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Nige, I agree ,in general builders on the face of it look like the best sector just now imv but there are always unforseen risks and to stick with just builders is risky as at some point you might need to sell.
Hi All
I will try to explain my Float system a bit better. Assuming £1,000 invested in 5 Bldrs and £5,000 Float.
Then, if I use some float, to say buy £2,000 in bdev = N shares, hopefully I will sell N shares at a higher price, which increases my float, while Base Cost (and number of shares) remains exactly the same. Hopefully, after some time, I can increase my Base Cost to say £1,200 in each Coy, whilst still holding 5 * £1,200 = £6,000 Float.
In using this system you should not sell any shares for less than the float price of those shares, and if you are buying a Divi you should not sell those shares for less than the Cost + Divi. The only exception is, if for whatever reason, you think the Sp will not regain the Buy float price. Then Bail out!
I have changed my system to holding a Base Cost in all 5 Coys (as opposed to Base Value) which meant I had to buy more in bdev, rdw and bwy, which has decreased the apparent profit. Doesn't change the idea though.
In my prev post I mentioned psn Divis, Just diluted my best share, bwy, prev av 1423, new av 1993, cur 2926, so profit used to be over 100%, now less than 50%.
Simply by Per's Bldrs and Yields Bldrs best value and if you compare those 2 factors with any other coys, nothing compares to them. Only downside is the Market believes on No Deal Brexit new house Sales will slump big time. But as psn has already proven (Banking Crisis), if you have Cash it doesn't matter.
BoL.
Hi Taverham
If bldrs Sp's drop they become even better value, and if you don't sell, Sp doesn't matter. My base price for psn is 1510 now 1932, Divis 235 pps so Yield 15.6%. That will do for me! I topped up for Divis but still made 11.4%, (and sold float later). Even at 1932 Yield is 12.2%.
Don't think you can find any other coys (media, insurers...) with such low Per's and high Divis, If you can I would like to know what they are!
BoL
@strictly
I do time the market on a macro scale, because I pay attention to politics, too.
I'm 80% invested right now because I'm in companies in which I believe, or in one or two cases, companies I wanted to play a gamble with. PSN is a hybrid, a gamble in which I believe. The risks are there, but I don't consider them significant compared to the upside.
But I have 20% of my equity funds in cash, and that's because I'm 'timing the market'. It's not because I'm trying to guess the lowest point in the market, it's because I have been paying attention to politics for a long time.
I don't think the Remainers will block Brexit. Corbyn actually wants Brexit, I'm sure -- he doesn't want the EU restricting some of the things he'd want to do if he gains power. He's just playing it for political purposes right now, and he would like a no-deal Brexit that could be blamed on the Tories. Then, he's thinking, he'll gain power as a result, and be completely unfettered by the EU to do whatever he wants. So the Remainers and Corbyn won't get a deal done to stop Brexit. They might force Johnson to request another extension but they won't stop it. And Johnson and the EU will fail to agree on an extension, in that case.
So, it's going to come down to no-deal or Johnson and the EU agreeing a deal. Since both are currently trying to call the other's bluff, I'm assuming no deal will be done, if one is done, before the last minute. That's when the EU usually agrees a deal, at the last minute, when the powers that be decide something is going to be a disaster and has to be done, they'll say, 'Enough posturing, now do a deal.' That's not going to happen before the last half of October.
Since no one knows that is going to happen, the later we go the more and more people will think it will be no deal, and the more companies likely to be badly affected by no-deal will be hit in their share price. I don't think builders will be badly affected by no-deal, but it is clear many market players do think so.
I'm not trying to find the absolute bottom of the market. But I do think early October is going to have some days when the news looks bad and the market drops, and when builders are lower than today. I'll be investing that extra 20% then, and probably half of it is going into builders.
I also expect the pound to drop even lower than today, in early October. If it does, I'll probably move all my US investments to the UK at that point in time, then move them back when the pound recovers some. Right now, the pound is a good value buy, but it might become an irresistible value before long. I like the US market but the dollar is overpriced relative to the pound right now, and it will probably get worse.
Buffet also said
"Our favorite holding period is forever." !!!
Nige, I agree the builders represent exceptional value and in answer to the question, why diversify into other sectors? It is my view that the market could irrationally knock the sp of the builders 10% lower. Other sectors, imv also represent exceptional value, e.g UK insurers , uk media etc and they could get a rerate , while the government could do something nasty to the builders - unlikely but possible. BOL anyway.
Hi Strictly
I like the bigger fool idea.
Certainly builders are cheap now (simply by Per's), but I think they will become even cheaper when No Deal Brexit confirmed, followed by a gradual recovery. Any Deal now I think is impossible (and could be even worse than No Deal) which leaves the only alternative as No Brexit.
Might lose a few pounds on No Brexit, but not worried at all cos Sp's will fly. A bit like hedging a bet.
Still think it's best to diversify a bit within builders even if it costs a little. No way of knowing what issues will raise their heads next, nor which Coys it will affect.
Fwiw I calc from Per's % age inc in prices as follows:
bwy 79.1, rdw 71.9, psn 71.6, tw 62.2, bdev 59.1, based on eventual return to Pre Brexit Per's, and this does not include their justifiable inc above Pre Brexit Per's.
Hi TMT
As you know I hold shares in all 5 and will continue to do so. With those returns (+ Divis) it hardly matters if you hit the best value or not. Besides psn I recommended bwy and bdev (lowest value but rock solid). I did not recommend rdw (change in Mngmnt) or tw (bad IntRes which they will take time to recover from, but certainly worth watching).
BoL
BoL
TMT
PS.
You might like to have a wander onto the Bellway (BWY) share chat, as that's where the TEF refugees seem to have reassembled, and an intelligent level of discussion about the building sector as a whole can be had there - and in your current situation, that might be useful...?
Strictly
TMT,
There's one word you used which makes me nervous...
That was "much" - as in I don't "much" try to time the market...
Personally, I reckon that's a dangerous concept to conjure with...?
You've probably come across the "Bigger Fool Theory"?
When you buy a share you know ain't worth it purely because you think you'll be able to sell it for more....
Or Bitcoin, or something...?
IMO, you have the reverse situation here, but with the same risk.
I mean if, like me, you believe these house builder shares are too cheap, you're surely still in the "Bigger Fool" game - namely, that you're waiting for some mug to come along and sell you a share - that is already cheap - even cheaper..!
So I don't even try.
There's been some discussion recently about this on the TEF share chat (now awaiting a decent burial...), with the TEF musketeers there - some of whom are looking to wait out the whole Brexit malarkey before reinvesting their TEF cash...
or they may pay a heavy price for trying to make predictions - who knows - but, to paraphrase Warren Buffett, I'm happy that I own shares in wonderful companies that I bought at better than fair prices - whereas Buffett who, let's be honest, hardly has a shabby investing track record over the past seventy years or so, is happy just with a fair price.
So, best of luck to the musketeers et al - they have bigger cojones than me and I salute them for that!
Strictly
'And I first beheld the beauty of builders (as in an investment prospect, that is, not in any other way - honest guv!) in 2003, when I had something approaching a minor epiphany about them and their underlying long term fundamental value growth...'
My epiphany, sadly, just came in recent months. I'm still mostly in other sectors, but my holding in this one will grow significantly in October, I believe. Still just deciding where.
I don't much try to time the market, though. I'm doing it with this next buy. But usually I just look for value and when I find it, I buy.
Still dithering about which builder it will be, though. Not PSN, that's my only investment in builders right now, want to branch out. Still just deciding. Will know by October what I'm going to do, or at least what price levels will trigger certain actions.
Nige,
Opportunity is like beauty...
It's in the eye of the beholder...
And I first beheld the beauty of builders (as in an investment prospect, that is, not in any other way - honest guv!) in 2003, when I had something approaching a minor epiphany about them and their underlying long term fundamental value growth...
And doing so has profoundly my financial situation for the better now I'm up to working my way through my sixties.... probably a good thing - as I must surely be a contender for being the most unemployable person I know..!
And clearly, by whatever road you proceed in this, you are obviously a fellow beholder...
But I guess it's just not for everyone...?
The way I look to explain it to the people in my circle who have acquired an interest over the past nearly two decades is like this:
It's like winning the lottery - in slow motion..!
And I'm imagining you'd agree..?
Strictly
Hi Taverham
My main idea is that House Builders are massively undervalued, far more than any other sector and so the best value by miles. Just look at fundamentals, Eps, Profit, Margin, Divis and Cash Held. Calc a Per from these nos and compare to any other Company, only 1 winner!
I agree entirely with Strictlybricks - hence his Name, though we do have different approaches to this potential gold mine.
Just look at prices in 1 years time, where I will be proved right or wrong! (regardless of Brexit).
So, why bovver with anything else?
BoL
Nige, why not diversify across other sectors/geographies?
Hi Strictly
One of the problems I have is I am so busy working on my system, I don't have time for much else.
Major update at the moment (after adding some new Coys and deleting some), the old system used old CoyNos which had changed, the new system recalcs everything using current CoyNos, so all History needs changing.
Anyway, this is why I still haven't tried to sign on to your Blog, or done any significant research into the coys I invest in at the moment.
In addressing the points you made:
Acres of difference - I agree based on long term comparison of rdw with crst, but my comparison was rdw to tw (max / min) then as I said 334 to 202 %. More importantly this year 114 to 106 % - not much difference yet bdev 136 %! Don't have a graphs for crst or bvs, but bvs Sp gone from 859 to 1054 this year, which is pretty impressive. Bvs under new management which is having a big affect, as has rdw and psn, These are local issues but very important in terms of Sp performance. Or to go back to 2013 (for comparisons) is not very useful. Maybe 5 years, but even then a lot can happen in 5 years.
Absolutely agree with you that value is a key factor, but I think there is another important factor - sentiment (ie Brexit).
I sold out most of my Float (too late!), but if Sp's half when No Deal Brexit confirmed, then I can buy back double the number of Shares I sold. No doubt I am exaggerating a bit but I am sure you understand my point of view. Otherwise, if we Remain In I might have lost a bit, but doesn't really matter too much cos Sp's will fly.
The basis of my claimed 20% inc in profit for my system is based on 2017 Sp's (less effected by Brexit) and is really flawed in many ways, so not much point in sending you details. I think it would work much better if Brexit had not happened. It is based on investing before Rns's (if you think they will be better than expected) and before XDivDt's (then sell just before or hold for Divi - if you think a quick recovery on the way). But as I said all is pretty irrational now cos Sp movement based entirely on Bexit sentiment.
My main point is a disaster can happen to any company, and I think by holding 5 it will not be too bad (a disaster with 1 will mean the others will do better). The relative Sp movement over 1 year is a good indicator of where the future is going. There must be a balance between value and sentiment (bdev worst value, bwy and rdw best value). Again I say the thing to pursue is value (cos sentiment is generally an overreaction).
Hence Diversify - short term (1 year) Relative Price differences very important - from this point of view bvs worth analysis - might be worth a punt?
Long message, my apologies, time out from programming - but back to it now.
BoL
Nige,
"At times bdev, tw, psn and (mainly) rdw have been the leaders (but never bwy) and disagree that there are acres of difference (2.0 * to 3.3 *). All have performed well over last 7 years, and local issues are more important."
..............................................
If you accept the numbers I used in my previous comment - that Bovis had made 80% with divs reinvested since the start of 2013 and that Redrow had made nearly four times as much at 300%, would you not consider that to be acres of difference?
Anyway - that is an aside issue...
I haven't done any personal research along the lines of your notion about price movements around trading updates etc so am not in a position to take a view at this point..... do you have any summaries, etc, you'd be happy to share? You have my email address and if there's a discussion to be had it might be had more appropriately somewhere other than here...?
Not sure if you've managed to access the blog yet..? If you have, I'm imagining you'll understand I'm an absolute tart for pursuing best perceived value.... hence my comment at the start - would you not see different value in the different companies such that you get more bang for your buck with some than others and surely this is worthy of recognition in terms of how you'd value a £1 of book value of one against another..?
Also, from the blog, you would no doubt have seen that my benchmark share is Bellway - in that this is the share I have been comparing my investment performance against since start of 2013 which is when it occurred to me to start doing this.
My aim is to beat Bellway by an average of 10% a year.... I'm not achieving that this far - at present it's around 7%, and not helped by being seriously wrong-footed by Telford this year when I should have acted sooner on the numbers which were showing all was not well there, but I've stopped giving myself a hard time about that now...!
So, within the keen pursuit of perceived value, which is my absolute top criteria for investing, there is a minimal amount of wiggle room to perhaps consider trading on smaller value gaps if I came to consider that there is any mileage for me in what you are doing around company announcements - yet still be consistent with my own MO...
So, do you have any performance numbers you've recorded and which you're happy to share - I fully understand if you don't want to, and it's just any percentage improvements I'm interested in anyway - perhaps separately by email..?
I suppose it would help if you do manage to access the blog - then you would have much more chapter & verse on how I, and pretty much all the crew there of the same inclination on the blog, approach this game...
Strictly
Ps
Basic idea is hold a Base Cost say £1,000 in each Coy and a float of the same amount for every coy (I hold 5 = £10,000). Invest the float (£5,000) depending on upcoming Divis and RNS's if you think they will be good.
After studying graphs for each Coy and Sp movement before and after RNS's, it becomes fairly consistent that +ve movement after some RNS's, none after others and occasionally a big -ve like tw IntRes - which I did not anticipate, nor No Sp movement after psn IntRes, where I expected a big drop in Sp.
For this reason it is important to have a feel for the Coys by watching these Boards and their press releases and also rate of change of critical accounting numbers.
As I said before my system all messed up by Brexit (any Brexit news creates gains or losses irrespective of fundamentals), so a bit of a lottery.
This doesn't change fundamentals (bwy and rdw lowest Per's, bdev highest - best / worst value, tw and psn hit badly by results / media so somewhere between the others). So I am holding a lot of float as cash, expecting things will get worse before they start improving (after Brexit sorted - whenever?)
Using my system I would have a float (normally) in 2 to 4 coys, but occasionally none (4 times per year depending on the cyclical nature of relative Sp, while holding only 5 Coys),
Critical point is the Market believes No Deal Brexit will have a massive effect on Bldrs Sales, which will hurt Bldrs low on cash comparatively (bwy and rdw), while I think it will have almost no affect.
Btw I can live off my Divis, £1,000 is a simple multiple idea.
Hope this makes sense and BoL
Hi Strictly
Hope SM is right about John Tutte, but I imagine he would have said that about whoever took over from him last time.
My system automatically calcs Relative Strength graphs (but excl Divis) from 04/01/13 (=100), then 23/08/19:
rdw 334, bdev 285, bwy 270, psn 243 and tw 202.
and if 04/01/19 = 100 then
bdev 136, rdw 114, bwy 112, tw 106 and psn 97.
My old system included bkgh, crst, bvs, gle and gfrd. Also I watch csp, ibs and tym (but no graphs cos I don't invest in them).
At times bdev, tw, psn and (mainly) rdw have been the leaders (but never bwy) and disagree that there are acres of difference (2.0 * to 3.3 *). All have performed well over last 7 years, and local issues are more important. So I think it is better to have a spread in case one coy has a major issue (like Eddie Stobart accounts).
Brexit has totally messed up my system, but I have calcd it could increase profits by 20% over LTBH. Also you never sell your Base value - I still hold shares in bwy bought 12/12/13 at 1423 now 2932 (so whatever Divi is - 95 last year = 3.24%) my Divi is more than twice that (cos shares only cost me 1423), and it decreases CGT liability.
BoL
Nige,
Firstly, re Steve Morgan leaving Redrow, he has expressed supreme confidence in his successor John Tutte - so let's hope he's right about that one....?
In any event, unlike diamonds, chairmen aren't forever, and they all have to move on sometime... my intention, as ever, is to closely monitor performance as we go against what might have otherwise have been anticipated and always in the context of how the other builders are doing...
And my second point is that there is acres of difference between the top performing and bottom performing house builders....
Of the ones I closely monitor, Crest are bottom of the pile, coming in at just over 80% gain since the start of 2013 with dividends invested on the day received.
On the next to bottom rung is Bovis, at under 150% growth on the same basis.
And star of the big boy builder sector is Redrow, coming in at just over 300% gain.
And one might surmise just from those numbers that Redrow has now become overly expensively priced on a comparative with the other two - however, IMO, that is very much not the case and I still have Redrow as best value of all despite their impressive market gain...
Those numbers alone, when you consider how well or otherwise one might have done just by being in the right or wrong share, are surely worth bearing in mind...?
And I'm aware, from there, that you have a process of moving some of your money around based on ex div, etc. dates, which I haven't got to grips with, and that this may or may not be working well for you..?
So that may or may not be a better process than the way I invest, but I am investing with zero speculation about short term pricing movements and I don't feel safe in doing anything other than that.
I can say, from the perspective of a long term personal investing track record, that it very much IS worth moving around between builders' shares, in pursuit of best perceived value, without ever resting in cash...
I do readily acknowledge that it all takes a bit of focus, time and effort - but it's definitely better than working for a living..!
Strictly
Hi Strictly and TMT
As you know I invest in 5 bldrs (bdev, psn, tw, bwy and rdw) and move a float between them depending on upcoming Rns's and Divis. The Sp's all follow each other, unless a disaster such as quality issues, causing psn to plummet. So Imho it is better to diversify, rather than picking one share as being better than the rest.
Got a large % age float in cash now (but still holding base values) and a little float in bdev and rdw, (for FinRes and XDivDt). Thinking about buying a little float in bwy (for FinRes and XDivDt).
Critical point, do I sell bdev before XDivDt? (11/10/19). Bwy XDivDt 29/11/19, which should be after Brexit sorted, so not thinking about that now.
Bdev certainly not the best value now, but a good solid company and regardless of Brexit has a bright (growth) future, so a banker for me.
Last point - rdw have lost SM, which had a bad effect last time he left, but I don't think it will effect FinRes yet.
BoL