Weekend Rebel Review, December 2nd, 2023
Break out.............
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) ?
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A few stats and thoughts
Good morning and welcome to this weekend’s review.
It was great to meet so many people at Mello on Thursday, many of which I have been talking with or reading for 20 years or more online. I have never been to Mello before so if you are a small cap investor and keen for information then think about going to the next one. I never stayed to see any of the company presentations as most fell outside my investment arena but I’m sure many would find it informative and worthwhile. I have to say a huge thanks to Andy Brough who was on stage with me and calmed my nerves - it’s a lot easier chatting about a subject you love with like-minded people.
The market has continued to go well, as expected, we have had day after day of positive moves up in the S&P bar one day, a small pull back. Investors are buying into intraday dips, not even waiting for a lower close. It hasn’t been so exciting in the UK but many stocks are at last getting a bit of momentum behind them, enough to stir FOMO in the belly of many. Last night the S&P closed at the high of 2023 – can you believe that? It has actually outperformed even my most optimistic expectations – don’t ever stand between a yank and a bull market signal!
The German DAX is close to an all time high
A few stats and thoughts
Good morning and welcome to this weekend’s review.
It was great to meet so many people at Mello on Thursday, many of which I have been talking with or reading for 20 years or more online. I have never been to Mello before so if you are a small cap investor and keen for information then think about going to the next one. I never stayed to see any of the company presentations as most fell outside my investment arena but I’m sure many would find it informative and worthwhile. I have to say a huge thanks to Andy Brough who was on stage with me and calmed my nerves - it’s a lot easier chatting about a subject you love with like-minded people.
The market has continued to go well, as expected, we have had day after day of positive moves up in the S&P bar one day, a small pull back. Investors are buying into intraday dips, not even waiting for a lower close. It hasn’t been so exciting in the UK but many stocks are at last getting a bit of momentum behind them, enough to stir FOMO in the belly of many. Last night the S&P closed at the high of 2023 – can you believe that? It has actually outperformed even my most optimistic expectations – don’t ever stand between a yank and a bull market signal!
The German DAX is close to an all time high
How is the DAX there with all the energy and EV issues affecting industry? The CAC and the FTSE100 are still circa 5% off their all time high while the FTSE250 is still a staggering 25% off its high still and the FTSE Small cap index off 20%. The FTSE250 is trading where it was 9 years ago while the DAX and CAC are up 60% and 40% respectively in that time. I believe the UK is grossly undervalued compared to other indexes. The Brexit sentiment and Covid drama gave the impression, hyped by the press, that the UK was fast becoming a basket case. The reality however has been the UK actually growing the fastest out of all the major economies since Brexit.
The rise in corporation tax undoubtedly damaged stock prices, as have interest rates. The UK consumer is far more sensitive to interest rates due to our heavy home ownership and high house prices with the mortgages that come with that. But the actual pain from rate rises hasn’t been as bad as in the past as so many have fixed rates or own outright now. So going fwd the UK has the most to benefit from falling interest rates and cuts in corporation tax – and markets look forward, not backward. The press in this country really doesn’t do anything to improve sentiment and I suspect much of the under-performance is exacerbated by press gloom. However, I think this leaves room for the biggest upside surprises in UK stocks – just look at RR. and MKS over the past year, multi baggers hiding in plain sight in the FTSE350! 170% Cash premium bid for Hotel Chocolat tells you it isn’t limited to the mid to large caps either, it is probably bigger still lower down. How many more of these sat out there ready to reveal themselves?
The FTSE Small Cap Index looks overwhelmingly the best place to invest to me, so I thought I would run through a few stats and add a few thoughts for people as to where I’m investing generally and where I’m investing to maximise performance. We all know how we like or want to invest but invariably we take our eye off the ball. Sometimes someone says something or we see something and that makes you realise how you have lost a bit of focus and re-appraise.
I was going through a bit of data over the past few weeks.
Imagine you had bought the market right at the lows of the financial crisis in early 2009.
If you had bought the FTSE100 your return to today would be up 111%
If you bought the FTSE250 your return today would be up 218%
If you bought the FTSE Small Cap your return would be 285%
From that you can see the more risk you take, investing in smaller companies where risk is likely to be higher, the greater the reward over time.
Now look at Aim
If you invested in the FTSE Aim 50 Index your return is 125%
If you unvested in the FTSE Aim 100 index your return is 100%
If you invested in the FTSE Aim All share your return is 90%
How strange is that? In the fully listed stocks, as you go down the food chain, as the risk rises so does the return. On Aim, the opposite is true. Remember, the main indexes have a circa 3.6% yield too where Aim has a minimal yield. The divi yield compounded for the main index amounts to another 70% on your initial investment.
Basically, if you timed your investment perfectly at the low in the financial crisis to now you have made 4.5% compound in Aim, little more than the divi return over that time in the top 3 fully listed indexes.
There are inheritance tax advantages in Aim but if you are not invested for that reason then why fish in a scatter gun approach on Aim? For me, the best performers on Aim are the divi payers that have a long history of paying dividends – it is a good discipline for a business and often a good sign that the company appreciates the importance of its shareholders. It’s perhaps worth bearing this in mind when you invest, I think it is far better to fish where the fish are tastiest.
Onto another topic, and the point of staying invested rather than rush to cash or bonds. Now if you are elderly and living off your pension pot or about to then being in cash or government bonds may well be the right thing to do. If not, you need to bear this in mind. Here’s the FTSE250.
The high to the low is 30%. The bounce last September was 17% from the low or 12% of the fall from the 24000 high. Missing those big rises shrinks your portfolio and reduces the compound growth on the way back up. If you can’t sleep or the markets make you worry, then obviously you likely need to be heavily in cash. If you invest money you can afford to lose, then really think hard about ever selling out imo.
One important thing not to miss tho is the FTSE Small Cap Index. In the recent decline over the past 28 months, the Small Cap Index has given back the least. However in the run from the financial crisis low to the high in July 2021, the Small Cap Index rose around 500% closely followed by Aim50 which did close to the same. The Aim All Share only rose around 200%. The lesson is that the best gains have been made in the FTSE Small Cap Index and you get a near 4% yield and the lowest downside in falls. Aim50 is a pretty good second. If you are investing in a range of Aim All Share stocks then you will likely do well but under-perform the optimum going forward imo.
The FTSE Small Cap return has won hands down in bull or bear markets, short term and long term. No guarantee this will always happen but history is the best guide to the future as they say.
So, onto last month, and what a month it was – I managed to squeak into the top 10 in this month’s UK StockChallenge with a miserly 13.7% when compared to the winner, Sandaman, who did over 25% - well done Sandman.
The portfolio was up over 16% which was nice but we aren’t sitting on our laurels are we? December looks like it could be even better to me with it looking like the Fed’s first rate cut could come in may. If the market gets the sniff of a rate cut it will fly imo.
Why not give the stockchallenge a go? There’s no phishing, spamming or email harvesting, it’s run by a very good investor/trader, Typo, who I’ve known for over 20 years and it’s just a bit of fun but it does let you see what stocks people are liking for the month and you can try your stock-picking skills. Out of interest the FTSE 250 was up 8.1%, the FTSE Small Cap Inex up 6.2% and Aim All Share up 5.4% during the challenge. I expect to do at least double what the 250 does on the way up so I managed it this month in what was a good month for the 250.
http://www.stockchallenge.co.uk/
Click ‘Entry Form’ at the top.
There’s good FTSE Index data on there too so you can see who is going in or out of indexes as they change – ex divi data too, so very useful.
M&S sandwich maker CNC was a stock I had a small trade in last week in the run up to the results announcement but it was very underwhelming so I took the hit and sold for a 5% loss, not a stock I want to build a position in having read the results.
XAR put out a poor trading update on Weds. Thankfully I sold my last few after the last update. Despite all the promise and how the Aquinox high viscosity, water based print heads were seeing huge interest, they clearly are not converting to sales. A sit and watch from here for me. I did say at the last update they were on borowed time having not delivered a proper recovery within 2 years of the new board taking over let alone 4 years, and all that cash has gradully slipped away.
RR. put out their Capital Day statement and went on to have their 4 hour Capital Markets Day presentation. I have to say ‘Turbo’ Tufan the CEO isn’t the most exciting of speakers, it reminds me of listening to the old ECB’s Mario Draghi, hard to keep awake at times listening but the over all presentation was great and kept me feeling very positive. I trimmed 20% of my holding being up 15% in a month, thinking that was perhaps wise here but then several directors bought meaty amounts of shares, one buying roughly £250k worth so I decided to buy back half what I had sold, so a 10% reduction in my holding over all.
Ashtead Technology AT. Put out a cracking update on Thursday saying they will be comfortably ahead along with acquisition news which they say will be materially earnings enhancing. I missed buying on Thurs as I was off to Mello and sidetracked but I bought yesterday despite the large rally of circa 15% the day before. I was holding these a month or two back but sold to buy more MKS, thinking they looked maybe up with events but with brokers upping earnings for next year to 34p now and that looking conservative, the PEG, long term and going fwd look very low for the performance still imo. I am not afraid to buy a stock back higher than when I sold it. Making a mistake by selling a stock is one thing but compounding the mistake by not buying back because your pride is hurt isn’t a good idea.
Coming up this week we have WOSG results which I will be awaiting with interest. Others to watch out for:
5th OTB Finals
5th GHH Finals
6TH OMG Finals
5th MOON Interims
5th DSCV interims
7th WOSG finals
7th MMAG trading update
7th GOCO Finals
7th CAW trading update approx.
We are About to see cash rush from fixed interest and government bonds into equities in my opinion. Not only has the S&P hit a high for the year but the MSCI World Index has had it’s best run in 3 years – all super bullish stuff , but then again I’m a perna-bull so make sure you do your own research and understand your risk – this has just been my worthless opinion,
Enjoy the weekend, I’ll be doing M&S ‘food research’, watching the local Christmas Tree being lit and doing a quiz if I don’t freeze solid on the way there!
Rebel
Thank you for the kind words Dolan, I hope the biscuit is a M&S Chocolate Covered Custard Cream :-)
Sir Richard - I wait patiently for these weekly snippets every Saturday & get too excited when notification comes in. I make a cup of tea with a biscuit before I read. Lovely stuff!!