Investor John’s February

Welcome again…This is my Diary entry for February – It has been an eventful month on the Market and maybe one I would rather forget! or indeed one I wish I could have skipped!

I’m writing this on the 2nd of March 2020 so slightly behind schedule.

None of this is advice or recommendations.

Month Summary

  • Number of Holdings 34 at month end.
  • Calendar YTD -10%
  • Buy Trades 8 (6 Topups & 2 New Holdings)
  • Sell Trades 1
  • Shorts 2

A bit like last month I started February pushing strongly ahead with Sylvania Platinum publishing decent results it pushed to new highs and I added a few more on the breakout. My portfolio hit around +8% YTD and things were rosy! I should have known I was about to get a good kicking by the markets!

The infamous Corona Virus really started to hit home to investors and looking back to my January update I did see it coming but underestimated the impact it would have on the markets. I am of the opinion that this will have an impact lasting through Q1 and the start of Q2 this year. I can envisage companies reporting impact in financial reports after this date but I think/would hope that we should be able to see a return to normal economic activity from that point on.

Thankfully I never did buy into Dart Group as all of the Airlines have been severely impacted and rightly so as many customers decide to cancel their flights and not turn up. It was announced today by Ryanair and British Airways that they have cancelled hundreds of flights from mid March to early April. At some point they may become oversold but one will need to be careful and cautious as any negative results from the airlines could see new lows in the share price.

This sort of market is the reason why you should only invest with money that you don’t need for the short or medium term. If for example you needed the money to buy a house or get married you would be panicking now and become a forced seller which is not a good position to be in.

If possible you should try and diversify too, Rental properties that I own provide a stable rental income of around 5% of the property value per annum. Every investment has its drawbacks – I recently sold one of the houses and it took over a year from listing the property to finally getting the cash in the bank! So no Liquidity at all!

This property sale means that I still have some dry powder for further buying if I see any bargains in March or beyond, although I need to be careful as it is hard to know when cheap shares won’t get any cheaper!

Sells…

Just the one sale this month which was Adept Technology Group held since December 2018. It was 1% of my overall Portfolio and had been on the fence for some time. Its Stockrank has been steadily falling on Stockopedia from over 80 down to under 40 and I had marked its card for the chop. Another thing I wasn’t that comfortable with was the level of Debt in the business. Net debt was 33m in 2019 with gearing sitting at >270% I feel happier with companies with Net Cash if possible and Gearing sitting below 60% at the most. On the 21st of Feb in the 7am RNS they announced a placing of up to 1,242,187 new Ordinary Shares at a price of 320 pence per Placing Share. I have been caught with placings before as the existing shareholders are diluted. I took this as a final push for me to sell and sold on the open at 3.31 crystallising a loss of 2.5%. Looks like not bad timing as it now trades at 306. You may rightfully ask why did I buy in the first place? Have a look at the Stockopedia Stock report from December 2018 that I used to inform my decision.

As you can see Adept passed a lot of my criteria PE of 10, PEG of < 1, EPS growth of 17% and a reasonable Dividend yield of 2.94% These would pass Jim Slater Zulu Principle rules which I often consider. All the quality metrics are above 10% which was decent too.

EPS growth looked good each year…
Free Cash flow was decent…

The only really negative thing I can point to in this stock report was the high Gross Gearing at 218%, Net Debt was at 31m. So maybe this was the issue that held these back – too much debt and risk as a result. They are highly acquisitive so the debt is as a result of that part of their strategy. Anyway the picture has changed now and I am out never to return… Stock rank has fell to 40 and the trend is no longer positive.

Would you have bought this stock? If not why not – what red flags can you see in the data above?

Added to…

More than doubled up on Watkin Jones (WJG) as it is breaking out strongly past previous 52 week high of 250p. Bought at 266p

Couldn’t resist adding to Sylvania Platinum in the middle of the month after their results came out so got more at 53p. My main holding of these in my SIPP was bought in August 2018 so up in value by approximately 170% since then.

I also doubled up on Strix Group (KETL) after their RNS set aside fears from Corona virus impact saying that they could see minimal affects and factories were resuming work. Bought at 176p

Bought more Arcontech (ARC) at 199p just a small top up here as results are coming out soon.

Topped up my position in Reach (RCH) after listening to their results presentation I liked the sound of their Digital Strategy & Monetisation plans bought at 176p

Another buy was SDI Group (SDI) Buying again Corona Virus Dip looking at the PE as per stockopedia shows the PE dropping to 17 and peg to 0.72 at this price (71p)

As you can see I have been buying as normal if not slightly more than normal. Some of this will prove to be premature but I am only buying companies that I will be happy to hold Long term unless something changes to make me loose confidence in my rationale. I am also holding back Cash for further drops.

New Buys…

AFH Financial Group PLC

Quite like Tatton Asset Management AFHP are another financial planning and wealth management firm. The only red flag here is the negative free cash flow for the last few years. This is due to the fact that they are active in acquiring retiring and consolidating smaller financial adviser firms.

  • Stockopedia Stock rank is 68 out of 100
  • Forward PE 12
  • PEG(f) 0.49
  • EPS(f) 32.1%
  • Dividend Yield 2.49%
  • ROCE 11.9%
  • ROE 14.6%
  • Operating Margin 18.8%

These metrics have improved since I bought as the price has dropped with the rest of the market to £3.54 as I write

Bought at £4.23 (The Peak 🙂 )

Premier Miton Group PLC

I used to have Miton Group Ticker MGR on my watchlist and almost bought them a few times. They merged with Premier asset management in November 2019 forming PMI and I lost track of them at that point until I noticed this article written by Roland Head for Stockopedia

Looking at the metrics again I was impressed and seen that they met most of my criteria the nice dividend yield was an attraction for sure.

  • Stockopedia Stock rank is 92 out of 100
  • Forward PE 11.1
  • PEG(f) 0.62
  • EPS(f) 21.6%
  • Dividend Yield 6.45%
  • ROCE 30.3%
  • ROE 24.3%
  • Operating Margin 26.0%

Bought at £1.66

Trading (Short term trades using Spread trading with IG or Spreadco)

My caution with Ted Baker short has seen me exit this trade for now as there is an institution building a stake here and I am unsure of their intentions. Closed half of the trade at £2.70 as the price rose 20% on the day and the rest at £3.05 a few days later. Was small stakes as usual in this type of account but a successful trade.

I am currently Short Easy jet and Dart.

This is a small part of my strategy like 0.25% of my portfolio but in turbulent markets like we have now, I use this as a way to keep my itchy fingers away from my long term holdings! I have tried a few trades on the FTSE 100 but haven’t had any success as yet. I find the fact that the FTSE trades on after the market is closed a bit frustrating. I think I am better suited to trading on specific stocks as I can forget about them in the evening and switch off.

I do think that I will continue to try and trade with a small amount of capital as it will be a useful strategy when the markets are volatile. As I learn more I can always increase this account.

What is your trading strategy? Or do you only Invest for the long term?

I am probably not alone in trading like this when there is a lot of volatility around – this is why I have been keeping half an eye on the likes of IG group and CMC as potential benefactors of the messy markets.

Thanks for reading and don’t be afraid to comment below with your thoughts! Explore the rest of my website and have a look at my current holdings!

Quote of the month

“The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The Intelligent Investor is a realist who sells to optimists and buys from pessimists.”

Jason Zweig

My Portfolio Allocation

Published by

Investor John

Investing as a Private investor John has shown success over the last 15 years with a straight forward common sense approach to investing - He can help you to learn and will gladly share his knowledge to get you started.

4 thoughts on “Investor John’s February”

  1. Many thanks for taking the time and trouble to explain your thinking when buying and selling. I find your reasoning very informative and helps me to understand the market.
    Tony Roberts

  2. Thanks for that update, John. On Adept, the net debt figure is the only red flag to my mind – not just the proportion (around six times operating profits) but the fact that it had been inexorably rising each year – basically they’ve been borrowing money to pay dividends!

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