Weekend Rebel Review 28th October 2023

Trick or Treat?

This is just some thoughts, it isn't investment advice or incitement to buy in any way, just my views - please do your own thorough research. I’m not an analyst, I’m just a private investor looking after my own money. Nothing I do or say is meant as advice or should be taken as such. Here I publish my ideas and research that I have done and discuss the way I invest.  Anything written here needs to be verified for its accuracy. Assume any stock I write about I likely own, so my views are biased. Inevitably I will get things wrong, everyone is responsible for their own decision making and what they buy and sell. Subscribing and reading this article means you accept the above and you take full responsibility for your own actions and decisions. Small Cap stocks can be illiquid and very hard to sell at times when demand is weak so caution is required. Well the rain has killed any hope of doing anything meaningful outside today so time for a weekend review again this week.  There’s a fabulous feeling about the market currently imo, although many may not feel it. When investors/traders sell off just because they cannot take anymore, when they just want ‘pain relief’ or 5% guaranteed from gilts looks attractive compared to fluctuating equities that may fall at times and not even pay a yield, you know there’s a lot not participating long in this market.  So why do I feel bullish (apart from the fact that I am always optimistic and often get called a perma-bull) ?

Subscribe for free here:

Good afternoon on a full moon tonight and Halloween next week – the question for the market though will be, is it trick, or is it treat?

This has been a tough, grind it out market by any standards. Even the financial crisis never lasted as long as this decline for UK small to mid caps. Certain things have help me through this decline since July 2021.  I had bids for a couple of large holdings early on in the decline, namely Menzies and Crestchick.  I was 100% invested right at the bottom last October so benefitted to the max from that bounce which definitely boosted my confidence.  I bought MKS and loaded up heavy in CARD shortly after that low, in size, which has helped no end with MKS being up 50% and CARD doubling and holding SHOE for the past two years which has nearly trebled has been great too. There was some luck involved there with the bids and perhaps timing  so not all down to good investing but deeply researching all of the stocks above meant I have felt comfortable holding  while the market has been falling.  In my early days investing I’d have said ‘sod this for a lark’ and sold up nearly all into cash far earlier but then I’d have likely had everything I had in the market in those days which was probably foolish and made me more jumpy.  A number of years ago I set aside a lump of cash that I don’t regard as investment cash, it’s survival cash, money that I could live off for a couple of years or more should things get tough.  This definitely makes you make better decisions imo, and less prone to panic.

Punters are panicking out there, and if they are not panicking they are teed off to the nines.  I can hear it in the comments that I sometimes get like ‘I thought you said this or that would happen?’  I am human and as such I will get things wrong.  If I was right 100% of the time this game would be a doddle. I freely admit I get a lot wrong.  But reality is you don’t need to get everything right when investing , you just need to be right more than 50% of the time.  In fact you don’t even need to be that good, you can be right less than 50% of the time if when you are right you are very right and maximise your gains by being more heavily in the right decisions. I understand people are having a tough time and want to have a moan at someone or someone to blame for things that go wrong but at the end of the day if you do your own research, verify stuff that others may say that trigger your interest, then you can invest with greater confidence having done your own due diligence. ‘I thought you said’ is often just a blame shifting comment because someone couldn’t be arsed to do the research and want someone else to blame for their laziness when it goes wrong in my opinion.  Do your research – it isn’t that difficult.  Personally I have never enjoyed reading  balance sheets, I have never felt I fully understand them and there’s a myriad of ways for a CFO to distort them.  I look at the Cashflow, the debt, the assets, short term assets and liabilities and basically does the balance sheet look fairly ‘normal’ but I don’t try to be forensic.  I prefer to research deeper into the company and the directors.  Recovery plays need new boards to excite me.  I like to research where the directors have been in the past, what were their roles. If they were at a listed company previously how did that stock chart perform while they were there and how were they involved? Have the directors been buying or selling shares?  I watch the results webcasts, see the directors ‘perform’ in front of analysts. Do they duck questions that are important?  Does the CEO have a grasp of the business the business they are running.  I recently had a pure punt on a stock as the chart looked to be bouncing late one week.  I watched the co results presentation over the weekend and then sold the shares immediately the following week. The presentation was shocking, the CEO stumbled over every important number he had to talk about, the CFO looks weak and a yes man imo.   All very uninspiring. The move in the share price since I sold means I’m pleased I did.  If the business is retail I try to get into a few of them if I can, if driving through a town and I see one I try to pop in and have a look around but never make an opinion of a business from a visit to just one store. Try reading some reviews of products, looks at Trustpilot (tho only use that with a pinch of salt as it can be distorted imo). When you have done all of that you then have a well informed view and you can make a good decision. If you don’t have the time or can’t be bothered then it’s hardly somebody else’s fault if you make a bad decision to just blindly follow.

If you are new to investing then this market will be very tough.  You will be down on a year ago.  The first thing to remember is that while your investments may be going the wrong way, you are gaining massive experience that you will benefit from in the future. I’m learning through this bear market (let’s call it a bear mkt whether it is technically or isn’t) because it has lasted 27 months from the high now, every day is a school day.  Even the financial crisis bear market never lasted this long – in many ways it’s like removing a sticking plaster, if you rip it off fast it’s over and done with.  A long, protracted down market grinds you down.  What I try to remember is that if I feel ground down then most likely most others feel worse and that is a time to  be at least looking to buy rather than sell. You certainly aren’t getting the best price for your investment in such a fearful market.

If you have been investing mainly in Aim then you likely are really feeling it. Aim has fallen around 50% from the high. I am watching Aim as a guide to where the market is going. Here is the Aim Index over 3 years.  I watch for bowls and there looks very much like a bowl in the making here with the left hand side of the bowl nearly complete.

The fall from October 2012 to October 2022 is approximately 37%.

The fall from October 2022 to now has been 12%.

On that basis the worst looks done on Aim to me, I think the 640 area will likely be the low but how long we take to get there I can’t say.  What I have also noticed in the past week is Aim is out-performing the FTSE 250 for the first time in ages.  Aim lost 1% from the start of the week till the end of it while the 250 lost 1.2%.  My best guess on that basis (and these are only educated guesses as always) is that Aim bottoms any time from now to year end at not much lower than here.  If that is the indication then that is positive news for the market in general.

A second thing I would add is there is a disconnect between the US and other markets here imo.  The US does need to come off imo. The Dow Industrial is on a PE of 26, the PE of the FTSE250 is 11, the FTSE All Share PE is 14.  While UK PE’s are at historic lows the PE’s for the US are still high.  Now the US is growing at 4.9% annualised on this weeks data so there is some decent reason for a higher PE but it’s hard to see a good reason for such low PE’s in the UK other than several years of psychological gloom from the media.  I’ve mentioned that the UK has grown faster than the major economies in Europe since Brexit but here are a couple of other bits of recent data to surprise you perhaps.

Neither of these bits of recent news make me feel gloomy or despondent, they both make me think that the many company results that are due out in November have a great chance of beating to the upside and putting some of the low PE ratios and yields into the spotlight.

Market bottoms tend to end in a capitulation and we haven’t had one but I was told the early 70’s oil crisis bear market never had a capitulation, it just drifted back up.  I would expect one last hurrah from the bear market tho to signal a bottom when it comes.  What will be important is inflation going fwd.  Here in the UK we have some big inflation rises to drop out from a year ago which should help by which time we will be into the New Year. The northern hemisphere is on the up as far as temperatures go then and often the catalyst for energy to sell off which may all help inflation.  On the other hand we have the Middle East to worry about.  Sadly the market always has something to worry about and going fwd it’s a matter of when does the market start to live with the worry that’s out there?  Remember Ukraine?  The market and the BBC are bored with it now – you don’t hardly hear it mentioned now but it’s there.  That’s how markets price things in short term and live with them long term.

Value, yields and profit growth eventually shine through when short term fear turns to buying oversold bargain babies thrown out with the bathwater.

I was chatting with Paul Hill of Vox this week on Twitter – he says the best way to get through the market like this is 3 cold showers a day.  I’ll stick to my method which is to read Rudyard Kipling’s poem ‘IF’.  A great mentor piece for getting your mind into gear at times like this and motivation works imo – I leave you a copy below.

Enjoy your weekend, I wish you good health and if the market really is preventing you sleeping  at times then being more heavily in cash might be the right thing for you despite my optimism.

Rebel

If you can keep your head when all about you   

    Are losing theirs and blaming it on you,   

If you can trust yourself when all men doubt you,

    But make allowance for their doubting too;   

If you can wait and not be tired by waiting,

    Or being lied about, don’t deal in lies,

Or being hated, don’t give way to hating,

    And yet don’t look too good, nor talk too wise:

If you can dream—and not make dreams your master;   

    If you can think—and not make thoughts your aim;   

If you can meet with Triumph and Disaster

    And treat those two impostors just the same;   

If you can bear to hear the truth you’ve spoken

    Twisted by knaves to make a trap for fools,

Or watch the things you gave your life to, broken,

    And stoop and build ’em up with worn-out tools:

If you can make one heap of all your winnings

    And risk it on one turn of pitch-and-toss,

And lose, and start again at your beginnings

    And never breathe a word about your loss;

If you can force your heart and nerve and sinew

    To serve your turn long after they are gone,   

And so hold on when there is nothing in you

    Except the Will which says to them: ‘Hold on!’

If you can talk with crowds and keep your virtue,   

    Or walk with Kings—nor lose the common touch,

If neither foes nor loving friends can hurt you,

    If all men count with you, but none too much;

If you can fill the unforgiving minute

    With sixty seconds’ worth of distance run,   

Yours is the Earth and everything that’s in it,   

    And—which is more—you’ll be a Man, my son!