Chopping and changing

I haven’t paid a great deal of attention to the structure of the portfolio recently, which is a bit of a shame as things have been bobbling up and down all over the place. This afternoon, I finally took some time to sit down, update the (increasingly gargantuan) spreadsheet and figure out what, if anything, needs changing. I’ve made a few transactions today, then, which I’ll cover briefly before leaving with an explanation of the composition of the portfolio as it stands. That’s not to say I’m happy with everything in there – I’m not, particularly, which might be indicative of an investor who started only when everything was cheap and is now finding the going a little more tough.

The sells

I’ve sold Barratt, because I don’t think they’re worth a premium to their assets in their current state. The whole market shift on Barratt has been rather dramatic when you think about it; only a couple of years ago they were valued at about half of their tangible asset value – an effective statement that the market thought their assets were worth half of what they were on balance sheet at, loosely. There were lots of questions around the impairment of land and the representation of that on the balance sheet, for instance.

Now they’re valued about 30% over their tangible asset value – the market believes that Barratt will be able to make a far stronger return on those assets, even though views on the housing market in general don’t seem to have monumentally shifted. Everyone’s happy with the Government support, for instance, but I would’ve said that was there, just in a less obvious form, a few years back when it was all doom and gloom.. still, I think the pendulum has swung, and Barratt are now rather favoured instead of the dogs of the index. I never thought this was a brilliant company – I just thought both the company, and the economics surrounding it, were subject to rampant doom-mongering. Now things are looking rosier, the price doesn’t look particularly attractive.

I’ve also sold Cranswick, which is explained in more detail in the post I’ve just linked. At its core, it’s a decent company earning what seem to be – at the moment – great returns. Given their position in the food chain, I can’t really find an explanation for why they are performing so well – and so I assume that, while the past was good, I should be sceptical with assuming the future will be the same. At its current price, it feels priced for a continuation of the past, so I sold. I don’t mind paying that sort of price when past returns are terrible, but when the bar’s already been set, and set high, I’m more reticent. It’s a mean reversion thing.

The buys

These aren’t too surprising – I’ve bought Dewhurst, after my post last week. I don’t have a great deal to add here, so check that one out if you’re interested in the reasoning. I should note I have, as expected, gone for the non-voting shares; DWHA.

I’ve also bought a lot more Northgate. My position in Northgate was very small as a % of the portfolio, which was wrong – for want of a better word – simply because it’s one of my higher conviction shares. I’ve bought a considerable amount more with the cash proceeds, and at a relatively cheap price given their weak trading update a few weeks ago. I tweeted on it at the time:

NTG down on interims – http://www.northgateplc.com/northgate/finnewsstory.jsp?n=3&s=6&ref=155 … – no big diff, just general weakness. Buying more – economics unchanged

The portfolio

This is what we’re left with, then:

The main thing that bothers me is the small cap exposure. Why bother having them if their relevance is so small? The answer, at its most basic level, is that it’s expensive to sell and expensive to buy. Bid/ask is wide on thinly traded shares, which effectively creates an incentive to hold on to what you have, especially if you’re uncertain about the actual value. I don’t have a strong conviction on these, so I’ve left them as they are. I do need to try and get to the bottom of them, though, so I can figure out whether I need to buy more. Both Plastics Capital and Creston are essentially at the same price I bought them at.

Hopefully that brings things up to date for those who were wondering what the portfolio is looking like at the moment. If I make any more changes – and I expect I will – I’ll write a small post detailing them.

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