What a great term, ‘variant perception’. It sounds both straightforward and intelligent. The meaning is also both simple and profound. How does what I think differ from what everyone else is thinking?
Well, if you take a moment to consider it, you’re really not going to do particularly differently to the average if you lack a variant perception. Equally, it’s worth considering that the ‘crowd’ could very well be correct in their thinking, and by seeking to be contrarian too often, you may end up fighting against the tide.
What this whole Value Investing business boils down to is the attempt to find better-than average businesses at lower-than-average prices. Ideally you’ll find a superstar business at a price usually reserved for basket cases, but that may be a wish too far for most of your lifetime (incidentally these wishes were coming true for brave investors back in March 2009).
Well, having tried both the global macro approach to investing, and the value investing approach, it just seems to me far, far easier to have a useful insight and a ‘variant perception’ in the field of relatively simple-to-understand businesses (micro-economics) than in the field of enormously complex and difficult-to-understand global economies (macro-economics). Not to say that the latter is impossible, I just personally find it much, much harder most of the time.
Being a fairly simple soul, and thinking that results gained from less effort are superior to those gained via more effort, the value approach seems preferable to me over the alternatives. This is especially true with small sums of money to invest, however I can see how things would change as the pool of capital under management gets large enough to limit your investable options in the equity space.
Back to ideas and performance, as it’s the end of the year. Some mixed luck came my way on the 11th of December. HMS, spiked up in price on news of an all-cash bid taking place. The price went from 125p to 215p in the course of the morning, and has been gradually ticking up towards the 233p takeover price ever since. This sort of luck is something that I’m very happy to receive every once in a while, although it is somewhat mixed as the company would be worth far more if it could secure reasonable funding from the banks. In the absence of available credit, it makes sense for them to sell out to a well-financed entity, but the deal was struck at a lower price to the acquirer than I think the enterprise was worth.
Anyway, that provided a nice boost to the portfolio to end the year up 24.1% versus 27.6% for the FTSE 100 index with dividends reinvested. Since inception the portfolio is now up 80.3% versus 31.8% for the FTSE and 1.9% for the S+P. Over the past 3 years the portfolio is now up 52.7% against returns of -1.0% for the FTSE and -16.0% for the S+P, also with dividends reinvested. Long may the outperformance continue!
In terms of current ideas, I’m looking at a US stock that builds GPS units, called Garmin, Interior Services Group and Lo-q in the UK, as well as Velosi and a fair few others. I’ve also been screening for new ideas via the Company REFS service and via the Bloomberg system, which has produced a cacophony of stocks to research in more detail. I’ve been meeting a few hedge fund managers to hear how they invest and talk about my ideas with, as well as some potential investors.
Well, a new decade is here and it’s time to look ahead. Significant uncertainty is all around, but this is always true no matter what the talking heads or wisdom of crowds tells you. I’m very pleased to have kept a record of the past year as it could well prove to be one of the most instructive (and possibly constructive) 12 month periods in my life. Whatever happens next, I’m guessing my role will be far more in-line with my ideals than in the past, which is a pretty nice thing to be able to say about your outlook, even if it’s not a particularly variant perception.
Showing posts with label hms. Show all posts
Showing posts with label hms. Show all posts
Thursday, December 31, 2009
Friday, July 31, 2009
Live your life like a thrown knife
The title comes from a Todd Skinner quote, a hugely successful and motivated climber who sadly died a few years ago. The very concept appeals to me greatly, but the truth is that I've not exemplified the concept since my last posting.
In the markets it's been a fairly poor month for me, coupled with an odd sense of further positive reinforcement for both the value ethos and my potential skill as a stockpicker. The tragedy still remains that I have revisited the bearishness that I need to extricate myself from, and have done so not just with the purchase of put options, but with the sale of call options. Expiry is in September, so could all pan out in a positive way, but really I should be focussed on the search for value and the exploitation thereof. Not the search for direction, and the speculation thereon.
The most interesting move in the stocks I've been following would have to be that of HMS. From highs of around 145p (as mentioned below), the stock positively tumbled following an announcement from management that margins would contract in 2009 - something that had been clearly noted in the 2008 annual report. So not very big news, in my mind, but Mr Market voted the stock down to 110p, then 105p, swiftly followed by a low of 95p a week or so later. Supply outstripped demand., you could say. But in a small corner of France, close to the Swiss border, a rump of demand was buying as much as he could.
That particular story is still in progress. The stock got as low as 2x last year's earnings. Margins were noted as falling, but not collapsing, and revenues were reported to be up on last year. The product is strong and services a niche of the oil industry which is cash rich. All quite bizarre, and one to watch. It really looks like a $150m company to me and trades for around $60m. If it continues to grow as it has been the $150m valuation will look conservative. Definitely a value play, or I've just not uncovered why the market sees it as such an inexpensive company. One to watch for sure.
On the stockpicking front, another stock I was following last year has been having a good run of late. Michael Page, a recruitment agency, doesn't exactly sit in the recessionary sweet spot. Particularly in the UK where it services a large proportion of financial sector clients. However, my basic thesis was that demand for their services in emerging economies is set to grow as service sectors emerge to satisfy the needs of a growing middle class and increasingly complex 21st century societies. Happily they don't hedge their foreign earnings, so a falling pound is good for profits (aside from the causal or secondary effects).
Anyway, apart from the above, it just looked way too cheap for the potential growth possibilities and extremely strong management team. Essentially a value play with a potentially long-term investment horizon. So I bought. So far so good. Then, during the March rally (which continued into May!) I sold for a tidy 20% profit. This is, in hindsight, another in a string of disastrous moves during 2009 so far. Not so tragic in taking the profits, but buying at £2, with a future view of a value at around £10/12 (discounted to today to give £5/6) and then selling when the stock got to £2.40 was not exactly in-line with the philosophy of a value investor. The bearish sentiment ravaged my holdings and with the stock now over £3, the decision to sell isn't looking too wise.
Well, those are two stories of a few stocks I've been following recently. Equities are up, whilst the economy remains in the pits. There is work to be done on Nexen Inc, a Canadian energy provider with interests in the North Sea, as well as William Hill (back below where I sold my holdings in March) and Man Group (still hovering around 285p, pricing in a halving in AUM). But more interesting stocks may be uncovered during a two week stint with one of London's better investors, as I have an internship with a man at the top of the small-cap league tables planned for the middle two weeks of August. Hopefully I'll learn lots and be of some use to him. Time, as ever, will tell.
In the markets it's been a fairly poor month for me, coupled with an odd sense of further positive reinforcement for both the value ethos and my potential skill as a stockpicker. The tragedy still remains that I have revisited the bearishness that I need to extricate myself from, and have done so not just with the purchase of put options, but with the sale of call options. Expiry is in September, so could all pan out in a positive way, but really I should be focussed on the search for value and the exploitation thereof. Not the search for direction, and the speculation thereon.
The most interesting move in the stocks I've been following would have to be that of HMS. From highs of around 145p (as mentioned below), the stock positively tumbled following an announcement from management that margins would contract in 2009 - something that had been clearly noted in the 2008 annual report. So not very big news, in my mind, but Mr Market voted the stock down to 110p, then 105p, swiftly followed by a low of 95p a week or so later. Supply outstripped demand., you could say. But in a small corner of France, close to the Swiss border, a rump of demand was buying as much as he could.
That particular story is still in progress. The stock got as low as 2x last year's earnings. Margins were noted as falling, but not collapsing, and revenues were reported to be up on last year. The product is strong and services a niche of the oil industry which is cash rich. All quite bizarre, and one to watch. It really looks like a $150m company to me and trades for around $60m. If it continues to grow as it has been the $150m valuation will look conservative. Definitely a value play, or I've just not uncovered why the market sees it as such an inexpensive company. One to watch for sure.
On the stockpicking front, another stock I was following last year has been having a good run of late. Michael Page, a recruitment agency, doesn't exactly sit in the recessionary sweet spot. Particularly in the UK where it services a large proportion of financial sector clients. However, my basic thesis was that demand for their services in emerging economies is set to grow as service sectors emerge to satisfy the needs of a growing middle class and increasingly complex 21st century societies. Happily they don't hedge their foreign earnings, so a falling pound is good for profits (aside from the causal or secondary effects).
Anyway, apart from the above, it just looked way too cheap for the potential growth possibilities and extremely strong management team. Essentially a value play with a potentially long-term investment horizon. So I bought. So far so good. Then, during the March rally (which continued into May!) I sold for a tidy 20% profit. This is, in hindsight, another in a string of disastrous moves during 2009 so far. Not so tragic in taking the profits, but buying at £2, with a future view of a value at around £10/12 (discounted to today to give £5/6) and then selling when the stock got to £2.40 was not exactly in-line with the philosophy of a value investor. The bearish sentiment ravaged my holdings and with the stock now over £3, the decision to sell isn't looking too wise.
Well, those are two stories of a few stocks I've been following recently. Equities are up, whilst the economy remains in the pits. There is work to be done on Nexen Inc, a Canadian energy provider with interests in the North Sea, as well as William Hill (back below where I sold my holdings in March) and Man Group (still hovering around 285p, pricing in a halving in AUM). But more interesting stocks may be uncovered during a two week stint with one of London's better investors, as I have an internship with a man at the top of the small-cap league tables planned for the middle two weeks of August. Hopefully I'll learn lots and be of some use to him. Time, as ever, will tell.
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