Monday, October 31, 2005
Falls cut gains to +42% YTD
For the first time I can think of, each share in my portfolio ended the month lower than it began. These falls hurt badly and have wiped 5% off my returns for the year to date.
Portfolio values as at 2/10/2005:
Chaucer Holdings, 06/10/03 at 42.88p (53.5p)
Chaucer Holdings, 06/04/2004 at 54.75p (53.5p)
Dana Petroleum, 20/11/03 at 223.75p (880p)
SVB, 12/04/05 at 24.12p (30p)
SVB, 13/09/2005 at 26.75p (30p)
Fayrewood, 15/04/05 at 112.5p (117p)
Fayrewood, 19/04/05 at 111.5p (117p)
+ cash holdings
versus today's closing prices:
Chaucer Holdings, 06/10/2003 at 42.88p (52.75p)
Chaucer Holdings, 06/04/2004 at 54.75p (52.75p)
Dana Petroleum, 20/11/2003 at 223.75p (823p)
SVB, 12/04/2005 at 24.12p (28.5p)
SVB, 13/09/2005 at 26.75p (28.5p)
Fayrewood, 15/04/2005 at 112.5p (114p)
Fayrewood, 19/04/2005 at 111.5p (114p)
+ cash holdings
News from my stocks has been very positive but the share price movements have been truly lamentable. BRIT and Goldman Sachs have both been selling large lines of stock in Chaucer and Dana Petroleum has suffered recently under a stumbling oil price. Fayrewood has fallen slightly despite reporting in-line trading and SVB has weakened following hurricanes Rita and Wilma.
November should see syndicate forecasts from SVB (expected near the end of the month, not the start as I said in the previous blog) and news on Dana's drilling plans in West Africa. All four portfolio constituents will enter November at bargain prices and I expect them to leave much higher.
The Artful Dodger
(0) comments
Portfolio values as at 2/10/2005:
Chaucer Holdings, 06/10/03 at 42.88p (53.5p)
Chaucer Holdings, 06/04/2004 at 54.75p (53.5p)
Dana Petroleum, 20/11/03 at 223.75p (880p)
SVB, 12/04/05 at 24.12p (30p)
SVB, 13/09/2005 at 26.75p (30p)
Fayrewood, 15/04/05 at 112.5p (117p)
Fayrewood, 19/04/05 at 111.5p (117p)
+ cash holdings
versus today's closing prices:
Chaucer Holdings, 06/10/2003 at 42.88p (52.75p)
Chaucer Holdings, 06/04/2004 at 54.75p (52.75p)
Dana Petroleum, 20/11/2003 at 223.75p (823p)
SVB, 12/04/2005 at 24.12p (28.5p)
SVB, 13/09/2005 at 26.75p (28.5p)
Fayrewood, 15/04/2005 at 112.5p (114p)
Fayrewood, 19/04/2005 at 111.5p (114p)
+ cash holdings
News from my stocks has been very positive but the share price movements have been truly lamentable. BRIT and Goldman Sachs have both been selling large lines of stock in Chaucer and Dana Petroleum has suffered recently under a stumbling oil price. Fayrewood has fallen slightly despite reporting in-line trading and SVB has weakened following hurricanes Rita and Wilma.
November should see syndicate forecasts from SVB (expected near the end of the month, not the start as I said in the previous blog) and news on Dana's drilling plans in West Africa. All four portfolio constituents will enter November at bargain prices and I expect them to leave much higher.
The Artful Dodger
Sunday, October 30, 2005
Eyes peeled for syndicate forecasts
SVB, the Lloyd's insurer and third largest portfolio constituent is expected to announce third quarter syndicate forecasts soon, perhaps as soon as tomorrow.
I've long maintained that SVB's share price is wildly dislocated from its value. I believe the market assumes the 2004 reserving decision, taken to address the previous management's expensive foray into US liability insurance, did not accurately forecast future payments and that further reserving against shareholders funds will be required in the future. From the information we have, I reckon this unlikely. First, SVB have had numerous opportunities to revise the decision made over a year ago and has not considered it necessary. Second, when new management is installed at a plc they frequently take the opportunity to 'kitchen-sink'. This is the process whereby as much as possible is blamed on previous management by writing down the value of investments or acquisitions. The result is a sharp, temporary decline in earnings. The company share price suffers as the extent of prior difficulties are laid bare to the market and confidence in the company evaporates and is replaced by the fear that a similar loss could occur again in the future. To cover themselves against this, new management often 'kitchen-sink' the figures, increasing loss estimates to the maximum margin of error and safety - reducing the likelihood of any further embarassment. The kitchen sink often carries a silver-lining - that any excessive caution displayed in the write-down will later become apparent resulting in a second adjustment to the balance sheet or income statement and a pleasant perkiness in the share price.
I believe that with each quarterly syndicate forecast, the market is putting together a more accurate picture of just how much SVB's discountinued units are going to cost them. If the Q3 figures please, I expect a gradual re-rating of the shares. But the really interesting bit here is the possibility SVB could offload it's discontinued business as some point in the future by paying someone to take the liabilities off their hands. And if they can pay less than they have left in the kitty, this money would flow straight through to profits and depending on the size of the payment, SVB could conceivably double.
For me to be rewarded to such a level that justifies my purchase rules however, I'd only need the shares to hit net tangible asset value of 38p. This would leave SVB still trading at a substantial discount to the market but would leave me some margin of error. SVB may be required to increase their reserves after all.
The Artful Dodger
(0) comments
I've long maintained that SVB's share price is wildly dislocated from its value. I believe the market assumes the 2004 reserving decision, taken to address the previous management's expensive foray into US liability insurance, did not accurately forecast future payments and that further reserving against shareholders funds will be required in the future. From the information we have, I reckon this unlikely. First, SVB have had numerous opportunities to revise the decision made over a year ago and has not considered it necessary. Second, when new management is installed at a plc they frequently take the opportunity to 'kitchen-sink'. This is the process whereby as much as possible is blamed on previous management by writing down the value of investments or acquisitions. The result is a sharp, temporary decline in earnings. The company share price suffers as the extent of prior difficulties are laid bare to the market and confidence in the company evaporates and is replaced by the fear that a similar loss could occur again in the future. To cover themselves against this, new management often 'kitchen-sink' the figures, increasing loss estimates to the maximum margin of error and safety - reducing the likelihood of any further embarassment. The kitchen sink often carries a silver-lining - that any excessive caution displayed in the write-down will later become apparent resulting in a second adjustment to the balance sheet or income statement and a pleasant perkiness in the share price.
I believe that with each quarterly syndicate forecast, the market is putting together a more accurate picture of just how much SVB's discountinued units are going to cost them. If the Q3 figures please, I expect a gradual re-rating of the shares. But the really interesting bit here is the possibility SVB could offload it's discontinued business as some point in the future by paying someone to take the liabilities off their hands. And if they can pay less than they have left in the kitty, this money would flow straight through to profits and depending on the size of the payment, SVB could conceivably double.
For me to be rewarded to such a level that justifies my purchase rules however, I'd only need the shares to hit net tangible asset value of 38p. This would leave SVB still trading at a substantial discount to the market but would leave me some margin of error. SVB may be required to increase their reserves after all.
The Artful Dodger
Wednesday, October 26, 2005
Fayrewood takeover rumours fuel rise
October could end an up month or a down month, it is going to be close.
Dana Petroleum, the largest holding in my portfolio has lost around ten percent of its value recently but Fayrewood has advanced since my last update.
Fayrewood has advanced since announcing trading was continuing in line with forecasts and expectations and that the company remained in takeover discussions. This morning the shares are up over 3% following a newsitem in the Guardian newspaper (http://www.guardian.co.uk/business/story/0,3604,1600486,00.html) suggesting a management buy-out of the company was on the cards at 140p. At 119p to sell the shares are now well clear of my buy prices and are making a real contribution to my returns.
Meanwhile, my other very large position, SVB Holdings, the Lloyd's insurer will be updating the market soon with syndicate forecasts. I expect news on utilisation of the reserves set aside for the discontinued business units could trigger a substantial upwards re-rating of the shares.
The Artful Dodger
(0) comments
Dana Petroleum, the largest holding in my portfolio has lost around ten percent of its value recently but Fayrewood has advanced since my last update.
Fayrewood has advanced since announcing trading was continuing in line with forecasts and expectations and that the company remained in takeover discussions. This morning the shares are up over 3% following a newsitem in the Guardian newspaper (http://www.guardian.co.uk/business/story/0,3604,1600486,00.html) suggesting a management buy-out of the company was on the cards at 140p. At 119p to sell the shares are now well clear of my buy prices and are making a real contribution to my returns.
Meanwhile, my other very large position, SVB Holdings, the Lloyd's insurer will be updating the market soon with syndicate forecasts. I expect news on utilisation of the reserves set aside for the discontinued business units could trigger a substantial upwards re-rating of the shares.
The Artful Dodger
Tuesday, October 04, 2005
Why no growth?
I suppose my portfolio contains no outright growth shares. A growth share is a share whose price assumes a projected rate of earnings growth stretching out into the future. The dot-com bubble of the last 1990s saw the market infested with growth shares, where prices were all justified by discounted cash flows of awesome profits rising faster than a teenage basketballer in a grow-bag. Unfortunately for huge numbers of investors in this get-rich-quick cult phenomenon, the prospects for these companies were less than golden and the assumptions built into the valuation metrics revealed investors were making decisions with the quality of reasoning, level-headedness and grasp on reality of a schizophrenic celebrity stalker in a hot air balloon.
These growth shares failed to deliver the porfolio growth hoped for and turned out to be more like the sort of growth men check for in the bath, the unhealthy sort that can lead to an amputation of assets.
The experiences of gullible investors in the dot-com tragicomedy doesn't mean all growth shares should be avoided, however. Companies such as eBay and Microsoft have always traded at growth ratings and have delivered the goods handsomely for investors and employees. So why does my portfolio lack any exciting, trailblazing, buccaneering companies with the potential to make me very rich indeed?
Because they are a beggar to put a value on, that's why. And if I can't put a value on a share, I can't decide if the odds are in my favour. With growth there is just so much that can go wrong. Growth shares are usually found in fledgling industries, the dynamics of which aren't yet understood by those attempting to analyse them. How easy will it be for a competitor to emerge and steal market share? Is the technology going to be popular? Could key staff just walk out and set up their own operation? And for all those years in the future we are discounting earnings for, will the consumer have the wherewithal to keep purchasing and what will interest rates and inflation have done to the present value of earnings?
Investors often fall into the trap of believing they have a 20:20 vision into a perfectly clear crystal ball. The dot-com analysts at the end of the 20th century didn't even realise just how rose-tinted their glasses were and refused to acknowledge how murky and flawed our vision of the future will always be. I'm not ruling out growth, this isn't going to be another of my dogmatic posts. With growth however, it is more vital than ever I can be sure I'm buying when the odds are in my favour as the parameters in the valuations aren't as clearly defined as tangible assets, dividend yields or recent earnings and are much, much hazier.
The Artful Dodger
(0) comments
These growth shares failed to deliver the porfolio growth hoped for and turned out to be more like the sort of growth men check for in the bath, the unhealthy sort that can lead to an amputation of assets.
The experiences of gullible investors in the dot-com tragicomedy doesn't mean all growth shares should be avoided, however. Companies such as eBay and Microsoft have always traded at growth ratings and have delivered the goods handsomely for investors and employees. So why does my portfolio lack any exciting, trailblazing, buccaneering companies with the potential to make me very rich indeed?
Because they are a beggar to put a value on, that's why. And if I can't put a value on a share, I can't decide if the odds are in my favour. With growth there is just so much that can go wrong. Growth shares are usually found in fledgling industries, the dynamics of which aren't yet understood by those attempting to analyse them. How easy will it be for a competitor to emerge and steal market share? Is the technology going to be popular? Could key staff just walk out and set up their own operation? And for all those years in the future we are discounting earnings for, will the consumer have the wherewithal to keep purchasing and what will interest rates and inflation have done to the present value of earnings?
Investors often fall into the trap of believing they have a 20:20 vision into a perfectly clear crystal ball. The dot-com analysts at the end of the 20th century didn't even realise just how rose-tinted their glasses were and refused to acknowledge how murky and flawed our vision of the future will always be. I'm not ruling out growth, this isn't going to be another of my dogmatic posts. With growth however, it is more vital than ever I can be sure I'm buying when the odds are in my favour as the parameters in the valuations aren't as clearly defined as tangible assets, dividend yields or recent earnings and are much, much hazier.
The Artful Dodger
Sunday, October 02, 2005
September stalls portfolio back to +47% YTD
In September Hurricane Katrina took back what it gave in August. The large spike in oil prices at the end of last month, in anticipation of the storm, pushed Dana Petroleum beyond £9. However, the resultant carnage has hit Chaucer Holdings, my second insurance play, down to 53.5p, a a long way from the takeover-talk induced highs of 69p enjoyed earlier in the year.
My decision to sell out of Ben Bailey entirely and sink the funds into SVB at 26.75p has paid off handsomely however, the shares have advanced to 30p following superb interim results while Ben Bailey has continued to malinger in the face of uninspiring housing market reports. I think SVB has some way to go still and should be priced in the neighbourhood of 40p.
With the Bailey sale and SVB top-up I'm rather too concentrated for my own liking currently. The Countrywide short position has so far proved costly, reducing the amount of funds available to be invested elsewhere. Invox, the highly cash-generative 'home gaming' company has recently come to my attention and deserves some thorough analysis. Dana should be finalising a date for commencement of Mauritanian drilling shortly and speculation by the market on a large find should produce some volatility in the share price. Fayrewood continues to prove as exciting as chiropody (one would imagine), the shares have gone nowhere while shareholders and watchers alike await news on the takeover situation.
As of August 31, 2005:
Ben Bailey, 21/06/04 at 390p (384p today)
Chaucer Holdings, 06/10/03 at 42.88p (58p)
Chaucer Holdings, 06/04/2004 at 54.75p (58p)
Dana Petroleum, 20/11/03 at 223.75p (906p)
SVB, 12/04/05 at 24.12p (31.5p)
Fayrewood, 15/04/05 at 112.5p (125.5p)
Fayrewood, 19/04/05 at 111.5p (125.5p)
+ cash holdings
and today's values
Chaucer Holdings, 06/10/03 at 42.88p (53.5p)
Chaucer Holdings, 06/04/2004 at 54.75p (53.5p)
Dana Petroleum, 20/11/03 at 223.75p (880p)
SVB, 12/04/05 at 24.12p (30p)
SVB, 13/09/2005 at 26.75p (30p)
Fayrewood, 15/04/05 at 112.5p (117p)
Fayrewood, 19/04/05 at 111.5p (117p)
+ cash holdings
Chaucer, SVB and Fayrewood all have significant value waiting to be outed. A success in Mauritania for Dana Petroleum before the year is out would propel my portfolio to new highs. But Dana has a patchy record with the drill-bit, I'm not holding my breath.
The Artful Dodger
(0) comments
My decision to sell out of Ben Bailey entirely and sink the funds into SVB at 26.75p has paid off handsomely however, the shares have advanced to 30p following superb interim results while Ben Bailey has continued to malinger in the face of uninspiring housing market reports. I think SVB has some way to go still and should be priced in the neighbourhood of 40p.
With the Bailey sale and SVB top-up I'm rather too concentrated for my own liking currently. The Countrywide short position has so far proved costly, reducing the amount of funds available to be invested elsewhere. Invox, the highly cash-generative 'home gaming' company has recently come to my attention and deserves some thorough analysis. Dana should be finalising a date for commencement of Mauritanian drilling shortly and speculation by the market on a large find should produce some volatility in the share price. Fayrewood continues to prove as exciting as chiropody (one would imagine), the shares have gone nowhere while shareholders and watchers alike await news on the takeover situation.
As of August 31, 2005:
Ben Bailey, 21/06/04 at 390p (384p today)
Chaucer Holdings, 06/10/03 at 42.88p (58p)
Chaucer Holdings, 06/04/2004 at 54.75p (58p)
Dana Petroleum, 20/11/03 at 223.75p (906p)
SVB, 12/04/05 at 24.12p (31.5p)
Fayrewood, 15/04/05 at 112.5p (125.5p)
Fayrewood, 19/04/05 at 111.5p (125.5p)
+ cash holdings
and today's values
Chaucer Holdings, 06/10/03 at 42.88p (53.5p)
Chaucer Holdings, 06/04/2004 at 54.75p (53.5p)
Dana Petroleum, 20/11/03 at 223.75p (880p)
SVB, 12/04/05 at 24.12p (30p)
SVB, 13/09/2005 at 26.75p (30p)
Fayrewood, 15/04/05 at 112.5p (117p)
Fayrewood, 19/04/05 at 111.5p (117p)
+ cash holdings
Chaucer, SVB and Fayrewood all have significant value waiting to be outed. A success in Mauritania for Dana Petroleum before the year is out would propel my portfolio to new highs. But Dana has a patchy record with the drill-bit, I'm not holding my breath.
The Artful Dodger
