is going nowhere. At least I've achieved growth of 12 per cent in that time.
P.S. A big shout-out to my cousin Chris who I saw this weekend and turns out is a regular reader of my blog. His investment tip for you all is Carillion, which he reckons is a buy at 292p. I will have a look and add it to my watchlist so we can see how that one turns out...
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6/5/12 Downturn Abbey Portfolio value £8216.42 (DOWN 0.3%): FTSE 100 at 5655.06 (DOWN 2.1%). This year: Sharecropper UP 7.3% FTSE UP 1.3%. Since starting blog: Sharecropper UP 11.5% FTSE UP 0.8%
An unspectacular week, with no notable price movements in the portfolio, but a relative success compared to the 2 per cent fall in the index which followed gloomy economic data from Europe and the US.
Turns out I was wrong about the chance for a Goals Soccer takeover slipping away - the two parties have agreed to an extended deadline (an extra month) before any offer must be made. This shows the Ontario Teachers pensions people are obviously relatively serious about the thing, even if they need longer to look through the books, so perhaps we'll see an offer after all. You would have thought they will need to offer at least 150p per share to have a chance of success.
I'm unlikely to make any moves in May - I'm not going to have any more cash to invest until June at least - so I'll leave it there for now.
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29/4/12 Receding expectations Portfolio value £8239.05 (UP 0.4%): FTSE 100 at 5777.11 (UP 0.1%). This year: Sharecropper UP 7.6% FTSE UP 3.5%. Since starting blog: Sharecropper UP 11.8% FTSE UP 2.9%
So, the UK is now technically back in recession - growth is proving elusive for Britain's businesses, and in this climate, my aspiration of 15% portfolio gain a year is going to be hard to realise. However, one way of beating the blues at home is to invest in foreign firms, a tactic which is working out quite nicely in the case of Amiad Water (up 24p to 300p this week). Its latest success was a contract win to supply US firm Calgon Carbon with filters to use in treating ballast water in ships - which will be a nice regular earner from a large customer.
Speaking of ballast, National Grid (up 8p to 663p) which I think of a steady presence in my portfolio, is also now at its highest level for quite some time (two years, I believe). Let's see what their results on May 17 have in store, but I doubt it's anything too spectacular because the share price naturally goes up at this time of year prior to it going ex-dividend on May 30.
Still no offer for Goals Soccer - and the Canadian pension fund only has until Monday to make one. I suspect if an offer was going to come they wouldn't have left it quite this late. In the meantime, it's pleasing to note that the Goals price has settled at exactly my buy price (128.5p) so I am level after all this time of being in negative territory!
Nothing more exciting to note than that, so I will end it there.
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22/4/12 Rolling in the aisles Portfolio value £8207.40 (DOWN 0.1%): FTSE 100 at 5772.15 (UP 2.1%). This year: Sharecropper UP 7.2% FTSE UP 3.4%. Since starting blog: Sharecropper UP 11.4% FTSE UP 2.8%
Well, Tesco's results finally came in, showing just a 3 per cent rise in earnings per share, which was more or less expected following its profit warning earlier in the year. Chief executive Philip Clarke is planning to plough lots of money back into the UK business this year in order to refresh the stores, which means that we can't expect anything in the way of growth in 2012/3.
However, I was encouraged to read this analysis in the Telegraph's Questor column (which is usually worth reading) of why the shares are now a reasonable recovery play. Since the international operations are starting to show profit, Tesco can afford to invest more at home, and the dividend is not in doubt. Its P/E has now fallen to 8.5, which is fair enough for a company that is likely to have flat earnings for the foreseeable future, but if I'm willing to stick with it for the next year or more while the recovery plan is put into operation, then there's every chance growth will resume and it will be uprated again. As Tesco has always been a share that I've considered a 'safe haven' rather than a big growth pick, I think I'm willing to stay the course.
I wish I could say the same about FirstGroup and Halfords - both of which were bought as safe dividend plays but are now causing me serious worries. FirstGroup in particular is luxuriating in a P/E of 4.8 and a yield of 11.2%, so you would not think that too much more could go wrong. I know their profits are going to fall but for me the big question for me is whether they manage to maintain their dividend policy of growing payouts by 7 per cent a year. If they keep that going for this year, despite the profit falls, I'll be philosophical, but if there's a dividend cut (as the current SP suggests there might be) I'll be distraught. Dividends or not, it's a strange feeling to find that what you thought were your safe investments turn out to be the ones where you would have been better off putting your money under the mattress.
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15/4/12 Nothing doing Portfolio value £8216.20 (DOWN 1.5%: FTSE 100 at 5651.79 (DOWN 1.3%). This year: Sharecropper UP 7.3% FTSE UP 1.3%. Since starting blog: Sharecropper UP 11.5% FTSE UP 0.7%
Nothing much to report this week - the market dipped a bit and so did my portfolio. FirstGroup (down 12 to 201p) and Halfords (down 17 to 291p) continue to sink, disappointingly. Amid the excitement last week I forgot to mention Halfords' Q1 results, which were less than spectacular - their retail arm is flat is best and online sales are pretty weak.
It's really plain to me now that my record of picking larger shares (FGP, HFD, Tesco, Lloyds) has been much worse than my generally successful small cap selections. Next time I am tempted to buy a biggie I am going to have to rethink my methods. However, there's not much point in selling out with either of these two shares right now, as I bought them for the income and so I should at least give them until the summer to reap their annual dividends.
No word yet on this supposed offer for Goals Soccer - perhaps it won't materialise.
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8/4/12 Going for gold Portfolio value £8340.10 (UP 0.6%): FTSE 100 at 5723.67 (DOWN 0.8%). This year: Sharecropper UP 8.9% FTSE UP 2.6%. Since starting blog: Sharecropper UP 13.2% FTSE UP 2.0%
So as you can see I went ahead and bought Goldplat. This might seem like a rush as I only mentioned them for the first time last week; however, once I get excited about a company and have satisfied myself that I've done sufficient research, then generally I want to seal the deal as quickly as possible.
I've written before about my suspicion of mining shares, but in Goldplat I believe I've found one that I can have a little more confidence in. That's because the company, which is an African-based gold producer operating in South Africa, Ghana, Kenya and Burkina Faso, has a firm foundation for its profits in the form of its 'gold recovery' business, which makes money by processing by-products left over from other people's mines in order to extract traces of extra gold. This is a stable, steady earner for them (profits of £2m from it alone in the last 6 month period) and has left the company in an enviable cash position - it has a balance of £4.6 million in cash and is debt-free.
Goldplat has used its recovery business to fund its ventures in mining, one of which, (its Kilapesa site in Kenya) has recently come to fruition and has started producing gold, which should make a significant contribution to profits this year. Even though the company's other two projects - in Burkina Faso and Ghana - are at an earlier stage, the recovery business and the Kenyan mine put together should ensure a bumper 2012-3 whatever happens. And there's always the possibility of further upside should the other two projects make a breakthrough in the coming year, or the firm decides to use its cash pile for an acquisition. At a P/E of 7.5 on historic earnings, I can't help but see this as a great bargain and a share with genuine potential. Let's see what happens.
It was a dramatic week elsewhere with Goals Soccer Centres (up 18p to 125p) being boosted by the news of a takeover approach by the Ontario Teachers' Pension Plan. I thought this was totally bizarre when I first heard about it, but on reflection it's not surprising that a pension plan for teachers should have lots of money and want to buy businesses with it, and the UK is as good a place to invest as anywhere else (the Ontario teachers already own lottery operator Camelot). You would have thought they might have bigger fish to fry than Goals, but there you go. From the management's perspective, they might welcome it if gives them more finance to continue expanding (there has been a pause in the pace of openings recently as the firm tries to get its debt under control). And there's no doubt the company is cheap at its current price, so why not?
Although both sides have confirmed they are in talks, no bid has been tabled yet so we'll see if one emerges by the end of the month, which I see is the deadline.
Although this was obviously great news for the portfolio, as Goals has been a perennial underachiever, I didn't have as good a week as you might think, because FirstGroup (down 24p to 214p) continued to slide on its recent bad news and a couple of other shares dipped a bit. FirstGroup looks set to become the new tenant at the bottom of my league table, being now worth a shocking 37% of my average buy price, or a loss of £391. It's now yielding over 10%, if there are any canny dividend hunters out there!
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5/4/12 SHARECROPPER BUYS: GOLDPLAT AT 13.6p
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1/4/12 WorstGroup strikes again Portfolio value £7787.34 (DOWN 3.1%): FTSE 100 at 5768.45 (DOWN 1.5%). This year: Sharecropper UP 8.3% FTSE UP 3.4%. Since starting blog: Sharecropper UP 12.5% FTSE UP 2.9%
A sizeable setback this week as FirstGroup (down 54p to 238p) released a trading statement that contained a gloomy outlook for its UK bus business, and much talk of 'repositioning' it in the coming year. Things are particularly rough in the north of England and Scotland, where 60% of their bus revenues come from, and they've bit hit by the withdrawal of government subsidies and high fuel costs. It all adds up to a profit warning for the UK bus division, that margin will fall from 12 to 8 per cent i.e. profits down by around a third. Given that UK bus is about a third of the overall group (the other two-thirds, including its North American businesses and UK Rail, are in rude health) so some very crude maths would suggest roughly a 10% fall in profits as a result of the bus problems if everything else remains stable.
It's bad news, but with any luck the results won't be quite as bad as that, as the success of the other two divisions will compensate. And they look set to continue with their policy of 7 per cent dividend growth per year, which is the main thing from my perspective. I'll just have to sit tight and take the hit. No dramatic moves for my other shares this week, but the 3.1% fall in my portfolio is still the second worst since starting the blog. At least the FTSE took a 1.5% fall as well, so it wasn't a total disaster in relative terms.
In other news, I'm breaking the habit of a lifetime by looking at a mining firm for my next purchase: AIM-listed gold miner Goldplat (GDP) which I've added to my watchlist at 14.1p. If my research confirms this as the good prospect I think it is, I'll give you more details next week.
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25/3/12 Chop and change Portfolio value £8033.74 (UP 0.1%): FTSE 100 at 5854.89 (DOWN 1.9%). This year: Sharecropper UP 11.7% FTSE UP 5.0%. Since starting blog: Sharecropper UP 16.1% FTSE 4.4%
So, I've finally decided to part company with my most successful share, KBC Advanced Tech, which I sold on Tuesday for 82.5p. There were a few factors affecting my decision to take profits. Firstly, it had doubled in price since I bought it at 40p, which I consider a bit of a landmark and a prompt to cash in at least some of the holding. Secondly, It had just released its annual results and so unless there were any out-of-the-ordinary news items, it could be expected to stay stable in price for a little while now. But thirdly and most importantly, it has become clear to me that KBC isn't a company that will show predictable growth year on year - its fortunes depend on winning big contracts (which it has done in the past 2 years) and partly on the oil price. While there are no signs that these variables are about to go into reverse, I feel my success with this share has benefited from favourable trends which I did not predict - i.e. I've been quite lucky - and I want to cash in before my luck runs out!
Of the £1076.34 which I took from the sale of KBC, I've reinvested £500 of it immediately in Tesco, which despite its recent problems I see as a relatively safe haven and a long-term part of the portfolio. As I mentioned last week, it has had a bad press recently and some management changes, but I think perhaps the bad news is all priced in and it might improve from here. The price now is very similar to what it was when I first bought Tesco in 2009, so it feels like I am starting afresh here (as you can see from the table above, currently showing profit/loss of 0.0%).
This leaves me £576.34 in cash to do what I like with. I'd anticipate adding £500 of new money to that and then spending it on a new small cap (to be researched in due course).
Elsewhere in the portfolio there was not much news; Alkane (up 1.3p to 21.3p) had a good week and moved back into positive territory, but this was not due to anything noteworthy. The index was down a couple of per cent but my shares held steady overall, so I'm a healthy 6.7% ahead of the FTSE for the year so far as we end the first quarter.
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22/3/12 SHARECROPPER BUYS: TESCO AT 331P
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20/3/12 SHARECROPPER SELLS: KBC ADVANCED TECHNOLOGIES AT 82.5p
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18/3/12 Science of success Portfolio value £8022.04 (UP 0.6%): FTSE 100 at 5965.58 (UP 1.3%). This year: Sharecropper UP 11.6% FTSE UP 7.1%. Since starting blog: Sharecropper UP 16.0% FTSE UP 6.5%
My five-week golden run of beating the FTSE has come to an end, but I've still had a decent few days and it's good to see the portfolio nudge over £8K in value for the first time. Judges Scientific (up 34p to 640p) has picked up some real momentum and is responsible for most of my gains. Looking at the details of its GDS acquisition it's not hard to see why. The target company, a niche maker of scientific instruments for testing soil and rocks, turned over almost £5 million last year and made profits of around £1 million. That's a great profit margin and is an excellent addition for Judges, which had a revenue of £16m last year. It was a cash purchase with no implications for the shareholder base, so even if nothing else changes, group revenue should go up by over 30% and profits by significantly more than this. Looking forward to their 2011 results announcement on March 29, which should be good news all round.
Speaking of results, the long-awaited KBC figures came in, showing a profit of £4.93 million, EPS growth of 27% and an increase in dividend. The market wasn't surprised by this and in fact the share price dipped a bit (down 2p to 83p) because there had been a fair bit of speculative buying in advance of the results. The commentary around the announcement was all very positive, but I'm still edging towards selling up. It's quite possible they could keep the current level of consultant activity and profitability going for some time, but I can't see where any real growth is going to come from, especially once their big Mexican contract ends, and you never know what's going to happen to the oil price.
Finally, more fun and games at Tesco (up 10p to 328p) as the boss of their UK stores, Richard Brasher, was forced out and CEO Philip Clarke looks set to assume direct control. The turnaround starts here! Seriously, though, I might be inclined to take the opportunity of its current low share price to invest further - I think a lot of the current doom and gloom is overdone and it might be a good contrarian play.
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11/3/12 Small caps March on Portfolio value £7977.76 (UP 2.1%): FTSE 100 at 5887.49 (DOWN 0.4%). This year: Sharecropper UP 11.0% FTSE UP 5.7%. Since starting blog: Sharecropper UP 15.3% FTSE UP 5.1%
I was away on holiday and missed this week entirely, but I can't pass up the opportunity to have a retrospective crow about the success of Judges Scientific (up 129p to 606p) which soared in value after announcing a new acquisition - Global Digital Systems Ltd - which is expected to be significantly earnings enhancing. This was exactly the sort of thing I had in mind when I bought the share, as the company's growth in the past has been based on clever acquisitions rather than organic growth and there's every reason to believe it can continue doing this. The amazing boost to its SP, together with the continuing recovery of Goals (up 8p to 116p), means I've now had five index-beating weeks in a row (the first time this has happened since starting the blog) and I've now opened up a ten percentage point lead over the FTSE. Happy days...
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4/3/12 Goals Back on Target Portfolio value £7817.20 (UP 1.6%): FTSE 100 at 5911.13 (DOWN 0.4%). This year: Sharecropper UP 8.7% FTSE UP 6.1%. Since starting blog: Sharecropper UP 12.9% FTSE UP 5.5%
I'm on holiday this week so no time to write much, but I'm very pleased with the performance of my portfolio this week especially Goals Soccer (up 14p to 108p) which released its annual results and revealed a 28% increase in earnings per share, a solid result which proves the doubters wrong. They are pursuing a strategy of consolidation in 2012 with only one new centre opening (which is trialling a cheaper modular build) and are aiming to use their strong cash flow to pay off some of their debts, which is sensible. I'm still very much on board with this business, despite it being my biggest loser.
My other shares held their own, so I beat the FTSE index by another 2 per cent to register my fourth successful week in a row - hurrah!
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26/2/12 Crack open the champagne Portfolio value £7691.57 (UP 3.1%): FTSE 100 at 5935.15 (UP 0.5%). This year: Sharecropper UP 7.0% FTSE UP 6.5%. Since starting blog: Sharecropper UP 11.1% FTSE UP 5.9%
I'm in celebratory mood as three of my small caps made significant upward surges in price this week, adding up to a very successful few days. Amiad Water (up 44p to 282p) soared after it was awarded two contracts in Australia worth $10m. Meanwhile KBC (up 9p to 88p) continued to rise in advance of its full results as investors take in its recent positive trading update; and to cap it all Judges Scientific (up 23p to 468p) did well after making an acquisition for its electron microscope subsidiary Deben.
It's all provided me with a much-needed boost, lifting me back above the FTSE for the year and reopening my lead over the index overall to five percentage points, just when I was in danger of slipping behind it.
I've been reading an analyst's report about KBC (on Stockopedia - a site I have recently discovered) and wondering whether it might soon be time to take profits. The biggest factor in their amazing success in the last year has been their major contract with Pemex, which will come to an end in late 2012, and the key issue for them will be how they replace the revenue from that and whether they can become more diversfied. I'm sitting on a considerable paper profit with this share and so I'm edging towards caution and selling at least some of it. On the other hand, it's been responsible for a lot of my portfolio growth and I'm loath to part with it. Decisions, decisions...
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19/2/12 No news is good news Portfolio value £7457.73 (UP 1.1%): FTSE 100 at 5905.07 (UP 0.9%). This year: Sharecropper UP 3.7% FTSE UP 6.0%. Since starting blog: Sharecropper UP 7.8% FTSE UP 5.4%
An unremarkable week - markets continue to rise gently and my portfolio put on 1.1%, slightly more than the index. Alkane (up 1.1p) and Goals Soccer (up 3.5p to 94.5p) were mainly responsible for this although there weren't any significant news items. And I'm not making any more moves until March. So, as you were.
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12/2/12 Easy as KBC Portfolio value £7379.03 (UP 0.4%): FTSE 100 at 5852.39 (DOWN 0.8%). This year: Sharecropper UP 2.6% FTSE UP 5.1%. Since starting blog: Sharecropper UP 6.6% FTSE UP 4.5%
Finally things start to look better. A sharp upturn from star performer KBC Advanced Tech (up 7p to 78.5p), which can be accounted for by a surge in oil prices, led my portfolio into the positive against the FTSE this week, putting an end to 7 weeks of reverses. It's nice to see a holding pass the £1000 mark, especially considering I've never added to my initial investment of £500 in KBC apart from reinvesting its dividends. I would consider selling some of my stake to take profits, but will delay making any decision on that until I've seen their final results for 2011.
Nothing too dramatic elsewhere; the snow has been coming and going all week which is probably helping the Goal Soccer share price to stay depressed (at 91p). Allocate Software (up 2.5p to 80p) released its half-yearly report, which was guardedly optimistic but contained a lot of advice on how the NHS reforms are affecting its customers. The market doesn't seem to have taken this too badly.
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5/2/12 Renewed energy Portfolio value £7350.35 (UP 1.4%): FTSE 100 at 5901.07 (UP 2.9%). This year: Sharecropper UP 2.2% FTSE UP 5.9%. Since starting blog: Sharecropper UP 6.2% FTSE UP 5.3%
Markets up this week, and a nice surprise from Alkane Energy (up 2.1p to 20p) which not only released a decent trading update, but also an acquisition. Its purchase of Greenpark Energy for £5.7 million should be a significant earnings enhancer; the update shows that Alkane had grown its generating capacity from 120 GWh to 140 GWh in 2011, but the acquisition adds another 46 GWh at a stroke. All told we might see a roughly 50 per cent increase in capacity, and considering that energy prices were up as well compared to 2010, their results on March 7th should be extremely positive. I've certainly banished any thoughts of selling and am keen on sticking with my holding.
There was also a shot in the arm for National Grid (up 30p to 641p) after it announced it would be increasing its dividend by 4 per cent for 2012/3; higher than inflation and exactly what its income-seeking investors wanted to hear. Their outlook is good.
On the negative side, I am looking out of my window and seeing a sea of white - yes, there's snow on the ground, which means that Goals Soccer (down 7.5p to 91.5p) will be suffering another business disruption. I can only hope these snowfalls aren't on the scale of 2010.
All in all, my portfolio went up a pleasing 1.4% for the week, although the market exceeded that and I'm now barely above long-term parity. In an unwanted record, I've now had seven consecutive weeks where I've been beaten by the FTSE. Surely time for the tide to turn?
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29/1/12 First things first Portfolio value £7248.07 (DOWN 0.2%): FTSE 100 at 5733.45 (UP 0.1%). This year: Sharecropper UP 0.8% FTSE UP 2.9%. Since starting blog: Sharecropper UP 4.7% FTSE UP 2.3%
So as you can see I decided to reinvest in FirstGroup. In the end I couldn't resist a yield of 7% and a P/E of 7.5 for a business that I see as solid and reliable, plus the temptation of 'levelling down' (the purchase reduces my average buying price on the stock from 365p to 338p) was also a factor. At the moment, I'm not getting much in the way of capital growth from the majority of my shares, so it would be nice if I can at least ensure I get some reasonable dividends this year.
I've shelved any thought of offloading Alkane Energy for the time being. While the trading update I was expecting seems to have been delayed, I don't think there's anything in the fundamentals of the business to be concerned about. They started 4 new projects in 2011 which were all extensions at their existing sites, so they have increased capacity, and the selling price of their energy will have gone up (from 44 MWh in 2010 to around £48 MWh in 2011) so there's every reason to think their results will be fine. At the same time I'm not that keen on investing more at the moment because there's little sign of of positive movement in the share price.
Elsewhere this week, things were pretty flat with another good gain for Amiad (up 9.5p to 242p) offset by falls for Judges (down 10p to 440p) and Tesco (down 8p to 321p). With the FTSE picking up yet more ground against me, I'm afraid I'm almost back to long-term parity, so my reputation as a successful share tipster hangs in the balance.
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27/1/12 SHARECROPPER BUYS: FIRSTGROUP AT 311.1p (ADDS TO HOLDING)
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22/1/12 Encouraging signs Portfolio value £6761.98 (UP 1.3%): FTSE 100 at 5728.55 (UP 1.6%). This year: Sharecropper UP 1.0% FTSE UP 2.8%. Since starting blog: Sharecropper UP 4.9% FTSE UP 2.2%
Generally a pleasing week, with my best weekly performance for two months (although I still lost a bit more ground to the FTSE, the fifth week in a row I've been bettered). A moderately upbeat trading statement from Judges Scientific (up 15p to 450p) helped it to rise, while Amiad (up 9p to 232p) has done really well in recent weeks since its Korean contract win. A slight bounceback for Tesco (up 13p to 329p) after its terrible time last week also helped matters, while I received an interim dividend from National Grid (down 7p to 618p) as well.
I haven't bought anything for two months now, and I have some more money ready so it will soon be decision time. I'm confident that the two shares on my watchlist are good prospects, so if I opt for a new purchase they will be at the front of the queue. However, because of my 'ten shares maximum in the portfolio' rule, I'll have to sell something if I want to do that. Alkane Energy is the one that's closest to getting the boot, but it hasn't released its expected trading update yet, and I'm waiting for that. If it's positive, I may well stick with it and reinvest my new money in one of my existing holdings. If I take this course then I will probably play safe by putting it into FirstGroup - it's down in price at the moment to such an extent that it's showing a yield of 7.3% according to my calculation, which is hard to resist. Management have made it clear they intend to increase the divi every year, and it's a big and stable company in which I still have full confidence.
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15/1/12 Portfolio steadies after Tesco shocker Portfolio value £6675.60 (DOWN 0.4%): FTSE 100 at 5636.64 (DOWN 0.2%). This year: Sharecropper DOWN 0.3% FTSE UP 1.2%. Since starting blog: Sharecropper UP 3.6% FTSE UP 0.6%
As predicted this was a dramatic week of trading updates, although I didn't predict the one that would make the headlines would be Tesco (down 74p to 317p), whose share price collapsed 16 per cent in one day after it admitted that it had a disappointing Christmas and that UK profits would probably be flat for the coming year. Its 'Big Price Drop' campaign was widely slammed as a failure and there was much talk of it being knocked off its perch as the market leader and entering a phase of slow decline.
Looking at the fundamentals (below) we can see why this is. After five years of interrupted earnings growth, Tesco reckons earnings for the year ending Feb 2012 will be 'at the low end' of the spread of City forecasts - i.e. EPS of around 32p - meaning EPS growth will be negative for the first time in many years (and the column of blue will suddenly have a red entry!). Moreover, chief exec Philip Clarke said they are planning a programme of UK investment that would mean profits for 2012-13 would see 'minimal' growth - so we can't expect an upturn during the next 12 months either. The new price implies a historic P/E of 8.8, down from its typical 11+, which reflects the new reality that it is no longer a company with steadily growing earnings.
Tesco Fundamentals
| Year Ending | Revenue (£m) | Pre-tax (£m) | EPS | P/E | PEG | EPS Grth. | Div | Yield |
|---|---|---|---|---|---|---|---|---|
| 24-Feb-07 | 42,641.00 | 2,653.00 | 22.36p | 19.9 | 2.0 | +10% | 9.64p | 2.2% |
| 23-Feb-08 | 47,298.00 | 2,803.00 | 27.37p | 14.6 | 0.7 | +22% | 10.90p | 2.7% |
| 28-Feb-09 | 53,898.00 | 2,917.00 | 29.06p | 11.5 | 1.9 | +6% | 11.96p | 3.6% |
| 27-Feb-10 | 56,910.00 | 3,176.00 | 31.80p | 13.2 | 1.5 | +9% | 13.05p | 3.1% |
| 26-Feb-11 | 60,931.00 | 3,535.00 | 35.90p | 11.3 | 0.9 | +13% | 14.46p | 3.6% |
I'm not going to panic just yet. Tesco sales are still growing at 5.2% across the group, and by 3.8% in the UK, thanks to its strong international operation and new UK openings - it's only the UK 'like-for-like' sales figure (-1.3%) that has got people worried and the fact that its rivals are doing better in this regard. But the rivals have a long way to catch up (Tesco has just over 30 per cent market share, with Asda and Sainsbury's around 17 per cent each) and if its new management team, led by Phillip Clarke, learns the lessons from this Christmas and invests wisely in its UK stores it's still in pole position. It seems clear that it is overseas where the real growth is, so the key for the UK operation is simply to defend its market share. However, this might be easier said than done - I'd be lying if I said this hadn't come as a big blow.
Nevertheless, the good news this week was that the rest of the portfolio did fairly well and mitigated the Tesco losses. Goals Soccer (up 5p to 99p) released a solid trading update and while the trading at Halfords (up 12p to 305p) was nothing to shout about, it was better than analysts were expecting. Judges Scientific (up 13p to 435p) also had a decent week, KBC (up 1.5p to 72p) released a good trading update too, Allocate (up 0.5p to 78p) is very much on track with its figures, as was National Grid (up 16p to 625p) and Firstgroup (down 22p to 318p) was the only other disappointment. No time to discuss any of these in detail unfortunately - maybe next week!
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8/1/12 Onwards and upwards Portfolio value £6701.76 (UP 0.1%): FTSE 100 at 5649.68 (UP 1.4%). This year: Sharecropper UP 0.1% FTSE UP 1.4%. Since starting blog: Sharecropper UP 4.0% FTSE UP 0.8%
Nothing much happened in this first week back, apart from me losing a few more percentage points against the FTSE thanks to dips in my long-established stocks National Grid (down 16p to 609p) and Tesco (down 14p to 391p). However next week should be much more exciting for my small caps, as I'm expecting trading updates from KBC, Goals Soccer and Alkane Energy. Because these smaller companies are much less analysed than the bigger ones and there is less information about them generally in the market, their updates tend to move the share price significantly one way or the other, so fingers crossed.
On the research front, I've read the Albermarle & Bond company report in detail and I'm most impressed, it is easy to see how they have achieved such steady growth. Their pawnbroking business seems like a more responsible and less risky alternative to the 'payday lenders' that have cropped up everywhere these days, and their gold-buying operation is making a killing at the moment while the gold price is high. The jewellery retail side of the business is quiet right now, but is a useful counterweight in the future (i.e. if people start feeling richer and and no longer need to take a loan or flog off their gold, then they will start buying more gems and trinkets!)
I'm definitely keen on this share, although I don't know where I will manage to find room for it in my portfolio. Depending on how its update goes next week, I may be willing to part with Alkane Energy - it's hardly done anything since I bought it last February and considering that it doesn't pay a dividend, there's only so long you can hold on to something that is showing a flat performance.
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1/1/12 And a Happy New Year Portfolio value £6693.13 (UP 1.0%): FTSE 100 at 5572.28 (UP 1.1%). End of year total for 2011: Sharecropper UP 2.9% FTSE DOWN 5.7%. Since starting blog: Sharecropper UP 3.9% FTSE DOWN 0.6%
So that's it, the end of a satisfactory if not exactly brilliant year. I finish with an annual gain of 2.9%, a relative success compared to the FTSE's decline of 5.7%, but nothing to write home about. I've updated my 'Progress Track' tab, which shows that I am beating my fictional FTSE rival but not quite meeting my ambitious 'millionaire' target.
The final week saw a good rise for Amiad (up 22p to 225p) in the aftermath of its Korean contract win, while Tesco (up 23p to 404p) did well after paying its interim dividend (having spent a long time in excessive queues of people with bulging trolleys over the festive period, I'd say they are doing just fine). On the negative side, Halfords (down 11p to 289p) and Judges Scientific (down 7.5 to 408p) had bad weeks.
Halfords had a particularly poor December, losing 12% of its value, and my conclusion is that it has been caught up in the general gloom surrounding high street retailers at the moment (witness how many have gone bust since Christmas - Barratts, La Senza, Hawkins Bazaar etc). My end-of-quarter review shows that it has underperformed the market two quarters in a row, the only share in my portfolio to do so, and it has certainly taken over from Lloyds as the holding I am most concerned about. Set against this, it's very much an income share for me, so as long as the dividend is safe (and judging by the recent share repurchases I don't think this is a problem) I will be prepared to sit tight.
As I've had some time off over Christmas, I've done my usual thing of spending some of it with my nose in a couple of investment magazines. Their tips include the usual handful of miners and oil prospectors that have never turned a profit - a category of share that I avoid like the plague. However it has yielded a couple of ideas which I am going to research further. One of these is pawnbroker Albermarle and Bond (ABM, 331p), which has a fine record of growth over the last five years and is predicted to have had an excellent year in its coming results. It is tipped as an 'austerity play' since more and more punters want to sell their gold to pawnbrokers at the very time the gold price is high. The other tip that has grabbed my attention is Globo (GBO, 20p) a fast-growth AIM-listed software company that produces business applications for smartphones. This is big business as everything goes mobile and the company has a solid record of profits to build on. I've added them both to my watchlist and will investigate further.
Happy New Year to all.
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25/12/11 Merry Christmas Portfolio value £6627.02 (UP 0.3%): FTSE 100 at 5512.70 (UP 2.3%). This year: Sharecropper UP 1.9% FTSE DOWN 6.8%. Since starting blog: Sharecropper UP 2.9% FTSE DOWN 1.6%
Merry Christmas everyone. There wasn't much action on the markets or the portfolio this week (my only significant price movement was a boost to Amiad Water, which went up 7.5p to 211p after announcing a new contract with the Korean steel industry) and I lost a little more ground against the FTSE. So let's ignore that and look at a pretty graph of how my portfolio has performed in the year just gone:
The axis along the bottom shows the 52 weeks of the year (couldn't get it it to show months - fail) while the axis on the left shows percentages with 100 per cent being the value at the start of 2011. As you can see I opened up a decent gap with the FTSE straight away after my success with KBC, and had another major boost around week 10-12 as a result of the Education Development International takeover. But since then I've just been shadowing the index at best, and if anything the gap has been narrowing slightly. Also note the effect of the August crash, which was a considerable setback. All in all, while it's nice to be finishing the year with a lead over the FTSE, and in positive territory (I shouldn't count my chickens of course - there's one week left) I can't be too smug about a gain of 2 per cent, which you can still just about get with interest on cash in a bank account. More pertinently, it's also behind inflation, so my real wealth has actually decreased.
There's a cheery thought for Christmas. Still, onwards and upwards for 2012...
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18/12/11 Delayed reaction Portfolio value £6608.67 (DOWN 0.9%): FTSE 100 at 5387.34 (DOWN 2.6%). This year: Sharecropper UP 1.6% FTSE DOWN 8.8%. Since starting blog: Sharecropper UP 2.6% FTSE DOWN 3.9%
...and the predicted fall comes a week late, meaning I recover a couple of much-needed percentage points against the FTSE. My portfolio would have been much better off if had not been for unwelcome drops by Judges Scientific (down 12p to 415p) and Tesco (down 17p to 383p). No significant news items this week so these fluctuations should not be anything to be concerned about.
It feels like there is not much to write about at the moment as there's no prospect of any activity from me until the new year. The next big date for share news that I'm looking out for is the Goals Soccer Centres update on how 2012 has gone, which is due on Jan 10. With no disruptive country-wide snow this year (touch wood for the last two weeks of the year) I'd be amazed if they have not increased profits and earnings. Their strategy this year of delaying a couple of new openings in order to trial a cheaper 'modular' build for their centres should pay off in the long term and help contain their debt in the short term. The current market price implies a valuation of only just the level of their net asset value, and if their VAT court case goes in their favour then they could enjoy a boost (everybody seems to be assuming that they will lose). I know I'm hopelessly wedded to this stock and so perhaps am an eternal optimist, but I think they are just about to turn the corner and could be a tip for 2012.
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11/12/11 Down and out in December Portfolio value £6670.06 (DOWN 0.8%): FTSE 100 at 5529.21 (DOWN 0.4%). This year: Sharecropper UP 2.5% FTSE DOWN 6.4%. Since starting blog: Sharecropper UP 3.5% FTSE DOWN 1.3%
Well, the new Euro horror happened (Britain using its veto to bring down the proposed EU treaty and then the other countries striking a deal without us) but the stock market didn't plunge, and I didn't benefit. Still, there's always next week...
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4/12/11 Sucker punch Portfolio value £6727.24 (UP 0.9%): FTSE 100 at 5552.29 (UP 7.5%). This year: Sharecropper UP 3.3% FTSE DOWN 6.0%. Since starting blog: Sharecropper UP 4.3% FTSE DOWN 0.9%
An astonishing bounce in the market this week - a 7.5% rise is a couple of percentage points more than anything I've seen on this blog so far. This totally beat my portfolio which showed relatively paltry rises by comparison - apart from Tesco (up 21p to 405p), and KBC (up 4.5p to 70p) things were relatively flat. One mitigating factor is that National Grid (down 24p to 607.5p) fell solely because of it's just gone ex-dividend, so if it hadn't been for that the relative defeat wouldn't have been so bad. Not surprising that my small caps didn't keep pace.
This has left me in a sulk. If I thought we were now in a proper bull market I would be reassessing the balance of my portfolio, which is dominated by defensives and small caps. However, call me a cynical pessimist but I don't think it will last and my money is on a swift reversal next week as we reach some new phase of the Euro horror. If I'm right, I'll be well placed to take advantage.
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27/11/11 Blue November Portfolio value £6669.52 (DOWN 2.5%: FTSE 100 at 5164.65 (DOWN 3.7%). This year: Sharecropper UP 2.4% FTSE DOWN 12.6%. Since starting blog: Sharecropper UP 3.4% FTSE DOWN 7.8%
Depression seems to have taken hold of the markets this week, but then with all the grim economic data around and Europe in a state of flux, it's not surprising. My portfolio was also reaching for the prozac with a drop of 2.5%, my second worst week since starting the blog. It's some consolation that I still beat the index, however, and now done so for four weeks in a row.
Judges Scientific (down 15p to 435p) fell back a bit after its good time last week, FirstGroup had a poor one (down 24p to 310p) and KBC also gave up a couple of pence (down 2.3p to 65.5p) but in general there was nothing untoward, I just fell along with the market.
The stock market story I've been watching most closely this week is the collapse in Thomas Cook's SP after it went into talks with the banks - after trading at 200p earlier this year it dropped as low as 10p at one stage this week. Dramatic stuff. Now it's agreed some sort of deal with the banks it will no doubt soldier on for some time, although it's hard to escape the conclusion that the traditional travel agency is a bust business model.
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20/11/11 It Pays to Switch Portfolio value £6842.65 (UP 0.2%): FTSE 100 at 5362.94 (DOWN 3.3%). This year: Sharecropper UP 5.0% FTSE DOWN 9.2%. Since starting blog: Sharecropper UP 6.1% FTSE DOWN 4.3%
As my title suggests I'm rather pleased with my midweek piece of business since the shares I bought, Judges Scientific, are up 40p already (to 450p) as the firm released a positive trading statement the day after I bought in. Apparently earnings this year are "likely to exceed current market expectations" which is music to my ears. The sense of smugness is compounded by the fact that the ongoing Eurozone crisis has led to Lloyds sinking further to 25p since I finally threw in the towel. It's about time I had some good fortune in the timing of a transaction.
My only gripe about the whole thing was the large spread involved in buying Judges Scientific stock - at a time when the quoted mid-price was 410p, I paid a price of 420p to buy (a cost of 423p once dealing costs are taken into account). However I suppose this comes with the territory of purchasing smaller companies with illiquid markets.
Generally this was another very positive week as I picked up 3.5 per cent against the index, helped by National Grid (up 13p to 642p) which released a reassuringly solid half year report . Elsewhere the market was in the doldrums but these two good performances in the portfolio saw me through.
As my latest buy meant I added another £500 into the portfolio, making £2000 for the year, that's probably all the moves I'll make for the rest of the year unless anything unexpected happens. With a 5% gain overall this year against a market that has sunk 9%, I'm on track for a good result if the last month and a bit plays out smoothly.
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15/11/11 SHARECROPPER BUYS: JUDGES SCIENTIFIC AT 420.0p
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14/11/11 SHARECROPPER SELLS: LLOYDS BANKING GROUP AT 28.4p
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13/11/11 Judge and Jury Portfolio value £6332.07 (UP 1.9%): FTSE 100 at 5545.38 (UP 0.3%). This year: Sharecropper UP 4.8% FTSE DOWN 6.1%. Since starting blog: Sharecropper UP 5.8% FTSE DOWN 1.0%
A very positive week, picking up one and a half percentage points over the index. A rally for Goals Soccer (up 6.5p to 96.5p) was one of the biggest factors behind this, but perhaps more significantly, FirstGroup (up 14p to 345p) also did well after releasing tidy results for the first half of the year. Profits of £127.8m, up from £81.8m for the same period last year, sound good to me, although they were pretty much in line with management expectation.
As you'll see from my watchlist, I've now selected my favourite of the two small caps identified last week, and Judges Scientific (currently at 402.5p) is the winner. It's trading on a P/E of just 8.9 based on its earnings of 45p per share last year - a result that should be maintained or improved upon in the next results. It's got a great record of earnings growth and has used its money on wise acquisitions within its field of expertise - acquisitions which give it a spread of profitable businesses to diversify any risk.
The Lloyds trading statement did not produce any surprises and I'm now almost certain to sell up and invest what I salvage (along with my next instalment of £500) in Judges. This will be the first discretionary sale I have made on this blog and it's one that represents a total failure - but then, when things go bad I've just got to take my medicine and put the money somewhere better!
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6/11/11 Stopping the rot Portfolio value £6215.97 (DOWN 0.7%): FTSE 100 at 5527.16 (DOWN 3.1%). This year: Sharecropper UP 2.9% FTSE DOWN 6.4%. Since starting blog: Sharecropper UP 3.9% FTSE DOWN 1.3%
A pleasing week in relative terms as my five-week slide against the FTSE came to an end - albeit mainly thanks to the overall market suffering the jitters due to fears over a Greek referendum (which might endanger its bailout and lead to it pulling out of the Euro). The most notable mover in my portfolio was Lloyds (down 7p to 28.6p) which had a terrible week of sell-offs after its chief executive signed himself off with stress for two months. Not a good sign for the investor when Mr Horta-Osorio was expected to be the saviour of the bank!
Lloyds are releasing a trading statement early next week so I'll watch out for this, but there's a chance I might pull the plug on my holding as I'm losing patience. It's so small now anyway (less than £200) that it's hardly worth bothering with and it's definitely an option to sell up and invest it with my next £500 in something new. That would be option one - while option two would be reinvesting in something I've got already (probably FirstGroup as mentioned last week).
As you can see from my watchlist I have started investigating some small cap companies that might be investment ideas if I go for option one. Judges Scientific and Zytronic are both hi-tech UK firms with an emphasis on export markets - just the sort of firm the government is banking on for the economy right now. Both have a good recent record of earnings growth (Judges 5 years, Zytronic 3) and have made upbeat recent trading updates. They are certainly worth further investigation, so I will be doing some detailed research on them in the next couple of weeks and will report back.
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30/10/11 Nifty haircut Portfolio value £6262.90 (UP 2.1%): FTSE 100 at 5702.24 (UP 3.9%). This year: Sharecropper UP 3.6% FTSE DOWN 3.4%. Since starting blog: Sharecropper UP 4.6% FTSE UP 1.9%
Another week of surging share prices across the board, with the FTSE registering a gain excess of 3% for the third time in four weeks (the European deal to reduce Greece's debt, which included the banks taking a 'haircut' of 50 per cent, was behind the euphoria). As usual my portfolio could not keep pace, although its 2.1% gain is my best weekly performance since March - or the best for 33 weeks - so it's not to be sniffed at. Lloyds (up 2.5p to 35p) unsurprisingly was up a bit on the bank news, but there were nice gains elsewhere including Allocate (up 6.5p to 78.5p) which crossed back into positive territory to leave me with four winners on the scoreboard out of ten. Halfords (up 17p to 339.8p) is also coming back nicely from the slump it had a few weeks ago.
I'm getting my money ready for another injection of funds, so it will shortly be time to decide whether to replace something in my line-up or back an existing share with some more money. If I do reinvest in something, I think FirstGroup might be the most likely selection - it's on a cheap P/E of 8.2, is yielding a tasty 6.6%, offers a 12.2 per cent return on equity at current prices and is still lower than the price I paid for it, making 'averaging down' an attractive option. However, I will first have a scout round to see if any better prospects present themselves.
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23/10/11 As you were Portfolio value £6133.57 (DOWN 0.1%): FTSE 100 at 5488.65 (UP 0.4%). This year: Sharecropper UP 1.5% FTSE DOWN 7.0%. Since starting blog: Sharecropper UP 2.4% FTSE DOWN 2.0%
Very little change this week, with my portfolio value only shifting by £5 and the FTSE moving only 22 points, and no significant price movements or news items to report.
As there's nothing much going on I thought you might be interested to see an extract of another regular spreadsheet I have, this time for monitoring my weekly head-to-head against the FTSE index. As you can see below (from the number of columns in green) the index has beaten me for 9 out of 12 weeks since the big crash at the beginning of August - and for 8 out of the last 9 consecutive weeks. However, in any week when the market has a significant fall, my portfolio tends to remain stable or at least does not fall as much, allowing me to make up a lot of ground. The overall effect of these weeks has been almost neutral, as my three positive weeks (in yellow) all but make up for the negative weeks in green.
| Date | Sh % | FTSE % | Sh wins | FTSE wins | |
| Aug-07 | -8 | -9.8 | 1.8 | ||
| Aug-14 | 1.3 | 1.4 | 0.1 | ||
| Aug-21 | -0.9 | -5.2 | 4.3 | ||
| Aug-28 | 1.1 | 1.8 | 0.7 | ||
| Sep-04 | 1.8 | 3.2 | 1.4 | ||
| Sep-11 | -2.2 | -1.5 | 0.7 | ||
| Sep-18 | 1.2 | 2.9 | 1.7 | ||
| Sep-25 | 0.5 | -5.9 | 6.4 | ||
| Oct-02 | 0.7 | 1.5 | 0.8 | ||
| Oct-09 | -1.2 | 3.4 | 4.6 | ||
| Oct-16 | 0.9 | 3.1 | 2.2 | ||
| Oct-23 | -0.1 | 0.4 | 0.5 |
In technical terms this shows my stocks have a low 'beta' (their movements are correlated to the market but are less volatile than the average). This is the way I like it, espeically in an uncertain environment where there are likely to be more sharp falls in future that I can benefit from. If the market really picked up and showed a positive trend for a few months in a row, it would probably really hurt me in this relative battle - so the current choppy waters suit me fine.
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16/10/11 Hurrrrumph Portfolio value £6138.34 (UP 0.9%): FTSE 100 at 5466.36 (UP 3.1%). This year: Sharecropper UP 1.6% FTSE DOWN 7.4%. Since starting blog: Sharecropper UP 2.5% FTSE DOWN 2.3%
Another poor week, with the portfolio giving up another 2.2 percentage points to the FTSE, which has been surging for two weeks in a row. There was not much in the way of recovery for Goals (up 2p to 91.5p) while National Grid (down 17p to 632p) slipped back a bit from its previous highs. The only bright spot was Halfords (up 22p to 328p) which is coming back from the depths it had plumbed - this is a relief to me although much of the fluctuation in this share price can probably be accounted for by the dividend dates.
Halfords is a very well run business. After reading a chapter in my Warren Buffett book about the importance of a consistently high return on equity (profits as a percentage of total shareholder funds) I was moved to work out this figure for the shares in my portfolio (you would like to think I would have done this before investing, but hey, I'm still learning). Statistics show that around 12% is an average return on equity, but in the last three years Halfords has consistently returned over 20 per cent (its sequence has been 23% - 28% - 27%). Also high performing in terms of ROE are National Grid (24% - 33% - 24%) FirstGroup (10% - 16% - 13%) and Tesco (17% - 16% - 16%) all of whom all beat the average over three years. Goals (21% - 14% - 11%) and Alkane (13% - 13% - 10%) are at least in double digits but the other four shares have single digit returns in the last year.
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9/10/11 Missing the target Portfolio value £6081.72 (DOWN 1.2%): FTSE 100 at 5303.40 (UP 3.4%). This year: Sharecropper UP 0.6% FTSE DOWN 10.2%. Since starting blog: Sharecropper UP 1.6% FTSE DOWN 5.3% |
A shocking week in relative terms, the FTSE beating me by 4.6 percentage points, the worst since starting this blog. The main culprit was Goals Soccer Centres (down 13p to 89.5p) which took an alarming plunge for no apparent reason. It has been trading on very low volumes in the last week, and it's not a very liquid stock at the best of times, but it's still quite alarming as (in technical analysis terms) there has previously been a line of resistance at around the 100 mark and it's now bust right through. I'm flummoxed - as already said I think their recent results were pretty solid. Goals has just had a positive broker note from Altium Capital on Friday so hopefully this will spur the rebound next week.
Elsewhere Tesco (up 27p to 405p) had a great time of it after releasing its half-yearly results, which showed profits up, albeit not in the UK. National Grid (up 11p to 649p) and Halfords (up 13p to 305.5p) had a bit of a bounce too, as the new round of quantitative easing was well received by the markets. However, it was the old story of the mining and commodity stocks leading the index higher, and as I haven't got any exposure to this sector I was unable to benefit generally from the 3.4 per cent upswing. Still, the FTSE has been so volatile recently it wouldn't surprise me at all to see it back down to where it started next week.
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2/10/11 End of quarter report card Portfolio value £6156.27 (UP 0.7%): FTSE 100 at 5128.48 (UP 1.5%). This year: Sharecropper UP 1.9% FTSE DOWN 13.2%. Since starting blog: Sharecropper UP 2.9% FTSE DOWN 8.4%
The volatility we've seen in recent weeks has continued, but my portfolio has been weathering the storm quite well (if not quite keeping up with upswings seen this week, which have been centred on commodity stocks). The best performer in the last seven days has been KBC Advanced Tech (up 5p to 67p) which continues to feel the glow of its good results last week. Outweighing this, Halfords (down 21p to 292p) saw another sell-off, with no apparent reason behind it.
As it's the end of the quarter I've been reviewing the longer-term performance of the portfolio, measuring how each of my holdings is doing against the market, and have been broadly encouraged. In Q3 just finished (which saw a shocking outcome of -13.7% for the FTSE) eight of my ten stocks outperformed the market with three in positive territory (NG +8.3%, AFS +7.6%, ALL +3.1%) while only two lagged the index (HFD -20.3%, LLOY -28.8%).
Below is the table I use to track the quarterly performance of my shares. What I do is work out the percentage gain/loss of each share and put them in order (1-10). This is the number you see in the table below, with 1 being my biggest winner in the quarter and 10 my biggest loser. Any quarterly performance that is better than the FTSE is marked in yellow, while if they are worse they do not get a colour.
| 2010 | 2011 | ||||||
| Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | |
| Goals Soccer | 4 | 6 | 6 | 8 | 4 | 5 | 7 |
| Allocate | 3 | 6 | 6 | 3 | |||
| Tesco | 3 | 4 | 3 | 5 | 7 | 1 | 5 |
| Lloyds | 2 | 1 | 7 | 8 | 8 | 10 | |
| Nat Grid | 2 | 3 | 2 | 4 | 5 | 3 | 1 |
| KBC | 1 | 5 | 4 | 1 | 3 | 4 | 6 |
| FirstGroup | 1 | 5 | 2 | 9 | 2 | 4 | |
| Alkane | 2 | 9 | 8 | ||||
| Amiad | 7 | 2 | |||||
| Halfords | 9 | ||||||
| Ed Dev (sold) | 6 | 1 |
The runs of yellow show the shares that have beaten the market on a consistent basis this year (KBC, Nat Grid, Goals) while others are up and down. Only Lloyds is a constant disappointment, with four quarters of poor performance in a row. I really should be thinking about offloading it; but by way of a counter-argument, an example of what can happen if you stick with a share is shown by Goals, which had a terrible year last year but has stabilised to the extent that it beat the market every quarter this year. Although I am still carrying large losses on it as a legacy from last year, this shows how it is moving in the right direction and that it is relative performance that is key.
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25/9/11 Avoiding the drop Portfolio value £6115.74 (UP 0.5%): FTSE 100 at 5053.71 (DOWN 5.9%). This year: Sharecropper UP 1.2% FTSE DOWN 14.4%. Since starting blog: Sharecropper UP 2.2% FTSE DOWN 9.7%
A shocking week in the market generally as a Greek default looms closer, the Western world's debt problems mount up and a double-dip recession is staring us in the face - so the fact that my portfolio actually ticked up by half a percentage point was something of a personal triumph. The gap I've now opened up ahead of the FTSE (11.9%) is the biggest it's been since starting the blog.
KBC Advanced Tech (up 2.5p to 62p) was in good shape after releasing a half yearly report showing results on track, while also confirming that they've won a verdict in their favour in a possible legal challenge by a competitor. Halfords (up 12p to 313p) continues its recovery from its recent falls while National Grid (up 6.5p at 627p) has been touching its annual high point, presumably because investors are seeking out safer stocks.
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18/9/11 Bulking up at the back Portfolio value £6084.08 (UP 1.2%): FTSE 100 at 5368.41 (UP 2.9%). This year: Sharecropper UP 0.7% FTSE DOWN 9.1%. Since starting blog: Sharecropper UP 1.6% FTSE DOWN 4.1%.
So as you can see I have ploughed another £500 into Goals Soccer Centres - doubling the value of my holding and reducing the average buying price from 155.4 to 128.8. This manoeuvre, called 'averaging down' is considered a risky tactic in the world of growth investing, but in my opinion is well worth doing if you have faith in a company that is getting a hard time in the market.
Overall, the market saw a bounce this week which was not quite matched by the portfolio, meaning I have now lost out to the FTSE in relative terms four weeks consecutively. Nevertheless, there was some good news as Allocate (up 4p to 76p) continued to gain on its recent good results, pushing it back into positive territory for me. Amiad (up 10p to 195p) also did really well after releasing its own interims. The integration of its Arkal acquisition seems to be producing already - a fact reflected in its official name change, which went through this week, from Amiad Filtration Systems to Amiad Water.
The other encouragement this week was that Halfords (up 24p to 301p) bounced back a bit, not before time. With Lloyds (up 4.8p to 35.8p) also recovering somewhat after the Vickers report publication and the central banks' joint move to shore up the Euro, there is a fair bit to feel positive about even if I am still looking at a portfolio in which six of my ten shares have lost money.
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15/9/11 SHARECROPPER BUYS: GOALS SOCCER CENTRES AT 103.9p (ADDS TO HOLDING)
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11/9/11 Back to work Portfolio value £5520.18 (DOWN 2.2%): FTSE 100 AT 5214.65 (DOWN 1.5%). This year: Sharecropper DOWN 0.5% FTSE DOWN 11.6%. Since starting blog: Sharecropper UP 0.4% FTSE DOWN 6.8%.
I'm back from the beach, and having a close look at what has been going on in the markets in my absence. I've had three consecutive weeks of losses against the FTSE, unfortunately, although the amounts involved are not massive so there's no grounds for undue concern.
The most significant gainer in the last week was Allocate Software (up 7.5 to 72p) after it released an excellent set of results for the year end May 2011. EPS went up 23% to 6.6p, while revenues were up 37% to £30.1m. Allocate has made some sensible acquisitions in the last year and its key healthcare division is still raking in the profits, so overall it looks in good shape.
The market response was much less positive for Goals Soccer Centres (down 21p to 105p) after it released its interim results, showing sales of £14.7m, up 11% on last year, and profit of £4m, up 46% from last year. I think this negative response is unwarranted - although they have an ongoing row with the taxman over their VAT liability and like-for-like sales are pretty flat, they are still expanding nicely and are hugely cash generative. At these silly prices I'm seriously considering buying more Goals shares very soon.
The only other notable price movement was Halfords (down 23p to 277p) which has hit a new low for the year. There wasn't any particular news this week causing the slump, but it is all part of the loss of confidence in the retail sector since I bought in a few months ago. While I might regret the timing of this buy, I've got little choice but to hold for now.
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4/9/11 I'm still off Portfolio value £5646.12 (UP 1.8%): FTSE 100 at 5292.03 (UP 3.2%). This year: Sharecropper UP 1.7% FTSE DOWN 10.3%. Since starting blog: Sharecropper UP 2.7% FTSE DOWN 5.4%.
I'm still on holiday.
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28/8/11 I'm off Portfolio value £5546.23 (UP 1.1%): FTSE 100 at 5129.92 (UP 1.8%). This year: Sharecropper DOWN 0.1% FTSE DOWN 13.1%. Since starting blog: Sharecropper UP 0.9% FTSE DOWN 8.3%.
I'm off on holiday for the next two weeks so there will be no blog from me I'm afraid! Nothing much happening this week anyway.
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21/8/11 A resilient performance Portfolio value £5484.05 (DOWN 0.9%): FTSE 100 at 5040.76 (DOWN 5.2%). This year: Sharecropper DOWN 1.2% FTSE DOWN 14.6%. Since starting blog: Sharecropper DOWN 0.2% FTSE DOWN 9.9%.
A resilient performance by the portfolio on what was another big week of losses for the market. Although Lloyds (down 5p to 28.4p) and Halfords (down 15p to 285p) both suffered badly, my small caps were not nearly so badly affected and I received a timely helping hand in the form of dividends from both National Grid and FirstGroup. These added up to £50 and helped me along the way to beating the FTSE by 4.3% - in relative terms, a cracking week then...
I've been consoling myself this week by reading a book called 'Buffetology' by Warren Buffett's daughter-in-law Mary Buffett, explaining the great man's investment philosophy. The Sage of Omaha is not one for pandering to the whims of the market, as he looks first and foremost at the fundamentals of the business and only considers the price of a stock afterwards - and even then, in relation to its earnings. Once he's bought a good business at what he considers a fair price he "acts as if the stock market doesn't exist", according to Mary. With prices as they are, I may soon have to start doing the same!
On consideration, I think it's highly likely that my next £500 (you will have noticed by now that I am a fairly consistent in sticking £500 into the portfolio roughly each quarter) will be reinvested into one of my existing shares. Most of my holdings are businesses that I have a great deal of faith in, and, like Warren, am happy to keep for a long time irrespective of what the market is doing. So why not take advantage of these low valuations to add to my holding - and 'average down' my buying price at the same time? You'll have to wait and see which one of my shares I choose for this exercise, but I'll give you a clue - it definitely won't be Lloyds Banking Group.
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14/8/11 Dead cat bounce Portfolio value £5532.11 (UP 1.3%): FTSE 100 at 5320.03 (UP 1.4%). This year: Sharecropper DOWN 0.3% FTSE DOWN 9.9%. Since starting blog: Sharecropper UP 0.7% FTSE DOWN 5.0%.
Watching the markets has been bad for the health this week, with big drops punctuated by equally big rebounds. Both the FTSE and my portfolio ended slightly up, with a recovery in particular for Tesco (up 19p to 381p) and Goals (up 8p to 120p). However, it looks unlikely that the volatility is over so you wouldn't bet against further falls to come.
I've already said that I'm not engaging in any panic selling, and with the exception of Lloyds (see comments last week) it's reassuring to look again at the fundamentals of the companies I invest in, and in particular their balance sheets, and see that some of them are trading at a discount to the value of their assets. In the case of Amiad Filtration, the current market price implies a valuation of £41.8m, and yet the company has net assets on its balance sheet of £46m. So even if the business was a total failure and was broken up tomorrow (which is far from being the case - it's actually doing rather well) it would still be worth more than what the shares are changing hands for. Alkane Energy is in the same position, with a net asset value of £17.9m yet a market capitalisation of only £17.45m.
I've also this week been doing some further analysis of the prospects for Goals Soccer Centres and have been very reassured. One of the most important figures for them is how many new centres they open per year. In 2010 they opened eight, going from 34 to 42 - a rate of expansion that meant they had to borrow more than was ideal and also hit the bottom line because new centres take time to bed down. There's only likely to be two or three new openings this year, which they can pay for out of cash flows rather than borrowing, so they should be able to reduce their debt at the same time as the profits start to come through from the centres opened last year.
While my small caps are likely to be seen as riskier investments by the market right now, I think they are the safest and best things that I own and I will definitely be sticking with them.
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7/8/11 Aaaaaaaaaaaaaaaaaaarrrrrrgggggggh! Portfolio value £5459.27 (DOWN 8.0%): FTSE 100 at 5246.99 (DOWN 9.8%). This year: Sharecropper DOWN 1.6% FTSE DOWN 11.2%. Since starting blog: Sharecropper DOWN 0.6% FTSE DOWN 6.3%. |
Is it raining outside? Oh no, that's the sound of my profits for the year being flushed down the toilet. And my profits ever since starting this blog. Still, chin up eh?
For anybody who was abroad and missed it (David Cameron and George Osborne?) there was a small stock market crash this week as investors ran for cover over the Eurozone debt crisis, the lack of political will to sort it out and the likelihood of another world recession. One of the shares to take the biggest pounding was Lloyds Banking Group (down 10p to 32.8p) which also announced the small matter of a £3.25 billion loss this week, mainly thanks to its set-aside for PPI compensation. But all my big shares were hit - FirstGroup (down 33p to 332p), Tesco (down 19p to 362p) and Halfords (down 20p to 302p) all took a massive whack - and the smaller ones weren't spared either, with KBC (down 7p to 62.5p), Alkane (down 3p to 16.9p) and Goals (down 11p to 113p) causing me proportionately even more pain.
At times like this, it's important to take what crumbs of comfort you can, so here's my reasons to be cheerful. Firstly, what matters in the long run is relative performance against the index that you are trying to beat - so from that perspective, an 8 per cent drop compared to 9.8 per cent for the FTSE is a success [insert hollow laughter here]. I'm still better off than I would have been if I'd have invested in a tracker, and I'm also still better off than I would have been if I'd have taken my Mum's advice, never got into shares at all and kept it under the mattress (the original book cost of my portfolio is £5000).
Secondly, I'm still learning the ropes of the investment game, and I'm using money that I can be patient with. None of these losses are going to force me to sell because I've been plunged into poverty - in that respect I'm fortunate. It's arguably better that this happens while my holdings are still relatively small and I'm still learning.
Speaking of which, I think I have really learned several lessons from the experience of buying Lloyds, which I now see was a mistake. It didn't fit with either of the categories of share I have sought to specialise in (big high yield shares and small growth stocks); I don't understand enough about banks to feel secure in the future of the business; I bought it on a whim with little analysis because it seemed low and people were tipping it in the papers; and I was thinking of short-term speculation rather than long term investment. When I look at my portfolio after these price falls, I look at my small caps and think they a bargain because of the good businesses they are; I look at my high-yielders and think that their yield is now even more attractive and it might be worth buying some more; but when I look at Lloyds I just think "oh ****, why did I buy that?".
I'm going to sit tight for the whole of August and then plan my next move in September.
Anyway, now the screams have died down, keep smiling and I'll see you next week...
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31/7/11 Dog days of summer Portfolio value £5932.10 (DOWN 1.6%): FTSE 100 at 5815.19 (DOWN 2.0%). This year: Sharecropper UP 7.0% FTSE DOWN 1.5%. Since starting blog: Sharecropper UP 8.0% FTSE UP 3.9%
More red ink this week as the market took heavy losses amid bickering by US politicians about raising their debt ceiling. No surprise then to see that Lloyds (down 4p to 43.4p) was depressed again. Much more depressing for yours truly was the plunge by Halfords (down 28p to 323p) which must have been a delayed reaction to the trading statement released last week. I talked last week about the yield being a defensive factor... well, the yield is now up to 6.8% and it doesn't seem to be stopping people selling!
To be fair, it doesn't help that the share is now trading ex-dividend, with its final dividend due next week (which I won't be receiving). Speaking of dividends, both my largest income shares, NG and FGP, pay out in August which should give the portfolio a much needed filip.
Also, there was more upbeat news this week from Amiad (up 4.5p to 192p), which released a trading update saying that its integration of Arkal is going well and that it is confident of meeting market expectations for the year. My other smaller shares are holding their own too, proving good value in a falling market.
Looking ahead, my most likely next move is to offload Lloyds - I'm fed up of it being buffeted around by macroeconomic factors and things are looking grim for the banks - and look to replace with another small cap. I've had the most of my success as an investor picking small caps, and as long as I do my research, I feel comfortable holding them whatever the state of the overall market, which is certainly not the case for the black horse bank at the moment.
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24/7/11 Another damp squib Portfolio value £6025.61 (DOWN 0.7%): FTSE 100 at 5935.02 (UP 1.6%). This year: Sharecropper UP 8.7% FTSE UP 0.5%. Since starting blog: Sharecropper UP 9.8% FTSE UP 6.0%
A poor week. The FTSE had a bit of rebound following yet another Greek bailout, but my shares did not go with it. Predictably Lloyds (up 2.5p to 47p) benefited slightly from the news that a rash of sovereign defaults might have been staved off for a while, and FirstGroup (up 14p to 364p) improved almost to my break-even point. But Halfords (down 11p to 350p) dipped after it revealed a mediocre trading update showing retail sales flat and car accessories sales down. Goals (down 4p to 120p) was also suffering, although there didn't seem to be any particular reason why.
Although I have a bad (unlucky?) recent record of shares falling immediately after I buy them, I'm less worried about this happening in the case of Halfords than I was with my smaller holdings. The reason is that the high yield should provide some support to the share price - any further price fall would give even more attractive relative dividends and there are bound to be buyers. Plus the share buyback they are doing at the moment should help keep the SP fairly static.
By the way, I should make an addition to last week's entry when I was summarising the P/E ratios of my portfolio. These numbers are fairly meaningless unless you consider the forecasted earnings for the coming year, which I had a rough picture of in my mind but have not written down yet in the blog. The point about Alkane and Amiad is that they are both expected to do very well in the next 12 months - according to Digital Look, Alkane is forecast to grow earnings by 58% and pay a maiden dividend, while Amiad is predicted to grow earnings by 74%. But unfortunately with P/Es of more than 13 it is questionable whether the share price will see much benefit if these optimistic predictions materialise.
In contrast, it is worth noting that Goals Soccer Centres is forecast for EPS growth of 13%, which would be a decent performance, but its market rating (P/E is now 9.8) suggests that investors feel more pessimistic about it than this. There is a case, which I believe in, for continuing to hold in expectation that market sentiment will improve should the forecast prove correct.
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17/7/11 The perfect ten (or not) Portfolio value £6068.70 (DOWN 0.9%): FTSE 100 at 5843.66 (DOWN 2.5%). This year: Sharecropper UP 9.5% FTSE DOWN 1.1%. Since starting blog: Sharecropper UP 10.6% FTSE UP 4.3%.
It's a landmark week for the portfolio, having finally reached my optimum size of ten shares with the purchase of Halfords. The price was on the slide at the time I bought, but then so was the whole market - the FTSE had its worst week since March. As is often the case because of the make-up of my portfolio, my shares did not suffer as much as the index. The larger ones dropped a little (FirstGroup down 8p to 351p, National Grid down 11p to 604p) but nothing at all dramatic.
Now I've got my ten-strong portfolio, life should get a bit more interesting because each time I want to invest more cash (and I hope to put in £1000 more before the end of the year) I will have to either back one of my existing shares or sell something to make room. It should make me reassess the relatively uncritical 'buy and hold' approach I have pursued so far - especially when it comes to underperformers (Lloyds, anyone?)
With that in mind, I've just reviewed the price-earnings ratio of all my stocks. Halfords, at 8.4, is definitely lowly rated at the moment (which is partly why it was so attractive to me) and FirstGroup - which incidentally released an upbeat trading update this week - is still a bargain at 8.5. Goals, National Grid, Tesco and Allocate are all in the moderate 10-12 range, which I think is fine as they all have good chances of growth. KBC's P/E of 12.4 is also thoroughly reasonable as all its trading updates indicate that it is having a great year and is well worth the rating.
That just leaves Lloyds (which is unmeasurable as it had negative earnings last year), Amiad (13.1) and Alkane (13.4). The latter two should increase their earnings in the coming year and are good long term prospects, but they are certainly fully valued (some would say overvalued) while Lloyds is in a total pickle. Unless things change, these three will be the most likely candidates for the chop the next time I am looking to refresh the portfolio.
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14/7/11 SHARECROPPER BUYS: HALFORDS AT 367p
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10/7/11 On your bike Portfolio value £6123.60 (UP 0.5%): FTSE 100 at 5990.58 (NO CHANGE 0.0%) Since starting blog: Sharecropper UP 11.6% FTSE UP 7.0%
Having had a week to weigh up my options, I think I am turning in favour of buying Halfords. I was originally attracted by the high dividend yield (currently 5.9%) but on further investigation the stock has a lot more than that going for it. I've already referred to the strong record of profits growth over the last 5 years and the relatively low P/E, but it's also impressive that the management has markedly reduced the firm's debts in the last year, at the same time as launching a share buyback programme (which should grow earnings per share even if overall company growth remains flat from here). There's no doubt that the retail environment is tough, but there's a strong sense that this is a reliable company taking all the right actions and I'm almost sure that I'm going to be investing some of my spare cash this week.
Elsewhere, it was a solid week for me, beating the FTSE with a gain of half a percentage point. Allocate Software announced the acquisition of an Australian rival - RosterOn - which should extend its opportunities in that country, and this was well received by the market (up 5.5p to 78.5p). Tesco (up 10p to 412p) and FirstGroup (up 15p to 358p) also had a good week. On the negative aside, Goals (down 4.5p to 123p) had another poor one as investors weighed up their VAT problems, and Lloyds (down 4p to 46.6p) remains volatile.
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3/7/11 Raging Bull Portfolio value £6091.10 (UP 1.9%): FTSE 100 at 5989.76 (UP 5.1%). Since starting blog: Sharecropper UP 11.0% FTSE UP 7.0%
An exceptional week for the FTSE, which bounced more than 5 per cent, the best week the index has had since I've been blogging, after the Greek parliament voted through austerity measures which are expected to stave off the threat of a default for the time being. Predictably, given the make-up of my portfolio, it did not soar upwards at quite the same rate, but a decent rise stopped my run of negative weeks.
There was a significant upswing for Lloyds (up 7p to 51p) after it unveiled its strategic review - which involves shedding 15,000 jobs over the next three years and withdrawing from many of the international markets it serves. National Grid, who appointed a new chairman in the form of Sir Peter Gershon, also had a good week (up 24p to 615p) but the disappointment was Goals Soccer Centres (down 1p to 127p) which released a trading statement saying it was on target but also noting it is to be hit by a £650,000 VAT bill because of its dispute with HMRC about group bookings.
I've made progress this weekend on my research for my next purchase. I've decided what I'm really looking for this time is another income share which can give me reliable dividends of over 5 per cent; in a portfolio of ten shares I think there is room for three of these, so I need one more to go alongside National Grid and FirstGroup. As I'm looking at income I've chopped G4S from my watchlist (but retained GlaxoSmithKline).
The two new additions to the watchlist are Aviva (yield 6.3%) and Halfords (5.9%). Aviva is a reliable dividend payer which has also advanced its earnings-per-share in three of the last five years. It looks relatively cheap with a P/E of 8.1, so the only thing constraining me is my bias against financial stocks and insurance in particular.
Halfords on the other hand would be a riskier play, as the high yield looks to be the result of a depressed share price rather than management policy of paying high dividends. However the retailer is a strong business with an EPS that has grown every year of the last five, low borrowings and a confident leadership. Although retailers generally have been having a tough time of it recently, at first glance it doesn't seem to me that the low valuation (P/E 8.6) is justified. Watch this space to see which way I turn from here.
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26/6/11 Greece is the word Portfolio value £5976.60 (DOWN 0.8%): FTSE 100 at 5697.72 (DOWN 0.3%). Since starting blog: Sharecropper UP 9.0% FTSE UP 1.8%
Well, I finally received my money from the sale of EDI to Pearson - £930.72, which is a handy return of 86% on my original investment of £500 (I've updated my portfolio page to reflect this.) Interestingly, there were no dealing costs associated with the sale, which is a bonus and makes me want to sell every share of mine in this way. If only they could all be taken over!
It was a topsy-turvy week with the threat of a Greek default hanging over the markets. Although the IMF seem to have stepped in again to patch up the immediate situation, the problems have been weighing heavily on Lloyds (down 5p to 43p) which really is now in quite a pickle. I'm getting sick of holding this share but am loathe to sell at this level, so I will have to take the pain for the time being.
In other significant price movements, Goals (up 5p to 128p) bounced back encouragingly, even nudging through the 130p barrier at one point, as investors anticipate a good trading update next week (I'm anticipating it too.) However, Alkane (down 2p to 20.3p) slid a bit this week, which cancelled this out, and overall I was lagging the FTSE. That's six negative weeks in a row by the way - a record for the Sharecropper Portfolio. With some money in my pocket, I will be looking to reinvest in something new shortly and hopefully stop the rot!
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19/6/11 June bug Portfolio value £6024.98 (DOWN 0.6%): FTSE 100 at 5714.94 (DOWN 0.9%). Since starting blog: Sharecropper UP 9.8% FTSE UP 2.1%
That's five weeks in a row where my portfolio has lost value - although there is some consolation in the fact that the index dropped by a slightly larger proportion. My longest negative streak since starting the blog has been six consecutive weeks, so let's hope for a turnaround in fortunes soon. Goals Soccer (down 3.5p to 123.5p) was the biggest loser of the week and Amiad (up 5p to 183p) was the biggest gainer although there was nothing of tremendous significance. Tesco produced some lukewarm results that showed good performance internationally but UK sales in the doldrums - this is nothing we didn't already know so the price did not change all that much, down 5p to 402p.
Earlier in the week I read a fascinating blog on Lloyds in the FT's Alphaville section. It makes the point that, with the bank's recovery plan due out on June 30 and the chief executive's incentive plan starting from that point, he is probably quite happy to be talking down Lloyds' prospects for the time being so he can start from a low base (I made a similar point four weeks ago but I did know this fact about his incentive plan at the time). There's also a suggestion that it's in their interests to have a low share price until the Independent Commission on Banking files its report - a good conspiracy theory.
In terms of researching my next purchase, I have not got much further on than I was last week - at this stage I think it's most likely I will choose one of the two large firms on my watchlist, G4S or GlaxoSmithKline, both of which I have long admired. But I wouldn't rule out pulling a rabbit from the hat. Let's wait until I finally have my EDI money (due at the end of this coming week I believe).
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12/6/11 Fair's fair Portfolio value £6063.02 (DOWN 1.0%): FTSE 100 at 5765.80 (DOWN 1.5%). Since starting blog: Sharecropper UP 10.5% FTSE UP 3.0%
Some long-awaited good news this week on the takeover of Education Development International by Pearson - the Office of Fair Trading has decided not to refer the takeover to the Competition Commission, so the deal has been declared unconditional. I'll finally be getting my money out by June 24.
That apart, it was a quiet week, with FirstGroup (up 8p to 329p) my only share making headway and others ticking down a bit: a further slight fall for Lloyds (down 1.7p to 47p) was the main concern. It's notable that I've lost ground for four consecutive weeks now, but the FTSE has gone down for 5 of the last 6, so we are obviously in a slightly bearish phase.
Now the prospect of getting my money out from the EDI sale is imminent, I will give some real consideration to my next purchase. At the moment I imagine I'll be looking at a larger company, as I would like to balance the five small caps in my portfolio with five larger ones. But I will put my thinking cap on and report further next week.
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5/6/11 Slight return Portfolio value £6152.57 (DOWN 0.4%): FTSE 100 at 5855.01 (DOWN 1.4%). Since starting blog: Sharecropper UP 11.6% FTSE UP 4.6%
Another loss-making week, although not one that will bother me overmuch: the FTSE was down by a fair bit more, and my biggest falling stock, which was National Grid (down 26p to 593p) was only in the doldrums because it has just passed its ex-divdend date. Having said that, Lloyds (down 3.5p to 48.7p) continues to drop like a stone - the state of the housing market, with many mortgages forecast to end up in negative equity, is the latest factor to spook its share price.
One news story I've been watching carefully this week is the row over the safety of shale gas extraction after drilling in Blackpool apparently caused a small earthquake. Shale gas is already controversial after the methods involved in its extraction have allegedly led to pollution of drinking water in the US. Alkane Energy is looking to shale gas as a future of source of expansion with the licenses mentioned last week, so if it was banned in this country it would be a bit of a blow - however they are not relying on it for current revenues so it's not an imminent risk to my investment.
Finally, a word about Amiad Filtration Systems (down 3p to 178p) which has done nothing but fall in value since I purchased it in April. This might be another example of my buyer's curse that last struck when I bought EDI in December (although that one turned out rather well in the end). However I was heartened to read this article about the future importance of the sort of water technology Amiad are involved in. As climate change is going to make more of the world resemble Israel in aridity, it will make irrigation, desalination and the like all the more important.
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29/5/11 Bank Holiday washout Portfolio value £6152.20 (DOWN 1.7%): FTSE 100 at 5938.87 (DOWN 0.2%). Since starting blog: Sharecropper UP 12.1% FTSE UP 6.1%
There's no getting away from the fact that my pocket has taken a real hit this week. A fall from Alkane (down 2.3p to 21.5p) had the biggest impact, although Amiad (down 9p to 181p), FirstGroup (down 12p to 340p) and National Grid (down 13p to 619p) added to the gloomy picture.
Alkane's fall came after it announced an acquisition - of gas exploration firm Seven Star, which it is going to pay for with shares, and an additional placing of new shares with institutional shareholders to raise capital. This is never a popular move with existing shareholders as it dilutes their holding, so the price drop is inevitable. However, from what I've read the acquisition makes sense. Buying Seven Star gives Alkane two licenses to build conventional onshore gas power plants, which is a sideline from the coal mine methane (CMM) plants that make up most of their business. Not only should the plants be profitable in the themselves, but Alkane's directors believe that developing this side of the business will enhance the company's standing when it comes to winning more licenses from the Department for Energy, so it could help unlock more business in future.
None of which helps me in the short term of course - so I'll just have to accept my losses and move on.
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22/5/11 Lloyds in the soup Portfolio value £6261.43 (DOWN 0.6%): FTSE 100 5948.49 (UP 0.4%). Since starting blog: Sharecropper UP 14.0% FTSE UP 6.3%
I lost a bit of ground this week, with continued strong gains for National Grid (up 13p to 633p) offset by downswings for FirstGroup (down 7p to 352p), KBC (down 2p to 71p) and Amiad (down 2p to 189p). However the share that's causing me the most problems is Lloyds Banking Group (down 3p to 51.6), which has now slipped back to a level last seen about a year ago - about the time I bought it in fact.
The difficulties stem from the bank's first quarter results, which showed a £3.47 billion loss - a massive figure when set against profits of £281m for the whole of last year. However, these losses are almost all due to their decision to set aside £3.2 billion to deal with Payment Protection Insurance compensation claims and to make another £1.1 billion of write-downs on Irish property. The underlying business is still more or less on track, so your view of the share price depends on your view of these one-off items.
Here's my take on it: it's all the down to the fact that new chief executive Antonio Horta-Osorio has just taken charge, bringing in other new senior managers with him. The generous way of putting it is that he's keen to draw a line under the past so the bank can move on from here - the mis-selling of PPI and over-investment in dodgy Irish property were mistakes of the past, so why not count the cost, pay your dues and move on? Speaking more cynically, it's in his interests to load this bad news into the first quarter (which was not a period when the bank was under his watch) so that he has a low base from which to build his success story as chief executive. Like an incoming Chancellor of the Exchequer, he can blame the initial poor state of the bank's finances on the previous administration, and then gain credos - and probably an improved bonus - for improving things from here.
While I think that he will do so - and so I remain bullish on the shares - I think this episode has just turned my holding into a long-term play rather than a short-term speculative one. Sigh.
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15/5/11 Bouncing buses Portfolio value £6296.34 (UP 1.5%): FTSE 100 5925.87 (DOWN 0.9%). Since starting blog: Sharecropper UP 14.7% FTSE UP 5.9%
A very good week in relative terms, beating the FTSE by 2.4 percentage points. A large chunk of this was down to a bounce back from FirstGroup (up 21p to 359p) which released its final results this week. They showed a fall in profit before tax from £175m to £127m, but the bad news about the underperformance of their First Student yellow bus division had already been released, so this rebound is a recognition of the fact that the rest of the business is doing well. Also, a high-yielding share like this tends to get bought in price dips as long as management can maintain the dividend - which so far they have been able to do. Good news.
Tesco (up 11p to 419p) and National Grid (up 4p to 619p) continue to do well, with the latter finally reaching the value it was standing at before its controversial rights issue in June 2010. Alkane Energy (up 1.5p to 24.5p) is also looking really encouraging at the moment, having reached what is an all-time high for the stock. On the more negative side, Amiad Filtration (down 7p to 191p) has done nothing but sink since I bought it, compounding my recent history of buying at slightly the wrong time. With Lloyds a source of frustration as well after its PPI troubles, I'm naturally not pleased that half of my holdings are now in the red.
Finally, I've belatedly spotted the primary reason for the delay in the sale of EDI - the Office of Fair Trading have yet to decide whether they are going to refer the move to the Competition Commission. Fingers crossed this does not happen - it feels like my money has been tied up in this for a while now and any further buying plans are on ice for the time being as a result.
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8/5/11 Happy holiday Portfolio value £6203.02 (UP 0.3%): FTSE 100 5976.77 (DOWN 1.5%). Since starting blog: Sharecropper UP 13.0% FTSE UP 6.9%
I've been away this week so haven't had any time to look at the market, but it seems that overall it was a reasonable week. Despite a sharp downswing for Lloyds (down 5p to 54p) after its Irish write-offs and insurance compensation payments led to to announce a Q1 loss, there was a recovery for FirstGroup (up 13p to 338p) and a nice boost for Alkane Energy (up 1.4p to 23p) following a good trading update. See you next week.
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1/5/11 May be improving Portfolio value £6183.93 (UP 0.6%): FTSE 100 6069.90 (UP 0.9%). Since starting blog: Sharecropper UP 12.7% FTSE UP 8.5%
This week only had three trading days in it because of the day off for Prince William's nuptials, and it was another quiet one with small gains the order of the day. Tesco (up 8p to 404p), National Grid (up 12p to 614p) and FirstGroup (up 10p to 325p) did well as the FTSE itself was restored to its February highs.
The long-winded EDI takeover should now be entering its final chapter, as Pearson announced it now holds around 80% of the stock. One further extension until May 6th should surely be enough to make this unconditional.
As things have settled down a little now could be the time to review the P/E ratios of my shares and check they are still offering value for money. FirstGroup (P/E of 8.2) is unsurprisingly the cheapest share as the market has been very down on it of late, but the yield is good and I'm happy to stay where I am. I'm also very happy with the value of Tesco (11.2), National Grid (10.7), Goals (10.5) and Allocate (10.4) all of which the market is currently valuing lower than their 5-year median P/E, despite what I see as reasonably good growth prospects. KBC (12.9) is obviously riding much higher than its long-term average but that's fully justified when everyone knows its new contracts mean it is set to record a fine years' results.
This just leaves Alkane (14.6) and new purchase Amiad (14.0) which are both highly rated - some would say overvalued. In both cases I liked the fundamentals and took the gamble of buying just before their results came out, only to find that the results weren't quite as good as I hoped and the share ended up looking pricey. Perhaps it's time for me to reassess this tactic. I'm happy to be holding both companies but am expecting to have to wait some time before seeing any gains from them.
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24/4/11 Easter Nest Egg Portfolio value £6149.78 (UP 0.3%): FTSE 100 6018.30 (UP 0.4%). Since starting blog: Sharecropper UP 12.0% FTSE UP 7.5%
Little significant change this week - the most noteworthy event being Tesco's annual results, which saw them increase their profits to £3.5 billion, with earnings per share up 13%. This was a pretty good result by any objective standards, although there were the usual noises about UK sales growth being unimpressive and all the positive movement coming from the Asian business. The net result was that the shares dropped 12p to 395p, but this was just a matter of giving back last week's gains, so it doesn't add up to a row of beans really.
The only other price movement of note was Goals up 6p to 131p. Although they are my worst performing share and have been for some time, I couldn't be more bullish on their prospects for this year and beyond, so I might even buy some more at some point soon. With 2010 being so ruined by the snow, the good weather this year will have helped them bounce back and they are opening up new centres all the time.
Speaking of good weather, I'm off to enjoy the sun so will leave you there.
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17/4/11 Dressed up to the nines Portfolio value £6128.85 (DOWN 0.6%): FTSE 100 5996.01 (DOWN 1.0%). Since starting blog: Sharecropper UP 11.6% FTSE UP 7.1%
Well, my Amiad purchase went through successfully, without any of the sudden lurches in the price I was fearing last week - although their results announced the same day (profits $3.48m) were at the lower end of what I was expecting, giving a higher than ideal P/E of 14.3 on historic earnings. To justify this they will have to achieve strong growth in the coming year, so let's see what they can do.
It's all gone Pete Tong for the other small caps in my portfolio beginning with A - Allocate (down 3p to 71.8p) and Alkane (down 1.5p to 21p) are both suffering right now and it means that, uncomfortably, four of my nine shares are now showing a loss. Lloyds (down 2p to 60p) is also looking none too clever, after it was told by Sir John Vickers in his report that it might have to sell off more branches to satisfy competition requirements (thus eroding the few remaining benefits from the disastrous HBOS takeover).
Speaking of takeovers a quick update on the EDI situation - Pearson now has 71 per cent of the shares and has extended the 200p offer until April 26th. It's annoying to have my cash tied up like this but let's hope they get their 90 per cent by then.
Finally, it's a relief to have come out on top of the FTSE again this week - mainly thanks to surges from National Grid (up 14p to 604p) and Tesco (up 12p to 407p) with the latter expected to report its latest set of figures in the coming week. However, despite the improved relative position, I now have lost money four weeks in a row, so don't have too much to be pleased about heading into the summer months.
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14/4/11 SHARECROPPER BUYS: AMIAD FILTRATION SYSTEMS AT 203p
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10/4/11 Filtering out the rubbish Portfolio value £5661.35 (DOWN 0.8%): FTSE 100 6055.75 (UP 0.8%). Since starting blog: Sharecropper UP 12.3% FTSE UP 8.2%
I've now settled on my preferred next purchase, which I'm intending will be Amiad Filtration Systems. They seem to have impressive growth potential, not only from the acquisition I referred to last week, but in the number of geographical markets they are reaching out into - although spending on water infrastructure in the developed world has been down due to the economy, their presence in India, Brazil and China should ensure strong demand for years to come.
The complication however is that their results are out this week (14th) and these are expected to show reduced profits on the previous year - they have had what's known in sporting parlance as a 'transitional year' with the acquisition but trading updates since have been encouraging. So the price as it stands is an absolute bargain (P/E of 6.2 on historic earnings) but if the results on Thursday show earnings, say, cut in half, this will immediately imply a P/E of 12.4 which would look less attractive. However I think I'm willing to accept this uncertainty because I like the long-term prospects for the company.
Incidentally I have deleted Snacktime from my watchlist - I realised that their record of earnings growth (which had initially attracted me) was distorted by a large windfall last year which is unlikely to be repeated. They are no doubt a good company but I think my initial analysis of them was skewed.
Elsewhere in the portfolio, it was another below par week I'm afraid. FirstGroup (down 12p to 315p) and Allocate (down 5p to 74.5p) are having a stinking time of it, with the latter now showing a net loss for me - the continuing uncertainty over the timescale for NHS reforms won't have helped them one bit.
Still no word on completion of EDI sale. This situation reminds me of buying a house - you've had the offer accepted and in your mind it's a done deal, but you have to hang around for weeks (with nobody telling you anything!) until all the paperwork is done and you can enjoy the results.
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3/4/11 Becalmed in the Spring Portfolio value £5705.65 (DOWN 0.1%): FTSE 100 6009.92 (UP 1.8%). Since starting blog: Sharecropper UP 13.2% FTSE UP 7.3%
A third consecutive week in which the value of my portfolio has barely moved - and I lost further ground to the FTSE as there was a rally in the index at the end of the week. Further shenanigans among the Irish banks, which are billions in debt, means the UK banking sector has taken a hit recently but Lloyds (up 1p to 61p) perked up at the end of the week after the Irish banks gave a satisfactory result in their stress tests. Elsewhere it was a mixed bag with my energy shares doing well (Alkane up 1.3p to 23.8p, National Grid up 8p to 598p) but FirstGroup (down 9p to 326p) and Goals (down 7.5p to 122p) notably poor.
The EDI takeover is turning out to be a more drawn-out affair than I thought, since only 60 per cent of shareholders had accepted Pearson's offer by the March 22 deadline and they have granted an extension. I can't see any reason why it will not go through but it does mean I will have to wait longer to get my money out. I'm also puzzled why one of the major shareholders has just sold its holding for 195p rather than waiting for the deal to complete. But having accepted the offer my hands are tied now anyway, so I'll just have to sit this out however long it takes.
This cash flow issue will not hold up my next purchase, which I would hope to make in the next two weeks. I think I know which share on my watchlist it is going to be, but I'm still not totally decided so I will hold back from revealing this until next week.
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27/3/11 Drawing up my shopping list Portfolio value £5711.18 (DOWN 0.1%): FTSE 100 5900.76 (UP 3.2%). Since starting blog: Sharecropper UP 13.3% FTSE UP 5.4%
A big rebound for the FTSE this week, although not one that was shared by my portfolio which ended the week almost exactly where it started. While my larger shares (Tesco up 5p to 388p, National Grid up 12p to 589p) went up nicely, this was cancelled out by a nasty dip for Allocate Software (down 7p to 81p) after the firm released a trading update which observed a slowdown in the amount of new business coming from the NHS.
Nevertheless, my sale of EDI went through ok and I should shortly have the cash to reinvest, so as mentioned last week, I have been drawing up a shopping list of smaller companies that might fit the bill. Two of these have been added to my watchlist: Snacktime (109p) and Amiad Filtration Systems (208p).
These firms couldn't be further from each other in the nature of their business: One is the UK's fourth largest vending machine company while the other is an Israel-based producer of irrigation and water filtration systems. Despite appearances, though, they do have a couple of things in common, both being growing companies who have recently made significant acquisitions. Snacktime recently took over Vendia, which sells hot drinks machines to complement Snacktime's previous specialism of cold drinks and snacks. Meanwhile Amiad took over Arkal, one of their regional rivals. I'm still doing my research but it looks to me like both Snacktime and Amiad could really reap the long-term benefit once they integrate these acquisitions.
Once I've finished my research I'll be able to judge the merits of buying one of these smaller firms against my larger options, G4S and GlaxoSmithKline. It may well be that I end up making two purchases.
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22/3/11 SHARECROPPER SELLS: EDUCATION DEVELOPMENT INTERNATIONAL AT 200p
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20/3/11 Avoiding the waves of selling Portfolio value £5715.40 (UP 0.1%): FTSE 100 5718.13 (DOWN 1.9%). Since starting blog: Sharecropper UP 13.5% FTSE UP 2.1%
In a week that was dominated by news of the earthquake and tsunami in Japan, any discussion of the effect on the financial markets is of course secondary to the terrible human cost involved and thoughts are with those affected.
That being said, it was another week of heavy selling in the markets and with the FTSE down a couple of percentage points, the fact that I finished the week even was a bit of a result. National Grid (up 8p to 577p) had a rollercoaster week as investors unpicked the effect of the disaster on energy prices. With nuclear power stations out of action it's expected that Japan will have to buy in gas or electricity from abroad, which will lead to a hike in world prices. Although they are a tiny operator in this big picture, Alkane Energy (up 1.25p to 22.5p) would benefit from higher power prices and it has ticked up accordingly. Elsewhere, the ongoing Libya crisis is pushing oil and petrol prices to new highs, which might be one negative factor pushing down FirstGroup (down 14p to 333p) which is seeing particular problems in its school bus division in the US.
To update on the EDI takeover situation, I've accepted the 200p offer for my shares and the deadline is on Tuesday, so with any luck this will go through during the week to come and I'll soon have some cash to reinvest.
With this in mind, I'll shortly be refreshing my watchlist to firm up my next potential purchase. I have deleted Advanced Medical Solutions, which is currently doing very well at 82p after releasing more good results, but simply has too high a P/E for my tastes (21.3). Among bigger companies, I feel that the two firms I have listed at the moment (GlaxoSmithKline 1142p and G4S 255p) would be good choices if I'm looking for an income share/a larger growing company respectively. But as small caps are very much my specialism and have been responsible for most of my recent gains, I need to do a search for any good smaller candidates; I'll only plump for a bigger, safer company if I can't find any more hot prospects at the smaller end.
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13/3/11 Takeover-tastic Portfolio value £5707.77 (UP 5.1%): FTSE 100 5828.67 (DOWN 2.7%). Since starting blog: Sharecropper UP 13.3% FTSE UP 4.1%
One of the benefits of investing in small companies is that occasionally they get taken over - unless you have insider information you've got no idea when it might happen, but it invariably gives the portfolio a huge boost. That's what happened this week when Education Development International (up 73p to 197p) went soaring after a 200p-per-share bid by publishing group Pearson.
It's a generous offer (a 60% premium to the previous price) so I'm sure it will go through - the deadline for shareholders to vote is March 22 so I'm confident that at that point I'll be banking my profit and looking to reinvest somewhere else. Considering I only bought EDI in December, it's a real bonus to have such a windfall at this early stage, and just goes to show that I wasn't the only one to have taken notice of the firm's profits.
This obviously meant that I clobbered the index this week, but it was actually a very bad week for the market overall (the fall in the FTSE was the largest since I started this blog) and the rest of my shares did poorly. FirstGroup (down 22p to 347p) was the worst, plunging into negative territory after releasing a weak trading statement, but Tesco (down 10p to 392p) was also none too clever.
I'm also feeling a bit sheepish that Alkane Energy's results did not quite deliver the filip that I anticipated (up 1p to 21.25p) after its profits came in at £1.3m - a fall from £2.1m in 2009. I must say I had missed the fact that, while they are opening new sites and increasing their electricity production and revenues nicely, their profits were not ever going to be increased in these results because of the prevailing electricity prices in 2010 were lower than in 2009. Of course electricity prices are now rising, but there is a lag effect in their results and it was naive of me not to realise this. Still, they're clearly a solid prospect for the future so I'll just have to wait a bit longer to see any EDI-style gains.
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6/3/11 Going nowhere fast Portfolio value £5430.19 (DOWN 0.6%): FTSE 100 5990.39 (DOWN 0.2%). Since starting blog: Sharecropper UP 7.8% FTSE UP 7.0%
Not much to say this week - neither my portfolio nor the index showed significant movement although slight dips from Ed. Dev. International (down 6p to 124p) and Alkane (down 0.75p to 20.25p) ensured I did worse than the FTSE. However, I've got hopes that Alkane's results out this week will mark an upturn in their fortunes.
I've got no spare cash to make any further purchases and am not seriously thinking about selling anything either, so I will come back when there's something more to say!
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27/2/11 Down in the dumps Portfolio value £5463.55 (DOWN 3.0%): FTSE 100 6001.20 (DOWN 1.3%). Since starting blog: Sharecropper UP 8.5% FTSE UP 7.2%
A bad week on all fronts. The market was in the doldrums overall because the Libyan unrest is leading to a spike in oil prices, but it's fair to say that my shares had the rough end of the stick, with not a single one of them showing an improvement. Lloyds (down 6.5p to 63p) had a particular stinker after releasing its results, which showed the bank back in profit for the year, but with a weaker second half than expected. EDD (down 10.5p to 130p) gave up all of its gains from last week and more, Goals (down 6p to 130.5p) slipped back disappointingly and FirstGroup (down 10p to 368p) is now pretty much back to the price it was when I bought it. Oh dear.
With the minutes of the Bank of England's Monetary Policy Committee this week showing that opinion is turning towards an interest rate rise, it's a good time to review the borrowings of the companies I invest in to check none of them are over-exposed to debt. (I'll exclude Lloyds from this since their whole business is lending and so it's much more complex).
First up, Allocate Software has £2.17 million of borrowings - a £170,000 mortgage plus a £2m bank loan that was used to fund an acquisition last year. This is relatively small fry in the context of a business worth £56m, so no concern here. Education Development International, Alkane Energy and KBC Advanced Technologies are for all intents and purposes debt-free.
The most heavily indebted of my smaller companies is Goals Soccer Centres, which has £43m in borrowings, secured against its property portfolio of pitches worth £92m. All these borrowings are at a variable rate of interest (LIBOR+2%) so there is certainly a risk there. However, the business does at least have its credit facilities firmly in place until 2013, while a risk analysis in the last annual report says that each percentage point rise in interest rates would cost £54,000 in profit. In the context of a business that made a profit of £8.76m last year, I can live with this (a rise might be imminent, but it's unlikely that interest rates will shoot up to 5% any time soon).
National Grid has the small matter of £25 billion in borrowings (against assets of 43.5 billion), but the lion's share of this is in bonds, which are not in the short term going to be affected by interest rate rises. And of Tesco's £7.9 billion of debt, £5.6 billion is at a fixed rate and the variable bits include collars and caps to mitigate the interest rate risk. These huge companies know how to look after themselves when it comes to funding.
Overall, interest rate rises are not something I'll be sweating over, at least not from a shares point of view (my mortgage might be a different story...)
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20/2/11 Slaters and shakers Portfolio value £5634.07 (UP 1.4%): FTSE 100 6082.99 (UP 0.3%). Since starting blog: Sharecropper UP 11.8% FTSE UP 8.6%
I might have got off to a bad start with the share just before Christmas, but Education Development International (up 7p to 141p) is now doing really well for me. There haven't been any significant news items recently so I'm putting it down to technical factors - perhaps one of the larger shareholders gradually adding to their holding.
Incidentally EDD has an impressive range of institutional shareholders: ten of them to be exact, all with holdings of more than 3%. This is reassuring to me for two reasons - not only is the share being backed by several fund managers who should know what they are doing, but the fact that there are so many of them means that no single shareholder could could put the price into freefall by offloading its holding. Chief executive Nigel Snook and other directors own 9.7% of the firm and a staff benefit trust also has a holding of 7.5%, which is nice to see as well.
However, the big shareholder that most private investors would watch out for is Jim Slater (whose 'Zulu Principle' is one of my favourite investment books - see 'useful stuff' tab). He only holds 3.4% now, and has made a few sales since originally tipping the share in 2009 - but interestingly, his son Mark's firm, Slater Investments, has 6.4%, so they are keeping it in the family...
Anyway, in other movements this week, Tesco (up 15p to 410p) and FirstGroup (up 8p to 378p) both recovered nicely from their recent dips and Lloyds (up 2.5 to 69p) also enjoyed a good time of it. So I beat the FTSE for the second week running. Since starting this blog, I'm up 11.8% compared to 8.6% for the FTSE. This stat is worth keeping tabs on, so I'll include it in my introductory blurb from now on!
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13/2/11 Eat my Goal Portfolio value £5555.76 (UP 2.4%): FTSE 100 6062.90 (UP 1.1%)
A most satisfactory week. My small caps kept up their recent momentum, with EDD (up 3.5 to 134p) and Allocate (up 2.5p to 88p) maintaining their upward trend, but the real bonus was Goals Soccer Centres (up 14p to 134.5p) which bounced after receiving a positive broker's note from Numis Securities. The analysts put the recent share price weakness down to the snow and anticipated good growth this year. National Grid (up 23p to 573p) also had a good week, as its recent row over electricity prices sorts itself out.
My purchase of Alkane Energy went through ok - for once there were no last minute price surges before I bought or plunges afterwards - so let's see how we go. I'm expecting great things from their results on March 9th.
The much-trailed report of the 'Project Merlin' talks between the banks and the government earlier this week saw banks improve as investors quite rightly judged that the banks had got the best of the deal. They might have agreed to keep bonuses below a certain level this year, but it's hardly the sort of binding restriction for the future that some of us were expecting! And the increased tax on profits announced by George Osborne is still less than their recent corporation tax cut. All of this means that Lloyds went up 3p to 67p. While I still maintain I am going to sell at some stage in the coming months, I now might hold off for a while yet (I will now stop mentioning it as it must be getting boring).
I was asked this week for my general view of the market, and I said that it was overvalued. By this I mean that prices are running ahead of earnings - earlier in the week I measured the median P/E for the FTSE as 17.2, and I view anything over 15 as a concern. There's little real growth going on in the economy, and while shares look an attractive home for your money now, they won't look so pretty when interest rates have to go up later in the year.
This doesn't mean I'm going to liquidate the portfolio though (perish the thought). My small caps are solid companies which I would back long-term if the market fell, while my big income shares are defensives that will be relative outperformers in a bear market. As someone who is looking for relative performance against the FTSE, I would welcome a bit of a correction in the market, and it might encourage me to buy different things - such as overcoming my prejudice against mining firms.
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7/2/11 SHARECROPPER BUYS: ALKANE ENERGY AT 21.1p
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6/2/11 Feather in my small caps Portfolio value £4927.80 (UP 1.3%): FTSE 100 5997.38 (UP 2.0%)
Good upward movement among my small cap shares this week, with Allocate (up 6.5p to 85.5p) responding to a pleasing set of interim results. It's a relief to note that they are still doing plenty of business with NHS trusts despite the restructuring that's going on in the health service's commissioning processes. Education Development International (up 13p to 131p) also had a good week, although the only news item that presumably buoyed the stock was the announcement that they have now purchased their HQ building outright, which saves them a quarter of million in annual rent apparently. Oh well, every little helps!
Nevertheless I slightly underperformed the FTSE this week, with FirstGroup (down 7p to 371p) in the doldrums after paying its dividend, and Goals (down 6p to 120p) reverting to its former weakness.
Earlier in the week I did my quarterly review of the top-yielding stocks in the country to check that my income shares, NG and FGP, are still competitive (see the entry for 31/10/10 below to compare with the last time I did it). Happily, National Grid is the 4th highest yielding from the top 200 FTSE firms with 7.1%, while FirstGroup is joint 11th on 6.1%. Highest is still Cable & Wireless with an unsustainable 10.8%, while to get in the top 20 a company now has to be yielding 5.4% (Ladbrokes and British American Tobacco currently share this spot).
I'm quite content with these figures as I want my income shares to be in the top 20 every quarter - incidentally Glaxo, which is on my watchlist, sits in joint 13th with 5.6%.
The astute observer will note that I haven't done either of the things yet that I mentioned last week - buying Alkane or selling Lloyds - but watch this space as I will certainly be acting in the next few days.
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30/1/11 Bank break-up blues Portfolio value £4864.55 (DOWN 0.8%): FTSE 100 5881.37 (DOWN 0.3%)
As predicted last week, the hint that the banking commission will recommend taking an axe to Britain's biggest institutions did me no favours this week as Lloyds (down 5.5p to 61.9p) slumped in price. It's questionable how rational that is - the main idea being floated is splitting investment and retail banking and, unlike Barclays and RBS, Lloyds would be relatively unaffected as it's predominantly a retail bank anyway. Also, the government owns 41 per cent of the bank and is hoping to make a profit, so is unlikely to do anything that would lead to shareholders losing a large amount of money (one would hope).
Nevertheless, there's no getting away from the fact that, since the HBOS takeover, Lloyds is a behemoth and if any bank could be criticised as 'too big to fail' it would be Lloyds. I watched a Robert Peston documentary the other day with that very title and some of it was really quite scary. I don't know what the long-term outlook for the banking sector is but I think my short-term dalliance with it could be coming to an end.
The two moves I'm considering in the near future are buying Alkane Energy and selling Lloyds - whether those two things happen at the same time or not remains to be seen!
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23/1/11 Back in black Portfolio value £4902.68 (UP 0.6%) : FTSE 100 5896.25 (DOWN 1.8%)
Some more on my latest prospect Alkane Energy. One reassuring element about investing in a company like this is that they have net assets of £15.8m, made up mainly of plants and equipment. This breaks down to 17p a share, so the current price of 20.5p (which equates to a market capitalisation of £19.3m) is hardly very far above asset value - it doesn't seem to me that the price has much of the future earnings potential built in. Alkane's results are due to be published on March 9, and the trading update has already revealed these will be positive, so, all being well, I will definitely be investing before then (although I haven't got the spare cash at the moment).
Interestingly, for comparison, KBC have net assets of £29.1m, some way short of their market cap of £42m, while Goals has assets of £42m against a market cap of £62m. Allocate and EDD cannot really be compared since much of their assets are intangible.
Anyway, this was a successful week overall, with National Grid (up 11p to 542p) bouncing back despite a disappointing decision on its allowable price rises in America, and also paying me a handy dividend. FirstGroup had a stinker (down 20p to 379p) after revealing that the snow in December cost its UK rail and bus business £7 million. But despite being another of the winter's snow victims, Goals Soccer (up 10p to 129p) was the pleasant surprise of the week, showing good signs of recovery. All this meant I beat the FTSE nicely.
One concern is that the speech today by the head of the banking commission may hit the Lloyds share price - but this has long been a possibility so let's see how the market reacts next week. Lloyds remains the share I am most likely to get rid of at some some stage in this year.
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16/1/11 Suffering a power shortage Portfolio value £4875.37 (DOWN 1.2%) : FTSE 100 6002.07 (UP 0.3%)
An inevitable come-down after the highs of last week, with KBC down a little on profit-taking (down 3p to 75p) and Tesco also taking a hit (down 24p to 406p) after releasing some mediocre UK sales figures which they partly blamed on the weather, attracting some negative headlines. However this doesn't particularly bother me, as their worldwide growth remains impressive - sales up 36% in the US and 24% in Asia - which is why to my eyes they are a so much better prospect than their UK rivals.
However the wooden spoon this week goes to National Grid (down 45p to 531p) which suffered an alarming drop as a result of an OFGEM report about future investment in the UK's power network. The recommendation was that National Grid would have to accept a lower return on the capital expenditure it makes, which would mean it wouldn't be able to charge as much, and (according to some analysts) its earnings would be hit to the tune of 20 per cent. Although I'm no expert on this, I've been monitoring the discussion boards and opinion is divided about how strong NG's bargaining position is and whether they will be able to overturn the regulator's proposed squeeze in discussions with the government. Looks like more volatility on the way then - but no panic selling from me.
One of the main types of capital investment that NG needs to make is plugging in alternative energy suppliers to the network - suppliers like the latest addition to my watchlist, Alkane Energy. They produce power from methane gas that comes out of coal mines and also biogas from decomposed waste. They have grown earnings very effectively over the last two years, their latest trading update was very positive and they have expansion plans for the coming year. I noticed the share earlier in the week at 18.5p, but it is already on the rise and has finished the week at 22p. One to watch.
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9/1/11 That's more like it! Portfolio value £4936.61 (UP 6.8%) : FTSE 100 5984.33 (UP 1.4%)
A fantastic week, all thanks to an upward surge from my star performer KBC Advanced Technologies, which shot up 19p to 78.5p. Part of the explanation for the sudden move may be that the share was tipped in the Sunday Times as one of their likely shares of the year, with the article mentioning that KBC was bound to benefit from an $100 oil price and also speculating that it could be ripe for a takeover.
Whether that's true or not, in my view the increase represents a long-overdue re-rating of the stock (this week alone has taken the P/E from 8.8 to 11.5, which is a more appropriate multiple for a share that is growing its earnings every year). It's also a bit of a milestone that the value of my holding has topped £1,000, as I bought it for £500 and so (with the help of dividends) it has doubled in value since my purchase this time last year. Good stuff.
In other price movements, National Grid (up 23p to 567p) did well despite a week that saw it receiving a £8m fine from Ofgem and its staff voting for industrial action. And it's pleasing to see Education Development International (up 7p to 104.5p) picking up a bit.
The success with KBC has got me thinking about my strategy overall. I see myself as principally a growth investor so I want the core of my portfolio (say two-thirds of it) to be small companies that are growing every year - and might really take off as KBC has done. But since that's a risky business, I want the other third to be large, reliable, income shares. At the moment I've got four small growth companies (KBC, ALL, EDD and GOAL), and two big income shares (FGP and NG), but two that don't really fit into either camp - Tesco and Lloyds. For this reason it's these latter two that I'll be looking for an opportunity to offload at some point during the year.
As a footnote, I reckon that if I concentrate my efforts on those two categories (small caps and defensives) then I should be less vulnerable to the economic cycle than if I was heavily into mining, banks and more cyclical stocks. I think this year will see inflation pose a problem and interest rates might have to go up soon - and when that happens people might be less keen on shares. So I'm hoping if I adopt this strategy it should protect me if there is a downswing, which is bound to happen at some point.
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2/1/11 Looking to get some legs in 2011 Portfolio value £4620.46 (DOWN 1.2%) FTSE 100 5899.94 (DOWN 1.8%)
Happy new year - well, the Santa Rally went and reversed itself in the last week of the year, and my bigger shares in particular fell back a little (National Grid down 13p to 553p, Lloyds down 3p to 66p and Tesco down 14p to 425p) but I suppose it was a case of easy come, easy go. Trading volumes are always low at this time of year so we will have to see what trend develops in 2011.
As it's the end of the year it's time for an evaluation of how I've done. After protracted head-scratching and spending probably too long poring over a calculator, I've worked out that my annualised rate of growth was 6.4%, disappointingly short of the FTSE 100's improvement on the year of 9%. I suppose at least I did better than cash in the bank, but I will be looking to improve significantly in 2011!
One of my Christmas presents this year was a book 'Selecting Shares That Perform' by Richard Koch and Leo Gough (thanks Dad - I've finished it already). One of the most useful things I learned was the authors' method of tracking share performance - they recommend that you work out each share's percentage change each quarter, list all your holdings in order of performance and then draw a thick line to represent the percentage change in the FTSE for that quarter. You then get a sense of which of your shares are outperforming, and if any drop below the line for several quarters in a row then you should give them the chop.
Using this analysis of my year, I can see that in Q1, when the market rose by 4.9%, my only outperforming share out of the four I then held was KBC. In Q2, when the FTSE dropped 13.4%, I was actually doing better in relative terms, with four out of six shares outperforming (FirstGroup, Lloyds, National Grid, Tesco). Q3 saw a 12.8% rise in the FTSE and three out of my six shares (Lloyds, National Grid, Tesco) beat that. In Q4, where the market rose 6.3%, I only had two shares above the line (KBC and FirstGroup).
So, disregarding my two very recent purchases, the only share that has not made a single appearance above the line is Goals Soccer Centres, which in fact has been bottom of the list in each of the four quarters and has been on a down trend all year. I'm going to wait until the annual results come out and then take a decision about whether or not to sell. I must keep in mind my new year's resolution - and be ruthless!
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26/12/10 Thanks Santa - but not for the tips Portfolio value £4676.62 (UP 2.0%) FTSE100 6008.92 (UP 2.3%)
Merry Christmas everybody - well, the so-called 'Santa Rally' was a nice bonus for the portfolio as we approach the end of the year. National Grid (up 14p to 567p) led the way as the cold winter helped energy stocks, but Lloyds (up 3p to 69p), KBC (up 3p to 59p) and FirstGroup (up 8p to 401p) all performed well over the festive period.
When it comes to the end of the year I normally enjoy thumbing through a few investment magazines and getting their tips for the year to come. This year, to put such tips in context, I kept a copy of 'Shares' magazine from Christmas 2009 and revisited their 21 tips to see how well they did. Turns out that 10 of them beat the FTSE, 4 were flat or up by less than the FTSE, and 7 lost money. And while four of their picks were big winners that gained 50% (Victrex, Avocet Mining, London Mining and AFC Energy fitting this category), there were three big losers that halved in price (Eaga, Luminar and Akers Biosciences). All of which shows that New Year tips are to be treated with caution - and also why I switched my allegiance to the Investor's Chronicle this Christmas!
More seriously, this exercise has made me consider whether I should be more disciplined in imposing a stop-loss on my shares. If an investor had bought all 21 of 'Shares' tips at the beginning of the year, but sold any share that dropped, say, 10 per cent, this would cull out the big losers while allowing scope for the big winners to work their magic. In allowing Goals Soccer to drop 25 per cent, I have singularly failed to follow this approach, although it is common sense. Perhaps I shall turn over a new leaf and be more ruthless in this regard in 2011.
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19/12/10 Walk the line Portfolio value £4584.89 (UP 0.7%) FTSE 100 5871.75 (UP 1.0%)
Well, it looks like I've really bought a Christmas turkey this year in the form of Education Development International (down 4.5p to 96p) which has dropped like a stone since I bought in. Of course it goes without saying that I have faith in the fundamentals, but I'm certainly cursing my luck for mistiming the purchase.
Overall, though, not a bad week, with Goals (up 10p to 118p) showing signs of life, despite releasing a statement about how the snow is going to screw up their profits. Tesco (up 6p to 433p) and National Grid (up 5p to 552p) also did well although I still lagged the FTSE slightly thanks to my newest liability (sorry, asset) EDD.
When something like this happens it makes me wonder whether I should be paying more attention to technical analysis factors - i.e. the company might be fundamentally sound, but could the short-term trend in the price be predicted by analysing the share price graph? Unfortunately in this case I don't think it could. The main piece of technical analysis I normally indulge in is to put a 30-day and a 90-day moving average on the share price graph. If the 30-day line is below the 90-day line then the trend is down, so it is often worth waiting until the 30-day line goes up through the 90-day line (the so-called 'golden cross') before buying in.
However this isn't the case with EDD - the trend was certainly down until October, but after that the two lines crossed and then stabilised together. I don't think there were any signs that I could have picked up on. I'll just have to accept that I've bought a volatile stock and wait for it to swing back in my favour.
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12/12/10 A winter of discontent Portfolio value £4554.72 (UP 0.3%) FTSE 100 5812.95 (UP 1.2%)
With miserably cold conditions outside, a tough week at work and student riots going on in London, I suppose I should be grateful that the portfolio has managed to record a positive week at last, halting six weeks of losses - although the fact that the rise is just 0.3% and the portfolio has once again performed worse than the FTSE means this is cold comfort! The most sizeable fluctuations were among my income shares, with FirstGroup up 13p to 390p, but National Grid down another 7p to 548p. Lloyds continues to bounce back (up 2p to 68p) while Allocate Software is also moving in the right direction (up 3p to 77p).
However, what has really got my goat this week is that my newest holding, Education Development International, has fallen to 100p, enough for me to be showing a £38 loss after just two days in possession of the stock. The biggest irritation is not the 4p price fall, which is just bad timing or bad luck, but the fact that dealing costs and a wide spread meant my purchase price was 108.8p - almost 5p more than than the 104p mid-price on the day I bought it. It just goes to show the penalty you pay for dealing in smaller shares - it's a good job I'm planning to keep them for a while.
On a more positive note, earlier in the week I once again calculated the median average P/E ratio of the FTSE 100, and found that it stands at 12.9 - down a couple of points from where it stood when I started this blog, showing that earnings are up and that prices are relatively cheaper as a result. It's pleasing that all my shares have lower multiples than this average, apart from Tesco which is trading at 13.4. And even this has to be taken in the context that Tesco has traditionally traded on a higher P/E - a median of 14.6 for the last five years. The 13.4 is also a point cheaper than it was on 3rd October when I noted it on this blog.
For the record, the others in descending order are Allocate with 11.6; National Grid 10.6; FirstGroup 9.9; Lloyds at 9.1; KBC at 8.3; Goals at 8.1; and Education Development International at 6.9. It's reassuring that all of them are trading on multiples at or below their 5-year median - with the exception of Lloyds (5-y-median 8.1) which, in mitigation, is a totally different entity now from what it was 5 years ago. I hope to keep investing in shares that are both cheaper than the market as a whole and cheaper than their own historical average, so these are useful numbers to keep monitoring.
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8/12/10 SHARECROPPER BUYS: EDUCATION DEVELOPMENT INTL AT 108.8p
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5/12/10 Oh snow... Portfolio value £4042.15 (DOWN 1.9%) FTSE 100 5745.32 (UP 1.4%)
Make that six negative weeks in a row - and another reverse against the FTSE. It's like one way traffic as the portfolio suffers one beating after another - now I know how the Australian cricket team must be feeling at the moment!
The most disconcerting fall was Goals Soccer Centres which lurched down another 14p to 107p. It's not a coincidence that we've had snow on the ground all week - every time it snows 5-a-side games get cancelled up and down the country. Management made a big deal of blaming the snow earlier this year for weakened first-half profits, so it's no surprise that more of the white stuff is seen as bad news. But I think it's high time that as a country we start expecting it to snow at some point during the year, so I won't be impressed if this is used as an excuse again at year end.
National Grid was also down a large amount (22p to 554p) although this is because it has just gone ex-dividend for its next payout (due Jan 19), which tends to have a short-term impact on high yielding shares.
On a more positive note Lloyds has bounced back from its dip last week (up 5p to 66p). For an entertaining diversion I recommend reading Interactive Investor's bulletin board on Lloyds - there are so many posters mainly winding each other up with arguments and opposing predictions. This post was my particular favourite, giving a good perspective on what the poster sees as meaningless short-term panics hitting the share price.
Finally just to note that I am getting my money ready for another buy. While AMS has gone down in price it's still on its relatively high P/E, so it's looking like Education Development International will get the nod for the reasons I outlined last week. I'll invest my standard amount of £500, and it'll be my last purchase of the year (anything else that's spare will just have to go on the Christmas shopping).
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28/11/10 Education, Education, Education Portfolio value £4119.13 (DOWN 1.3%): FTSE 100 5668.70 (DOWN 1.1%)
Well, I'm down again for the fifth consecutive week - and I don't even have the consolation of beating the FTSE this time! Lloyds (down 5p to 62p) was the main culprit as the concerns over its Irish loans continue. FirstGroup (down 13p to 369p) also didn't do me any favours with its ongoing volatility. Needless to say I'm sitting tight though.
As promised I have found another growth share that I'm interested in to add to the watchlist - Education Development International (EDD). I was drawn to this firm by their excellent five-year growth record, their strong balance sheet, and the fact that they are trading at an attractive multiple of seven times earnings. But as they are in the business of awarding accredited qualifications in the vocational training field, I also like their prospects for the future - the government are really keen on driving more vocational training, and further education colleges and company qualifications might become a boom area as the price of a university education goes up.
The eagle-eyed observer will note that in adding EDD to the watchlist, I have removed JD Wetherspoon instead of Advanced Medical Solutions as I suggested I was going to last week. Well, I reserve the right to change my mind! I would definitely need there to be a price fall before putting my money into AMS, but I've decided it's probably more worth keeping an eye on than the pub company. My thinking is that I want to slant the portfolio more towards growth shares from now on; JD Wetherspoon is really quite a mature outfit and it's questionable how much more growth there is to come - it's fair to say that most town centres already have a Wetherspoon pub.
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21/11/10 In search of the National Quid Portfolio value £4174.17 (DOWN 0.2%): FTSE 100 5732.83 (DOWN 1.1%)
A fourth consecutive negative week for the portfolio, although to look on the bright side, it's a tiny fall and I fared better than the index once again. The banking sector slid this week amid worries about the looming bailout of the Irish economy, so Lloyds (down 3p to 67p) was a poor performer, but this was balanced out by some encouraging upward movement by my newest holding Allocate Software (up 4p to 79p).
However, the most infuriating aspect of the week was that National Grid fell 9p to 579p despite releasing excellent profit figures for the first half of the year. It just goes to show the extent to which the whims of the market are disconnected from a company's fundamentals. In fact I've noticed there's often a perverse reaction to annual and half yearly reports, where an apparently bad set of results leads to a rise and a good-looking performance can lead to a drop. I suppose it's because expectation about profits one way or the other becomes built into the price in advance of the report, so that when it actually comes out the price just reflects how much the truth varies from that expectation. Nevertheless, National Grid is doing fine and I've got to remember that it's an income share in any case, so I'm not counting on much capital gain.
On my new watchlist, Advanced Medical Solutions got a touch cheaper (it's now at 72.5p) but unfortunately it would really take a significant fall for me to consider buying, as it's trading on a whopping P/E ratio of 23 times last year's earnings. It's a great company but I might have missed the boat here I think, so perhaps I'll cut it from the list next week and scout out another growth company to replace it.
As a rule I avoid buying anything with a P/E of higher than 15 (I've recently added this to my 'principles' tab) so rather than waiting around for a big drop that may never happen, I might as well use the watchlist more constructively and find something that's attractively priced. I'll get searching and tell you my findings next week!
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14/11/10 All along the watchlist Portfolio value £4184.67 (DOWN 0.4%): FTSE 100 5796.87 (DOWN 1.3%)
I've hardly glanced at the market this week as I was away on business working three 12 hour days in succession - but it looks like nothing too dramatic has been going on in my absence. The portfolio was slightly down for the second week in a row - the main movement of note being FirstGroup down 20p to 386p. This is probably just profit-taking after their good run recently - the latest half-year report last week left me nothing to be concerned about. At least I was up against the FTSE again, after those pesky miners fell back a bit.
This weekend I've decided to add a 'watchlist' to the bottom of my portfolio snapshot, so I can track the price of three shares that I'm currently considering buying. Advanced Medical Solutions is an attractive growth share that I've mentioned previously, on which I'm hoping for a dip in price (the astute reader will notice that I said it was overpriced at 65p and now it's risen to 75p!). GlaxoSmithKline would be a much more conservative pick, if I was looking for another high yielding share - I haven't got a pharmaceutical firm yet in my portfolio and I have a long-standing regard for the company. JD Wetherspoon is another company that I've long admired in its sector (and not just for its cheap beer), and looks good value right now.
One business news story I noted this week was that the Gartmore share price has collapsed following the retirement of a star fund manager. The reason it made me choke on my cornflakes was that my favourite investment columnist, Peter Shearlock of the Sunday Times, has Gartmore in his Heaven & Hell Portfolio - as part of the 'heaven' section of low-risk shares! Oh dear. Peter S is still a legend though - I know he'll write about what went wrong in his next column... and you can expect a similar candour from me when any of my shares go down the toilet in due course ;-)
Finally, I talked to a friend of mine who works for Lloyds last week and he has reassured me about the prospects for the shares - so I don't think I'll be selling just yet. My reasonably-well-placed contact told me that all of the bad news re toxic debt has already been released and he's pretty bullish on his own (substantial) holding in the medium to long term.
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7/11/10 A bit of Miner difficulty Portfolio value £4201.96 (DOWN 0.7%): FTSE 100 5875.35 (UP 3.5%)
For an investor who is trying to beat the FTSE 100, this week was an abject failure - the index gave me a thorough walloping, enjoying its best week since I started this blog, while the stocks in the Sharecropper portfolio suffered a small drop (nothing too significant; the most noteworthy falls being Tesco down 6p to 420p and KBC down 1.5p to 55p). I therefore give back all the gains I have made against the FTSE during the last four positive weeks. Oh well, that's life.
One reason that my portfolio is unlikely to mirror the main index when it experiences such a surge is that I don't have any mining shares, which are heavily represented in the FTSE 100. The giant mining firms like BHP Billiton, Rio Tinto and Antofagasta all went up 5-10% in the week, giving the index a real boost. It's by no means the only sector doing well (the wider FTSE All-Share index was also up, but not as much) but when the graph heads steeply upwards the miners always seem to lead the way.
However, there are a few reasons why I don't own any mining shares at the moment. For a start, I don't know anything about the sector - always a handicap, but I'd be willing to do some homework if I thought it was an essential area. However, it's the unpredictability of these companies' profits (and the resulting volatility in their share prices) that puts me off. Mining profits seem to be inexorably linked to a host of macroeconomic factors such as currency fluctuations and commodity prices, which make forecasting difficult and investing in them a bit of a lottery unless you really know what you are doing. As I'm a long-term investor I would rather invest in steady income shares or something that promises growth over many years, rather than something that is subject to short-term volatility and will potentially be the first to take a dive the next time the market crashes.
Of course, a lot of these comments could also apply to the banking sector (heavyweight in the FTSE, volatile, and subject to macroeconomic factors) but at least my Lloyds Banking Group purchase was made when the shares were at a very low ebb and so it's a conscious recovery play. However, I wasn't too enthused by Lloyds' quarterly trading update this week because of the scale of the toxic debts they still have on their balance sheet. It's the sort of thing that takes me out of my comfort zone as an investor, and I'm beginning to think that my finger should be hovering over the sell button.
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31/10/10 On dividends and defensives Portfolio value £4231.88 (DOWN 0.3%): FTSE 100 5675.16 (DOWN 1.2%)
The markets were down a bit this week, but the Sharecropper portfolio suffered limited damage thanks to gains from FirstGroup (up 11p to 408p) and National Grid (up 4.5p to 590p). That's the way it should work - this pair are my defensive holdings which should hold their own when my more flaky shares (such as Lloyds which was down 3p to 68.9p) take a hit.
As I've already given an exhaustive account on this blog of how I go about choosing a growth share, perhaps it's time I did the same for my high-yielding income shares. It's a much simpler process - not least because I limit myself to choosing from very large, stable companies that are among the biggest 200 firms in the country (i.e. the FTSE 100 and the top 2/5ths of the FTSE 250 below it). There's two reasons why I pick from this set - firstly it's good to cast the net slightly wider than the FTSE 100, and secondly it's particularly convenient for me since my weekly Sunday Times publishes a list of the top 200 with all the important stats in its Databank section.
Looking at the yield figure (which expresses the value of the dividend as a proportion of the price) I go through the list with a highlighter and mark the 20 shares with the biggest yield. Currently the highest yielding share is Cable & Wireless (9.5%), followed by Provident (8.6%), Catlin (8.1%), Phoenix Group (7.0%) and RSA Insurance (7.0%). National Grid is in 11th (6.3%), FirstGroup is 18th (5.7%) while the 20th ranked share by yield is Man Group with 5.6%.
The problem in making a selection on this simple measure alone is that often a share will be propelled into the high-yield category for a short time because its share price has slumped - in which case the dividend might well be cut at the next opportunity. The best way to guard against this is to look at the company's recent history (I keep a cutting of the Databank list already referred to every quarter) and make sure that the firm consistently ranks in the top 20 as a high dividend payer.
Assuming a company passes this test, and it's a sector I fancy in my portfolio, I then look at the P/E to check I'm paying a fair price. I also check: that's it's turning in consistent profits (and ideally growing); that it hasn't got too much debt on its balance sheet; that I like the look of its share price graph; that directors are buying not selling; that the flow of news stories is positive and that brokers are rating the company well. I'll also read the company's report, although I must admit that I find larger company's reports much more difficult to interpret usefully than smaller ones (they're also often the size of a hefty brick!)
I'll finish this entry by allowing myself a pat on the back for beating the FTSE four weeks consecutively. However, to keep my feet on the ground, I've been reading a book this week ("Fooled by Randomness" by Nassim Nicholas Taleb) which is all about how the role of chance in the markets, and life generally, is persistently overlooked. He writes that even for the most successful of traders who consistently achieve 15 per cent growth a year, the chance that their stock rises on any given day is barely more than 50%, and is only about 65% for any given month. I'm quite sure that luck has played a big part in my progress so far.
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24/10/10 Portfolio in seventh heaven Portfolio value £4246.38 (UP 1.2%): FTSE 100 5741.37 (UP 0.7%)
With George Osborne carrying out his comprehensive spending review on Wednesday, this week was all about public sector cuts - which might beg the question of why I have just invested in a software company whose main customers are in the health and defence sectors. Fortunately Allocate Software, which has just become the seventh share in my portfolio, sells products that help save employers (particularly NHS trusts) money, so tightened purse-strings in the ranks of public services should boost the company's appeal - as this article from earlier in the year explains.
One of the worst pieces of news from the Chancellor's speech was actually a fillip for my portfolio, as the government lifted a cap on fare rises for transport companies from 2012. This sent FirstGroup's shares up 25p (to 396p), although since I'll be one of the commuters paying the increased rail fares, I suppose I shouldn't be too smug.
Elsewhere, Lloyds ticked up 1p to 71.9p as investors decided that the newly announced tax on banks wasn't as bad as expected, and KBC continued its good run by putting on another penny to finish the week at 58p. On the negative side, Goals Soccer is still heading south (down 5.5 at 126.5p). From what I can work out, a lot of the recent fall is because one of the major institutional shareholders (BlackRock) has been reducing its stake. No idea why this might be, but the company still has some hefty institutional backing from the likes of Standard Life, the BT pension scheme, Scottish Widows and Lloyds - plus the firm's directors have been buying shares recently rather than selling - so there is some comfort there for a long-term little investor like myself.
Incidentally, the last few weeks I've been reading this rather excellent blog by a chap called Ian Hallett, The Sunny Day Investor. I've really learned something from his analysis of balance sheets - in particular, the importance of a positive working capital and in seeking companies that are cash rich and debt-free. While my recent purchase of Allocate Software fits this profile, I am aware that Goals Soccer Centres has larger than ideal borrowings (£38 million in the last annual accounts) and this is a factor which might be putting some investors off. However, these debts are non-current, spread over many years like a mortgage, which makes sense when you consider that their business is growing over multiple sites, the property for which all has to be bought or leased. I'll certainly watch for the debt figure in the coming annual accounts, but it's not a concern for me at the moment - I'm more interested in whether they can keep their profits and earnings going in the right direction.
Just to end on an upbeat note - that's three weeks in a row I've beaten the FTSE - get in! Surely I'll be due a reverse next week... but I hope not :-)
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21/10/10 SHARECROPPER BUYS: ALLOCATE SOFTWARE AT 75.6p
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17/10/10 New money to be Allocate-d Portfolio value £3701.07 (UP 1.1%): FTSE 100 5703.37 (UP 0.8%)
Limited movement generally on the portfolio this week, with my main gains being down to the KBC bandwagon rolling on - after putting on another 4p to 56p, it's now my most profitable share and kept me slightly ahead of the FTSE for a second week running.
My main news is that I've been getting down to some serious stock-picking and have settled on what I'll be investing in next. My process for choosing a smaller growth share always starts with the stock screener system on my broker's website where I set various starting filters. This time they were a Market Cap of over £10m and under £100m, a P/E of under 12, a PEG of under 0.7, and a four year average EPS growth rate of 15%. Next I strike out sectors that I definitely don't fancy (for starters I hate anything involving insurance or investment trusts - just inbuilt prejudices). That's the first stage and this time left me with about 40 company names.
I then go through the top line financials for each (the Halifax Marketwatch site gives me their record for the last five years) and apply a few manual checks - striking out anything that has failed to grow for more than one year out of the five, or failed to grow in the year just gone, or has an insufficient track record. I also take out anything where the consensus broker opinion is anything other than 'buy' (brokers aren't always right, but if they are saying 'sell' then lots of people will listen and it might be a self-fulfilling prophecy). At the end of that I have a shortlist, which had ten names on it in this case.
Next I look at the balance sheet and view with suspicion anything that's got too much debt compared to its cash in the bank, or is running with a negative working capital (current liabilities more than current assets). I also take a look at whether the directors have been buying or selling, whether the share price graph shows relative strength (i.e. whether it's heading in the right direction!) and check out the recent news flow and most recent company report to check that the board is optimistic and there haven't been any bombshells recently. Once I am left with just two or three favourites that I'm convinced are great companies I consider their relative P/E ratios (especially against their historic P/Es and against each other) to make sure I am getting them at the right price.
After that long introduction I can now announce my selection was... Allocate Software (ALL), a provider of workforce optimisation software. It's currently trading at 73.5p and a P/E of 11.1, so I hope to snap up £500 worth of shares this week. I'll write something on the Portfolio tab about why I like it once the deal goes through.
I'd also mention that a close second place was Advanced Medical Solutions (AMS), which has been on my radar for a while and I think's a fantastic company, but is now just a bit overpriced at 65.5p. I should have bought it earlier in the year. If it goes down for any reason I would snap it up.
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10/10/10: Mexican contract win spices up KBC Portfolio value £3661.01 (UP 3.0%): FTSE 100 5657.61 (UP 1.2%)
A strong week for the portfolio, almost all due to KBC's announcement of a major contract win with Mexican client Pemex Refinacion, said to be worth £27 million over 30 months. This was a timely piece of news for KBC, coming on the back of a mixed set of interim results at the end of September - these showed decreased revenue for the first six months of the year (£25.6m down from £27.1m for the period in 2009), but increased profit (£1.8m up from £1.5m) thanks to a cost reduction programme. Management continually stress that the second half of the year is traditionally better for the company so I'll be watching this carefully. In any case, it's great to see the share price stage a breakout from the 40-48p zone it has been trading in for quite some time.
Tesco also unveiled interim results this week which showed the company's amazing growth story continues - you can't argue with a 12.3 per cent increase in earnings per share and a similar rise in the dividend. The only negative this week was that rival Sainsbury's also released results which show better like-for-like growth (see this Guardian article) but I'm not bothered - Tesco is opening loads of new stores in the second half, is much better internationally (especially in Asia) and its American business, although still loss-making, looks like it is on the rise. My Tesco shares went up 1.9 per cent this week to 436.4p so I'm clearly not the only one thinking this way.
Meanwhile the sick man of the portfolio is Goals Soccer Centres, which lost another 9p to finish at 132.75p this week. Looks like speculation over the VAT status of five-a-side football pitches could be hitting the stock. As a long-term investor, though, I'm going to try and ignore this sort of thing. At least FirstGroup has nudged into the black (at 371.7p) meaning Goals is my only loss-making investment at the moment.
Still readying my cash for a new purchase soon... when I buy you'll be the first to know.
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3/10/10: Trying to keep on track Portfolio value £3553.19 (DOWN 1.2%):FTSE 100 5592.90 (DOWN 0.1%)
This was my first week back at work after a long holiday, and with it barely stopping raining all week, it felt like a fairly grim business getting the train each morning. The only consolation as I tried to find breathing room in the crowded carriage was that FirstGroup, whose shares I own, are obviously not struggling for customers! This impression was confirmed on Wednesday when the firm released a trading statement showing a 4.4 growth in UK rail revenues. There was a slight uplift in the share price as a result (albeit not quite enough to put me back in positive territory). FirstGroup's other news was that chief exec Moir Lockhead has just announced his retirement - but his replacement Tim O'Toole is obviously seen as a safe pair of hands, as this barely moved the market.
That aside, it was a quiet week, with the portfolio dipping slightly in value across the board. As you'll see, I'm going to benchmark on a weekly basis against the FTSE 100 - so there's nowhere to hide from the reality of my portfolio's relative performance.
Now my finances are getting back in order after my holiday, I'm planning to buy another holding in the next week or two. It'll probably be another smaller company, to restore the balance in my portfolio (I've got four biggies and only two smaller ones right now) but also because I can't see many bargains in the FTSE 100 at the moment. Earlier in the week I calculated the average P/E ratio in the FTSE 100 as 14.8 - approaching the long-term average of 15, and somewhat surprising as the outlook for the economy is hardly a bed of roses.
One reassuring thought is that every share in my portfolio has a P/E ratio of less than 14.8 - Tesco is the highest with 14.5, a figure which I'll have to keep my eye on. I'd consider taking profits on my favourite supermarket if it started looking like it was overvalued - but not yet.
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26/9/10: A big hello Portfolio value £3595.53 : FTSE 100 5598.48
Welcome to the first entry of my new investment blog, in which I hope to chart my course from rags to riches, and share all the ups and downs along the way. I'm calling it the Sharecropper because: a) it calls to mind the image of a small tenant farmer struggling against the elements to grow his patch of crops and forge out an honest living; and b) it's the only decent pun I could think of involving the word 'share'.
The sums involved aren't massive, but don't let that fool you into thinking that the money I'm investing isn't significant to me. It's all I've got to spare at this time in my life, and I'll be taking as much care over the decisions as I would if I was managing a fortune - which hopefully, by the end of my time on this blog, I will be...
My main reason for starting the blog is that I've always enjoyed newspaper columns where a journalist writes about his own portfolio of shares. Unfortunately I've noticed that many of these are short-lived, being all the rage in a bull market but being axed as soon as the economy hits the buffers and the portfolio suffers a setback. Even the more long-running examples of the genre don't typically put a monetary value on the shares held, so you don't know whether the writer is investing £100,000 or 10p and the reader can't fully identify with the joy or pain of the gains or losses. I plan to write the kind of investment blog/column I would like to read - one that is in for the long haul, that people recognise as authentic and one that hopefully will entertain along the way!
At the moment I'm still building the portfolio - I've got six shares and I really want ten to be adequately diversified - so there will be much more buying than selling. My six holdings are Goals Soccer Centres, Tesco, National Grid, KBC Advanced Technologies, FirstGroup and Lloyds Banking Group. You can read more about my thinking in choosing each of these shares in the 'Current Portfolio' tab, and find out the general principles I'm using for picking the portfolio under 'Investment Principles'. The section 'Useful Stuff' gives links to sources that I've found helpful in learning to be a private investor. 'About Me' contains a limited amount of personal information while 'Progress Track' has an table where I'll chart my portfolio's performance over the years.
You can send me feedback, advice or abuse by e-mail at sharecropper@hotmail.co.uk and follow my musings on Twitter - my alias is sharecropper1.
Here we go then!