Friday, August 17, 2012

Fri 17 Aug - recap, SAF

Good morning. Another quiet day for results - I must remember to go on holiday this time of year again in future years. Went on a boat trip to Fingal's Cave on the island of Staffa yesterday, which was well worth the trip - spectacular natural rock formations.

In fact, looking through the results for this morning I can't see anything at all that falls within my small cap remit! (non-resource, financials, investment trusts, foreign companies, and sub-£10m mkt cap, all of which are niches that I don't cover here).

Instead this might be a good time to point out just how well the stocks highlighted here have done! We've got off to a great start here at PSUKSC.

  • Trinity Mirror (TNI) is up about 50% from when reported on here
  • Home Retail Group (HOME) has zoomed up to 93p recently, on the back of stronger retail sales volumes.
  • Mecom (MEC) zoomed up about 35% within 2 days of being reported on here, although I've sold out as not sure how to value it after recent results.

So overall, so far so good! I remain of the view that detailed research on value situations, combined with patience & vigilance, is by far the best investing strategy in the long run.

It falls below my minimum mkt cap, but results from Safeland (SAF) might be worth a look if you go in for micro caps - the mkt cap is tiny compared with NAV. Their shares are up 29% at the time of writing.

I see that Mecom are up another 10% today to 79p, so I sold too early just below 70p a little while ago.

Am sitting tight with HOME, despite that having risen nicely from a recent low of 70p (it has tested that level 3 times in the past year, and bounced strongly each time), and is now 93p. I think it's still cheap, since the Balance Sheet contains so much surplus capital (cash and debtors), hence is a sitting duck for a takeover approach in my opinion.

Plus, it's looking increasingly likely that we've seen bottom of the cycle earnings for it, again just in my opinion. Inflation is the inevitable (and necessary) outcome from this long-running debt crisis, as that's the only way to bring down the gearing of over-indebted consumers & Govts.

Hence why things like decent divi paying retailers are much, much better places to park cash than massively over-priced Gilts with negative real yields - surely one of the worst places to be when entering a period of higher inflation?

That's it for now. I'll be back home by Monday, so will be aiming to do my usual 8am reports again from then on. This week I've been battling family members to get hold of a laptop each morning!

Chatting to locals here in the Hebrides yesterday, they told me how they have great problems attracting & retaining people to live on the islands, as families cannot afford the rents for the low wage jobs available. I replied that the same problem exists in the whole of the South of England too! That's the problem with low wages caused by EU membership & free movement of people from Eastern Europe, and massive over-population which has also resulted from letting in 3.5m+ people in the last 15 years without thinking about where we were going to house them. Somebody in Govt should have thought about these things, but didn't.

However, now they have internet, the Scottish islands would be an ideal place for investors/traders to live, or indeed anyone who does their work on the internet - they can live anywhere, and for people like me who don't particularly like hot weather, then Scotland is a nice place to be!


  1. Hi Paul

    Only just discovered your blog which is awesome.

    I have one questions: what are your reasons for not investing in sub £10 million market cap companies?



  2. Hi David,

    Glad you like my Blog! I enjoy writing it, and am getting 500-1,000 hits per day, so people seem to like reading it too.

    To answer your question, I don't tend to invest in sub-10m mkt cap companies for these reasons;

    1. Inadequate liquidity in the shares, hence too difficult (and expensive) to buy or sell in any meaningful size.

    2. Risk of de-listing is now very high for micro-caps, since the cost of being listed is not justifiable given the long bear market in small caps in recent years. De-listing instantly wipes out c.50% of your investment, and could make you a forced seller. I don't see the point in taking this risk when I don't have to.

    3. Dividends are usually scarce in sub-10m mkt cap companies, so all too often those companies are really run for the benefit of their Directors & staff. I don't want to fund their lifestyles!

    4. On a conceptual level, I don't believe tiny companies should be Listed at all. A listing should really only happen once any company has matured & become profitable.

    5. Leading on from that, blue sky investments are overwhelmingly poor investments - over-hyped, and then under-delivering in the vast majority of cases I have seen over the years. The occasional multi-bagger occurs, but in truth it's more luck than judgment in finding these.

    6. I only have a limited amount of time, hence cannot personally cover the entire market, so have to narrow it down to a manageable number of companies.

    Cheers, Paul.