SpaceandPeople (SAL) markets, sells and administers
promotional space in high footfall venues across the UK, including shopping
centres, theme parks, retail parks and airports. It offers a comprehensive
service covering everything from consultancy to the provision and management of
retail merchandising units in shopping centres.
A five year agreement with Land Securities started in April 2012 and provides
SpaceandPeople with an additional weekly footfall of 2.4 million shoppers in 12
venues including many of the leading UK shopping centres including The Bridges
(Sunderland), White Rose (Leeds), Gunwharf Quays (Portsmouth) and Overgate
(Dundee).
All good company stuff but what about the numbers?
Over the years I have developed a methodology focusing on five fundamental
factors; price, earnings, growth, net debt and cash-flow, which help me follow
Warren Buffet’s two rules of investing:
Rule 1: Don’t lose money.
Rule 2: Don’t forget rule number 1!
If you lose 50% of your money, you need to make 100% to get it back. That’s a
lot of hard work. I know. Of my first three stocks two went bust and one was
taken over for a fraction of what I paid for it. I bought them because of the
hype about the future and because they were going to make me rich. They were
valuable in terms of learning but that’s all.
My method is intentionally boring and has a layer of in-built safety (a
margin of safety if you like) so I don’t have to worry about short-term
fluctuations in value. When investing based on fundamentals you don’t have to
worry about Mr Market’s irrational mood swings, although price volatility can
help you time your entry and pick a good stock more cheaply.
One of the key things I have learnt is that your investment style needs to
fit your personality. For me it’s important that I have real conviction when
buying a stock so I don’t panic during market corrections, unless the facts
change of course.
Back to SpaceandPeople
SAL has a PE ratio of 10.9 (forward P/E of 8.1) and a dividend yield of 4.5%
that is more than twice covered. Earnings are forecast to grow at 24% for the 12
months to December 2012. For a company that is forecast to grow its earnings by
24% year on year, a P/E of 10 seems a bit on the low side.
Maybe there’s a reason. SAL is an AIM company with a market cap of only £13m.
I imagine there are plenty of investors who have a blanket rule not to invest in
small AIM companies because they are a risky proposition. I had my fingers burnt
when I started out, chasing racy AIM companies with no profits and managers
determined to dilute investors’ holdings at every opportunity.
But I don’t think SAL falls into that category. For a start there are profits
of £1.2m on £10.7m of turnover, net cash inflow from operating activities of
£2.1m (primarily used to repay debt and pay the dividend) and a dividend paid of
£0.5m. Net debt is £0.5m.
I would say the company is in pretty good health. The big risk is that we
don’t know much about management and whether they can deliver the forecast
growth. This is where the opportunity to make money exists. The contract with
Land Securities makes me believe this small company is punching above its weight
and the five year contract means SAL should continue to grow. The company’s
revenue is heavily skewed towards the UK but SAL has divisions in Germany, India
and Russia so it’s growing and diversifying internationally.
The share price probably won’t move until half-year results in September
2012, but the dividend means that I’m paid to wait.
This article was originally published on iii.
Uncovering Superior Value Opportunities
22 June 2012
16 June 2012
Are You a Private Investor or a Gambler?
A simple question and easy to answer. “I am an investor of course, I don’t throw my money around willy nilly as if I’m betting on a horse.” However if we delve a little deeper we can uncover the characteristics of a successful investor and then measure ourselves against these qualities to see how we measure up.
You should write it down and be able to easily communicate it to someone else (but if you’re like me you won’t as you don’t want to give away your competitive edge).
Then you need to apply your general economic knowledge to your potential investment opportunity. Is it a bank or exposed to banks? Is it a retailer or exposed to retailers? Does it have significant sovereign debt exposure? Does it have refinancing requirements coming up?
General research is an ongoing task and something that I love doing anyway, this is the fun bit! Reading the FT, investment websites, business news stories, news blogs and discussion boards. The key is to pick up general news, trends and sentiment, but not to let it unduly influence your investment decisions (unless of course the news directly relates to your potential investment).
When you learn to ride a bike, your brain processes all of those experiences and gradually you learn how to balance and ride a bike. When you learn to drive your brain again processes the speed and distance of other vehicles, how much you need to release the clutch, an awareness of other road users until gradually it is all second nature. In both cases this is unconscious competence.
With investing you need to do the same, become an unconscious competent investor. It takes time trying out different techniques, practice with real money at stake so you know what it feels like to lose money and understanding your own emotional state and how much risk you can handle while still being able to sleep well at night.
Money management means not over committing to an individual stock through diversification, not over investing in a particular market segment, identifying when to cut your losses. Good money management allows you to sleep at night and reduces the emotional tendency to overreact to news events and sell at the worst time (generally the panic lows). It also means only committing your capital when you have followed your system and having preservation of your capital as one of your primary objectives.
Investing is risky and money management allows you to manage that risk (along with your system and research).
Your system has identified a target stock and its price today could be your entry point. I like to wait for a pullback to buy but there is no guarantee that you’ll get a lower price. You could use recent support levels, trend channels, averaging in or whatever you feel comfortable with. This will come with experience and what suits you.
I believe that not many people have an exit price in mind before they invest. We are so used to being told that we should invest for the long term that most people have a buy and hold strategy which quite often means buy and forget.
Once you have bought a stock it needs to be monitored on a regular basis and you need to identify when its time to sell and reinvest elsewhere. If your investment has increased in value to a level where it is fairly priced then it makes sense to sell and reinvest in another opportunity. Here we come back to the “system”, you identified an investment opportunity that would hopefully increase in value and once it has got to its price target you need to whether there is still further upside available and how that compares to other opportunities.
Consistency means steadfast adherence to the same principles or course. You have your “system”, you’ve refined it over time investing real money and learning from your mistakes. You know what works and what doesn’t and now you reached a state of unconscious competence. You have settled on one course of action and all that remains is to repeat what works and invest in successful opportunities.
The time and effort spent on your “system” means you have the confidence to trade it through difficult markets because your have experienced them before. Obviously markets change and once the banking crisis is resolved they’ll be something else that comes along. But by then you’ll have the experience to see the warning signs and respond appropriately when the need arises.
1. System
2. Research
3. Understanding
4. Persistence
5. Money Management
6. Entry/Exit Targets
7. Consistency
I’ll leave it up to you to determine whether you are a private investor or a gambler. I used to think I didn’t need to worry about money management as I could top up my investments from my salary if they went down but I realised that this is not the mindset of a successful private investor.
Investing is not the easy road to getting rich that many people think it is. Investing is easy; you open an online account and buy some stocks. Successful investing is not easy and it does require a lot of work to be successful (just like anything else).
The more I try and the harder I work the luckier I become. Good luck!
This article was originally published on Stockopedia
1. System
Successful investors have a “system” that gives them an edge and tips the probability of success slightly in their favour. It is this edge that leads to the steady accumulation of capital over time, rather than the erosion of capital over time. When I say “system” it could be a process/methodology/algorithm or an automated system or whatever else you choose to label it as. What I mean by “system” is a defined process of identifying stocks to invest in based on predetermined criteria.You should write it down and be able to easily communicate it to someone else (but if you’re like me you won’t as you don’t want to give away your competitive edge).
2. Research
Once your system has identified a potential investment opportunity then you need to research that stock. What industry does it operate in, what countries does serve, what are it’s future business prospects, who are the management, what’s the opinion of the management team, what do the latest published accounts say about the business, are there any hidden statements buried in the notes to the accounts, do the management have large shareholdings…..?Then you need to apply your general economic knowledge to your potential investment opportunity. Is it a bank or exposed to banks? Is it a retailer or exposed to retailers? Does it have significant sovereign debt exposure? Does it have refinancing requirements coming up?
General research is an ongoing task and something that I love doing anyway, this is the fun bit! Reading the FT, investment websites, business news stories, news blogs and discussion boards. The key is to pick up general news, trends and sentiment, but not to let it unduly influence your investment decisions (unless of course the news directly relates to your potential investment).
3. Understanding
I mentioned reading the company’s accounts and annual report. Reading a set of accounts is not straight forward the first time but you need to be comfortable with looking through the accounts as this is a way of identifying concerns that the directors don’t want to highlight in their accompanying results statement. Profits may have grown but is this due to one off factors? The dividend may be high but is it sustainable? Debt may be low but are there other ongoing commitments that act like debt (property lease obligations)?4. Persistence
Persistence is what separates people who really want to be successful (at anything) from those that don’t. You try, you fail, then what? If investing is something that you love doing then you will look at what worked, what didn’t work and refine your methods and try again.When you learn to ride a bike, your brain processes all of those experiences and gradually you learn how to balance and ride a bike. When you learn to drive your brain again processes the speed and distance of other vehicles, how much you need to release the clutch, an awareness of other road users until gradually it is all second nature. In both cases this is unconscious competence.
With investing you need to do the same, become an unconscious competent investor. It takes time trying out different techniques, practice with real money at stake so you know what it feels like to lose money and understanding your own emotional state and how much risk you can handle while still being able to sleep well at night.
5. Money Management
Nobody is going to get every investment decision right, you win some and you lose some. Successful investors either win more often than they lose or when they win they win big compared to their losers. The aim of the game is to build capital, therefore we need to ensure that we have enough money to stay in the investment game.Money management means not over committing to an individual stock through diversification, not over investing in a particular market segment, identifying when to cut your losses. Good money management allows you to sleep at night and reduces the emotional tendency to overreact to news events and sell at the worst time (generally the panic lows). It also means only committing your capital when you have followed your system and having preservation of your capital as one of your primary objectives.
Investing is risky and money management allows you to manage that risk (along with your system and research).
6. Entry & Exit Targets
Entry and exits are the hardest part of this in my opinion. This other areas may require more time and effort but this is the hardest to get right and that because you can’t get it right. You might buy at a low a few times and sell at a high but it won’t happen every time.Your system has identified a target stock and its price today could be your entry point. I like to wait for a pullback to buy but there is no guarantee that you’ll get a lower price. You could use recent support levels, trend channels, averaging in or whatever you feel comfortable with. This will come with experience and what suits you.
I believe that not many people have an exit price in mind before they invest. We are so used to being told that we should invest for the long term that most people have a buy and hold strategy which quite often means buy and forget.
Once you have bought a stock it needs to be monitored on a regular basis and you need to identify when its time to sell and reinvest elsewhere. If your investment has increased in value to a level where it is fairly priced then it makes sense to sell and reinvest in another opportunity. Here we come back to the “system”, you identified an investment opportunity that would hopefully increase in value and once it has got to its price target you need to whether there is still further upside available and how that compares to other opportunities.
7. Consistency
There are many investment approaches (value, growth, distressed, fundamental, technical….) and various trading approaches (oversold bounce, momentum breakout, candlestick patterns…..) and the key to success is to get good at something and stick to it.Consistency means steadfast adherence to the same principles or course. You have your “system”, you’ve refined it over time investing real money and learning from your mistakes. You know what works and what doesn’t and now you reached a state of unconscious competence. You have settled on one course of action and all that remains is to repeat what works and invest in successful opportunities.
The time and effort spent on your “system” means you have the confidence to trade it through difficult markets because your have experienced them before. Obviously markets change and once the banking crisis is resolved they’ll be something else that comes along. But by then you’ll have the experience to see the warning signs and respond appropriately when the need arises.
Private Investor or Gambler Checklist
Do you utilise the following when making investment decisions?1. System
2. Research
3. Understanding
4. Persistence
5. Money Management
6. Entry/Exit Targets
7. Consistency
I’ll leave it up to you to determine whether you are a private investor or a gambler. I used to think I didn’t need to worry about money management as I could top up my investments from my salary if they went down but I realised that this is not the mindset of a successful private investor.
Investing is not the easy road to getting rich that many people think it is. Investing is easy; you open an online account and buy some stocks. Successful investing is not easy and it does require a lot of work to be successful (just like anything else).
The more I try and the harder I work the luckier I become. Good luck!
This article was originally published on Stockopedia
11 June 2012
ValueableGrowth - Quantitive (numerical) and Qualitative (subjective)
My system is the results of part time development over a period of 5 years where I have observed what works and what doesn’t and have gradually refined it. I have been monitoring the final version over the last two year with real money invested and I am satisfied that this has a real chance of consistently beating the market. The volatility has caused me some emotional turmoil but the selected stocks have grown by 32% from June 2010 to June 2012 versus 7% for the FTSE all share over the same period.
My approach consists of two parts; quantitative (numerical analysis) and qualitative (subjective analysis).
1. Quantitative (numerical analysis)
My system uses a stock screen to sift through the investment universe to identify a smaller subset of quality stocks that warrant further research. I have set criteria based on the following fundamental performance measures: Price, Earnings, Growth, Net debt, Cash-flow.
The stock screen saves me a lot of time by separating good stocks from bad and also provides me with a higher level of confidence in what is left. But this is the easy part and only the start.
Mechanical systems are likely to be inherently flawed as their performance will be as good as the rules that have been used to define the system. Humans are good at taking on board new information and determining a new course of action but computers aren’t. Quant models fail in spectacular fashion because the programmers didn’t factor in a 1 in 100 year event such as a banking crisis. Why would they, it’s not their money at risk it’s yours!
That is why I believe that a system is a good way of reducing the pool of potential investments but it can’t be the only way we identify investments.
2. Qualitative (subjective analysis)
I called it subjective analysis because it isn’t rule based and it requires subjective decision making. I need to make a decision to invest to not and if I have any doubts, even if I am not sure why, then I won’t invest (gut feelings are often the result of unconscious competence).
Quantitative analysis can’t tell you that a high dividend may be at risk of being cut. A company with no debt can still go bankrupt because it runs out of cash and can’t continue to trade. A low net asset value may indicate that the fixed assets are over stated and can’t be realized at that value. Only good old fashioned brain power can determine these things.
We need to get under the skin of potential targets (beyond the numbers) and determine whether we want to invest or not. The areas that I primarily focus on are; market sector, dividend yield, future business potential, and accounts/news/broker recommendations.
Questions to ask yourself include:
What industry does it operate in, what countries does serve, what are it’s future business prospects, who are the management, what’s the opinion of the management team, what do the latest published accounts say about the business, are there any hidden statements buried in the notes to the accounts, do the management have large shareholdings…..?
Then you need to apply you general economic knowledge to your potential investment opportunity. Is it a bank or exposed to banks? Is it a retailer or exposed to retailers? Does it have significant sovereign debt exposure? Does it have refinancing requirements coming up?....
Decision Time
To buy or not to buy that is ……. The final thing I look at is recent price action (technical analysis, things like support/resistance, trend channels, volume, RSI and standard moving averages. I have now answered the question of whether to buy and what to buy and now I am fine tuning mu timing and deciding when to buy.
It is important to recognize that we are not going to able to pick the low point in which to buy, I generally wait for a pullback to make my first purchase or if the stock is strongly trending higher I will purchase immediately. I try to get a balance between not chasing a stock and also not missing out.
I have done all of this hard work and it only yields a few targets so I don’t want them to head higher without me. General market sentiment is also a guide to short term price movements so I tend to always keep an eye on the FTSE 100 charts.
ValuableGrowth aims to beat the market by taking a quantitative (numerical analysis) and qualitative (subjective analysis) approach to seeking out superior value opportunities.
The website details the portfolio as well as the rationale behind each investment.
05 June 2012
Great Bear Markets
"You make most of your money in a bear market, you just don't realize it at the time."
Shelby Cullom Davis, investment banker and investor.
When I first read this quote, the concept that Shelby was driving at immediately grabbed me. Bear markets inevitably lead to investors losing faith with the stock market. As values stagnate prices become better value, providing that earnings are increasing.
As a long term investor, providing that we have a cash to put to work, the ability to but good quality stock cheaply should be a source of joy. However investors in the stock market (just like homeowners) prefer prices to go up after they have bought as this confirms that they made a good decision in buying.
It should be obvious to us that the less we pay initially, the more we will make in the end - buy low, sell high and all that.
It was while reading Richard Beddard's posts on iii that I came across this article by Peter Comley (extract shown below):
Source: http://blog.iii.co.uk/guest-post-why-ill-buy-40-random-stocks-when-the-ftse-hits-4000/
So we are 12 years into a bear market which may last between 13 and 16 years if history is anything to go by. We could argue about when the current cycle began and did a new bull market start in 2009 but I think that misses the point. If we are investors (as opposed to traders) then we should act consistently and seek out quality stocks regardless of what the market is doing. If the market goes down and target stocks decrease to a desired level then we should buy.
Investing is difficult psychologically because our money is on the line. As Warren Buffet says Mr Market is temperamental, but we can use that to our advantage to buy in at better prices. We don't know what's going to happen tomorrow or the next day/week/month/year.
Having said all of that, we need to ensure that we only invest in quality stocks that can survive the turmoil that created the bear market - in the current case excessive leverage during the boom times and the banks now restricting lending in order to boost their capital ratios. I have deliberately chosen stocks for ValuableGrowth that are highly cash generative with low levels of debt. These companies do not have to sing to the tune of dysfunctional banks and are free thrive even under a harsh economic environment.
It's early days for the ValuableGrowth portfolio but I still firmly believe that this approach to investing will pay off in the long term. As investors we need to have the cash to put to work during the bear market but also the confidence in our approach to continue to buy despite the falls.
Shelby Cullom Davis, investment banker and investor.
When I first read this quote, the concept that Shelby was driving at immediately grabbed me. Bear markets inevitably lead to investors losing faith with the stock market. As values stagnate prices become better value, providing that earnings are increasing.
As a long term investor, providing that we have a cash to put to work, the ability to but good quality stock cheaply should be a source of joy. However investors in the stock market (just like homeowners) prefer prices to go up after they have bought as this confirms that they made a good decision in buying.
It should be obvious to us that the less we pay initially, the more we will make in the end - buy low, sell high and all that.
It was while reading Richard Beddard's posts on iii that I came across this article by Peter Comley (extract shown below):
So we are 12 years into a bear market which may last between 13 and 16 years if history is anything to go by. We could argue about when the current cycle began and did a new bull market start in 2009 but I think that misses the point. If we are investors (as opposed to traders) then we should act consistently and seek out quality stocks regardless of what the market is doing. If the market goes down and target stocks decrease to a desired level then we should buy.
Investing is difficult psychologically because our money is on the line. As Warren Buffet says Mr Market is temperamental, but we can use that to our advantage to buy in at better prices. We don't know what's going to happen tomorrow or the next day/week/month/year.
Having said all of that, we need to ensure that we only invest in quality stocks that can survive the turmoil that created the bear market - in the current case excessive leverage during the boom times and the banks now restricting lending in order to boost their capital ratios. I have deliberately chosen stocks for ValuableGrowth that are highly cash generative with low levels of debt. These companies do not have to sing to the tune of dysfunctional banks and are free thrive even under a harsh economic environment.
It's early days for the ValuableGrowth portfolio but I still firmly believe that this approach to investing will pay off in the long term. As investors we need to have the cash to put to work during the bear market but also the confidence in our approach to continue to buy despite the falls.
04 June 2012
1/6/2012 Portfolio Update
What a month May was! The ValuableGrowth portfolio is down 11.42% versus the FTSE All-share being down 8.5%. There are two key reasons for this under performance:
Randgold got down to 4480p and has bounced nicely but I already have a gold miner in PAF and I am not sure that gold has put in a bottom yet, although Fridays increase was on good volume. As I already own PAF I have taken RRS off my watch list.
The sell off on Wall Street on Friday suggests that when the FTSE opens on Wednesday we'll see some interesting action. Of course by then the Dow may have bottomed and be back on the way up. Who knows? But the FTSE is sat on the last uptrend channel and its a long way down!
- Hargreaves Services - HSP announced that its Maltby mine had been hit by unusual geological conditions. Oil and water was seeping into a new section of the mine it was trying to open up leading to delays which will impact 2013 profits by £12m to £16m.
2012 profits are unaffected and estimated to be in the region of £48m by analysts (compared to £37m last year). Management believes this to be a one off and that the problems won't impact medium to long term prospects. Whether you believe this or not will influence whether to sell or stick with HSP.
HSP management have a good track record and I don't believe there is any reason to doubt them at this time. Obviously another set back would change this. I think the 30% drop in the price was overdone on this news and so I added to my modest holding at 729p (current price is 773p). Results to 31/5/2012 are due in September and hopefully we'll get an update on events with some positive upside. - Maintel Holdings - MAI was down 25% purely on the overall sell off. Someone wanted/needed to sell and the price of this small illiquid share dropped as a result. As there was no accompanying news I added to my holding at 332p. When the markets get back to normal we should see a bounce.
Randgold got down to 4480p and has bounced nicely but I already have a gold miner in PAF and I am not sure that gold has put in a bottom yet, although Fridays increase was on good volume. As I already own PAF I have taken RRS off my watch list.
The sell off on Wall Street on Friday suggests that when the FTSE opens on Wednesday we'll see some interesting action. Of course by then the Dow may have bottomed and be back on the way up. Who knows? But the FTSE is sat on the last uptrend channel and its a long way down!
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