Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Hi 42trader,
I agree that it is not a strategy that will fit most, esp newcomers. With newcomers I would err on the side of caution and just invest in an ETF that tracks a well performing index, like the SP500...
After surviving the .com crash, I vowed to never invest in a company again unless I understood their balance sheet. That's what eventually led me towards focus investing. I don't recommend this to anyone btw... but since someone asked...
PS: it can take me years to eventually take a position in a company.
Everyone has to find the framework that works for them.
Velo, you might enjoy this book
https://www.amazon.co.uk/Bull-Maggie-Mahar/dp/0060564148
Bull!: A History of the Boom and Bust, 1982-2004
Hi Velo,
Interesting question. There are many frameworks that work for a variety of people. For some reason, there is a lot of motivation to automate judgement and reduce a rather complex subject, human behaviour, do a formula. There is no idication whatsoever that we are even close to something like this. One needs to focus on a few intangibles as well.
It never made sense to me to hold a lot of positions. I find it quite a lot more work to keep on top of it all. For me, it is a lot simpler to concentrate on my circle of competence and invest in companies who meet quality and value criteria. Understanding and keeping on top of every single sector looks like a lot more work.
So when a good opportunity comes along, why restrain yourself artificially? This never made sense to me. It's best to focus on your best idea, not your second, third etc....
Every couple of years, such opportunities arise. Even more so when markets panic, because it's easier to meet valuation criteria. It is not unusual for positions to make up between 20-70% of my total holdings. My last #1 idea, AAPL in 2005, occupied 65% of my total porfolio then. At a P/E of 10, this was not exactly an outlandinsh investment. Especially not for a companies that grew it's cash position by 30% every quarter. It had "big opportunity" written all over it. Why would I ever invest in a position that I think is less worthy? Doesn't make sense.
SLP is in similar territory, although it doesn't have pricing power, but it does make it up in other departments. It doesn't make sense for me to invest in another miner, even though there are good ones around, when I see this one as the best in class (meeting my criteria). Owning 2-3 others in that sector isn't exactly diversification either. You'd need to find a good lollypop producer or a good retailer or whatever else in order to consdier yourself diversified. But I am not interested in sweets, nor in retail. So why should I become involved in something I don't want any part of?
It's a lot less work than a huge portfolio, and financially more satisfying.
Other approaches work as well, this just happens to be mine. But to hold a lot of everything in order to eliminate risk is a dillusion. If that would work, a lot of people would be much better off today.
I think that I have less risk investing in a company trading below intrinsic value, whose management is competent and shareholder friendly. There are not that many around, but every couple of years one or two such opportunities do come along.
Where to indeed? Top right hand corner on the graph (indeed :P).
A possible price for 2022 is not difficult to estimate given that stockopedia kindly suggests 54.7 cents eps.
Going along with the PE when the last filings where made (2020), then we get
11.7 * 0.547 = $6.399 = £4.51 (today)
So the estimates in the region of £4 ps are not perfervid.
;) I'm still expanding this position. In the meantime, all weakness is welcome with open arms.
Hi Sirius,
I don't diversify. I never did.... for decades. There are better ways of managing risk. I only ever have a handful of positions. It takes me years to find one to invest in though. £2.35 is still 50% of where this one should be in 2022.
Which other 'savings account' offers this rate of return? If you find a better one, let me know :)
N
The financials don't look very trustworthy either.
Free cash flow since 2014: 1.58 0.361 -7.02 -5.09 -3.16 -11.6
Net profits: 4.44 13.5 10.8 -10.1 0.804 -43.0
EPS: 0.409 1.24 0.997 -0.931 0.074 -3.97
and a forward rolling P/E of 6,413.5.
Doesn't look like a good investment. Can someone explain me where the balance sheet is "going from strength to strength"?
On a US exchange the share may not fare any better. Governance in the SCEE territories is much tigher and less permissive than in the UK or Eurozone. Eventually a company needs to show some tangible progress and shareholder value. It's a delusion assuming it would fare better in a SCEE territory.
Shame, because the potential is there.
Found a public source for mining sector ratios etc...
https://www.gurufocus.com/industry_overview.php?industry=Metals-and-Mining®ion=UK
Confirms PE for 13 (well 12.51)
Well Sirius, if he's an academic then he would most certainly publish his data... So that should not be a problem. But that's not the issue here. You'll find that at least a few UK sites would have the median PE around that figure. And one could argue that this is a figure which future investors may be prepared to pay for SLP. I'm sure it makes a lot of sense. SLP at a PE of 13 is not exactly a radical suggestion.
In the meantime, I'll let the dear professor battle the bulls and bears on Wall Street :)
Sirius,
I used LSE only. Maybe that is global? Or just a mistake? That's a huge discrepancy. PE of 175 in this sector would be what I call 'irrationaly exhuberant'.
Are you sure you trust this data?
That's why I am always with joy when the price tumbles ;) I treat this like a high interest savings account. When the price goes down, my interest has just gone up! Loved it when it got discounted to 30p last year.
FYI - for that EPS Graham formula says £10.- Let's wait and see. Nobody knows what the longer term situation will be, but one thing is certain, it's very good value for money right now. Difficult to find a position as good.
Consider the metals and mining sector average PE of 13. Now, if SLP would trade at that ratio and we take the 2022 forecast of 54.7pps into acount, then you would get a price of 711p. Thus a valuation of £7 is a rather realistic prospect. It's the magic of compounding :)
The only thing one can establish with a degree of certainty, is the current value of a business. Valuation for investment purposes aim to calculate the incalculable, namely what is the value in a future point in time? Nobody knows. Thus, all these exercises are estimates, and I treat them as such.
Even with current data, valuations are rather subjective. What multiple shall I pay for that company? If that company is a competitor or will enhance your business proposition, higher multiples are often not problematic at all. Usually, people use five years earnings as a starting point...
For investors, a relative comparision, like what is my sector's typical PE and at what rate do I _estimate_ the business to grow at over a time-period? Again, rather fuzzy figures and estimates. Simply projecting eps growth at a sensible rate with a given PE will do (you can do at DCF but I prefer to quickly work out these ranges in my head).
I am using a slighly obscure formula from Ben Graham, which served me well for decades. A growth rate of 5% is realistic (not in the current climate, but overall I'd be thrilled if a business can achieve that year over year at infinitum), and I also compare it to the current 20yr gvt bond rate (which is too low this time, so I kept the old one to make estimates less realistic -- lower bond rates make securities more attractive to investors) of 2.8%. This currently puts the fair value at around 435p.
And because these are estimates, I take a 50% margin of safety -- which makes it a buy for under 217p.
It takes only a minute to do.
That's why I actually don't like it when the share price explodes because a value proposition with this outlook over the next three years is extremely rare. It currently makes a lot of sense to still build a meaningful position.
There are other filters I use, but that one is always a good starting point ;) All estimates, but I prefer the conservative approach. My screens only ever return a handful of stocks anyway...
Happy investing.