Seven and a half years ago that I left a tenured professorship to concentrate on investment. Back then the FTSE 100 was around 6,600. The market as a whole has not exactly moved strongly in a positive direction over that time. It is now 6,620 (although there have been dividends of around 3-4% per year).
Despite this, I suppose I can be pleased with my performance so far, especially in light of the fact that my approach – deep value – generally has not done well in an era of great excitement about growth companies.
The remarkable downs and ups of this year were a challenge for all investors. Caution was the watchword in February and March when I sold a number of companies vulnerable to deep recession to raise cash for a hunkering down. Out went Dewhurst (at 722p, now 600p), T Clarke (at 112.15p, now at 95.4p), Northamber (at 57.2p, now at 52p) J Smart (at 110p, now at 110p) Caledonian Trust (at 139.1p, now at 140p).
Having built up cash reserves I was ready to look for bargains in the panic – always “look for opportunity in the flux”.
The first I found was Connect Group (recently renamed Smith News) where I doubled my holding at a price of 15.1p. These shares are now trading at 28.1p.
Then I doubled my holding of Character Group in June at 252p. These now trade at 410p.
I had to wait until October before I felt ready to gain exposure to the property sector again. But the attractive net current asset value, NCAV, of McCarthy and Stone was just too tempting. Even if the recession turned out to be prolonged this company had so many assets, and manageable debt, that it was a bargain at 71.8p.
It wasn’t long before an American private equity company concluded that it was a good business packed with assets, and made a takeover bid at 120p per share. I sold out in early December at 118.5p, a return of 65% in two months.
Then there was the owner of Covent Garden, Capital and Counties Properties, which Mr Market had dumped alongside other office and shop owners. It was selling far below its NCAV, even taking a pessimistic line on where property prices were going.
But Covent Garden is not like other shopping/office/leisure areas, being dominated by tourism and activity in central London. I thought it would bounce back sooner or later, so I bought at 103.2p. Low and behold, my timing was perfect (pure luck) I bought on the Friday (6th Nov) and on the Monday the Pfiser vaccine was approved resulting in estimates of future footfall within London being revised upward. It is now trading at 144.4p.
These two investments demonstrate the benefits of deep value investments: you don’t know what is going to correct the under-pricing – a takeover bid, a management revamp, Mr Market switching from pessimism to optimism, or the liquidation of a competitor – nor when it will occur, but you do know (probably) that one day it will rise to somewhere near intrinsic value.
So, all you have to do is estimate intrinsic value, compare that with what the market is asking for the shares, see if there is a good margin of safety and be bold in buying.
And be bold in selling. I sold Tandem in August at 370.7p when I was still pretty nervous about the economic outlook and after it had risen to give a 139% return. It was not that I was pessimistic about the company, just that I was concerned that things might go wrong at the company (bicycle enthusiasm has pushed this one up, despite it losing money in its bicycle division for years and having difficulty sourcing bikes to sell in the UK).
In hindsight I should have let the share run because it rose above 550p. I comfort myself with the thought that much of the money raised went into McCarthy and Stone and Covent Garden.
The money also went into buying back into, and purchasing more of, Dewhurst “A” shares at a price much lower than I sold in February – sold at 722p, bought back at 594p.
Very recently I’ve more than doubled my holding in MS International at 129.2p and tripled my Wynnstay holding at 340.5p – I’ll set out my reasoning in a set of Newsletters soon.
The Deep Value Strategy performance tables
The results (so far) of all the shares bought for the portfolios I’ve been writing about in my Newsletters are shown in the tables below. The comments I made at the time explaining the rationale for each investment are available for you to read in older newsletters – there is nowhere for me to hide from my appraisals made three, four or seven years ago.
I present the returns after taking the hit on broker costs, stamp duty and bid/offer spread.
(Some of you have joined us recently so, in case you are not familiar with them, I briefly describe the criteria for my portfolios following the portfolio performance tables.)
The 2013 Net Current Asset Value, NCAV, portfolio
Company | Purchase date | Purchase price | Divs to 31 December 2020 | Price 31 December 2020 | Return to 31 December 2020 | ||||
French Con. | 25.7.13 | £0.3047 | zero | Sold July 2015 £0.4378 | 44% | ||||
Caledonian T | 25.7.13 | £0.70 | zero | Sold April 2020 for £1.391 | 99% | ||||
Fletcher King | 6.8.13 | £0.30 | 14.25p | Sold June 2016 for 46p | 101% | ||||
Northamber | 22.8.13 | £0.287 | 1.6p | Sold Oct 2016 £0.303 | 11% | ||||
Titon | 5.9.13 | £0.379 | 6.5p | Sold May 2016 £1.06 | 197% | ||||
Mallett | 12.11.13 | £0.7682 | 12.7p | Sold Nov 2014 £0.60 | -5% | ||||
AVERAGE | 75% |
The 2014 NCAV portfolio
Company | Purchase date | Purchase price | Divs to 31 December 2020 | Price 31 December 2020 | Return to 31 December 2020 | ||||
Holders Tech | 10.10.14 & 3.11.14 | £0.47 | 1p | Sold March 2017 £0.33 | -28% | ||||
Airea | 4.11.14 | £0.1195 | 0.9p | Sold Sept 2016 £0.309 | 166% | ||||
Northamber | 17.11.14 | £0.4265 | 0.7p | Sold Oct 2016 £0.303 | -27% | ||||
Caledonian T | 30.12.14 | £1.39 | zero | Sold April 2020 for £1.391 | 0 | ||||
AVERAGE | 28% |
The 2015 NCAV portfolio
Company | Purchase date | Purchase price | Divs to 31 December 2020 | Price 31 December 2020 | Return to 31 December 2020 | ||||
PV Crystalox | 15.1.15 | £0.122 | zero | Sold Dec 2016 £0.237 | 94% | ||||
Arden Partners | 1.9.15 | £0.422 | 1p | Sold May 2018 £0.364 | -11% | ||||
Northamber | 4.9.15 | £0.443 | 0.4p | Sold Dec 2016 £0.303 | -31% | ||||
AVERAGE | 17% |
The Buffett-style portfolio
This type of share is rarer than the others, and so I combine all years.
Company | Purchase date | Purchase price | Divs to 31 December 2020 | Price 31 December 2020 | Return to 31 December 2020 | ||||
Dewhurst | 9.4.14 | £3.18 | 70.5p | Sold February 2020 £7.217 | 149% | ||||
MS International | 9.10.19 | £1.723 | 3.5p | £1.15 | -31% | ||||
Character | 20.1.20 & 5.6.20 | £2.811 | 15p | £4.10 | 51% | ||||
Dewhurst | 11.11.20 | £5.94 | 0 | £6.00 | 1% | ||||
MS International | 16.12.20 | £1.292 | 0 | £1.15 | -11% | ||||
AVERAGE | 40% |
(I bought some more of Dewhurst in June 2014 at £3.11, December 2014 at £3.75, November 2017 at £5.46, February 2019 at £5.54 and April 2019 at £5.64.These were sold Feb 2020).
Modified price earnings ratio portfolio 2015/16
Company | Purchase date | Purchase price | Divs to 31 December 2020 | Price 31 December 2020 | Return to 31 December 2020 | ||||
Haynes | 11.2.15 | £1.159 | 33.5p | Sold 2.10.19 £2.9175 | 181% | ||||
AGA | 11.3.15 | £1.002 | zero | Taken over June 2015 £1.456 | 45% | ||||
Hogg Robinson | 10.4.15 | £0.4709 | 2.37p | Sold June 2016 £0.656 | 44% | ||||
MS International | 3.7.15 | £1.86 | 36p | £1.15 | -19% | ||||
BHP Billiton | 24.9.15 | £10.43 | 127p | Sold May 2018 £16.90 | 74% | ||||
TClarke | 5.11.15 | £0.7916 | 13.61p | Sold Feb 2020 £1.1215 | 59% | ||||
Premier Farnell | 8.4.16 | £1.222 | 3.6p | Taken over 20.6.16 £1.632 | 36% | ||||
AVERAGE | 60% |
The AGA holding was doubled 30 April 2015 at a price of £0.9466.
Modified price earnings ratio portf ………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1