Monthly Market Musings

So, I thought I would start a monthly blog, reviewing any stock market trades and general thoughts on the market probably along with some general ramblings on unrelated topics and nonsense! Not particularly for anything else other than to give me a reference point where I can look back and think…what on Earth was I doing!

So, for me, a down month on the market losing a fairly hefty 5.24% of portfolio value leaving me at +32.22% calendar year to date, which is still pretty good.

Trades for June 2021

2/6 - Sold 20% of GAW holding at 12083 - Fast rise and looked to be at resistance.

2/6 - Sold 33% of SLP holding at 138 - Wanted to reduce over exposure to PGM market.

8/6 - Added back GAW at 11765 - Always the plan to add back if able, but fell further!

8/6 - Added to SRC (+33%) at 88 - Generally increasing weighting as was getting a bit light.

10/6 - Sold all SLP at 130 - Releasing cash to add to THS which looks better value.

10/6 - Increased THS at 135 - Fell recently so adding, also catch dividend.

16/6 - Sold all BOTB at 1925 - Poor trading outlook and unsure of further growth.

16/6 - Bought back 33% of SLP at 127 - Looking good value now, reduced position.             

 

This activity leaves my concentrated portfolio positioned by weighting as follows

 

THS, GAW, SDI, SRC, BEG, SLP, PXC, SML

So only 8 shares held at the minute! 

I do like to run a concentrated portfolio but this is probably a little too few for my liking. I recently got rid of a few holdings and just haven't found anything to replace them with so have just been adding to existing positions. But this does increase volatility in both directions, and to the downside this month with my overweight position in Tharisa Mining (THS) shedding nearly 20% presumably on weakening Rhodium prices and Best Of The Best (BOTB) spooking the market with a pseudo profit warning in with their Final Results issued mid-month.

I plan to do a review of THS and SLP, similar but different Platinum Group Metals (PGM) producers, probably next month but now I want to focus on why BOTB left the portfolio.

Best Bet? (Sorry, I mean game of skill)

BOTB is a stock quite popular with private investors. For those not familiar it offers on line spot the ball games giving customers a chance to win pretty tasty prizes, usually high end cars. They started off being that weird company that hung around at airports and train stations with snappily dressed men pestering you to buy a ticket to win a car, which was displayed on site. I usually went out of my way to avoid them! However BOTB transitioned to online only just at the right time as C19 hit. A pretty fortuitous / savvy management action saw their margins and return on capital skyrocket as their customers also increased dramatically. A perfect storm - outsized returns and fast growth coupled with massively improving margins – tasty! Especially tasty for those wise enough to buy early as the share price powered from £4 in early 2020 peaking at £35 a year later.

 

Unfortunately I didn’t buy it at £4. I looked at it around £8 after a good update but to be honest it wasn’t (and still isn’t) really my cup of tea as far as companies go. Basically it’s a gambling company although it sidesteps legislation by touting itself as selling participation in a ‘game of skill’, but to me it’s a gambling company, and I’m not too fond of gambling companies. The impressive metrics did however mean it remained on my radar even after it quickly jumped again to £18.

 

Following this fast rise to £18 the shares softened pretty dramatically for no particular reason and I was tempted in at £12.50 in December 2020 simply because there seemed to be no significant reason for the drop and everything still looked as was in terms of profitability. Would the growth slow when lockdown was released? Would the legislators come knocking? Who knows, but at £12.50 I thought it was probably worth a go.

 

Turned out to be a good decision as the shares popped back up. I took some off the table at £19, and obviously they kept going up as high as £35! And that’s where the problems with the share started to creep in.

 

The share price had momentum from increasing customers and great metrics and when I bought these were still in play despite the price weakness. Following my buy they issued another great update which propelled the share on again, but be in no doubt if this update had of been bad I’d have been out like a shot, and probably at a loss.

 

In February they closed their formal sale process after seeking bids to buy the company a while earlier, no problems there for me, the price of the company was now much higher so not surprising there wasn’t a deal reached, and besides the management had been doing a great job, why change?

 

Later in February was the first clue. They issued a trading statement that their growth was going to be ‘in line’ with forecasts, where they had previously been smashing them. Again, not a massive problem as they had only just issued an upgrade to their forecasts, but enough to stop the meteoric rise in its tracks.

 

Then, in March, they undertook a large secondary placing where the founders and major shareholders sold some of their holdings to the market. Unlike a fundraising and dilutive placing this is simply the case of the founders wanting to take some of their money out, could be for many reasons so not necessarily a problem, but an alert maybe. The placing was a pretty hefty discount to the closing price and (a derisory small amount) was offered to retail investors with respected Slater Holdings taking a largish chunk of the equity. I thought the placing price was pretty good value so tried to get some without success. As it turns out a blessing in disguise if it wasn’t for my later mistake.

 

Seems surprising to me how often company owners / senior management time their sales and this, it turns out, was no different. So instead of being seduced by the price and Slater taking a stake I probably should have put up an amber flag on the share.

 

In May there came another update confirming they are still ‘in line’ with their forecasts. The market didn’t seem to like it and, in hindsight, I should have sat still with this second amber flag. Instead I picked up some more shares as the priced dropped to that of the placing a month earlier. After all it was still trading on great metrics and making good money.

 

Then, on June the 16^th in with their financial results, came the statement that many holders were hoping to avoid. Nestled in with the very impressive results was the following statement.

 

‘However, in contrast to the summer 2020 period, we have experienced somewhat of a reduction in customer engagement since the last easing of lockdown restrictions on April 12, 2021..’

 

Crikey man, stop waffling on and tell us why you sold!

Essentially the above statement was a profit warning in my opinion. Management don’t state why they think this is, or what they plan to do about it but put out some flannel about flexible models, growth strategies and expecting it to get back to normal.

 

In this case management seem very competent, and may very well be able to get it back to normal, but why not tell us why you think it has slowed? Reading between the lines and around the subject there are possibilities that it’s down to lockdown ending, a change in search engine rankings and Apples IOS privacy update.

 

But quite frankly I don’t care. I bought the share for growth and the margins they were making, for whatever reason the story has changed, growth has slowed and chasing that growth again could affect margins, and that’s without the regulatory threat around the ‘game of skill’ element!

 

With the decision made before the market open I finally managed to get rid of my shares around 9am (its massively illiquid and I think a lot of people had the same idea as me) for a price of £19.25, an overall profit of around 40%. Obviously this could have been a profit of 250% if I’d have sold the lot at the top and not been sucked in to adding, but overall it’s a positive trade.

 

I’ll continue to watch from the side lines, and the shares may now have bottomed and in my opinion may move sideways until management can prove their mettle again.

 

But then again profit warnings can be like busses, you wait ages for one then three come at once! 

 

BOTB was a middling position to me, but it certainly contributed to that 5%+ monthly loss. If you run a very concentrated portfolio these things can certainly smack you in the chops! With great position sizing comes great chances of being kicked in nether regions.

 

Book of the Month

 

I’m hoping to blog monthly, and there’s always a good discussion on Twitter as to what finance/investing/other books to be reading, and I’ve read plenty of them so I thought I would do a book of the month, probably in some kind of order of complexity and what to read first. So here’s the first entry….

 

Rich Dad Poor Dad – Robert Kiyosaki

 

Firstly, this isn’t a book about investing, it’s a book about personal financial management, its not particularly well written, for a lot of people it will be very basic and, quite frankly, it has a dreadful title. So bad in fact that I didn’t read this book for ages because I really didn’t know what it was going to be about!

 

However it is probably the book that has had the most effect on how I think about money and how I organise my finances, it could be argued that it’s the book that changed my financial life!

 

It’s a quick read, pretty engaging and addresses some great principles around cash flow and assets. Even better (and I’m probably going to miss out on 2p by not putting an affiliate link to expensive multinational book seller in here), you can pick it up on well-known auction sites for next to nothing!

 

Off Topic Ramblings

 

Thank God there’s some sport on TV now, if I was forced to trawl through anymore crap on NetFlix I think it would be the end of me. Normally 30 minutes of flicking followed by watching something I’ve seen dozens of times before. When I finally do watch a new movie it’s generally terrible.

 

Someone on Twitter posted a billboard of the film selection on at the cinema in 1987 (if you could only watch one….) The choices were Lost Boys, Full Metal Jacket, Robocop and Predator. Today the highlight seems to be Fast and Furious 576.

 

We have a young man interning with us at work over the Summer and I got into a conversation about films with him, it went along these lines.

 

‘You’ve never seen Aliens, or Alien?, classics, you don’t know what you’re missing.’

‘I don’t like Sci-Fi’

‘Well, Alien is more sci-fi horror and Aliens is pretty much action in a sci-fi setting’

‘Oh, I like horror, sounds alright, what year was Aliens made?’

‘1986’

‘I don’t like old films’

 

I think I’m getting old, I’m pretty sure 1986 was only 10 or so years ago!

'Game Over Man!' - Hudson (Bill Paxton), Aliens, 1986