More (late) spring cleaning
With the fluctuations of the past few months, and the time I spent researching stocks, I figured it was time to go back to the portfolio and see what I wanted to change. I take a relatively laissez-faire approach to managing the fund in that respect – I probably only rejig things once every couple of months, though I’ll break that trend if something interesting happens (bid for a company, 60% price surge etc.) and I can clearly see a company either on my watchlist or in my portfolio is under/overvalued. Most of the time my investing eyes are so cloudy and estimates of value suitably fuzzy that I tend to not worry too much about what happens on a day-to-day basis. There’s a good deal of evidence that value investors tend to sell too soon, anyway, so perhaps letting momentum take hold and holding back on the pruning is a winning strategy.
Still – there was two companies I liked – Tricorn and Vislink, and I knew much of my portfolio had appreciated. This meant that the value in some of my stocks had become less obvious, but the portfolio also had a reasonable (~8%) cash pile to play with. I don’t like holding cash – if I were to have no ideas and didn’t think I’d find any for any prolonged period of time I’d either buy an index tracker or another ‘productive’ asset like bonds. Here are the transactions, then:
– Sell British Polythene Industries
– Buy Vislink (~8% of portfolio)
– Buy Tricorn (~8% of portfolio)
Some thoughts on the first of those – British Polythene has appreciated about 70% in the 11 months I’ve held it. With a sell decision like this, there’re always two competing factors at play; yes, it’s more expensive, but the reason it’s more expensive is because sentiment on the company has improved. Why has sentiment on the company improved? Usually because of improving operations – and improving operations means the company offers better value. In British Polythene’s case, the improvement hasn’t been massive – to me, it was simply a classic case of where investor perception was overly pessimistic in the first place. This from my note shortly before buying:
The two major blemishes, it seems to me, are the remaining question marks over input costs through the business (and therefore margins) and a rather ugly pension scheme with several assumptions that raise my (admittedly novice!) eyebrows.
And, granted, these were problems – but they were problems the company managed, as they had been doing for years. Broker consensus seems to be that BPI are back on the growth path now, which probably explains the price surge – from a P/E of something like 6 to 12. I don’t think British Polythene is hugely expensive now, but I don’t think it’s cheap and – at the end of the day – it’s not a fantastic company. It’s in a mostly commoditised sector, though it seems to manage some differentiation that allows it to earn decent returns. Those returns, I should note, are higher than they have ever been. I can’t find the reason for that, but it makes me nervous anyway given how competitive I would have thought this sector was.
Regardless of operational performance, the big thorn in the side of the company is still that pension scheme deficit. As I’ve said many times – it’s a point of interest, but not something I’m giving too much thought to as an investment strategy. In this case it further confuses a company I’m not sure is worth ~4 times tangible book, and so it made way for the two new boys.
Finally, in the interests of full and fair disclosure, here are all of the positions the portfolio currently holds, sorted in order of size. I’ll do a more detailed look at performance in my biannual review in July.
Harvey & Thompson
Some of these I am still unsure of, so don’t take it as my endorsing them as I will be reviewing most of these shortly – particularly Lookers, Communisis and Dart.