August Week 3: Printer go Taperrrrrrrrr

FED Tapering;

Tapering the portfolio #BOTB, #HAT, #LSEG, #ARC;

Update from #CLX

After the stresses of the week before last, borne on Monday mainly, I was glad to have a quiet week in terms of portfolio reports, albeit a busy week for portfolio activity.

I mentioned in the post BOTB hoo haa that I'd go through my portfolio & there may be some baby with bathwater.

Public Service

Afghanistan Part 1 &

The First Afghan-Anglo War

Both from The Rest is History with a guest appearance from William Dalrymple in the second link.

Very interesting in the context of recent events.

Cursory Market/Macro Observations

Market was a little bit cranky during the week, there was dip & a few days later it got bought.

Apparently, the dip was because of FED minutes being released that hinted at tapering - may well be true, but FED officials make some form of media appearance or speech where they hint pretty clearly as to what we can expect to see in the minutes.

I can use tapering in a sentence but didn't actually no the meaning - the word has far more breadth than I thought (unlike this rally we are witnessing!)

I saw picture from an article from Zerohedge which indicated that we dip as we approach option expiry & then rally straight after & now I am thinking oh yeah, the market does seem to rally then have a little wobble mid month & then rally.

Would have thought if it was a pattern it would be arbitraged away but guess if something happens three times (per the picture) it doesn't stand up to backtesting.

There is a lot of leverage / margin debt around.

I noticed some of the US retailers report their results - admittedly I am an inflationista but fewer transactions with higher tickets sounds like inflation - transitory or otherwise.

Irving Fisher can explain better than I can. 

I have no idea, but if I was a betting man (I am), I'd say once prices have gone up they're unlikely to come back down.

Not much has changed in my overall view - valuations are high, markets seem somewhat extended on low volume (could just be a summer thing) & ex what seemed like a Pfizer full approval inspired cyclical rally - conditions seem more likely to be risk off versus risk on.

I am a permabear!

There is more FED hoohaa this week & as soon as the week is over, we can move on to the August Jobs report, which could change everything on a dime or not.

My big struggle is coming to terms with the fact that liquidity can create value - companies go bust without liquidity, with it, they can keep going - less risk, less return/higher valuation.

Maybe investors are more patient / have longer term horizons & so accept higher multiples.

I understand economists think patience is a constant and psychologists think otherwise. 

I'd be inclined to go with the Psychologists based on my experience (maybe relative patience).

An alternative take on a permanently higher plateau

Portfolio Review

In a cranky week for the market, my portfolio demonstrated its relative resilience - I shudder to think what the two week relative performance looks like.

Fortunately, one of the advantages of being a private investor is my relative performance is irrelevant unless I want it to be.

Cash moved up due to sales during the week (and is probably too high unless I am spot on with my macro call, in which case it is too low!) 

Two sales discussed last week, one was regret minimisation on a macro call & the final one could be baby/bathwater.

Cash levels are too high in the context of investment horizon - think it is time to do a little more than window shopping.

Lessons:

During my BOTB concerto, I wondered what impact writing things down had.

Having gotten it out of my system, I can say unequivocally that this is a useful exercise (to me at least, depressing for others perhaps).

As for social media influence - I'd like to think I am a good investor and the people I follow are good investors, so there will be holdings in common & there will be holdings good investors have which I dislike - it makes a market!

Finally, I talked in BOTB that it wasn't large enough part of the portfolio, wish I had realised sooner but that was inaccurate. My portfolio is bigger now as I make additions to it in April & have also transferred some old workplace pensions over - a lot of companies I bought they were right sized (BOTB was about 2/2.5% at cost when purchased) - I need to be aware of that when thinking about portfolio impacts.

In fact, now I think consolidated whereas earlier the ISA/SIPP were considered distinct - in that context BOTB was 5% plus.

Volex / HAT - quite a few actually - they are bitty positions but that is not purely a function of not rightsizing, so I don't need to be in a rush to sell for those reasons.

Transactions

Sell LSEG 

• This maybe shortest ever holding, but done as a trade - if I am right on my macro call, this is quite sensitive & I will end up regretting doing nothing.
• Being too dogmatic about being a long term holder - I can churn this holding - up to me to handle the psychology aspects - see how it goes.
• It is a long term holding - I think there is roughly a 50% chance I will have the opportunity to buy it back for less than the price I sold at (like last time - Yay me). 
• And if not & I intend to hold it as a long term compounder - missing out on a % here or there won't have that much impact in the grand scheme of things (assuming I don't let those %s compound!)

Sell HAT 

• Covered in the last week but in summary:
• ST bounce on the results, regulatory risk & risk reward in that context, illiquid small cap & results obfuscation which is unnecessary.
• I didn't think it was worth it - I do think it is cheap and there is upside - but not sure it is something I want to hold especially given my increased allocation to gold.

Reduce BOTB 

• Covered in the last week but in summary:
• Lot lower growth (and not cheap on those) & margin erosion + Mgt trust (although I dare say I am being overly sensitive).
• Not the same story it was when I was adding (intelligently & stupidly) and reverse those - still a good company and may even be a great company but that needs to be confirmed.

Reduce ARC 

• The only transaction as a result of my review (others are crowded, but as I say - I like tothink I am in good company)
• Arcontech got quite the bounce post interim results after a fall on a negative outlook statement.
• I held on basis of being a long term holder & it happens - they built their sales team (ideally to scale better/faster) - they have long lead times & accessibility issues.
• All perfectly reasonable - as a long term business owner I wouldn't care - fundamentally it is the same business.
• But the market didn't think so & I was rescued by Simon Thompson's write up.
• In short there is a weak outlook statement yet I am continuing to hold  - that is some form of dogma.
• Tiny amount held due to partial fill - don't especially mind - will force reviewing results - I think it is a very good company doing some interesting things.

Reduce UPGS

• I mentioned the administrative transaction a few weeks back - this was the other side of it - left it until the last possible minute with the update out Monday.
• Market reacted positively to the update - every time I reduce my holding here (for the same reasons no less), I end up regretting it.

Portfolio Risers > 5%

BVXP up 5.73% & VLX up 5.04%

• No idea - not the most liquid of stocks & its August.
• BVXP is crowded, illiquid and expensive (maybe) - get the feeling some BOTB proceeds are being recycled.
• Same may apply to Volex - I did think about selling this one to be honest - more because of the size it is at in the portfolio & not willing to add at these levels, but as per the sizing considerations in the lessons doing nothing.

BOTB -11%, SDI - 10.2%

• BOTB - something happened the previous week, can't remember for the life of me what it was - imagine there is some follow through.
• SDI - absolutely no idea - certainly was getting very toppy - starting to look more interesting.

CLX -8.47%

• CLX issued an AGM update - I thought it was reasonably positive but market clearly felt otherwise.
• Strong trading & good order levels in line with the board expectations
• Positive response to lab sync platform - Paragon-Neo - support testing of very high speed & new PAM4 interface format & Developments to Field Sync platform - unique ability to test 5g networks
• Encouraging pre-orders ahead of launch in the year - expected to be widely adopted because of more data/cloud/5g - Paragon-Neo if I understood correctly has the preorders.
• Cognisant of semi-conductor shortage - not experienced -ve impact to date on manufacturing/shipping products (Odd they have had no negative impact (when others do) - At IMC they did say how they were dealing with it)
• Strength of trading & positive evolutionary trends (OK) affecting telecom sector - continued confidence ability to develop growth strategy & positive outcome for year in line with expectations.
• Like this company - they share some details around the business development - making an effort to explain themselves (felt same in Results).
• I (maybe other shareholders too) don't understand fully what PAM4 & FieldSync is but like words like Data, Cloud & 5g - by explaining themselves they get to use these words?
• Forecast profits & EPS don't match the growth narrative (Revenue doing a better job)
• Accounting flags (OK I think based on my checks) but Lombard Odier reduced quite heavily having bought at IPO - have they spotted something?
• HOLD (but I am also at add and reduce) - think the operational side makes me want to add (in light of previous reduction) but Odier reduction (& market reaction to statement no doubt) adds a layer of discomfort.
• Any add (perhaps any action) should wait until lock-ups expire - not long to go & will be around interims - better information and indication.

Updates & Results

Only one measly AGM update for the whole week - Calnex above.

Not complaining

And Finally

I was licking my wounds and drowning my sorrows (metaphorically) at least for the first few hours of the last week & then FinTwit came up with:

Dumbest Trading Story

BOTB is nowhere near my worse trading (Investing, please!) mistake ever - that honour I am pretty sure is held by Monitise but that tweet really puts losses in context!

Adieu