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YEs but, holy cow, GROW selling assets to generate a P/E of 4 is pretty amazing even if NAV is exaggerated by an overvaluation of the underlying assets. I am assuming of course they can't book earnings unless they sell something. Can't in accounting world to my inexpert knowledge be a theoretical profit.
Theoretical NAV of course for reasons you mention yes (with over 100% cover of sp which leaves some room for minor overvaluations). Theoretical value of assets which is why most UK builders showed losses in 2009-10. It was writing down a theoretical land asset value rather than losses on the throughput of homes they were actually building. So builders earnings even more volatile in relation to writing down an asset base as GROW or Polar whose booked profits are not direct affected by asset base decreases.
Polar Capital gets a P/E of 5.1 even though it has positions well balanced across the world of the largest technology companies. If the same accounting principals for GROW apply it can't book earnings from rises in it's stakes. Must come from dividends or sales. So if the tec sector tanks for a couple of years it will have a dive in earnings (less profit booked on any sales) and NAV but dividends will keep coming in. I can't see the risk that justifies a P/E of 5.1. Yes it is a slightly leveraged bet (stock picking not stock index linked) on global tech stocks to be sure but is the business model really riskier than holding the tech stocks themselves or holding a tech index tracker?
Seems to me Polar is a lot bigger, more liquid and more secure for a minor difference in P/E. SO GROW should never be a large percentage of my portfolio. But hey what fun to still be a significant part. Just love getting into UK and EU tech start ups before they hit the exchange. High risk but real potential to rise faster than the tech index and even Polar. That said if one looks at history and not hope GROW has not performed as steadily or as well as Polar in the last 5 years. That can be a buy signal (it is just temporarily undervalued due to sentiment) or maybe a signal of underling problems to the investment model. I need to research further.
This is all new stuff for me but it is a significant part of my pension strategy so worth the time to get it right. I don't mind as I did for TEF to take risk to get a good 10 year return within my ISA. I can diversify later into income generating stock. Right now I am willing to have up to half my portfolio high risk and high growth. I think our UK builders will have a bounce when Brexit uncertainty finally lifts but not convinced the ones I have can grow beyond 2. 5x dividend reinvestment included over 10 years. The tech ones certainly can. 4x, even 6x over that time frame are will within the range. I am not gambling on tiny oil exploration companies here based on some rumour I heard in a pub. Polar actually achieved that in the last 10 years on a pretty smooth looking curve.
Steph,
>That said if one looks at history and not hope GROW has not performed as steadily or as well as Polar in the last 5 years. That can be a buy signal (it is just temporarily undervalued due to sentiment) or maybe a signal of underling problems to the investment model. I need to research further.
I did look a bit more into GROW yesterday and they make claims of 20% yearly portfolio growth over the long term. Not quite what you are looking for but if they can do that over the future years then that will be a very fine return.
I see in a trading statement from just the other day they are looking at growth of 12% "fair value" for the first 6 months. One thing that did raise a bit of a flag and which I would check if I was invested is when the events that created the valuations took place. These events typically (well from my perhaps flawed understanding anyway) relate to further fund raising and the price paid by the investors. I got the feeling that this might have been very close to the start of the 6 month period and if that's the case the cautious side of the greedy and yet fearful investor in me would be wondering if it was significant.
For me, the way they value the investments is hugely fragile in general. People generally get carried away when they value technology. GROW saying they've had long term 20% annual returns but again the cautious side of me wonder if they were investing during the tech bubble in 2000. What actually is their 'long term' and is it just during the long bull market?
I hope this works out for you and I'll be watching the SP and kicking myself if it does but too risky for me at this stage of life. Incidentally I was looking into recessions and market corrections the other day and BWY's SP actually doubled during the dotcom correction. That was something that surprised me.