The Franc blow-up & the dangers of ‘crowdsourcing’

Earlier today I saw a picture of a trader on Zulutrade, a crowdsourced trading platform. It’s a bit like eToro, which I’m more familiar with, mostly because it spams me with adverts on Twitter. Here’s the blurb of Zulutrade:

There was a time when trading was a headache. Not anymore! You don’t have to study or monitor the market, because hundreds of signal providers from all over the world are doing it for you. All you have to do is pick the Signal Providers you like, and ZuluTrade will quickly convert their advice into live trades in your trading account directly with the broker. And the best of all, it’s completely FREE!

and of eToro:

Social Trading is about opening the markets to everyone. At eToro we encourage people to connect with one another to discuss, trade, invest, learn and share knowledge across the network. From now on, you can copy the traders you like with a “click” of a button

Basically, you copy other people’s trades. Presumably you think they’re doing something smart, and something you can’t be bothered or are unable to do yourself. Anyway, here’s that picture of the Zulutrade trader I promised earlier:

Quarto – cheap, leveraged & the sole survivor

When I ‘cleaned up’ my portfolio at the start of the year – after 8 months of it being basically inactive – I liquidated everything except Quarto. Quarto stays on, partly for nostalgia’s sake, and partly because it’s the only one of the portfolio I still hold personally. The rest were long gone.

I still think Quarto represents good value at the current price. Some background on the company, courtesy of my first post on Quarto three years ago:

Quarto are in publishing, but with a few key differences from firms that may immediately spring to mind. The most important one is probably the type of books they are producing. Instead of focusing on fiction, a rather hit & miss affair that hopes to churn out a few bestsellers every year to compensate for some of the flops, Quarto have a varied portfolio of books with very narrow remits and niche audiences. Perhaps I could best illustrate this with their best selling book in 2010: ‘Complete Guide to Wiring’. By focusing on books for such small groups of people and keeping such a wide portfolio, Quarto remain fairly insulated from the more brutal swings in consumer spending.

It’s coffee table books and other niche stuff, basically. Lots of ‘gifting’ sort of books, too; ones you wouldn’t necessarily buy for yourself. They do a good trade at Christmas. Here’s what the past looked like:

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January 15: Portfolio Performance

Jan15_Headlines

The portfolio on this website has been more or less defunct for the whole of this year. Since I got a job, I thought it best if I didn’t trade with it until I better thought about how to run an online portfolio and be employed by an offline one – there are obvious conflicts of interest, after all. Still, yesterday I realized it was coming up to what would have been the third ‘New-Year’ review… and I thought it’d be interesting to run it anyway. Call me sentimental – carry on the portfolio in absence of any changes, just as I left it.

You can see the results above. Since starting this blog three and a half years ago, the portfolio returned 140%, or an annualised rate of 28.4%. The FTSE AllShare, over that timeframe, has been broadly flat. We’re also more or less flat on a year ago today, which ruins the annualised growth rate a bit, and makes the graph a lot less sexy!

Reading back through my articles, you’d be forgiven for thinking that the vast majority of this rather credible performance is due to luck. I wouldn’t disagree – though I would note that it was luck tempered with the fortune of stumbling onto an investment strategy that consistently outperforms the market anyway. If you only pick stocks from a quantitatively cheap end of the market, as I did over the last few years, you’re likely to outperform even if your qualitative analysis adds little value. I suspect that’s very much the case with me, reading back.


The future

I’ve figuratively liquidated the portfolio and put the cash into my hypothetical bank account, save for one company - Quarto – which I should say I continue to hold in my offline portfolio, too. I hope I’ll be able to add to this rather undiversified collection of assets (cash & one stock!) with some additions over the next few months, though I’m not in a rush. The additions are likely to be of a larger-cap – and more global – nature than before.

Thanks for reading what is now the fourth year of my experiment. I genuinely hope that I look back in two years with the same perplexitude (you were buying WHAT?!) as I have just done compiling these figures!

 

Tivoli A/S: Punchy price, pleasant perks

Tivoli is a lovely place; unusually for one as poorly travelled as me, I’ve been there. It’s a little amusement park – though the phrase doesn’t really do it justice and they call it ‘Tivoli Gardens’ – in the middle of Copenhagen. If you ever get a chance, definitely pay it a visit – the entry price is a steal, the atmosphere is lovely, and there’s a big swing carousel which you can ride on that gives you a great view of the city.

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Rational AG: A tantalising reminder

Rational make the best commercial ovens in the world; 54% of all combi-steamers sold are made by Rational. They’re a picture of a solid German business; still owned 70% by insiders, paying a substantial dividend, and growing profitably year-on-year. You might think a company like this has a relentless focus on margins or returns, but that isn’t the case; Rational say their primary corporate objective is to ‘offer the greatest possible benefit to the people preparing hot food in the professional kitchens around the world’.

A lofty goal – ‘maximising customer benefit’ as the focus of the business – has flow-through effects to shareholder returns. There are benefits to hosting free training for all your customers, rolling out software updates for the ovens you provide, offering 24/7 technical support and providing the services of 300 trained chefs (who are also, unsurprisingly, also salesmen) to your clients, as well as offering them direct contact to the CEO if they’re not satisfied with the service provided.

Check out the 10 year performance graph:

Dividends are overrated

A couple of weeks ago an interesting article was posted on Stockopedia:

‘Dividends are more reliable than accounts’ 

This is a pretty bold statement and, having ruminated on it a bit, one I can’t help but disagree with. I started typing a comment by way of response on there, but having got a bit long, I figured I’d move it over here with a suitably gauntlet-laying title. My teachers always did say I was prone to exaggeration! Click through and read the article for yourself if you want to get it from the horse’s hooves, but I’ll attempt to summarise the author’s argument here as fairly as I can:

Active management is bad because it’s difficult to spot profit warnings coming, and difficult to discern future profitability. It is better to base investment decisions on a ‘fundamental measure, like dividends’.

On unreliability

The charge that accounts are unreliable is one that comes up quite often. I note one thing to start with; if you like investing in AIM-listed Chinese companies, or exciting little oil & gas plays, I sympathise with you – you might well find published accounts a decidedly questionable source of information.