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Crossley,

To ballpark it, if you assume the price hasn't moved in five years ~ which is about right ~ then reinvesting fiveyears of div at yields of 6.2%, 6.8%, 7.1%, 7.4% and 7.8% leaves you with a 40.6% gain.

Whereas, if you take the figures the scribblers have given and then assume 2.5% a year div growth thereafter, by my calculation, you get the next five years' yields of: 8.2%, 8.6%, 9.1%, 9.6% and 9.8%.

Which, assuming no price movement (and I'm invested here on the basis that that's maybe all they might do?) you get a start to finish gain of 54%.

Though, if they achieve those levels of div, then I'm imagining that, at some point, that bipolar nutter Mr Market might well take notice..?

Strictly

Londoner,

I didn't come back on a couple of your points...

You mentioned that you look after investments for four family members....

Up to around nine years ago, I was looking after around twenty investment accounts for family and friends who had followed me into the Game of Strictly Bricks but who'd kinda got stuck like rabbits in the headlights due to the trauma of the credit crunch....

But then I thought to start writing the Strictly Bricks blog ~ which the computer-savvy son of a good friend set up for me ~ and everyone can now manage their own stuff...

And thank goodness for that ~ I enjoy writing the blog, but spending many hours a week trading for everyone was way too much and I've now been able to let go of that job.

With regards to being whacked by the market, my losses have been different to yours....

1987, I was in an actively managed fund and, from memory, that was a hit of around 25%.

2000, I was in cash, waiting for the crash that overall stock market price earnings ratios told me was most likely coming.... I'd spent hours and hours down at Southampton library in 1998 researching old FTs on microfiche to get that information together, and then I came across Robert Shiller's book "Irrational Exuberance" which could have saved me all the bother ~ but there you go, no big deal really, seeing as I still got the right investing outcome by sitting it out in cash until March 2000...

2008...? 50% loss....? As Crocodile Dundee might have said "That's not a knife..!" I lost around 75% from start to finish, so that was effectively 50% then another 50% off that....

Yes ~ it was all emotionally, psychologically and financially rather painful.

And, as you've implied, a Corporal Jones moment...

2020, I was fortunate enough to swerve that one... I clearly remember that I'd read an article by Ambrose Evans-Pritchard in the Telegraph on Valentine's Day while out in Spain describing the coming covid tsunami... like his name, Ambrose is a rather flowery writer, and I don't find myself agreeing with him on much ~ and that's when I can get to grips with what he's on about...

But I remember thinking at the time "Blo.dy hell, he's right on this...!" and though it took a bit of a delay to build up a head of steam to take action, by the end of February I was largely out of shares (all in house builders) and into cash and Index-linked gilts (the latter did ultimately let me down to some degree but that's another story...) and the upshot was that I made just under 20% that year.

Since then, 2022 was the bad boy ~ that was a 37% loss, which I've now almost, though not completely, recovered...

But, all in all, investing just in house builder shares defo ain't for the faint-hearted, is it...? 😊

So now, at least for the time being, I've become an investing wuss and am 75% (and maybe 80% by the end of today... I'm thinking about it...?) in the big insurance boys with the remainder in Bellway.

Strictly

Londoner,

"I recall your focus in the housing sector was on tangible book value. Given Bellway’s focus on organic growth I could imagine Bellway featured in your recovery plays, but my focus is on the macro, as was my question yesterday - what’s different this time round for the house builders. While I understand your decision to rotate to a different sector, I’m left wondering why you think the traditional builders will return to their previous growth rates, albeit starting 3-years out."

My concern is very much that the house builders may not get back to their former glory.

Bellway have averaged a return on equity of around 16% for the past 40 years.... that's pretty awesome ~ to put some numbers on it, they've turned a starting BVPS in 1983 of 51p into a 2023 BVPS of 2,871p plus paid out 1,361p in dividend over that time...

How many investors have beaten that...?

Of course, you'd have had to know to be in Bellway at the outset, and the irony for me is that I sold my business (which gave me the capital to invest) in 1984 but didn't start managing my own stuff until 2000 and didn't have my house builder share epiphany until 2003.

It took me ten years of paying attention and trading on perceived value gaps to firstly catch Bellway up and then finally overtake its performance through trading.

So I could have profitably sat on my a.se for a decade and done nothing if I'd have only known about Bellway from the get go.

Not for nothing is the company affectionately known as Ghost Dog in our investing circle.

......................

"I’ve posted my macro view to the Vistry board, in which I attempted to make the case that it will be different this time for the traditional builders, hence my preference for Vistry’s partnership model. I post my ideas in the hope of receiving a response along the lines, you’re wrong and this is why!"

In sharp contrast to Bellway, Vistry is somewhat less-than-affectionately known as Battersea in our group.... as a fellow London lad, you'll no doubt understand the connotation..? 😊

We've had much discussion about this company on our blog ~ several of us agree that we see it as the triumph of jam tomorrow over past track record.

To put some numbers on it, from 1987, Bellway's BVPS went from 183p to 2,871p with 1,282p of div, whereas Bovis/Vistry BVPS only went from 185p to 600p, with 701p of div.

Over the past decade, Vistry's BVPS has stood still...

And yet, for this dubious confection, one pays a PBV of over 2.0 for Vistry compared to below 1.0 for Bellway....

Maybe they will yet emerge triumphant and, of course, it takes a buyer and a seller to make a market, and clearly others see this very differently to me...

If you would like to chat about all this on our blog, which was until very recently dedicated to house builders but now also embraces the big insurance boys ~ which has come as a bit of a shock to some of the folk on the blog ~ let me know....

Stric

Gary,

In sharp contrast to my approach to investing in house builder shares in which I tend to go right into the in’s and out’s of a duck’s a.se when it comes to the vital numbers, I have taken a somewhat different approach with these big insurance/pension companies.

I have invested in them fully mindful that I don’t have more than a minimal understanding of their balance sheets ~ so I am not using book value growth or return on equity as metrics despite this pretty much being indelibly tattooed on my forehead when it comes to builder shares.

What I have considered is how big these companies are, how long they’ve been around, what their dividend track records are and what their stated dividend policies are going forwards.

As I said before, Bellway are projected to only be making a return on equity of 7% by three years’ time ~ still only marginally above the 6.5% they made in 2020, the year of covid…. since then, of course, they’ve also suffered the headwinds of cladding, Gove, Vlad, inflation & interest rates…

So, how many years beyond the next three will it take to get back up past 10% ROE, which is the sort of dividend yield alone available on two of the three insurance boys let alone that if that dividend increases it implies at the least a confidence that there is underlying profitability of above 10% ROE whatever the latest government accounting requirements may be.

I freely admit I can’t understand why Mr Market has allowed these FTSE100 boys such a big yield, but if it’s based on the fear of something I’m not aware of then that seems a long time manifesting given that these div payouts have been high for years…?

My feeling is that most posting here are also likely similarly basing their decisions to invest in these companies on the div yield & track record without necessarily having any more insight into the companies’ figures than I do ~ though an obvious & impressive exception to that is Meconopsis on this share chat who clearly seems to know what he’s talking about.

So ~ thanks Meconopsis, for your contributions here.

Gary, I probably differ from you in approach given your comment “I’d like a little drop before I buy” as I consider that to be calling the market which I do not have the ability to do, unless you’re looking for a price shift relative to a different share that you’re holding and which you’d trade out of to buy into one of these under discussion…?

However, having now moved two thirds of my portfolio away from house builder shares, I remain undecided at present as to what would be an appropriate point to go back into Bellway et al..?

That would likely depend on the relative share price movement.

I mean, on what happens to Bellway’s, etc., share price as well as to LGEN’s, MNG’s and PHNX’s…?

Strictly

"Finally, I’ve found Bellway good to work for."

.....................

Finlay,

Thanks ~ good to hear that, especially now that, since last Wednesday, I am 100% invested in Bellway from having been, just the day before, 100% invested in Redrow… 😊

In our investing circle, Bellway are our “benchmark” share….

And Jason Honeyman, Bellway MD: Bermondsey lad, tick; didn’t go to university, tick; been in the building game since leaving school at 16, tick….

I don’t suppose folk who’ve been to university will think much of that, but there you go…!

Anyway, Bellway have pretty much always got it right in their forty years of having a stock market listing…. they are alone amongst the quoted house builders, that I track at any rate, in doing so in my view…

Though I would probably express it differently, I share your seeming concern about future prospects.

Bellway have averaged a 16% return on equity over the past forty years ~ that really is quite something.

However, from here, I’m only budgeting for them to gradually return to a 10% return on equity, and also taking several years to get there…

The three hundred year record for the Bank of England is that interest rates are typically around 5% and they may have moved away from that through periods ~ above in the late ‘80’s and ‘90’s and below since the credit crunch, but I’m allowing that, for all the talk, they’re not likely to move that much from here…?

I hope I’m wrong, but it seems to me that high borrowing costs as a percentage of income, due to the ratio of earnings to house prices, are likely to impact on house builder profitability, as the market inevitably does its bit to force them to take their share of the pain….?

And, in the interim, barring house price falls, I would say ~ from the inside as an investor ~ we just have to be patient and wait for inflation do its thing to bring down the cost of houses in real terms and so, in turn, increase the ability of people to buy them…?

And that’s hardly an overnight job, is it..?

But that is what is now seems to have been happening over the past year or more…

It seems to me that the country has become poorer….?

We may not be heading down the plug hole as a nation just yet , but it’s hardly a time for complacency on that front ~ I would suggest that anyone who has come across Alexander Tytler’s “Eight Stages of Democracy” would have reason for being concerned.. ☹

And he died back in 1813, so that was written a while back…!

Anyway, enough of that ~ good to exchange perspectives here, I would say, and in a civilised manner (especially as, by contrast, the Persimmon share chat seems to have recently descended into something of a series of hissy fits, which is hardly constructive…)

Strictly

“Also, having supplied product to a vast number of construction companies over the years

the worse by far to work for is Persimmon. Their quality is absolutely shocking…”

…………………

Finlay,

It’s interesting to hear your perspective from your having been involved in the industry, whereas I am purely looking in from the outside, so to speak, as an investor ~ though I have been at this for almost twenty four years, the last twenty of which have been solely in house builder shares and throughout that time it’s provided me with a more than ample living, albeit a bumpy one going through the credit crunch remaining fully invested….

I have an aphorism that the numbers are the cold marble slab of truth when it comes to this, and it’s easy to imagine that you are right regarding Persimmon simply by studying their balance sheets year after year, with the additional element that King Jeff there was so crafty in getting through his humungous bonus scheme on the back of the whole shareholder cash return scheme that came about after the credit crunch…

This hadn’t been an original thought of Persimmon’s… Tony Pidgley of Berkeley Homes first came up with this wheeze a few years before ~ but the scheme was bushwacked by the same credit crunch… just like Syd Barrett (the musician, I mean, not the builder..! 😊 ), he reached for the secret too soon…

But Persimmon’s corner cutting & greed did show up in the numbers ~ the superior margins, the crazily high dividend payout ratios to impress investors and drive the share price up even though the minimal retained earnings inhibited growth compared to other successful house builders ~ and it was all there to see if you were looking for it…

And it also showed up in their p.ss poor HBF ratings as they were on just three stars until 2019 ~ but post-Jeff getting to five stars in 2022.

So there’s something you may well have more knowledge on here than me as you have been directly involved…?

Under different management, Persimmon seem keen to put their recent rather shabby past behind them and so aspire to be much more customer-focused ~ or at least, that’s their story these days...

And the HBF five star rating would suggest that they are succeeding in that..?

But is the star rating scheme something that can be manipulated, massaged, etc., such that it’s not really that valid, or, if you happen to know, is it actually reasonably authentic and therefore a useful indicator…?

Because, as Warren Buffett would say, it takes many years to build a reputation but just ten minutes to lose it…

And Persimmon sure managed to do the latter in the public eye ~ and, unfortunately, to some degree, also on behalf of the wider house building sector.

I’d be interested to hear your view, Finlay…?

Strictly

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