Julia
In Memoriam
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+1. I share that admiration.
Robusta fundamental, leveraged investments
- Thread starter robusta
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Cheers cynic, the fact is I have learned a lot from criticism and welcome it. As for courage? I guess I am a crazy optimist with little regard for my reputation.
Hope you don't mind tech I thought I would answer on this thread where a lot of your points are right on subject.
Could be wrong but I think peter was warning me about changing my strategy mid stream.
Sorry tech I do not understand the distinction between evolved and initiated in this contexy.
Sorry to drag out one of the most used Buffet quotes but "Be greedy when others are fearful and fearful when others are greedy"
Often the best opportunities come along when market conditions seem terrible, the trick IMO is buying the right businesses in this situation.
The letting profits run thread was me toying with my strategy for selling when others are greedy.
Sorry tech I would love to stand corrected but I don't see the point of forward testing, not even sure how to go about it to tell the truth.
I am not trying to reinvent the wheel, Ben Graham invented the wheel and there is plenty of evidence of outperformers following in his footsteps.
This portfolio if following a well trodden path despite occasionally straying.
NEW INVESTMENT
VOC - Vocus Communications
Bought 838 @ $1.79 = $1519.97
The growth is there, the cash flow is OK, there is not too much debt...
I have been thinking about this one for a while as I have a (relatively) large holding in my SMSF and I have been worried about the regular capital raising's for acquisitions. They do seem to be generating a reasonal return on the capital employed.
Seems it is in my makeup to be a little different, while the majority are chasing dividend yield, I am buying things like VOC and IPP with no dividends on the horizon but with nice growth.
VOC - Vocus Communications
Bought 838 @ $1.79 = $1519.97
The growth is there, the cash flow is OK, there is not too much debt...
I have been thinking about this one for a while as I have a (relatively) large holding in my SMSF and I have been worried about the regular capital raising's for acquisitions. They do seem to be generating a reasonal return on the capital employed.
Seems it is in my makeup to be a little different, while the majority are chasing dividend yield, I am buying things like VOC and IPP with no dividends on the horizon but with nice growth.
Interesting choice - I don't understand Vocus myself - happy to admit it.
I'm really struggling to find much in this market of interest (actually I haven't bought anything since CAB in early December). I started looking deeper into HHL a few weeks ago, but never finished my analysis. I will get back to it eventually. I think I understand your position a bit better now. The AGM notes have some good stuff.
You should look at PFL. I think it's a pretty solid company with a great competitive position in its market. Seems to have held up really well. Margins are a bit soft, but it looks cyclical (and due to future investment) rather than structural to me. It's fairly well priced at the moment though. Maybe the next result will be soft and cause a dive...
I might have to start digging deeper into the market. Nothing obvious stands out in the "usual suspects." Something around the 100mil market cap range might come up with some luck.
I'm really struggling to find much in this market of interest (actually I haven't bought anything since CAB in early December). I started looking deeper into HHL a few weeks ago, but never finished my analysis. I will get back to it eventually. I think I understand your position a bit better now. The AGM notes have some good stuff.
You should look at PFL. I think it's a pretty solid company with a great competitive position in its market. Seems to have held up really well. Margins are a bit soft, but it looks cyclical (and due to future investment) rather than structural to me. It's fairly well priced at the moment though. Maybe the next result will be soft and cause a dive...
I might have to start digging deeper into the market. Nothing obvious stands out in the "usual suspects." Something around the 100mil market cap range might come up with some luck.
Hate to admit it buy I am not sure I fully understand it myself.
Probably should not chase the next big thing in these sexy new industries but I like the management and they have a heap of skin in the game. The margins are good but hard to define the competitive landscape with the massive capex on data centers, isp cables and dark fiber networks worldwide. Hence the small position size. Not so long ago there were plenty of interesting stocks going cheap, I agree there are not too many now. I have missed out on CAB a few times now the regulatory environment does my head in, MMS and CCV are others I have put in the too hard basket.
Thank you I will look into it, their pies are good.
That is the difficult decision, I probably should show more discipline and keep some capital available for the next inevitable correction.
Hate to admit it buy I am not sure I fully understand it myself.
Robusta,
Isn't that a big risk? I bought VOC 6 months ago, without fully understanding it - sold it at a small profit when I realised I had NO idea how to value the company or determine how it made it's income. Great lesson for me.
While you might be comfortable with it - the hard part for me was when announcements came through, and I had no basis of fact/analysis, other than the price action - I'm not a technical trader. So I sold.
Good luck for this one though!
slooi1
Yes it is a risk but if they are right about the nature of the reoccurring revenues and the future growth the profits should follow.
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Robusta,
For me to understand how you could call this a "value" investment based on the fundamentals, I would like to know given the following, how this is possibly "value"?
In the last 2 years the share price has gone from $1.40, to the current ~$1.80, yet cashflow has fallen from 23.9 c/s to 19.5 c/s. Earnings have fallen from 15.7 c/s to 13.3 c/s. Operating margin from 46.6% to 36.5%, Return on capital from 18% to 13%, Return on equity from 38.7% to 20.1%. Long term debt has gone from $13m to $25m, while the current account looks much worse than either last year or the year before, because of lower cash assets.
To me these sorts of parameters are what fundamental investors would look for in stocks to short! Can you please explain where the fundamental value is here? It's not like there is a dividend to keep you happy.
brty
For me to understand how you could call this a "value" investment based on the fundamentals, I would like to know given the following, how this is possibly "value"?
In the last 2 years the share price has gone from $1.40, to the current ~$1.80, yet cashflow has fallen from 23.9 c/s to 19.5 c/s. Earnings have fallen from 15.7 c/s to 13.3 c/s. Operating margin from 46.6% to 36.5%, Return on capital from 18% to 13%, Return on equity from 38.7% to 20.1%. Long term debt has gone from $13m to $25m, while the current account looks much worse than either last year or the year before, because of lower cash assets.
To me these sorts of parameters are what fundamental investors would look for in stocks to short! Can you please explain where the fundamental value is here? It's not like there is a dividend to keep you happy.
brty
With the up most respect, damn you sir you had to ask the difficult question (although I am glad you did as I should give it more thought).
Vocus are growing fast through buying and upgrading data centers, buying and upgrading dark fibre networks and increasing capacity on the subsea cables. Capital spending over the last three years has gone from -14.3 cps in 2010 to -.15 cps in 2011 to -18.6 cps in 2012. These investments will take some time to pay off.
Not very scientific I admit but I am working on the theory that if they VOC build it (or buy it) they (the customers) will come. The pure unvarnished truth is I think this sector is set to boom and Vocus is positioned to benefit from that if they are good enough. As you can see I am not confident enough to bet the house on it.
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Robusta,
Why?
The reason why I ask, and this goes for the previous question as well, is that I recently purchased some stock in a company with similar metrics, though it was both "value" as well as technical in my opinion. The stock being Select Harvests. The value I saw though, was from an almond grower, who had 2 poor years, just like SHV, yet he told me his crop this year was much better than the prior ones. I purchased SHV in December at $1.40. This price was at a steep discount to the $3.40 of 2 years ago, yet a good crop would see the profitability rise close to prior levels.
In the case of VOC, it is already at a premium to the price of 2 years ago, so a rise in the fundamental metrics is perhaps already factored in. Do you know of any reason why VOC/the sector might boom? "I think" is not really a value based logical argument.
Why?
The reason why I ask, and this goes for the previous question as well, is that I recently purchased some stock in a company with similar metrics, though it was both "value" as well as technical in my opinion. The stock being Select Harvests. The value I saw though, was from an almond grower, who had 2 poor years, just like SHV, yet he told me his crop this year was much better than the prior ones. I purchased SHV in December at $1.40. This price was at a steep discount to the $3.40 of 2 years ago, yet a good crop would see the profitability rise close to prior levels.
In the case of VOC, it is already at a premium to the price of 2 years ago, so a rise in the fundamental metrics is perhaps already factored in. Do you know of any reason why VOC/the sector might boom? "I think" is not really a value based logical argument.
Sorry to take so long to answer brty, I have been very busy...
You could be right about SHV, I will have to take a closer look.
VOC is set to benefit from the explosion in data use from tablets, smart phones, smart tv's...
My thoughts when investing (speculating??) were they should be reaching a critical mass where the cash flows should be able to fund new acquisitions and the growth and the existing businesses revenue should accelerate to spin off more and more cash.
Now I am not so sure, the depreciation and amortization on the Statement of Comprehensive Income is clouding the issue. The half year report should be out in a few weeks, I will give it some more thought until then. Hopefully I will not be proved guilty of lowering my investment criteria in the absence of decent opportunities.
You could be right about SHV, I will have to take a closer look.
VOC is set to benefit from the explosion in data use from tablets, smart phones, smart tv's...
My thoughts when investing (speculating??) were they should be reaching a critical mass where the cash flows should be able to fund new acquisitions and the growth and the existing businesses revenue should accelerate to spin off more and more cash.
Now I am not so sure, the depreciation and amortization on the Statement of Comprehensive Income is clouding the issue. The half year report should be out in a few weeks, I will give it some more thought until then. Hopefully I will not be proved guilty of lowering my investment criteria in the absence of decent opportunities.
I have looked at SHV and concluded that they are now at a competitive disadvantage to Olam.
That said:
The poorest businesses benefit the most in the short run from an improvement in business/agricultural conditions.
SHV is scrambling to build yield to replace Olam crop. Strategy is high risk, but their survival basically depends on it. The current leverage, operational and financial will respond well to a favourable season.
One to trade based on near term outlook - but not [yet] one for long term creation of shareholder wealth.
Olam buying SHV instead of building their own processing facility is a possibility.
Another nice little anniversary for this portfolio, 12 months ago today I bought my Navitas holding, along with the usual warnings about buying into a downtrend...
Probably not my smartest move taking profits in CCP at the time, anyway here is my post from last year.
So all up including brokerage $3017.32 invested with a dividend return so far of $199.48 so that is a yield of 6.61% plus $85.49 in franking credits. So happy about that as this covers my cost of capital.
For what it is worth the closing price of $5.04 means the market is valuing my holding at $5155.92.
The first chart is for the year preceding my investment, the second is for the year just gone. Some would call me a lucky bastard, I would have difficulty arguing against this.
Probably not my smartest move taking profits in CCP at the time, anyway here is my post from last year.
NEW INVESTMENT
NVT - Navitas Limited
Bought 1023 @ $2.93 = $2997.39
Call me crazy if you like given NVT recent earnings downgrade and the rising A$ but I think NVT may be one of the few ASX listed companies with a sustainable competitive advantage.
Took me a while to understand the business and in the short term operating conditions may remain difficult but I will be shocked if EPS is not at least 3-4 times present levels in 10 years.
PART INVESTMENT SOLD
CCP - Credit Corp
Sold 520 @ $5.00 = $2600.00
To be honest I feel a bit foolish with this one. When I decided to buy NVT a couple of days ago (and placed low ball bid @ $2.820 thought it might be a good idea to take some profits on CCP and rebalance portfolio so I placed sell order @ $4.88
Anywhoo totally missed the announcement this morning and my order was filled @$5.00
CCP is still my largest holding - just.
So all up including brokerage $3017.32 invested with a dividend return so far of $199.48 so that is a yield of 6.61% plus $85.49 in franking credits. So happy about that as this covers my cost of capital.
For what it is worth the closing price of $5.04 means the market is valuing my holding at $5155.92.
The first chart is for the year preceding my investment, the second is for the year just gone. Some would call me a lucky bastard, I would have difficulty arguing against this.
Attachments
Probably should point out in case this thread is starting to read like F.I.G.J.A.M (F@#$ i'm good just ask me). My decision to sell CCP, here is my post from then.
CCP is now trading at $9.00 and raising the dividend every half. I guess that is what you would call opportunity cost...
On the subject of portfolio management I am starting to feel a little uncomfortable being almost fully invested at the moment, the recent purchase of Vocus in particular may have been a error.
The first half of one of the most overused quotes, "Be greedy when others are fearful and fearful when others are greedy" has served me OK up until this point but I am starting to see a little greed around. It may be prudent to free up at least 10% of my capital over the next year as selling opportunities present themselves.
Investment sold
Credit Corp
Sold 853 x CCP @ $5.84 = $4981.51
This is more a portfolio decision, I am starting to see some value in the market (have two unfilled orders at the moment) and I will be investing in the MTU spp.
CCP is the holding that I think is closest to my estimate intrinsic value so sold to free up cash - and reduce capital losses incurred to date.
Bring on the volatility
CCP is now trading at $9.00 and raising the dividend every half. I guess that is what you would call opportunity cost...
On the subject of portfolio management I am starting to feel a little uncomfortable being almost fully invested at the moment, the recent purchase of Vocus in particular may have been a error.
The first half of one of the most overused quotes, "Be greedy when others are fearful and fearful when others are greedy" has served me OK up until this point but I am starting to see a little greed around. It may be prudent to free up at least 10% of my capital over the next year as selling opportunities present themselves.
tech/a
No Ordinary Duck
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10%
Hardly freeing up capital
60% + I'd have thought.
Hardly freeing up capital
60% + I'd have thought.
Well prices would have to run very much into bull market territory for me to sell that much. The plan is to free up enough to take a opportunity that will eventually present itself. Meanwhile the portfolio should be cash flow positive next financial year, (dividends > interest paid) added to the $50/week I am contributing should give me extra capital to invest or pay down debt into the future.
tech/a
No Ordinary Duck
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Ok
Sounds like a plan.
Sounds like a plan.
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So_Cynical
The Contrarian Averager
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I have given bottom buying a lot of thought over the years and have come to a few conclusions.
- Bottom buying is good, the greatest return on capital (both trade & div) can only be done with the cheapest entry.
- Bottom buying can only be done on a down trend and only by accident, as no one knows where the bottom is.
- Bottom buying can only be done deliberately, as in one seeking the bottom.
So its a deliberate act of chance, buying in the hope/belief that it is the bottom, or at least close enough that it doesn't really matter, works really well with an open ended time frame and little or no leverage...its worked out for me that over the last 5 years roughly 1 in 6 of my entry's has been a bottom.
So it would seem that if one consistently seeks bottoms it is bottoms that one will find.
I do like legs and breasts but there is something very attractive about a nice bottom
sorry.
