Saturday, December 29, 2012

2012 Year-End Review

Well that's almost it for 2012, apart from a half day's trading on Monday 31st December, so I thought this would be a good time to review the share selections from my Blog, in its first year.

Little did I know, when starting this Blog in June 2012 that it would prove popular - with over 151,000 pageviews to date! On average there are around 1,200 readers per day, which is growing steadily.

Whilst that's good, and enough to make it worthwhile me writing here, surely that must only be the tip of the iceberg of people interested in small caps? So hopefully word will spread in 2013 a bit wider? I make a tiny income (£50-100 a month) from the Google ads, so thank you to people who have taken an interest.

Please bear in mind that my morning reports are published at variable times, but I always announce them via a Tweet. So follow me on Twitter @paulypilot to get notifications of every post here on your timeline. If you don't use Twitter, then you're missing out - it's an excellent tool for investors, if you take the time to use it properly & customise it to your needs.

I suspect that a lot of private investors/traders focus on the resources sector (which I don't cover at all here), since there have been rich rewards in that sector for quite a few years now, although that seemed to flip around in 2012, with conventional smaller caps generating an excellent year - e.g. the FTSE Small Caps Index is up a whopping 24.3% in 2012.

Therefore, whilst many small cap investors think that they have out-performed the market in 2012, actually most haven't, because they have erroneously compared their performance with the FTSE 100, or the AIM Index (which has been weighed down by under-performing resource sector shares).

So a big thank you to everyone who has taken an interest in my Blog this year, and also a hat tip to my overseas readers, mainly the USA, but also France, Germany, Ireland, Japan, Russia, Spain & Switzerland (in descending order of readership numbers). We even have reader(s) in Cambodia!

I've got interesting ideas for possible developments in 2013 for this Blog, including;

1) Re-design, and migrate the site over to WordPress at some point, to make it a proper website, instead of a Blog & add useful new features.
2) Expand the site to include guest writers, so that we can extend the coverage & make reports more frequent, with it no longer relying on me doing everything (although in order to pay guest writers, I might have to consider introducing a modest subscription).
3) I want to spend more time in the City, meeting company managements, and doing more in-depth company analysis & reports here. This rather hinges on point 2 above though.

So, bearing in mind that's it's been a good year for small caps generally, how have my main stock picks here fared? Pretty well actually!

Let the figures do the talking! 63% average gain over 8 stocks - RESULT!!!
What is even more remarkable, is that this is over 6 months, not even a year!

OK, I got lucky with the timing, and I also got lucky with some great stock picks (!!!). But also I only bought things that were cheap.

Here is a table of all my main articles here this year, and the average % gain (excludes dividends, but also excludes bid/offer spread & dealing costs);

Here is a review of my "main write-ups" articles here from this year.

On 18 June I wrote about Quintain Estates (QED), with the shares at 38p, after attending a meeting with management. My conclusion was that the shares had good upside potential, targeting 60p. It proved to be a well-timed trade, although I more recently went cool on the shares, and banked the profits.

I am neutral on QED at the moment, because the NAV keeps going down, and it's difficult to see how shareholder value will be outed, unless there is a takeover. It's beginning to look rather too much like a company that exists mainly for the benefit of its staff and Directors, rather than its shareholders (similar to quite a few other property companies, e.g. Inland).

Shortly afterwards, on 21 June I reviewed results from Norcros (NXR) and saw good upside. They were 11p then, they are 13.25p now, a 20% increase, plus they pay a decent divi. Although the quoted Bid/Offer spread can be particularly bad with NXR, so essential to get inside the spread using a proper telephone broker.

Norcros is a SETSmm stock, so a good broker can work a buy order for you at the BID price (and when you want to exit, work a sell order at the Offer price).

I cannot emphasise enough that getting a proper telephone broker is absolutely essential with small caps (if you are typically dealing in trades of say £3k+), the savings can be spectacular.

For example today the market spread on NXR was 12.75p Bid, 13.75p Offer. I rang my broker to see what prices are available, and the RSP machines (the things that discount online brokers use for small trades) were offering small amounts of stock at 13.4p, a useful saving. However, my telephone broker is able to go on the Bid on the SETS order book, at 12.75p with a Buy order. Or he could leapfrog the existing buyer sitting on the Bid at 12.75p, and put in a Buy order at 13p, which is fairly likely to be filled, if you're patient (it might take a couple of days).

So a buy at 13p would save 5.4% from the quoted market price, and if I got lucky and was filled at 12.75p, then that would save me 7.3% on the quoted market spread!
So paying 0.5% commission (or even less) to a proper telephone broker is a complete no-brainer compared with the false economy of a discount online broker (which are better suited to liquid stocks, and small transactions).

If you would like a recommendation/introduction to my broker, then let me know, as I have a special deal on commissions & service. This is restricted to investors who trade in reasonable size/frequency (trading at least 3 times per month, and whose typical trade size is at/above £5-10k).

One of my ideas for 2013 is that myself & an investing friend are trying to build a group of investors with my broker, so that we can act together on certain stocks, e.g. to pool our orders and take out a line of cheap Institutional stock, to participate in Placings, to cross stock between ourselves at the mid-price, etc, and generally create an internal market to benefit us all (e.g. if one of us wants to sell some NXR, but another member of our group wants to buy, then we'll arrange the deal between ourselves & our mutual broker will just cross the stock at the mid-price). There is only room for 20-30 people in this group, as I don't want to get bogged down.

If you tend to invest in similar stocks to myself, and this might be of interest to you, then please feel free to contact me through paulypilot AT gmail DOT com to discuss further. I'm thinking in particular here of people I already know through Motley Fool, etc. But like-minded newcomers would be considered too.

My big success story of 2012 has of course been Trinity Mirror (TNI), where my in-depth analysis here has proved bang on the money, when the shares were just 25p.
They are now 92p, so a spectacular 268% rise from when I wrote about them, although as mentioned at the time, I sold my shares at 64p when the phone-hacking scandal seemed to be kicking off again.

I'm kicking myself for having sold out too soon, although I remain of the view that the phone-hacking issue moved up a gear this year, and is now a potentially dangerous & unquantified liability that is not on the balance sheet.
Combined with the declining nature of newspapers, the debt, and pension deficit (minus the freehold property), then in my opinion a share price just shy of 100p is probably about right, even though it's still only a PER of under 4.

There could be more speculative upside, and often these things become momentum plays, but for me the easy, safe money has been made, so it's no longer of interest to me at 92p. There might be a chance to revisit TNI more cheaply in June 2013, when the phone hacking cases are expected to come to Court. So I suspect it's not the last that we'll hear of that story, and of course there might be political pressure to crucify Piers Morgan (I do hope so!), in order to take the heat off Andy Coulson. It could get messy again for TNI, so I feel safe being out of the shares, with the profit banked.

My in-depth analysis of Home Retail Group (HOME) also proved correct, with 3 detailed articles (I also went to Milton Keynes for their AGM) published here between 19 June to 4 July. I remember spending 3 hours on the beach at Hove, going through their Annual Report with a fine toothcomb!

The shares were 83p then, they are 126p now, a rise of 52%. Although as with TNI, personally I sold too early at 105p (my Achilles Heel unfortunately, too quick to hit the sell button).

Whilst it looks fully valued to me for the moment, at 126p, it should be said that HOME is a vastly safer retail recovery play than Dixons Retail, in my opinion, due to the ultra-strong balance sheet at HOME, and the ropey one at Dixons. So if anyone is likely to be last man standing, it's HOME rather than Dixons. I think a pairs trade (long HOME at 126p and short DXNS at 28p) would be a very interesting side bet, taking a long-term (2 years+) view.

As always, these are just opinions, and some will be right, and some wrong. So as usual, please always do your own research.

On 5 July (and again in Dec) I met the management of Begbies Traynor (BEG), the market's only Listed insolvency practitioner. It was 30p when I wrote about it here in July, and is 35p now, plus is paying a stonking 7% dividend yield, so that one's another pleasing work in progress.

I remain bullish on BEG, and think the shares have good upside once the chickens finally come home to roost for the many thousands of zombie companies that need restructuring through an Administration process, but which is being deferred by Banks and Govt policies. In the meantime it churns out a big dividend whilst business is slow.

On 14 July I had a speculative flutter with Snoozebox (ZZZ), love the ticker!, but got bored with that one, and became increasingly uneasy with the lofty rating for a start-up that has not yet turned in a profit. Although the shares are still 58p, 10% up on the price I mentioned them here. This was not a main pick, so is not in my table below.

18 July saw me catch the exact bottom with Mecom (MEC), for a rapid profit, at 51p. It seemed a similar situation to TNI, so thought I would have a bit of the action here too. Although on publication of their next set of results, I was not so sure, banked the profits and moved on. I do not plan to revisit Mecom.

This is beginning to sound a bit boastful, but please allow me this indulgence, as I've had a lousy couple of years, off the boil completely, but 2012 seemed the year I finally refocussed & got my act together.

A lot of it is emotional actually. It took me a good 4 years to recover emotionally from the devastating blows that the credit crunch dealt me.

Anyway, I've got my confidence back, and instead of flailing around looking for a strategy to get back my lost millions quickly, I've refocussed on a value/growth strategy that made the money in the first place, but without the high risk of excessive gearing & huge positions in illiquid stocks (which is what killed me in 2007-8).

For readers who don't know me, I lost pretty much everything (over £6m) in 2007-8, and am rebuilding - with some very valuable lessons under my belt, learned the hard way.

Also I've learned some really great life lessons - that money isn't everything (it helps, but no more than that, once you're beyond basic needs), and that the treadmill of earning more, paying more tax, seeking incrementally better material possessions, repeat until dead - is ridiculous & pointless.

Also, that the self-importance & selfishness that rapid & considerable financial success tends to create, can often isolate you from the people who really matter - your friends & family. Or rather, the pursuit of material things just leads you to distance yourself from the people you love. Although in my own defence, I was very generous in the good times, and shared my success with everyone around me - I've never been tight, and there are a lot of happy memories from good things achieved in the good times, pre-crash.

OK just 2 more stocks to go, before this introspective gets too nauseating!

On 4 Sep I reported positively on a meeting with Directors of Staffline (STAF) at 226p. Nothing much happened for a while, but the shares have shot up recently. I've banked some profits around 300p, as top-slicing gainers is always a good strategy & frees up cash for the next big idea.

I still really like STAF, and remain a shareholder, but would like to see more up-to-date figures before increasing my position again. The Govt welfare to work programmes are good, but may consume a considerable amount of working capital in the short term.

Finally, on 10 Oct I reported on May Gurney (MAYG) at 138p, with a very low PER and high divi yield (a typical PP value share), and am pleased to say it has risen to 180p since.

I cannot see why a price of under 250p (10 times EPS) should not be achieved in the medium term, so I remain a holder. DYOR as usual.

I am sorry this sounds like a brag-fest, but it's been a cracking year, and the results above are ALL the results from the main write-ups here, not a carefully selected list of edited highlights (with losers quietly ignored).

I cannot guarantee any results for 2013, it's all unknown, but for the moment am enjoying basking in the results from a cracking inaugural year here.

But I'll do my best to keep trawling the markets for you on an (almost) daily basis, and above all ANALYSING company results. There are plenty of free & paid-for sites where you can get news, but there aren't many places to get proper analysis from people who understand business, and have run companies themselves.

Hopefully that is the point of difference here, something that I intend building on in 2013.

So, what about my favourite shares for 2013?

No contest, its Vianet (VNET) at 101p, and IndigoVision (IND) at 367p.

Why? Vianet is a cracking growth story, about to unfold, which is paying a 5.5% dividend before the growth takes off. And a fwd PER as low as 6. Negligible debt. Sound mgt. I'm very keen. Once the overhang from New Solera is cleared, it should start moving up.

IndigoVision - yes I know that it's been a long haul, but I met the new CEO (former FD, Marcus Kneen) a couple of months ago, and it's difficult to think of a more focussed & ambitious CEO, making lots of very positive changes. If IND are going to make their big breakthrough, 2013-14 will be the time.

Also, our sister site (set up & run by me),  will be up & running again shortly - unfortunately there was an IT disaster on Boxing Day, and my hosting company have not yet restored the backup.

It's a perfect companion site to this one, as it focuses on a proven stock filtering method, based on Performance Analysis Scores, developed over 30 years by leading UK academics. It's only been soft-launched so far, as I've got problems with IP, licences, etc, but hope to resolve them soon & do a big launch in 2013.

There are other projects in the pipeline too, so a busy year ahead!

Above all, I hope you & your loved ones are all happy and healthy in 2013 - that's what really matters. If we all make a few quid too, then that's a bonus.

Best Wishes for 2013,