Monday, October 11, 2004
Beating the bank account
In August my portfolio was scraping an embarrasing and painful low, recording a pitiful 1.7% rise on the year to date. In this post I renewed my promise to readers that I'd achieve a 10%+ return in 2004.
The last month been a push-me-pull-you period for my portfolio, Dana's surge has been tempered by contagious malingering and deterioration in the values of Ben Bailey and Chaucer, both were depressed to excruciating lows, with Ben Bailey at 365p to sell and Chaucer 40p. At times like this it is imperative to tune in to management announcements from your company and it's peers. Ben Bailey was walloped by profit warnings from Countryside and Countrywide. Chaucer, the Lloyd's insurer, had its shares decimated following the Atlantic hurricane season and a raft of storm-damaged profit warnings amongst the sector.
Judgement and careful analysis is vital at times like this. The investor has to re-examine the original case for buying, the earnings outlook and most crucially, the price in the market. Unless the earnings outlook has suddenly changed, the negative share-price shift is the result of market sentiment. Uniform negative sentiment on any share is normally temporary and will pass.
In Chaucer's case, the market was spooked by the hurricanes but the announcement was clear, though a large portion of pre-tax profits were wiped out, these events were of exceptional severity - performance would normally be much better. Chaucer remained a profitable business trading at around the value of its tangible assets - the future stream of profits was being offered in the market for free. That's a cheap share and one to hang on to.
Ben Bailey was buffetted by the conviction in the market that earnings were approaching an inevitable slump. Investors often fall into the trap of deluding themselves they posess some prescient powers. The trickle of profit warnings dried up and today saw the shares give their first positive return in a long while.
I've a huge amount invested in Ben Bailey, it's effect on my portfolio reminds me of walking a young child - if they are in a good mood you are pulled along faster, faster than the natural rate for either of you. When the mood swings however, despite your best efforts (Dana's huge rise) the catankerous little toerags will stop any advance.
Large positions can throw an investor into child-like changes of temperament. When rising and taking your whole portfolio with them, delusions of mantic genius can take hold as the investor pats himself on the back for being bold enough to pile into cheap shares. Reverses differ - despite good performances from other holdings, a large stake shrinking is infuriating, disheartening and leaves one wondering if it was all worth it.
I'll end the blog on a positive note. Today's 6% advance from Ben Bailey pushed my portfolio to a 7% return for the year so far, well in advance of anything on offer in the building society. Maybe this has been worth all the effort after all?
The Artful Dodger
The last month been a push-me-pull-you period for my portfolio, Dana's surge has been tempered by contagious malingering and deterioration in the values of Ben Bailey and Chaucer, both were depressed to excruciating lows, with Ben Bailey at 365p to sell and Chaucer 40p. At times like this it is imperative to tune in to management announcements from your company and it's peers. Ben Bailey was walloped by profit warnings from Countryside and Countrywide. Chaucer, the Lloyd's insurer, had its shares decimated following the Atlantic hurricane season and a raft of storm-damaged profit warnings amongst the sector.
Judgement and careful analysis is vital at times like this. The investor has to re-examine the original case for buying, the earnings outlook and most crucially, the price in the market. Unless the earnings outlook has suddenly changed, the negative share-price shift is the result of market sentiment. Uniform negative sentiment on any share is normally temporary and will pass.
In Chaucer's case, the market was spooked by the hurricanes but the announcement was clear, though a large portion of pre-tax profits were wiped out, these events were of exceptional severity - performance would normally be much better. Chaucer remained a profitable business trading at around the value of its tangible assets - the future stream of profits was being offered in the market for free. That's a cheap share and one to hang on to.
Ben Bailey was buffetted by the conviction in the market that earnings were approaching an inevitable slump. Investors often fall into the trap of deluding themselves they posess some prescient powers. The trickle of profit warnings dried up and today saw the shares give their first positive return in a long while.
I've a huge amount invested in Ben Bailey, it's effect on my portfolio reminds me of walking a young child - if they are in a good mood you are pulled along faster, faster than the natural rate for either of you. When the mood swings however, despite your best efforts (Dana's huge rise) the catankerous little toerags will stop any advance.
Large positions can throw an investor into child-like changes of temperament. When rising and taking your whole portfolio with them, delusions of mantic genius can take hold as the investor pats himself on the back for being bold enough to pile into cheap shares. Reverses differ - despite good performances from other holdings, a large stake shrinking is infuriating, disheartening and leaves one wondering if it was all worth it.
I'll end the blog on a positive note. Today's 6% advance from Ben Bailey pushed my portfolio to a 7% return for the year so far, well in advance of anything on offer in the building society. Maybe this has been worth all the effort after all?
The Artful Dodger
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