May Week 4 - Woe is Me, And What?

Woe is Me - And What? 

Portfolio Review

Not much happening during the week. BOTB, Tate & Calnex detracted from the portfolio, the latter on results, whereas a strong update from SDI and well received updates from WHR & Ixico.

One of the more useful things I did was put my current holdings and start tracking the portfolio in Stockopedia after all the changes on previous that hadn't been tracked. 

Good to view allocation / Stockrank style stats and so on.

Worth doing this with the other portfolios & potentially showing a consolidated of everything too (but stocko treats a lot as unallocated)

Anyway, as far as the allocation is concerned (sectoral):

Sizeable overweight to technology sector and given Calnex add, makes sense to remove Elco.

Large overweight consumer cyclicals, driven by BOTB / GAW which are two largest holdings.

Overweight healthcare, BVXP & SDI being drivers.

Underweight materials, no exposure to energy or utilities

Underweight consumer defensives

I was quite surprised by the last underweight given it is a sector I have a penchant for - PFD in this scenario would make a good addition.

Happy with the overweights, especially the stocks driving the exposure (although maybe having thoughts about position sizing with BVXP). 

Technology overweight is a little on heavy side but then the index is to its detriment a sector that is very attractive.

Again some ex post justification but makes sense to cut ELCO & replace with PFD - given s/holder/board relation concerns with ELCO probably not willing to add and it is not going to be big enough to make a difference, whereas I would be willing to buy PFD in reasonable size given the balance sheet improvement & margin progression, international and buyout potential + all round defensive characteristics.

It might be worth doing a review on the styles / ranks as well - see where things are at in terms of composition vis a vis styles & assessing the lower rank companies.

Cursory Market/Macro Observations

Market mania with meme stocks, albeit this is probably colored by the fact that you are writing this late - don't do that.

A very nothing week - short week, running up to long weekend and month end. Probably some window dressing.

Think we are in a phase where there is a whole heap of churn but calm at top.

Lessons:

A big week for lessons actually, some related to Calnex, your general mood & actions as a result.

It was pretty much a continuation of your anger from the previous week, so just to set the record straight and some home truths:

From a portfolio damage perspective (and while not the same action with Calnex), I would like to remind you of your yet to be published series of Lessons from 2020 & in particular November 2020.

To that end, and in the interest of patting your own bank - Q1 7% (ahead of ASX), April 5% (ahead of ASX), May -1% (ASX only 1%).

In Chamath percentages, I am 60% & 80% ahead of the benchmark to May - obviously that Maths only applies to the upside!!

Your portfolio core approach is you want to be ahead/flat in poor markets & don't mind being slightly behind and that is in play.

Probably far behind vs twitter - and you can do things to address that, but your portfolio is more holdings / bigger M/Cap (perhaps a little too "professional") and underexposed to some of the areas driving returns - in that context - being in the wrong sectors/style, your performance isn't too shabby.

For all you know, some returns are based on leverage, invested in special situation micro-caps by billionaires on defined benefit pensions - you either cannot play that game, are not playing that game or 

THE OTHER PLAYERS ARE BETTER THAN ME - WOE IS ME - GET OVER IT.

PLAY YOUR OWN GAME WITH YOUR OWN RULES & YOU CAN'T LOSE!

You play the hand you are dealt - you think bailouts and policy rescued a heap of stuff that you didn't buy and are now watching other people get rich.

They took the risk - you didn't, you could have! You saw a lot of these things, you thought they were attractive.

Who cares if other people are getting rich - good for them, and if you do have a problem with it, jump on, or shut the eff up and move on! In very simple terms, either take a dump or get of the pot - but the whole woe is me is not acceptable. 

From a positive perspective, you should perhaps back yourself a little more. But in part it was a decision on portfolio construction / number of holdings - that is something that can always be reviewed.

And on the +ve front - things you were absolutely right about throughout 2020:

Exchange with Leo on twitter re value - that it was the ultimate puke trade.

Exchange with Mojomomgoz on twitter re GMO - it makes perfect sense to have allocation to financials/energy, especially given the index composition

Duke, Vertu, Lloyds, MNG

In fact, you may find a lesson in 2021 is being too wedded to a style/dogmatic about portfolio churn.

On this front, as much as you like the idea of being a Buffet & the such like and having low churn in your portfolio, the fact is one of the reasons they do it is that they need to put a few 100 million  or billion to work.

You sadly do not have this problem

Calnex - Oh my word were you displaying every cognitive bias imaginable when reading these results. Happy to open them, very glass half full.

Interestingly, everytime there was something you flagged they answered and this left you very positive mindset, and you opened with that - this may have been unconscious seeking.

That said, in the cold analysis of the results (notwithstanding the risks around concentration), it was a good set.

So in short - don't love a stock - in fact maybe try and do something to calm down/depress the adrenaline on larger positions or where you are expecting something very positive.

Secondly, do not trade on the results day - almost never will it matter as there is a lot of noise and emotion - as per your note above. Just leave it alone and let the price settle down. Unless it is an absolute blow out, it is going to pull back - bias to inaction!!

Snoozing & Losing - you have been lazy lately, especially in terms of the new research - there are other excuses too, eg don't want to add any more holdings / being in your funk! - but you need to have your list ready for when you want to act.

Further, the laziness has cost you with PFD (10-12% at moment).

In particular, you could have been aggressive with this - as it stands the results, dividend announcement, debt re-financing is playing exactly as you thought.

Indeed, you sold expecting some short term weakness - CORRECT

Sold from Taxed with intention of buying in SIPP as it would become a dividend payer - CORRECT

Didn't buy in SIPP on further weakness (POOR EXECUTION/EMOTION) & When results further confirmed your thesis and there were opportunities you did not execute - VERY VERY WRONG

Part of the above hoo haa is a function of you buying SBUX rashly, and also the purchase of ELCO (where you were rushed and perhaps a little ill disciplined on valuation). Avoiding the former would have left cash for PFD and been more profitable!!!

As for ELCO, notwithstanding the rash purchase, looks like a buyer came in. However, there is some noise around shareholder resolution and how they talked about it - does not seem shareholder friendly behavior - which in the context of your dogma about being a long term holder, is not a good sign.

Further, this company does not have a patch on Autodesk - so if comparing to them and cheap, there is a perfectly valid reason.

Selling ELCO and replacing with PFD would add more balance given  the large overweight in technology and what was surprisingly an underweight in defensives.

Transactions

Sell VHYL & SJPA 

Planned move to get rid of passive investments - sold all ETFs in own portfolio - will enable purchase in wife portfolio to use uninvested cash.

Sell SBUX

A perfectly solid company and a good business. However, you already have JDE Peets in the Euro shares (not tracked), which has a re-opening story and on a far more attractive valuation than SBUX or GRG.

Secondly, being pissed off with Greggs share price performance (and full credit to them & poor analysis/cojones/execution by you) is not a reason to buy SBUX - it may be a reason to buy Greggs! 

Add CLX

Want this to be a large holding - I think it has a 3-5 year double digit growth runway and potential to enter new markets beyond its core. Capital light, excellent quality metrics & high level of management ownership. 

Share price while popping on results pulled back substantially (down 20%). While results were strong, the outlook was cautious but there is a structural growth and medium term trend remains in tact.

This could have been purchased 20% cheaper - pay heed to the lessons above!!!

Portfolio Risers

SDI up 12.4%

• Robust in April & May across all businesses - further & welcome return towards normality
• Revenue 35.3m (exp 34m) & PBT 7.4m (exp 6.7m) - 2022 42 & 8.7m for 2022.
• Update well received being slightly ahead of substantially upgraded expectations.
• Positive - Investment thesis in tact - Hold to Add - position size

IXI up 5.95%

• Update well received, although personally I thought there were some signs to worry about. Winn conitnue to hold as it is a long term growth and for now signs are positive as is the business momentum - similar to Calnex, a structural growth area.
• Revenue up 8%, GM 67%, (4.9m vs 4.6m & 3.3m vs 3m). 0.9m EBITDA, up from 0.7m - margin at 18%
• Cash of 7m, EPS 1.78p. 9.4m new contracts signed post period & order book at 19m, vs 15m in PY (7m hit from lost contract - FY 20 21.9m)
• R&D in analytical tools for image recognition & investment in recognition platform/Msft partnership
• Expect levelling off in growth over 18 months (lost client and ongoing CoVid dramas) 
• More diversified client base & more Phase 2 trials in revenue - supports medium term - assuming those trials are successful
• Op Ex flat at 3m, 0.5m capitalised in R&D, Op Profit 0.6m - receivables look like they are building up - given client base, should be limited credit risk but given lost contract, is there a dispute - again unlikely given that work is continuing with customer.
• Neutral to Negative (but maybe not) - Investment thesis in tact - Hold

WHR up 5.9%

• Results well received and doing what it is supposed to, however, purchasing at lower net initial yield and the sector is trading at a sizeable premium to NAV.
• Is part of the do nothing portfolio - but see your note above about whether you are being too dogmatic about doing nothing.
• NOperationally a very good year but the valuation uplift in theory is a single period event that can't repeat and lowers yield on value & in theory forward yield.
• Neutral to Negative - Investment thesis in tact - Hold to Sell

Portfolio Fallers

CLX down -6.5%

• Excellent results for 2021 but there was a level of pull forward and presumably this with very cautious guidance suggests that maybe there was sizeable growth disappointment
• Reading the results, I was on the whole pleased and management come across as very cautious and then deliver. The longer term story remains in tact.
• That said, there is a high level of concentration in this business (Kelvinside on manufacturing, Sprient on Distribution & fairly concentrated customer base)
• Market did not like the report much
• Pay heed to the list of lessons on this one!!
• Positive to Netural - Investment thesis in tact - Add

Tate down 5%

• Market didn't like results, I think mainly on ground that commodity profits (which had doubled) will be significantly lower next year.
• Investment thesis in tact - solid defensive food producer, inflation hedge with good balance sheet.
• Growth continues from solutions business, while other businesses are slow and steady cash generators - value realisation from separation - note that makes the business more growthy/risky to some extent versus the original investment which was a food and ingredients business.
• Solutions is a high quality business and given the valuations on McKormick & Treatt, there could be quite the opportunity.
• Year ended March 31, revenue fell 2.6% to GBP2.81 billion from GBP2.88 billion. Pretax profit was down 4.4% to GBP283 million from GBP296 million.
• Dividend up 4% to 30p - 3.75% yield - below target level for portfolio adds
• Commodities profits significantly lower & higher tax rate so lower profits/eps next year (and likely down on 2019)
• I think this is one of the best ways to protect from inflation around in the UK market.
• Note, while it does not quite have the income characteristics, it does have other attractions, not least the inflation protection and is available at between 12 & 13 x earnings - and if the inflation thesis is correct, then the commodity profits are higher.
• NEUTRAL - Investment thesis in tact - Hold to Add

Updates & Results

Not posting this week because:

Feeling kind of lazy, especially as I am writing/publishing this on Friday 4th June with a (2nd) beer;

All the results and updates in the week are reflected in the risers / fallers section above as is my take on the results; 

In fact I may stop having separate sections where risers/fallers and update juxtapose - hope I am not stupid in trying to sound smart; and

With all the lessons / stupidity - it's already a pretty long edition;

I am also supposed to do a monthly consolidation & the next weekly is due for tomorrow/Sunday;

I don't think I will do a monthly version - not sure how much value to me;

My time will be better served with reading previous articles to see the month in action or maybe some lessons from 2020 / How I invest type stuff to help with that funk / company analysis to invest better.

Adios