Friday, August 13, 2004
Double-digit returns, am I kidding myself?
I previously claimed that despite a return thus far in 2004 of 1.7%, dangerously close to a loss, that I expect to earn more than 10% on my investments in 2004.
A reader (they do exist) mailed saying I was interested in your 'double digit by Christmas' claim - obviously you think one or more from your portfolio is going to have a real zing to it
Let's look at the portfolio composition:
Ben Bailey: 38%
Chaucer: 23%
Dana Petroleum: 22%
Mayborn: 15%
(cash remainder)
Performance is skewed by Ben Bailey's return, weighing twice heavier than Mayborn. Bailey's recovery from 398p to today's 405p pushed returns this year to 2.1%. All four shares sit undervalued. I reckon Chaucer needs to appreciate 50% to fair value, Ben Bailey 33% and Mayborn 36%. I've suspended judgement on Dana Petroleum until I can gauge the effect ear-poppingly high oil prices will have on company earnings.
Smaller companies such as these are normally less closely watched by market combatants. They are illiquid, making it impractical for managed funds to take meaningful stakes. With the professionals looking to score in the bigger playground of the FTSE 100, prices stagnate or mildly meander between results announcements. Small retail investors typically don't get regular access to information from management insiders the analysts enjoy. Furthermore, small companies may have a smaller peer group to compare with, judging the health of operators in tiny specialist markets (such as baby products in Mayborn's case) is like predicting scorelines for inter-prison bridge championships. Small caps are often dependent on only a handful of customers, the private investors can't get enough information to form an opinion on the future, we have to trust management to keep us informed via trading statements, the outlook comment and special announcements.
From history, I expect Mayborn to announce interim results in early September with Dana and Chaucer to follow later the same month. Should Mayborn and Chaucer meet the expectations I've derived from past performance and trading announcements - both should appreciate rapidly and significantly from today's prices.
But I said that about Ben Bailey.
The Artful Dodger
A reader (they do exist) mailed saying I was interested in your 'double digit by Christmas' claim - obviously you think one or more from your portfolio is going to have a real zing to it
Let's look at the portfolio composition:
Ben Bailey: 38%
Chaucer: 23%
Dana Petroleum: 22%
Mayborn: 15%
(cash remainder)
Performance is skewed by Ben Bailey's return, weighing twice heavier than Mayborn. Bailey's recovery from 398p to today's 405p pushed returns this year to 2.1%. All four shares sit undervalued. I reckon Chaucer needs to appreciate 50% to fair value, Ben Bailey 33% and Mayborn 36%. I've suspended judgement on Dana Petroleum until I can gauge the effect ear-poppingly high oil prices will have on company earnings.
Smaller companies such as these are normally less closely watched by market combatants. They are illiquid, making it impractical for managed funds to take meaningful stakes. With the professionals looking to score in the bigger playground of the FTSE 100, prices stagnate or mildly meander between results announcements. Small retail investors typically don't get regular access to information from management insiders the analysts enjoy. Furthermore, small companies may have a smaller peer group to compare with, judging the health of operators in tiny specialist markets (such as baby products in Mayborn's case) is like predicting scorelines for inter-prison bridge championships. Small caps are often dependent on only a handful of customers, the private investors can't get enough information to form an opinion on the future, we have to trust management to keep us informed via trading statements, the outlook comment and special announcements.
From history, I expect Mayborn to announce interim results in early September with Dana and Chaucer to follow later the same month. Should Mayborn and Chaucer meet the expectations I've derived from past performance and trading announcements - both should appreciate rapidly and significantly from today's prices.
But I said that about Ben Bailey.
The Artful Dodger
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