Saturday, January 29, 2005
Portfolio review: Dana inspires large gains
First portfolio review of 2005. For the first time in the history of the blog all four of my holdings have increased in value over the month. Dana Petroleum and Chaucer have shown huge rises. Since the start of the year, Dana has risen from 417.5p to 491p and Chaucer from 48p to 52p. Shares in Chaucer were at one point this week selling for as much as 55p, above my highest purchase price of 54.75p.
The amount of money 'earned' this month has been the largest monthly gain I've ever enjoyed, over £1,500 and more than I've ever earned in full-time employment. Let's see if I how much of it I can go on to lose in February.
Though the gains this month have been fantastic, it's ironic that I've managed more than half of the gain I enjoyed in 2004 in the space of one month of 2005. If the excitement level of 2004 was at the level of a five-year coma, this month's events must be a night on the tiles with Oliver Reed. Make no mistake however, this month's gains are exceptional, don't expect a repeat performance in every other month this year.
My original purchase price is displayed along with the most recent price in the market in brackets.
Portfolio standing at 31/12/04:
Ben Bailey, 20/02/03 at 178p (422p)
Ben Bailey, 21/06/04 at 390p (422p)
Chaucer Holdings, 06/10/03 at 42.88p (48p)
Chaucer Holdings, 06/04/2004 at 54.75p (48p)
Dana Petroleum, 20/11/03 at 223.75p (417.5p)
Mayborn Group, 15/03/04 at 282p (258p)
+ cash holdings
Porfolio at 29/01/05:
Ben Bailey, 20/02/03 at 178p (423p)
Ben Bailey, 21/06/04 at 390p (423p)
Chaucer Holdings, 06/10/03 at 42.88p (52p)
Chaucer Holdings, 06/04/2004 at 54.75p (52p)
Dana Petroleum, 20/11/03 at 223.75p (491p)
Mayborn Group, 15/03/04 at 282p (260p)
+ cash holdings
Return for the year to date: +7%
Here's to February!
The Artful Dodger
(0) comments
The amount of money 'earned' this month has been the largest monthly gain I've ever enjoyed, over £1,500 and more than I've ever earned in full-time employment. Let's see if I how much of it I can go on to lose in February.
Though the gains this month have been fantastic, it's ironic that I've managed more than half of the gain I enjoyed in 2004 in the space of one month of 2005. If the excitement level of 2004 was at the level of a five-year coma, this month's events must be a night on the tiles with Oliver Reed. Make no mistake however, this month's gains are exceptional, don't expect a repeat performance in every other month this year.
My original purchase price is displayed along with the most recent price in the market in brackets.
Portfolio standing at 31/12/04:
Ben Bailey, 20/02/03 at 178p (422p)
Ben Bailey, 21/06/04 at 390p (422p)
Chaucer Holdings, 06/10/03 at 42.88p (48p)
Chaucer Holdings, 06/04/2004 at 54.75p (48p)
Dana Petroleum, 20/11/03 at 223.75p (417.5p)
Mayborn Group, 15/03/04 at 282p (258p)
+ cash holdings
Porfolio at 29/01/05:
Ben Bailey, 20/02/03 at 178p (423p)
Ben Bailey, 21/06/04 at 390p (423p)
Chaucer Holdings, 06/10/03 at 42.88p (52p)
Chaucer Holdings, 06/04/2004 at 54.75p (52p)
Dana Petroleum, 20/11/03 at 223.75p (491p)
Mayborn Group, 15/03/04 at 282p (260p)
+ cash holdings
Return for the year to date: +7%
Here's to February!
The Artful Dodger
Thursday, January 27, 2005
One year of Artfully Dodging
It occured to me today that I've been writing this blog, Artful Investing for over a year. Hands up who remembers that inaugural blog?
Despite a year's pouring my heart out and dumping my brain onto the internet, I've yet to receive a single comment or email in response to my epistles. So this is a plea for reader feedback. If you've been reading this blog, I want to hear from you!
Even after hours spent trawling google, I've failed to discover a blog like this, a blog that concentrates on a real individual's real speculations on the financial markets.
A number of very good investment blogs do exist, mostly written by American bloggers. David Jackson's internet stock blog is the closest match yet, an American commenting on individual US stocks. I'm not the only anonymous blogger on the net. Seeking Alpha lists Inventing Money as the work of an investment professional and Between the Hedges as the scribblings of an unidentified hedge fund manager.
The search for the elusive sister blog continues, as does the wait for reader comments and emails. Maybe I'll be hearing from you in 2006.
The Artful Dodger
(0) comments
Despite a year's pouring my heart out and dumping my brain onto the internet, I've yet to receive a single comment or email in response to my epistles. So this is a plea for reader feedback. If you've been reading this blog, I want to hear from you!
Even after hours spent trawling google, I've failed to discover a blog like this, a blog that concentrates on a real individual's real speculations on the financial markets.
A number of very good investment blogs do exist, mostly written by American bloggers. David Jackson's internet stock blog is the closest match yet, an American commenting on individual US stocks. I'm not the only anonymous blogger on the net. Seeking Alpha lists Inventing Money as the work of an investment professional and Between the Hedges as the scribblings of an unidentified hedge fund manager.
The search for the elusive sister blog continues, as does the wait for reader comments and emails. Maybe I'll be hearing from you in 2006.
The Artful Dodger
Wednesday, January 26, 2005
Dana and Chaucer pump portfolio higher
2005 has started sensationally. Of my four holdings, all are up on their closing price at the end of 2004. It is the huge advances in the share prices of Dana Petroleum and Chaucer Holdings, my second and third-largest positions respectively, that are responsible for the surge.
The New Year has been as happy and prosperous as all my Christmas cards wished it would be. Dana have advanced 17% to 488p and Chaucer 10% to 53p. The pair have pulled on the portfolio like a great Dane yanking at its leash on the way past KFC.
After only three weeks of 2005, the total value of my shares has risen approximately 5%, while the wider market has barely advanced by a single percentage point.
These exaggerated, stuccato movements go with holding such a concentrated portfolio but are also common for a collection of value shares. Cheap shares can move fast.
Chaucer's rise can be attributed to the clearing of a large overhang in the stock and improved sentiment toward the entire insurance sector. Any large price movement requires large buys to sustain the rise and today saw announcements that FMR Corp have increased their stake and Aviva have upped theirs too.
Dana have risen in response to the news that a significant increase in production has been achieved, coupled with the resurgence of the oil price on the commodity exchanges.
The recent haymaking does present a problem, however. As prices increase, closer to fair value, I'm more inclined to sell. The funds raised would need to be reinvested elsewhere. Presently, I can sit and wait but if forced to sell some smart reinvestment decisions would be required. The risk is I fail to invest any gains wisely. Research efforts must be stepped up and opportunities identified.
2005 is starting to present challenges I never encountered in the previous year.
The Artful Dodger
(0) comments
The New Year has been as happy and prosperous as all my Christmas cards wished it would be. Dana have advanced 17% to 488p and Chaucer 10% to 53p. The pair have pulled on the portfolio like a great Dane yanking at its leash on the way past KFC.
After only three weeks of 2005, the total value of my shares has risen approximately 5%, while the wider market has barely advanced by a single percentage point.
These exaggerated, stuccato movements go with holding such a concentrated portfolio but are also common for a collection of value shares. Cheap shares can move fast.
Chaucer's rise can be attributed to the clearing of a large overhang in the stock and improved sentiment toward the entire insurance sector. Any large price movement requires large buys to sustain the rise and today saw announcements that FMR Corp have increased their stake and Aviva have upped theirs too.
Dana have risen in response to the news that a significant increase in production has been achieved, coupled with the resurgence of the oil price on the commodity exchanges.
The recent haymaking does present a problem, however. As prices increase, closer to fair value, I'm more inclined to sell. The funds raised would need to be reinvested elsewhere. Presently, I can sit and wait but if forced to sell some smart reinvestment decisions would be required. The risk is I fail to invest any gains wisely. Research efforts must be stepped up and opportunities identified.
2005 is starting to present challenges I never encountered in the previous year.
The Artful Dodger
Sunday, January 23, 2005
Insider trades don't matter, or do they?
A popular feature in the financial press is a regular insider dealing round-up. Each issue of Investor's Chronicle contains a feature detailing director's trades in their own company's shares.
This constitutes insider dealing and is strictly regulated. There are only certain intervals in the company calendar when it is permitted for directors to buy or sell. For U.K. listed companies, directors are bound by the FSA's Listing Rules. Director dealing is verboten
A lot of investors infer valuation from directors' sales. There's a lot of sense in that strategy, directors have better information than other investors and are ideally placed to evaluate the company's prospects and trading. Some conclude from a director sale that the shares have become fairly valued or even over-valued and a director buy shows a greater confidence in the future than aggregate of the market's.
Unfortunately, the answer isn't that simple. This theory assumes company directors are capable of not only taking the pulse and giving a prognosis on the fitness of their company but are also expert at ascribing a fair value to the company's equity. It is also assumed that directors only buy or sell because they consider a trade at the price offered to be in their favour and not for more mundane reasons such as selling to bankroll a house move or buying as a gesture of commitment.
I'm undecided on the relevance of director's deals and whether they do indeed leak useful information. On two occassions recently I have ignored large director sales of shares I also owned. In October 2003, Stephen North, a Ben Bailey director, sold 6,000 shares at 389p, announced here and as recently as last Tuesday, Tom Cross, Dana Petroleum's Chief Executive made a huge sale at 465p. In each case, the news squeezed out negative sentiment and nervous holders like puss from a teenager's spotty visage. However, the news hit prices only temporarily before they recovered to higher levels. In Ben Bailey's case, the shares were as high as 480p in 2004 and Dana have this week pushed to a new high of 479p.
Though a well-reasoned argument for considering insider trades exists, my experience has borne out ignorance as more profitable. That's not conclusive though and I remain undecided on how to treat this extra information.
Dirk Jenter, assistant professor at MIT investigated this question in his study Market Timing and Managerial Portfolio Decisions and concluded:
there is little evidence that managers are able to earn economically significant excess returns with their trades. This could be due to a variety of reasons, among them that insider trades may be driven by motivations other than inside information
Here's hoping Ben Bailey and Dana Petroleum continue upwards, adding value to my portfolio and Mr Jenter's findings and perhaps leaving messrs North and Cross lamenting their decisions to sell.
The Artful Dodger
(0) comments
This constitutes insider dealing and is strictly regulated. There are only certain intervals in the company calendar when it is permitted for directors to buy or sell. For U.K. listed companies, directors are bound by the FSA's Listing Rules. Director dealing is verboten
- for short term speculation
- during close periods i.e. the two month period before the announcement of annual of half-yearly results
A lot of investors infer valuation from directors' sales. There's a lot of sense in that strategy, directors have better information than other investors and are ideally placed to evaluate the company's prospects and trading. Some conclude from a director sale that the shares have become fairly valued or even over-valued and a director buy shows a greater confidence in the future than aggregate of the market's.
Unfortunately, the answer isn't that simple. This theory assumes company directors are capable of not only taking the pulse and giving a prognosis on the fitness of their company but are also expert at ascribing a fair value to the company's equity. It is also assumed that directors only buy or sell because they consider a trade at the price offered to be in their favour and not for more mundane reasons such as selling to bankroll a house move or buying as a gesture of commitment.
I'm undecided on the relevance of director's deals and whether they do indeed leak useful information. On two occassions recently I have ignored large director sales of shares I also owned. In October 2003, Stephen North, a Ben Bailey director, sold 6,000 shares at 389p, announced here and as recently as last Tuesday, Tom Cross, Dana Petroleum's Chief Executive made a huge sale at 465p. In each case, the news squeezed out negative sentiment and nervous holders like puss from a teenager's spotty visage. However, the news hit prices only temporarily before they recovered to higher levels. In Ben Bailey's case, the shares were as high as 480p in 2004 and Dana have this week pushed to a new high of 479p.
Though a well-reasoned argument for considering insider trades exists, my experience has borne out ignorance as more profitable. That's not conclusive though and I remain undecided on how to treat this extra information.
Dirk Jenter, assistant professor at MIT investigated this question in his study Market Timing and Managerial Portfolio Decisions and concluded:
there is little evidence that managers are able to earn economically significant excess returns with their trades. This could be due to a variety of reasons, among them that insider trades may be driven by motivations other than inside information
Here's hoping Ben Bailey and Dana Petroleum continue upwards, adding value to my portfolio and Mr Jenter's findings and perhaps leaving messrs North and Cross lamenting their decisions to sell.
The Artful Dodger
Monday, January 17, 2005
No medicine cabinet cure for an overhang
Recent stock-market announcements concerning my third largest holding, Chaucer, have revealed the probable reason for the share's lack of progress in recent months.
When an organisation or individual owns in excess of 3% of a company, that shareholding is deemed notifiable and a formal announcement to the stock exchange is required. As that shareholding grows or is trimmed across whole percentage fractions above 3%, another news item is generated. On 17th November, Chaucer announced Rostrum Parnerships shareholding at 4.94%. Rostrum is a fund manager investing in the Lloyd's sector and from yesterday's announcement that they now hold 3.76% of issued share capital, the company has clearly been selling down its large shareholding.
When Rostrum will stop selling we can't tell. The fund manager's intention may be to clear out their entire stake, or just cut it to a size comfortable with the rest of the portfolio. But this uncertainty, along with the accompanying selling volume may be the root cause of Chaucer's geriatric share price movement.
Such selling pressure looms like The Flying Dutchman over the shares and is a common ailment amongst small-caps. The market for tiddlers such as Chaucer is much less liquid than FTSE-100 companies - not only are the shares infrequently traded but many institutions flatly refuse to own any portion of a company this small. So, shares are trickled out into the market in large sells. Potential buyers are deterred by the assumption large sales are in the pipeline and any buying that may create a price rise is drowned with institutional stock dumping.
This situation is termed an overhang. The best strategy an investor can employ to invest through this selling pressure is patience. The overhang is secondary to the valuation question, it merely highlights friction and illiquidity in the market. In time, the overhang will clear. If the share remains cheap, buying pressure should gain control and the price exhibit some upward momentum.
But today's announcement from Aviva plc has raised my hopes this overhang will evaporate sooner rather than later. Aviva (through it's subsidiary Morley Fund Management) announced the recent purchase of 2.4m Chaucer shares, or 0.82% of the entire company, increasing their stake to 4.35%.
With luck, the overhang situation will be resolved before April's results from Chaucer. With the increased attention final results brings, the price of the shares in the market will hopefully begin to reflect their value rather than the any particular fund's decision to sell. And who knows, if Aviva are still accumulating stock, that overhang may just turn into an underhang.
The Artful Dodger
(0) comments
When an organisation or individual owns in excess of 3% of a company, that shareholding is deemed notifiable and a formal announcement to the stock exchange is required. As that shareholding grows or is trimmed across whole percentage fractions above 3%, another news item is generated. On 17th November, Chaucer announced Rostrum Parnerships shareholding at 4.94%. Rostrum is a fund manager investing in the Lloyd's sector and from yesterday's announcement that they now hold 3.76% of issued share capital, the company has clearly been selling down its large shareholding.
When Rostrum will stop selling we can't tell. The fund manager's intention may be to clear out their entire stake, or just cut it to a size comfortable with the rest of the portfolio. But this uncertainty, along with the accompanying selling volume may be the root cause of Chaucer's geriatric share price movement.
Such selling pressure looms like The Flying Dutchman over the shares and is a common ailment amongst small-caps. The market for tiddlers such as Chaucer is much less liquid than FTSE-100 companies - not only are the shares infrequently traded but many institutions flatly refuse to own any portion of a company this small. So, shares are trickled out into the market in large sells. Potential buyers are deterred by the assumption large sales are in the pipeline and any buying that may create a price rise is drowned with institutional stock dumping.
This situation is termed an overhang. The best strategy an investor can employ to invest through this selling pressure is patience. The overhang is secondary to the valuation question, it merely highlights friction and illiquidity in the market. In time, the overhang will clear. If the share remains cheap, buying pressure should gain control and the price exhibit some upward momentum.
But today's announcement from Aviva plc has raised my hopes this overhang will evaporate sooner rather than later. Aviva (through it's subsidiary Morley Fund Management) announced the recent purchase of 2.4m Chaucer shares, or 0.82% of the entire company, increasing their stake to 4.35%.
With luck, the overhang situation will be resolved before April's results from Chaucer. With the increased attention final results brings, the price of the shares in the market will hopefully begin to reflect their value rather than the any particular fund's decision to sell. And who knows, if Aviva are still accumulating stock, that overhang may just turn into an underhang.
The Artful Dodger
Sunday, January 16, 2005
Insurance boom over
Investors need to understand the industry a company operates in. What drives profits and turnover? Does the industry have a long-term future? What are the risks to earnings?
In his magnum opus One Up on Wall Street, legendary fund manager Peter Lynch pigeon-holes companies into six categories: slow growers, stalwarts, fast growers, cyclicals, turnarounds and asset plays. This week, several announcements highlighted the insurers as cyclicals, which Lynch defines as:
a cyclical is a company whose sales and profits rise and fall in regular if not completely predictable fashion. In a growth industry, business just keeps expanding, but in a cyclical it expands and contracts, then expands and contracts again... [share price] charts of the cyclicals look like the polygraphs of liar, or the maps of the Alps, as opposed to the maps of Delaware you get with the get with the slow growers
Obviously, the challenge for the investor is to anticipate the up-leg of the cycle and bail out at a profit before earnings begin to decline. But how does an investor judge the present wherabouts in the cycle?
One of the best ways to get your bearings is to read the trading statements and other stock market announcements from the sector. Though my insurance holding, Chaucer, has made no anouncement on trading thus far in 2005, rivals Wellington Underwriting, Amlin and insurance broker Admiral all gave their barometer reading from the industry.
On 7th January, Wellington reported a fall in the prices being achieved for it's insurance products:
Underwriting conditions have remained favourable during 2004. Overall, rates have decreased 5% which is in line with our expectations. In some classes of business, rate pressures have eased as the result of industry losses sustained from the Hurricanes Charley, Frances, Ivan and Jeanne. Rates in other lines, particularly US property, remain under pressure.
Wellington's announcement sounded the opening bars of the insurance industry's lamenting on facing a period of falling revenue. Three days later, Amlin reported similar news on current trading:
The average renewal rate reduction for the 2004 year was 4%, weighted across premium by business class...Overall, this 2005 renewal period for Amlin has been satisfactory with premium volume of £168 million written to date, only 4% down on the previous period. International property catastrophe and other large property risks have come under some pressure but US catastrophe reinsurance renewals have seen only small reductions in rates. This is encouraging given that the principal renewals of programmes impacted by the hurricane and typhoon losses are later in the year.
but Amlin reassured investors this year's figures for the industry would be extraordinarily depressed due to losses incurred in the wake of the Atlantic hurricane season:
2004 was the costliest year on record for natural catastrophes. Current industry estimates place the insurance cost at approximately $40 billion.
On the 12th, Admiral piped up with their industry prognosis,
Admiral believes premium rates in the overall market drifted down by around 3% during 2004, but our conversion data suggests the decreases were more focussed on the lower premium segments which are not part of Admiral's core market. Following a small increase in rates in the second half of 2004, Admiral's own rates finished the year roughly 2% below the level at the start of the year.
The industry has clearly signalled to the market that the top of the cycle has passed. But how much further will insurance rates continue to fall? Will insurance remain a profitable industry until rates start to increase again and what are the implications for share prices in the sector?
The Lloyd's insurance market, which includes Wellington, Amlin and my sector investment, Chaucer, has a notorious reputation for destroying shareholder value in the down-leg of the cycle as insurers compete for Pyrrhic victory in writing insurance at what transpires to be unprofitable rates. Management comment from the sector has for months reiterated the need for discipline in the business. At current price levels, the market is assuming the insurers will continue to write insurance like lemmings until profitability falls off the cliff. But while the shares have such strong asset backing in cash, bonds and equities of aggregate value almost equal to market capitalisation - I'd be showing the level folly of a lemming to sell now.
The Artful Dodger
(0) comments
In his magnum opus One Up on Wall Street, legendary fund manager Peter Lynch pigeon-holes companies into six categories: slow growers, stalwarts, fast growers, cyclicals, turnarounds and asset plays. This week, several announcements highlighted the insurers as cyclicals, which Lynch defines as:
a cyclical is a company whose sales and profits rise and fall in regular if not completely predictable fashion. In a growth industry, business just keeps expanding, but in a cyclical it expands and contracts, then expands and contracts again... [share price] charts of the cyclicals look like the polygraphs of liar, or the maps of the Alps, as opposed to the maps of Delaware you get with the get with the slow growers
Obviously, the challenge for the investor is to anticipate the up-leg of the cycle and bail out at a profit before earnings begin to decline. But how does an investor judge the present wherabouts in the cycle?
One of the best ways to get your bearings is to read the trading statements and other stock market announcements from the sector. Though my insurance holding, Chaucer, has made no anouncement on trading thus far in 2005, rivals Wellington Underwriting, Amlin and insurance broker Admiral all gave their barometer reading from the industry.
On 7th January, Wellington reported a fall in the prices being achieved for it's insurance products:
Underwriting conditions have remained favourable during 2004. Overall, rates have decreased 5% which is in line with our expectations. In some classes of business, rate pressures have eased as the result of industry losses sustained from the Hurricanes Charley, Frances, Ivan and Jeanne. Rates in other lines, particularly US property, remain under pressure.
Wellington's announcement sounded the opening bars of the insurance industry's lamenting on facing a period of falling revenue. Three days later, Amlin reported similar news on current trading:
The average renewal rate reduction for the 2004 year was 4%, weighted across premium by business class...Overall, this 2005 renewal period for Amlin has been satisfactory with premium volume of £168 million written to date, only 4% down on the previous period. International property catastrophe and other large property risks have come under some pressure but US catastrophe reinsurance renewals have seen only small reductions in rates. This is encouraging given that the principal renewals of programmes impacted by the hurricane and typhoon losses are later in the year.
but Amlin reassured investors this year's figures for the industry would be extraordinarily depressed due to losses incurred in the wake of the Atlantic hurricane season:
2004 was the costliest year on record for natural catastrophes. Current industry estimates place the insurance cost at approximately $40 billion.
On the 12th, Admiral piped up with their industry prognosis,
Admiral believes premium rates in the overall market drifted down by around 3% during 2004, but our conversion data suggests the decreases were more focussed on the lower premium segments which are not part of Admiral's core market. Following a small increase in rates in the second half of 2004, Admiral's own rates finished the year roughly 2% below the level at the start of the year.
The industry has clearly signalled to the market that the top of the cycle has passed. But how much further will insurance rates continue to fall? Will insurance remain a profitable industry until rates start to increase again and what are the implications for share prices in the sector?
The Lloyd's insurance market, which includes Wellington, Amlin and my sector investment, Chaucer, has a notorious reputation for destroying shareholder value in the down-leg of the cycle as insurers compete for Pyrrhic victory in writing insurance at what transpires to be unprofitable rates. Management comment from the sector has for months reiterated the need for discipline in the business. At current price levels, the market is assuming the insurers will continue to write insurance like lemmings until profitability falls off the cliff. But while the shares have such strong asset backing in cash, bonds and equities of aggregate value almost equal to market capitalisation - I'd be showing the level folly of a lemming to sell now.
The Artful Dodger
