Robusta fundamental, leveraged investments

robusta · 27 September 2011

robusta said:
NEW INVESTMENT

BHP- BHP Billiton Limited

Picked up 85 shares @ $35.60

What can I say, good ROE, stuff all debt, great cash flow, solid earning history and a culture of investing with a eye on the future.

Now the portfolio is fully invested

Things have been extremely busy for me lately but I will try to update the portfolio shortly, suffice to say at the moment there is a lot more red ink than green

INVESTMENT SOLD

BHP, sold 85 shares @ $34.93

Have decided I would make a terrible trader and I need to learn patience. While IMO BHP at these prices is a good investment with a long term view many better opportunities may present themselves in the next year. With this in mind I am not comfortable being fully invested and want some available capital when opportunities are presented.

Also keeping a close eye on MIN as it is next closest to my estimate of IV in my portfolio.

Note to self - do not buy anything until there is a large margin of safety to be had.

drlog · 27 September 2011

robusta said:
INVESTMENT SOLD

BHP, sold 85 shares @ $34.93

Have decided I would make a terrible trader and I need to learn patience. While IMO BHP at these prices is a good investment with a long term view many better opportunities may present themselves in the next year. With this in mind I am not comfortable being fully invested and want some available capital when opportunities are presented.

Also keeping a close eye on MIN as it is next closest to my estimate of IV in my portfolio.

Note to self - do not buy anything until there is a large margin of safety to be had.

As far as I can tell, you are aiming to be a value investor? Benjamin Graham said (paraphrasing) that you should keep between 25 and 75% cash. That is, don't be fully invested. I personally am over-invested as well so I plan to sell some shares in the next rally.

Having said that, BHP looks quite cheap - they are trading around 9 times earnings with high ROE and a large pool of assets. It's a great company! I watched an interview with Kloppers recently and he said (paraphrasing again) that they have never reduced their dividend (obviously in USD). I think he makes an excellent point.

IMO, MIN is a good company and currently cheap by my estimates.

As for patience - yes, when there is blood, it's a good time to buy. At the moment, there are only cuts, no blood just yet On the flip side, there may be a huge rally, we shall see.

Tysonboss1 · 28 September 2011

robusta said:
INVESTMENT SOLD

BHP, sold 85 shares @ $34.93

Note to self - do not buy anything until there is a large margin of safety to be had.

You may regret that,

What caused the sudden change,

Tysonboss1 · 28 September 2011

Drlogs,

Bens rule of 25 to 75 was for the defensive investor, but yes you should always have cash on hand,

robusta · 28 September 2011

drlog said:
As far as I can tell, you are aiming to be a value investor? Benjamin Graham said (paraphrasing) that you should keep between 25 and 75% cash. That is, don't be fully invested. I personally am over-invested as well so I plan to sell some shares in the next rally.

Same with me I threw money way to fast into this market with little regard to future opportunities

drlog said:
Having said that, BHP looks quite cheap - they are trading around 9 times earnings with high ROE and a large pool of assets. It's a great company! I watched an interview with Kloppers recently and he said (paraphrasing again) that they have never reduced their dividend (obviously in USD). I think he makes an excellent point.

IMO, MIN is a good company and currently cheap by my estimates.

It is difficult for me to picture a scenario where BHP and MIN have not increased profits in the next 5-10 years, BHP in particular is top quality.

drlog said:
As for patience - yes, when there is blood, it's a good time to buy. At the moment, there are only cuts, no blood just yet On the flip side, there may be a huge rally, we shall see.

Who knows where the market may go? We can only prepare and try to profit profit from any outcome.

Tysonboss1 said:
You may regret that,

What caused the sudden change,

Yes I may regret selling BHP if the share price rallies but I would regret it even more if the sp falls 20% plus and I have no capital left to allocate.

The sudden change was caused by sitting in this volatile market, fully invested with no capital available for future opportunities. I will probably be fully invested again in the future but the decision will not be taken lightly.

robusta · 30 September 2011

NEW INVESTMENT

COH - Cochlear Limited

Bought 65 shares @ $45.85

Have had my eye on COH since the recall and it finally reached a price I am willing to pay. There may be more short term pain to come but the growth and stability of this company is exceptional.

This is a few weeks old but formed a beginning to my research.

http://www.youtube.com/watch?v=TJmoU_dIkqg

INVESTMENT SOLD

MIN - Mineral Resources

It is with great regret that I sold MIN today but as stated earlier I am not comfortable being fully invested with such volatility around. The bottom line is COH was too good a opportunity to pass on an MIN was the closest to my calculation of IV in my porfolio.

robusta · 30 September 2011

PORTFOLIO UPDATE

U]Portfolio Cost[/U]
Lenders Mortgage insurance $667.81 paid
Bought:
7,142 x TSM @ $0.66 = $4713.72 (25/07/11)
546 x MCE @ $6.95 = $3797.70 (25/07/11)
853 x CCP @ $4.48 = $3821.44 (26/07/11)
385 x FGE @ $5.37 = $2067.45 (26/07/11)
291 x FGE @ $5.34 = $1553.94 (27/07/11)
29,524 x SOO @ $0.105 = $3100.02 (01/08/11)
7407 x ZGL @ $0.43 = $3185.01 (05/08/11)
1115 x MTU @ $2.62 = $2921.30 (08/08/11)
386 x MCE @ $5.15 = $1995.62 (08/08/11)
520 x CCP @ $3.83 = $1991.60 (08/08/11)
288 x MIN @ $9.96 = $2686.48 (08/08/11)
809 x MCE @ $4.20 = $3397.80 (24/08/11)
85 xBHP @ $35.60 = $3026.00 (22/09/11)
65 xCOH @ $45.85= $2980.25 (30/09/11)

Sold:
7407 x ZGL @$0.40 = $2962.80
7142 x TSM @$0.49 = $3499.58
29,524x SOO @ $0.10=$2952.40
85 xBHP @$34.93=$2969.05
288 xMIN @$10.18=$2931.84

Interest Paid = $325.41
Brokerage Paid = $338.80
Dividends Received = $50.70 Franking creditS = $21.73

Total Portfolio Cost:
$27,206.98
Tax Position, Capital Gains (Losses), Brokerage, Interest
($2,676.88) loss Franking credits = $21.73

Current Portfolio Position

1373 x CCP @ $3.94 = $5409.62
65 x COH @$45.85 =$3015.35
676 x FGE @ $4.36 = $2947.36
1741 x MCE @ $3.39 = $5901.99
1115 x MTU @ $2.96 = $3300.40

Current Market Value:
$20,574.72

Total realised and unrealised loss -24.37% or - $6,632.26

Cash contributed $360.00 ($40/week)

Return on contributed equity -1,942%

Credit available $3065.37

Uni · 1 October 2011

Just read all posts and IMO you have been tempted quite easily. I did the same thing before I was inspired by value investing approach (you named them all plus Roger), also recently when COH was slipping into my radar.

This is one of the principle of the Toyota Way but to me it's applicable in this case:
Make decisions slowly, thoroughly considering all options; implement decisions rapidly (Nemawashi).
~ Keep calm, think thoroughly and act quickly.

To me, nothing has fundamentally changed the world so I have been building up my cash reserve only (whilst still maintaining my small porfolio pre value.able).

Happy investing & Good luck :bier:

robusta · 2 October 2011

Uni said:
Just read all posts and IMO you have been tempted quite easily. I did the same thing before I was inspired by value investing approach (you named them all plus Roger), also recently when COH was slipping into my radar.

This is one of the principle of the Toyota Way but to me it's applicable in this case:
Make decisions slowly, thoroughly considering all options; implement decisions rapidly (Nemawashi).
~ Keep calm, think thoroughly and act quickly.

To me, nothing has fundamentally changed the world so I have been building up my cash reserve only (whilst still maintaining my small porfolio pre value.able).

Happy investing & Good luck :bier:

Good advise there UNI - thankyou.

I seem to heve no drama with the act quickly part, and I am working on the rest.

robusta · 3 October 2011

robusta said:
INVESTMENT SOLD

MIN - Mineral Resources

It is with great regret that I sold MIN today but as stated earlier I am not comfortable being fully invested with such volatility around. The bottom line is COH was too good a opportunity to pass on an MIN was the closest to my calculation of IV in my porfolio.

Maybe I will not have to regret that decision. MIN down $0.59 to $9.56 at the moment. Any price under $9.00 would tempt me to buy back in.

robusta · 29 October 2011

skc said:
IMO your first entry was mostly the fault in execution - buying into a downtrend ahead of full blown US debt ceiling crisis and brewing EU debt crisis. Your valuation assumed business as usual (which didn't eventuate but fair to say you had no way of knowing) and taking a position wasn't a terrible call.

The fault IMO was mainly in not being aware of how cyclical this business is.

skc said:
Your second entry was clearly a fault in valuation - the results were out and didn't look good esp on a forward looking basis. Instead of cutting your losses you doubled up as you didn't adjust your valuation correctly.

Your third entry was just pure lack of discipline... discipline in terms of position sizing and respect for the market. You simply shouldn't add to the position no matter how cheap it is. The market may over-react and incorrectly price MCE after the initial result release, but this shouldn't last a whole month with it being a closely followed stock. You should have acknowledged the market's assessment and reviewed and challenged every one of your assumptions (e.g. what happens if they don't win contracts, what discount should I apply to the valuation because of such risk), instead you bought more.

Difficult to argue with any of the above except to add a little arrogance added to my predicament. I thought the market was over reacting and offering MCE at a massive discount.

My previous experience of averaging down worked a treat in my SMSF with FGE but in that case FGE were not announcing earnings downgrades.

skc said:
His results are more than respectable without the 2nd and 3rd parcel of MCE, and probably beat the market if he simply cut MCE lose soon after the result release.

Thankyou but very early days yet... Lucky for me investing is a marathon not a sprint.

This portfolio will deliver a positive return in the future I am 100% confident of that. The question that will need to be answered is how far away is that point and will the returns justify the risk's taken?

This lesson with MCE is definately one I do not wish to repeat.

Wysiwyg · 29 October 2011

robusta said:
Thankyou but very early days yet... Lucky for me investing is a marathon not a sprint.

This portfolio will deliver a positive return in the future I am 100% confident of that. The question that will need to be answered is how far away is that point and will the returns justify the risk's taken?

This lesson with MCE is definately one I do not wish to repeat.

Well it is good of you to post up your holdings because it shows most technical and fundamental long holders will be underwater in a bear cycle. No way out but sit out is the obvious conclusion to me. Patients a marathon runners best friend?

robusta · 29 October 2011

Wysiwyg said:
Well it is good of you to post up your holdings because it shows most technical and fundamental long holders will be underwater in a bear cycle. No way out but sit out is the obvious conclusion to me. Patients a marathon runners best friend?

It does not bother me too much to underperform in this market but I am rethinking my position sizing and % of capital allocated and may well sell some holdings into the current rally.

drworm · 30 October 2011

Thanks for sharing your thoughts in this thread Robusta - I subscribed a month ago and enjoy the read.

Bad luck with MCE. These things happen, but the lessons you're learning will keep you in good stead so next time you'll be able to minimise your losses.

One technique that has kept me out of trouble over the years is adjusting my views quickly when fundamentals change and especially getting the hell out when you're surprised on the downside.

I too held MCE and sold when the prelim annual report came out and the market opened. I didn't expect their margins to shrink by as much as they did, nor such a low order book and an obviously optimistic revenue target. It was my cue to go; I had been wrong.

Further on MCE. Don't know what is up with the directors but their forecasts are highly optimistic and setting the company up for failure (revenue/profit downgrade). How is revenue growth going to grow by 0-10% when they're behind this time last year and their order book is also much smaller ($110m vs $170m).

robusta · 31 October 2011

drworm said:
Thanks for sharing your thoughts in this thread Robusta - I subscribed a month ago and enjoy the read.

Bad luck with MCE. These things happen, but the lessons you're learning will keep you in good stead so next time you'll be able to minimise your losses.

Thankyou, I am not sure how much luck had to do with it however.

drworm said:
One technique that has kept me out of trouble over the years is adjusting my views quickly when fundamentals change and especially getting the hell out when you're surprised on the downside.

I too held MCE and sold when the prelim annual report came out and the market opened. I didn't expect their margins to shrink by as much as they did, nor such a low order book and an obviously optimistic revenue target. It was my cue to go; I had been wrong.

Ownership bias is a strange beast, have the fundamentals changed or is this just a temporary blip? Whatever the answer I do know in the future I will be looking to weight the portfolio with companies generating stable, reoccurirng revenue streams.

drworm said:
Further on MCE. Don't know what is up with the directors but their forecasts are highly optimistic and setting the company up for failure (revenue/profit downgrade). How is revenue growth going to grow by 0-10% when they're behind this time last year and their order book is also much smaller ($110m vs $170m).

Since listing the forecasts have been very conservative and have consistenly surprised on the upside until the und of FY2011. Another question that may be asked is do the directors have any ability to forecast accurately?

LifeChoices · 31 October 2011

robusta said:
Thankyou, I am not sure how much luck had to do with it however.

Lucky is a strange word. I'm always told, by others, how lucky I am when something really unlucky happens to me.

Seriously, how long do you think it will be before your investments will be back to b/e?

robusta · 31 October 2011

LifeChoices said:
Lucky is a strange word. I'm always told, by others, how lucky I am when something really unlucky happens to me.

Seriously, how long do you think it will be before your investments will be back to b/e?

Good point regardin luck.

As to getting back to break even and into the black, I have no idea - but I will certainly enjoy the ride.
After that the next goals will be to be cash flow positive and then to earn a satisfactory return.

LifeChoices · 31 October 2011

robusta said:
Good point regardin luck.

As to getting back to break even and into the black, I have no idea - but I will certainly enjoy the ride.
After that the next goals will be to be cash flow positive and then to earn a satisfactory return.

2017 maybe? That'll be a lot of posts about new fundamental positions. But I'm sure there will be lots of bargains in between.

robusta · 1 November 2011

LifeChoices said:
2017 maybe? That'll be a lot of posts about new fundamental positions. But I'm sure there will be lots of bargains in between.

Maybe you are right.

"The best thing about the future is that it comes one day at a time."
Abraham Lincoln

It will be interesting to see how the markets and this portfolio go in the next six years.

robusta · 1 November 2011

Portfolio Cost
Lenders Mortgage insurance $667.81 paid
Bought:
7,142 x TSM @ $0.66 = $4713.72 (25/07/11)
546 x MCE @ $6.95 = $3797.70 (25/07/11)
853 x CCP @ $4.48 = $3821.44 (26/07/11)
385 x FGE @ $5.37 = $2067.45 (26/07/11)
291 x FGE @ $5.34 = $1553.94 (27/07/11)
29,524 x SOO @ $0.105 = $3100.02 (01/08/11)
7407 x ZGL @ $0.43 = $3185.01 (05/08/11)
1115 x MTU @ $2.62 = $2921.30 (08/08/11)
386 x MCE @ $5.15 = $1995.62 (08/08/11)
520 x CCP @ $3.83 = $1991.60 (08/08/11)
288 x MIN @ $9.96 = $2686.48 (08/08/11)
809 x MCE @ $4.20 = $3397.80 (24/08/11)
85 xBHP @ $35.60 = $3026.00 (22/09/11)
65 xCOH @ $45.85= $2980.25 (30/09/11)

Sold:
7407 x ZGL @$0.40 = $2962.80
7142 x TSM @$0.49 = $3499.58
29,524x SOO @ $0.10=$2952.40
85 xBHP @$34.93=$2969.05
288 xMIN @$10.18=$2931.84

Interest Paid = $493.29
Brokerage Paid = $338.80
Dividends Received = $453.16 Franking credit = $194.21

Total Portfolio Cost:
$26,969.40
Tax Position, Capital Gains (Losses), Brokerage, Interest
($2,442.30) loss Franking credits = $194.21

Current Portfolio Position

1373 x CCP @ $3.99 = $5478.29
65 x COH @$57.21 =$3718.65
676 x FGE @ $4.56 = $3082.56
1741 x MCE @ $3.23 = $5623.43
1115 x MTU @ $2.82 = $3144.30

Current Market Value:
$21,047.27

Total realised and unrealised loss -21.95% or - $5,922.13

Cash contributed $520.00 ($40/week)

Realised return on contributed equity -569 %

Return on contributed equity -1,239%

Credit available $3371.82

Well about a month from the last update and not a lot to report, share prices fluctuated, got paid some dividends, paid some interest and contributed $40.00 a week.

A slight improvement in the portfolio but did not outperform the market....

No shares bought or sold this month.

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