Robusta fundamental, leveraged investments

[Klogg]

New Investment

QBE Insurance Group

Bought 183 @ $10.93 = $2020.14 10/12/13

If you look at the NTA somewhere in the $4.20s per share and a ROE well under 10 on the surface this seems to be a ordinary investment and on closer inspection it may well be very ordinary. QBE does however have a nice history of recording a underwriting profit. The float may be able to take advantage of higher bond yields in the future while a lower A$ may also boost profits.

I've taken a look at this and threw it into the too hard basket...

May I ask - how did you come up with a valuation, even if it's a wide-ranging one?

 

[Valued]

New Investment

QBE Insurance Group

Bought 183 @ $10.93 = $2020.14 10/12/13

If you look at the NTA somewhere in the $4.20s per share and a ROE well under 10 on the surface this seems to be a ordinary investment and on closer inspection it may well be very ordinary. QBE does however have a nice history of recording a underwriting profit. The float may be able to take advantage of higher bond yields in the future while a lower A$ may also boost profits.

I had a brief look at QBE. It would probably take me three hours to actually value the company. You would really need to concentrate on forecasted intrinsic value over the next couple of years. I would work it out for 2011, 2012, 2013, 2014, 2015 and track the change in intrinsic value. Now I could have spent time doing this except I considered it a waste of time for the following reasons:

1. Earnings consistently dropping for the last five years. Management said revenue for NA will be down next year so we may expect earnings will be less than stellar in FY2014 as well. Overall profit is also lagging behind previous results.
2. The company has consistently issued more and more shares raising more capital since it was listed in 2003, diluting shareholder wealth and reducing overall returns.
3. Return on Equity has been plummeting
4. Book value has decreased year on year for four years

After considering this I figured I couldn't be bothered valuing it unless it drops drastically low. If the price hit $6 I would take a second look.

 

[robusta]

I've taken a look at this and threw it into the too hard basket...

May I ask - how did you come up with a valuation, even if it's a wide-ranging one?

The honest truth is I didn't value it. Held some QBE a couple of years ago, made a small profit, lost confidence and took a small profit. Watching the price go from eleven dollars something to seventeen dollars something had me thinking I sold too early, anyway the price fell below eleven dollars recently so I bought some and then looked at the numbers. Not exactly sticking to the strategy.

Investment sold

183 x QBE @ $11.20 = $2029.65, a capital gain a touch over $9.00

I had a brief look at QBE. It would probably take me three hours to actually value the company. You would really need to concentrate on forecasted intrinsic value over the next couple of years. I would work it out for 2011, 2012, 2013, 2014, 2015 and track the change in intrinsic value. Now I could have spent time doing this except I considered it a waste of time for the following reasons:

1. Earnings consistently dropping for the last five years. Management said revenue for NA will be down next year so we may expect earnings will be less than stellar in FY2014 as well. Overall profit is also lagging behind previous results.
2. The company has consistently issued more and more shares raising more capital since it was listed in 2003, diluting shareholder wealth and reducing overall returns.
3. Return on Equity has been plummeting
4. Book value has decreased year on year for four years

After considering this I figured I couldn't be bothered valuing it unless it drops drastically low. If the price hit $6 I would take a second look.

After being seduced by overseas income and rising bond yields in the cold light of day I tend to agree with Valued. Priced around NTA, QBE would make a much more attractive investment.

http://www.investopedia.com/articles/investing/082813/how-value-insurance-company.asp

I should have reread this before buying.

 

[robusta]

Investment Increased

IMF - Bentham IMF Limited

Bought 877 @ $1.71 = $1519.62 16/12/13

Here is my post from early October this year. Nothing much has changed except they have Won a couple of cases and the share price has fallen a little.

New Investment

IMF Australia Limited

Bought 819 IMF @ $1.83 = 1518.72 3/10/2013

This business has a fantastic record of excellent returns on capital deployed. The competitive advantage seem to me the ability to pick cases with a decent chance of a return and the feedback of the better cases being offered to IMF. The advantages of earnings not being tied to the economic cycle and the chance of growing foreign currency revenues are also attractive.

There has been many chances to pick up these shares at lower prices in the last couple of years. I have been watching this business for a while but have never had a chance to fit some into the portfolio. While the shares are not overly cheap there should be some upside on this small position given a long enough time frame.

 

[robusta]

Investment Increased

Bought 1613 x DTL @ $0.93 = $1520.04 20/12/13

Profit downgrade today, following UXC the other day.

http://www.asx.com.au/asxpdf/20131220/pdf/42lrn2dbj90h2p.pdf

Seems conditions are still tough in this sector, however with nice recurring revenues and no debt I was happy to top up my holding at $0.93 today and collect the 7% plus dividend yield.

 

[robusta]

So late November I picked up some FGE shares

New Investment

FGE - Forge Group


Bought 3030 x FGE @ $0.66 = $2019.75

The share price has been hammered today due to the extraordinary long trading halt after the losses incurred by the CTEC business. When FGE bought CTEC in January 2012 at a really low multiple, somewhere around 3-4 x EBIT it seemed too good to be true. I wonder how long the sellers knew this time bomb was ticking away... You know what they say. "if it seems too good to be true it probably is."

The result from buying today will be fairly binary, either the business returns to profitability and there will be lots of capital gains and dividends to come or they will not and money will be lost. The one certainty is cyclical businesses will never again be such a large percentage of my portfolio.

Investment Sold

3030 x FGE @ $0.95= $2858.55

Nice little capital gain and some risk taken off the table. What more can I say?

 

[robusta]

New Investment

WDIV - SPDR S&P Global Dividend Fund

Bought 128 x WDIV @ $15.83 = $2046.19

Seems a bit strange for a stock picker with a concentrated portfolio like mine to be buying a ETF. This one is a little different however.

http://www.spdr.com.au/etf/fund/fund_detail_WDIV.html#

WDIV with a MER of 0.5% follows the S&P Global Dividend Aristocrats Index. To be included in the index a business has to have at least 10 years of increasing or stable dividends with a weighting towards the highest yield.

Here you can see the top holdings, sector allocations and country weighting.

http://www.spdr.com.au/etf/fund/fund_detail_WDIV.html#

I am considering participating in the DRP.

 

[tech/a]

So late November I picked up some FGE shares




Investment Sold

3030 x FGE @ $0.95= $2858.55

Nice little capital gain and some risk taken off the table. What more can I say?

Wow
Missed 40% in a few days!
Why dd you sell
It's still 25% higher than when you sold!

 

[robusta]

Wow
Missed 40% in a few days!
Why dd you sell
It's still 25% higher than when you sold!

Yep I'm a terrible trader, the came out with a reply to the price enquiry like Sargent Schults "I know nothing" so I believed them and sold.

Next thing they are awarded a increased contract and Blackrock emerge as a substantial holder.

http://www.smh.com.au/business/blac...e-group-share-price-rally-20140103-309oh.html

So to sum up sold early but also bought early.

 

[tech/a]

Yep I'm a terrible trader, the came out with a reply to the price enquiry like Sargent Schults "I know nothing" so I believed them and sold.
Next thing they are awarded a increased contract and Blackrock emerge as a substantial holder.

http://www.smh.com.au/business/blac...e-group-share-price-rally-20140103-309oh.html
So to sum up sold early but also bought early.

Sarcasm an excellent trait.

I see many reasons in your trades for entries.
Not the same for exits.
COH another

 

[burglar]

Sarcasm an excellent trait.

I see many reasons in your trades for entries.
Not the same for exits.
COH another

I have learnt that I would do much much better if I run my winners.
I just need to do what I learnt.

 

[robusta]

Sarcasm an excellent trait.

Sarcasm never seems to work for me on this forum, when I try it people take me seriously, and sometimes like this when I'm serious people think I,m being sarcastic.

I am a terrible short term trader, never look at resistance and trends and very rarely take volume into account.

I see many reasons in your trades for entries.
Not the same for exits.
COH another

You are right Tech, having a main goal of buying excellent businesses to hold for the long term most exits mean I have made a mistake in the initial buying process.

FGE was bought $0.66 straight after the trading halt was lifted with the view that if they survived there should be significant upside. The price spike from $0.66 to $0.95 within a month was enough to convince me to take some risk off the table, a risk I probably shouldn't have taken anyway.

As for COH

COH - Cochlear, current market value of $5365.44 up 18.22% on purchase price and 12.03% of the portfolio.
This is the business that is causing the most consternation at the moment. The initial entry point was lucky, almost at the low point after Cochlear's recall and even then for a normal security too much was paid. Later more were picked up for a bit over $56.00 after the price had fallen from $80.00 plus.

Cochlear is in the portfolio because of their sustainable competitive advantage, recent results are starting to show that moat may be slowly starting to erode. It is difficult to ascertain if this is short term or more lasting in nature. The trouble with this type of 'slow trading' is by the time I come up with my decision the answer will probably be clear to the rest of the market. COH has been a core holding for a couple of years, there could be a lesson to be learnt here on paying for growth.

Investment Sold

They say you shouldn't get too attached to your shareholdings but I may have become close with this one. This business was considered a core holding being the dominant market leader with a competitive advantage and good growth prospects. Now i'm not so sure. COH seem to have stumbled while their competitors have moved forward.

The first parcel was picked up in late 2011

While the second a few months ago.


A total of $4538.35 invested in this company.

Over the holding period $357.33 has been received in dividends.

Today 92 shares were sold @ $58.09 for $5327.33 a total gain of a little over 25.25% the other little positive is the lions share of the $788.98 capital gain will get the 50% CGT discount.

The overall investment strategy seems to be going to plan, as the market rises and businesses change profits are taken and leverage is reduced. To put it another way if the market rises I'm happy as there is still significant exposure, if the market falls (or a individual opportunity presents itself) still happy as there is capital available to take advantage of the situation.

 

[robusta]

Investment Sold

DTL Data 3 Limited

Sold 5614 Shares @ $0.92 = $5144.93

Have held this business for a long time and even topped up on the recent profit downgrade. The main reason for selling is a loss of confidence that profits will be maintained let alone grow in the long term. Hardware sales seem to be in decline.

 

[tech/a]

Investment Sold

DTL Data 3 Limited

Sold 5614 Shares @ $0.92 = $5144.93

Have held this business for a long time and even topped up on the recent profit downgrade. The main reason for selling is a loss of confidence that profits will be maintained let alone grow in the long term. Hardware sales seem to be in decline.

Building Approvals are up.
I'm buying heaps in the Hardware field!
Hmm I don't know??

 

[slooi1]

Investment Sold

DTL Data 3 Limited

Sold 5614 Shares @ $0.92 = $5144.93

Have held this business for a long time and even topped up on the recent profit downgrade. The main reason for selling is a loss of confidence that profits will be maintained let alone grow in the long term. Hardware sales seem to be in decline.

Robusta,
A quote from you on 20/12/2013 after purchasing DTL.

Seems conditions are still tough in this sector, however with nice recurring revenues and no debt I was happy to top up my holding at $0.93 today and collect the 7% plus dividend yield.

Can you provide a sense of what's changed your view in the 3-4 weeks over Christmas to sell DTL? There hasn't been much official news come out in general given that most decision makers etc are on holidays.

Your views in this thread appear to flip flop between fundamental analysis and short term trading. My guess is that you're not sure on your style yet, or that emotion (fear/greed) is playing a part. If you're uncertain on your style - that will bite you later on. Remember, you can always take a pass and don't buy in.

 

[ENP]

Investment sold

183 x QBE @ $11.20 = $2029.65, a capital gain a touch over $9.00

What's the point in all the effort for $9?

Is that before or after the costs of brokerage?

 

[robusta]

Robusta,
A quote from you on 20/12/2013 after purchasing DTL.


Can you provide a sense of what's changed your view in the 3-4 weeks over Christmas to sell DTL? There hasn't been much official news come out in general given that most decision makers etc are on holidays.

Nothing in the announcements or news, I was just thinking about the hardware side of the business. The old model of a heap of main frames, desk tops throughout and software loaded on each device does not seem to be growing...

Your views in this thread appear to flip flop between fundamental analysis and short term trading. My guess is that you're not sure on your style yet, or that emotion (fear/greed) is playing a part. If you're uncertain on your style - that will bite you later on. Remember, you can always take a pass and don't buy in.

Yes I agree, still refining my style. The first parcel of DTL was bought in May 2012 over a year and a half ago. I'm not sure I've expressed many view on short term trading but agree buying and selling mistakes have been made and there has been too much flip flopping in and out of stocks.

What's the point in all the effort for $9?

Is that before or after the costs of brokerage?

After brokerage and now worth the effort. Too little thought given to the buy decision.

 

[robusta]

New Investment

TRS - The Reject Shop

Bought 175 @ $11.50 = $2032.45

Here I go again, buy now think later.

TRS has been on my watch list for a long time. Have been on holidays, came in off the kayak and discovered the sp had plunged, so picked up a small parcel. Will have to see if there is any growth left in TRS.

 

[tinhat]

New Investment

Will have to see if there is any growth left in TRS.

With a PE of 20.5 you're betting on it!

 

[robusta]

This from me selling FGE at $0.95 after buying at $0.66

Wow
Missed 40% in a few days!
Why dd you sell
It's still 25% higher than when you sold!

Now it is $0.63 I'm glad to be out of it and probably shouldn't have bought in the first place despite the profit.

I have learnt that I would do much much better if I run my winners.
I just need to do what I learnt.

Yes it is difficult I guess the trick is picking the stocks to hold on to. I got this terribly wrong with CCP and KAM.

Here is one I got right... so far. Normally I update the holdings on the anniversary of the first purchase, somehow I missed this one.

So when I bought IPP back in Nov 2012 it was and still is the only holding not making a profit. The thesis was massive growth and increasing revenue.

1660 xIPP @ $0.915 = $1538.85 14/11/12

The price fell so I picked up some more.

1910 x IPP @ $0.785 = $1519.30 22/04/13

So that is a average price of $0.8566 per share

After that the price fell to $0.70 and I considered buying some more but did not pull the trigger, not wanting to take on more risk.

Recently IPP have announced their first cash flow positive quarter.