Member Info for strictlybricks

Barratt have been rather low key on their further reserve of £180m for legacy issues...

I may have missed this before, but I can't see that it has been mentioned in previous updates ~ so if anyone has sharper eyes than me please say...?

However, it amounts to an adjustment of around 18.5p a share, or nearly 30p of forecast profit for the year ~ so, low key it may be, but insignificant it ain't...!

Strictly

"While I agree with completely in terms of ROE, I personally don’t apply that rule with PSN vs BWY, because imo, the only reason PSN has a higher ROE is due to the fact that they only have a few months of inventory on their books, whereas Bellway (the last time I checked) had something like 11 months of inventory. "

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

Lorenzo,

You may well be right, at least in part, here ~ I don’t know, as that’s not something I’ve attempted to crunch any numbers on…?

However, I did dig into Persimmon’s numbers back last November when I bought in to their shares (so, before you think it, or comment back, I know ~ no cigar for timing for Yours Truly)…

At least part of their advantage comes from land plot cost as a percentage of sale price, which is impressive ~ especially when you consider that they are already pretty much the Ryanair of the sector as far as the big boys go….

For 2022, Persimmon’s land plot cost was 12% as a percentage of sale price as against Bellway’s 18% and Redrow’s 20%....

Furthermore, for Persimmon, that percentage cost has been a direction of travel, downwards, for more than a decade…

For a gross profit comparison, I could only get 2019 as the most recent, and this was against Taylor Wimps…

Persimmon was 33% against TW.’s 24%.

While I obviously got the timing of my trades from Bellway into Persimmon spectacularly wrong, I made the trade, apart from anything, due to their significantly better freeboard coming into uncertainty.

Speculation about short term price movements is not something I’m intending getting into ~ there’s more than enough of that here already ~ so for me it’s more a matter of waiting on the half time whistle in August to see where the underlying performance is at that stage…

And, before that, a couple of updates due from Barratt & Battersea in July…

Strictly

"Troajan, I didn’t realise they were giving a trading update tomorrow."

Steve,

That was a date that Persimmon had had on their calendar and then it was removed ~ I know because it seemed odd and I made a note of it on my spreadsheet....

I just checked, and it isn't back on there, so either the proactive website's info is out of date, or they're privvy to info that us mere mortals aren't...?

I guess we'll find out soon enough tomorrow, though..?

Strictly

Mike,

I think it’s helpful not to conflate two different things here…

I mean, the issue of what’s going on with house builder share prices with the issue of what’s going on with the housing market itself…?

And, barring the risk of a takeover due to seriously undervalued shares, I’m really not bovvered about share prices…

I’m fully invested and, barring mishap, am only intending taking dividends from here on, so apart from the trading opportunities between different builder shares as & when gaps between them in perceived value occur (as they always have done), it doesn’t really matter to me whether the whole sector goes up, down or sideways, but rather that it’s just what the individual builders’ shares are doing against each other…

What I am very interested in, though, is how the housing market itself is performing based on the evidence available…

To my mind, “evidence” means the numbers, not the opinions of a myriad of pundits ~ who may or may not have their own axes to grind…?

I challenge you to go back through my stuff here ~ which you can easily do, of course, by clicking on my name and scrolling back ~ and come up with a prediction I’ve made anywhere about anything….

Likelihoods, yes, and intentions ~ but those are entirely different things…

I’m pretty pedantic about this, to the point whereby I can irritate my wife when she asks something like “are you going to do the food shopping this afternoon?” ~ which IMO is not to be answered with a definitive “yes” or “no”, but rather “that is my intention”.

Otherwise, it has become a prediction…

I do try to metaphorically beat this into all my investing crew, as otherwise it’s an easy trap to fall into ~ just look at how often it happens on this share chat..!

My investing approach is purely rear-view-mirror ~ because it looks back through a clear rear window ~ rather than peering out into the very thick fog through the windscreen and trying to make sense of the road ahead…

And the rear-view-mirror approach is all about current numbers, track records, and past trajectories combining to make for likelihoods for the future…

Of course, some here have voiced their disagreement with this approach in the past, but that’s obviously up to them and I’m imagining they’re all over 18 and therefore old enough to fight & die for their country…?

This approach has worked for me, though, since 2000 when I started, and I have a lot of faith that it should more or less continue into the future…

But, that ain’t a prediction, though..!

Strictly

Zac,

And, within a smidgen, I'm breakeven for the year to date in terms of market prices ~ not that I really give much of a toss about those ~ so, in that respect, you're 5% ahead of me this year...

But I've just written a couple of pretty long spiels about all this on a private blog which I share with my circle of investing folk, and all that has left me feeling pretty positive overall, rightly or wrongly, about the state of the game right now as far as can be seen...

I would say that we all need a couple of months more of patience….

After that, we should have had half time whistles from both Persimmon and Taylor Wimps, along with updates from Barratt, Bellway & Battersea….

If we have just come through the worse six months of this cycle ~ which seems possible though I’m not holding my breath on that ~ the market might just be looking somewhat different at the start of September…

Of course, the Bank of England may yet p.ss on our bonfire…?

Strictly

If you ignore the negative spin & gloom-mongering that much of the media seems to bring to bear, the cold marble slab of truth which is the reported numbers on house prices shows the following:

That from the Nationwide’s records, house prices peaked in August 2022 at £273,751 the then fell each month for seven months to £257,122 in March 2023.

Since then, they’ve gone up each month, and are now, as of today, £262,239.

IMO, this seems to be a somewhat different picture than the one the media, on the whole, paints…?

Taking inflation into account, the story is different, of course ~ but then, isn’t that what one might reasonably anticipate…?

I mean, a couple of years of double digit, or near double digit, inflation with house prices standing more or less still, and they would have dropped around 20% in real value…

And while that means that each of Persimmon’s plots could be traded for less buckets of coal, or loaves of bread, than before, it doesn’t necessarily have to involve any land bank write downs…

It’s worth bearing in mind that Bellway’s balance sheet was probably the strongest in the sector back in the bad days of the credit crunch and, as a consequence, they did not make, as I recall, any land bank write downs and that their book value per share only slipped back a bit because they had a couple of years of poor earnings getting through but, alone in the sector, continued paying a dividend throughout…

And, as I say, the credit crunch was a bad boy ~ and I learned that the hard way, having a lot in Barratt back in the day..!

The point is, though, all the big house builders have strong balance sheets now ~ so surely we can reasonably anticipate that they perform up with Bellway this time round rather than, in some cases, getting into existential risk precipitating company-life-saving rights issues…

And that’s if it does get that bad…?

Because the house price numbers, rather than just the negative media spin, aren’t, thus far, suggesting that…?

Finally, bear in mind that the Nationwide is about six months behind the game when it comes to what’s happening now….

For anyone interested enough to get some shape on what is happening now via the weekly report on Youtube on amalgamated estate agents’ statistics, the link below is worth checking out…

Mind you, it ain’t exactly got the entertainment value of watching “The Big Short”, perhaps ~ so I suggest that you sort yourself a strong mug of coffee & a biscuit before you sit down to it…

My take is that the more current position the programme depicts implies good news, but I’d be interested to read the interpretations of one or two others here…?

https://www.youtube.com/watch?v=8vuNF8THOF8&t=789s

Strictly

"The bottom line is this: if I wanted to buy a housebuilder and simply liquidate the company, I would be far better off buying Bellway right now than PSN. That suggests to me, that owning BWY is lower risk. "

Lorenzo,

You are correct…

And you've also essentially outlined a conundrum I put to those of my family & friends who had started investing in order to encourage them to think about this...

I used two mythical companies, A & B, both on a P/E of 10 and don’t pay a dividend.

Both shares sell at 100p, but Company A has assets of 200 whereas Company B has assets of only 50p a share.

Market conditions are stable and, if melted down, each company would liquidate to its full BVPS.

The question to my crew was: which company would you rather invest in…?

Pretty much everyone went for Company A.

But then I said, think more about it….

Neither company pays a dividend, so both retained all profits (this was to make the equation simpler rather than to open up a side debate about the efficacy of paying big dividends ~ that came later…).

So, Company A made 10p on 200p of assets, an ROE of 5%, and so had increased BV by 5% so, with stable market conditions, could be reasonably expected to increase next year’s earnings by 5%.

However, Company B made 10p on only 50p of assets, an ROE of 20%....

So the expectation of next year’s earnings increase, at 20%, was four times greater than for company A

When asked again at the end of that, pretty much everyone switched to preferring Company B.

Now, this does give a much more exaggerated version of any Bellway vs Persimmon debate….

And then you can layer on top that we are currently in far from stable market conditions…

Which comes back to the tricksy problem of, if Persimmon do maintain a superior ROE to the others, even if those ROEs do all end up lower, what is that difference worth…?

I have not come up with a good evaluation process for that as I feel I have for choosing between Bellway, Redrow, Barratt etc., because of that superior margin.

And, in comparing real companies, not mythical ones, and in a real situation, no doubt we’ll all come to differing views..

But one thing is that, having shed the King Jeff div, Persimmon now come into the frame for me ~ though, clearly, just like Syd Barrett, I reached for the secret too soon in buying some late last year…

But of course I can’t odds that…

Anyway ~ good luck with whichever way you go with this...

Strictly

“2019 +20.9%, 2020 +0.7%, 2021 +17.4%, 2022 -9.7% and 2023 to date +3.4%!”

Zac,

Well, out of interest and, hopefully, by way of some encouragement to you, I ran your figures into mine ~ starting with my figure as at the end of 2018 which was £25,431.

My current figure is £34,711 but changing for your percentages from 2019 made it £33,929, so that’s only 2% different so to all intents & purposes we have matched performances over the past four and a half years…

However, I did have a cracking 2019, when I made 57.4% for the year, so if you’d only given me your numbers from 2020 onwards, the current figure would then be £44,185, which is 27% higher…

In other words, for the past three and a half years, your investment performance has pee’d all over mine..

This is bringing out my inner anorak…!

But anyway, the thing is ~ for me, this is all about investing only in house builder shares, all about remaining fully invested throughout (with the one exception of swerving the covid tsunami in 2020), and all about being prepared to stay focused and to move between different house builder shares to pursue best perceived value…

The little word to conjure with there, of course, is “perceived”….

Obviously I don’t get it right all the time, but it’s about being right more often than being wrong and adding a few percent a year extra on top of house builders (well, the sensible ones, at least) already stunningly good long term performance..

But now you’ve engaged in this bit of correspondence with me, you can probably understand why so many of my family & friends followed me into this malarkey over the years..?

I started off knowing diddly about investing, though I had been in business for myself in various things since my early twenties and I’m now in my seventies ~ so that probably helped…?

Anyway, well done for how you’re doing so far…

Strictly

"I am keeping my holding for the foreseeable future and sooner or later the old git will get to the pub, with his dog "

TN,

It was actually the post office, not the pub...

But the pub will definitely do..! :-)

Strictly

“I know you've mentioned dividends in your comments but I don't think it highlights just how important they are. Over the 20 year period from 2000 to 2020 the FTSE100 index only climbed by 8.8%. Include dividends reinvested and the return was 122%”

Zac,

I do agree that dividends are important ~ they are the only reward we get from the company as shareholders, after all, as everything else, for better or for worse, comes from/is taken by the market.

However, if you’re going with end 2000 to end 2020, to make it twenty years, 122% gain might sound a lot when you say it quickly but it’s only 4% a year compounded.

…………………..

Again, I’d refer back to Bellway…. on the whole, they seem to slip by relatively unnoticed….

Not for nothing are they known as “Ghost Dog” in our circle (though, if you haven’t seen the film, that likely wouldn’t make any sense…?).

I feel blessed to have discovered, twenty years ago, the game that I am still very much in….

I realised back then that all it had to do was to carry on as before and it would likely give me a sufficient average return to more than meet my needs…

The thing is though, bl..dy hell, it’s a bumpy ride, and definitely not for the faint-hearted ~ and I’ve lost a number of people, who’ve dropped off along the way, from my circle of folk who followed me into this, but who couldn’t cope with the fear & gut-ache of the roller coaster nature of the journey…

You do have to try to be a bit buddhist about it all to be at relative ease with it, I reckon, but in my experience it still tests all of us from time to time (like now..!)

Strictly

“So over the last 20 years you've turned £1,000 into over £23,000 simply by investing in house builders? That's a return probably better than Warren Buffett's achieved!!!!”

Zac,

I’ve just updated my numbers since the recent stock market kicking and, from scratch in 2000 to date it’s been an average of 16% a year not 17% ~ so, my apologies for unwittingly hyping it up a tad…

However, that’s a bit more than twenty years and the upshot, as of about five minutes ago, is that the current number is £34,711…

This sounds great when you say it quickly, but Bellway by themselves have averaged a 16% ROE a year over the same time scale ~ did you know that?

Well, they did up to the end of 2022, so the current year will likely bring that down a smidge, but they had a great first three years of that period, 2000 to 2003, and I was playing catchup from there having not “got” house builders until 2003….

If you add in some trading between housebuilders (i.e., calling relative value rather than calling the market by moving between shares & cash, which is somewhat above my pay grade) then experience suggests you can, on average, add a further few percent gain a year…

Re Warren Buffett, he’s a fine fellow from whom I’ve learned much ~ even though I’ve never met him…

However, he’s also a salesman, as he talks about his average return over all the years he’s been at this ~ I think it’s still over 20% a year…?

Though, to be fair to him, he has repeatedly said that the huge fund is now an anchor to performance, but people don’t seem to believe him…

But it IS an anchor… a while back, perhaps when it was raining outside, I checked out his average return this century…

It was in single digits, about 9% I recall..?

…………

At the end of the day, everyone has to come to their own view about these things, but also nearly everyone here seems so preoccupied with price rather than value…?

Whereas, unless you happen to think that the country is going to complete ratsh.t (which, of course, it might be), then for me it comes down to looking at the long term past average underlying gain and going with the likelihood that that will continue.

And finally, there’s also the matter of buying at a good price…. Buffett bangs on about that…. if you use long term PBV as a basis, right now, house builder shares are cheap…

Even if the sector is going through a tough time right now, it’s been there several times in the past and generally, amongst the big boys, it’s only the less prudent companies who get into trouble because they over-confidently over-leverage their balance sheets…

Strictly

Steve & Panda,

In an attempt to act as an emollient here, pour some oil on troubled waters, I mean ~ I suspect you are both partly right with where Persimmon are intending to go…?

I seem to recall (though do allow that I’m working with a 71 year old bit of kit here ~ I mean my memory ~ so I could well be wrong?) that Persimmon said, in their most recent love-in with the scribblers, that they were intending to build out, or part build out, more stock on each site to speed up the sale process for as and when the market picks up again…?

I also recall them being somewhat more optimistic about their 2024 prospects than the motley crew of pundits & so-called experts are on their behalf…?

My impression was that they’d very much kitchen-sinked their last accounts ~ probably (though I am somewhat jaundiced about the individual concern) to put some blue water between how the company is run now as compared to how it was run a few years back in the reign of King Jeff…

People seem to become pretty animated on this share chat about Persimmon’s big cutback on dividend and in a very negative way.

Whereas, I see it as a big positive ~ providing Persimmon can achieve the same sort of return on equity as before while, presumably, growing at a faster rate.

I guess I’m in a small minority here having only last year chosen to invest in Persimmon BECAUSE they’ve cut the dividend back, not IN SPITE of…

They’ve had a superior return on equity over the other builders for many years and, wherever future ROEs settle for the sector from here ~ and I’m budgeting, rightly or wrongly, for it to be significantly lower given that I suspect the nation has now become somewhat poorer ~ then providing Persimmon can maintain the gap then, IMO, they are worth paying a higher PBV for, though obviously it’s a judgment call on what that’s worth…?

None of the above requires any speculation about share prices beyond an implicit faith that because, in due course, the price has always followed the underlying value, that it will continue to do so from here.

In due course…

So ~ it’s that underlying value that I focus on.... :-)

Strictly

Panda,

In the world of likelihoods rather than that mythical one of certainties, I would say that I'm on a similar song sheet when it comes to Persimmon...

I certainly hope so ~ my Persimmon holding is around 20% under water....

Strictly

RR,

You’re very much right about FTSE100 UK companies ~ the index as a whole has only given about 7% growth in total for all of this century so far, plus dividends, so definitely no cigar for them as a collective entity….

I recall picking right through all the individual component companies in around 2002, crunched all the numbers, and could see, to paraphrase Kipling, that the entirety of it was “A trap set by knaves for fools” and thereafter avoided it like the plague ~ sticking instead to the one sector that made sense to me then and still does now…

And that is house builders…

However, if you have successfully chosen good companies from within the FTSE ~ and clearly there are some ~ then firstly well done for that and also this obviously then gives you more options, whereas I’m very much a one trick pony, just house builders, hence the moniker.

One thing my spreadsheet does do is track the progress of what £1k invested at the start, in March 2000, would be, at the end of each year & currently, based on compounding up (or down!) each year’s performance…

At the end of 2019, it was up to £40k but, as of now, it’s only £34k.

So, all I’ve done for the past three and a half years is go backwards….

But I’ve been at this game long enough to hopefully not let it knock my equanimity too much ~ to borrow from buddhism, that would just be dukkha ~ and especially having taken the mother of all stock market kickings in the credit crunch, which necessitated relocating to a somewhat smaller house, so that wasn’t so much fun…

So, anyway, I am looking for recovery once more, in due course, providing it doesn’t turn out that our wise & thoughtful leaders have pushed the nation permanently down the road to Hell in a hand cart…

Live in hope, eh..?

Strictly

How,

On Taylor Wimps chat a few times recently...

It's all been a bit fervent here lately with all the fervent, and sometimes abrasive, speculation about short term share price movements and that really isn't my game (either the fervency or the speculation, I mean) ~ which is about focusing on underlying performance in the understanding, based on personal experience from having been at this investing malarkey for a while now, that, sooner or later, how the company does will lead how the share price does...

See my parable of "The Old Git & the Dog" here from 20th June which is a core matter of faith for the SB crew...

Strictly

RR,

I'm not invested in Taylor Wimps currently, but it has made an underlying ROE of an average of 15.7% a year which, in my view, is far from shabby.

Furthermore, this is slightly ahead of my benchmark share, Bellway, which has averaged 14.5% a year ROE.

My issue with Wimps as an investment prospect is that, relatively, it is still too expensive ~ with a PBV of 0.90 against Bellway’s 0.68 and Redrow’s 0.73.

Of course, everyone has to call this for themselves…

Strictly

FMF,

I’ve been at this investing malarkey for around twenty three years ~ the last twenty of which have been purely in house builder shares and overall I have averaged about seventeen percent a year gain which I’m satisfied with…

During that time, I’ve only called the market once, and that was end of February 2020, with the oncoming tsunami of covid…

To some extent, I have Ambrose Evans-Pritchard, of the Telegraph, to thank for that… he gets much stick from the readership there for his epic pronouncements but even a stopped clock is right twice a day ~ and I felt that St Valentine’s day that year was one of those moments…

But anyway, other than that, I have remained fully invested throughout and have continued to simply trade between different house builder shares as perceived gaps in value opened up…

Right now, I’m placed fairly evenly, about a third each in Bellway, Persimmon & Redrow.

So, yes, I took a kicking last year ~ along with all the others in my merry gang of investors ~ but we’ve been there before several times and, unless it’s different this time (and there’s always the chance of that one day, of course), then based on the various scribblers’, Bank of England’s & Office for Budget Responsibility’s projections we’ve likely got a couple of years of sh.t to get through before things start to come back on a more of an even keel and, as ever, it may well be that house builder share prices go all over the show in the meantime and though it does seem to get a tad heated here on that topic I personally have no view to share on timings…

As Clint Eastwood famously said “Opinions are like a.seholes… everyone’s got one”

But anyway, as ever, I am an investing wuss and I’m more fearful of being in cash when I should be in shares than I am of being in shares when I should be in cash.

Hence I remain fully invested.

Strictly

FMF,

Taylor Wimps had to undertake the mother of all rights issues back in the day....

Before the credit crunch, they got up to a BVPS of 352p.

I don’t have the details of the rights issue to hand, but soon after, in 2011, their BVPS was 56p.

So, existing shareholders who went into the abyss with them were all but wiped out...

Whereas, those more fortunate souls who happened to be drinking buddies with Captain Hindsight ~ and so held off buying until late 2008, when the price dropped, I think, to around 4p ~ would no doubt have ended up being somewhat happier bunnies…

My own folly through that tumultuous time was Barratt rather than Taylor Wimps…

I still bear the scars, though…

But, anyway ~ hope that answers it for you..?

Strictly

I've mostly enjoyed the PSN chat, but it has lately seemed to slip into being a tad narky on occasion, which IMO is unfortunate ~ and particularly when views about future share prices are being put forward…

So, while I’m waiting for the tide to turn for a return paddle back up to Lerryn from Fowey, I thought I’d offer a different angle by way of a parable that is a mainstay of the philosophy of the blog that bears my nom de plume.

It’s the Old Git & the Dog.

The story is that every week the Old Git walks to the post office to collect his pension, and he takes with him a frisky young puppy on one of those long but retractable leads…

So, the puppy is everywhere ~ lamp post here, posh poodle on heat there…

You get the picture…?

And of course, any passers by are watching the Dog, not the Old Git ~ who is seriously uninteresting so he wanders past almost unnoticed like a shadow…

And the point of the story is that for all the to-ing & fro-ing of the Dog, he will in due course end up at the same place as the Old Git, i.e. the post office.

Now consider Persimmon’s (or any other decent house builder) underlying performance as being the Old Git, and the share price at any time as being the Dog.

While this might seem frivolous, it’s not intended to be and, as I said, it underpins our (that is, my blog crew’s) whole investing strategy.

Now consider that probably none of us is fortunate enough to drink with that old b.stard Captain Hindsight ~ who is never there when you need him ~ so we don’t know what the share price may do at any given point in the future…?

That’s the Dog, but when it comes to the Old Git, we DO have some perspective via the scribblers’ earnings forecasts for the next three years…

From the information sources I use, for PSN, I have estimated EPS for 2023/4/5 as 86.8p, 102.2p and 125.0p respectively.

Allowing, rightly or wrongly, for 60p, 65p and 75p dividends, this gives ROEs of 8.5%, 9.7% and 11.5% for 2023/4/5 respectively.

Which obviously ain’t great, but right now also ain’t so bad, surely..?

And if you aim to limit your withdrawals to dividends, it doesn’t matter a flying f.ck what the share price is, and if you are feeding more money into Persimmon shares then logically the lower the price the better…

Of course, the scribblers could be some way out, but they’re the best I have to go on currently through these turbulent times…

Strictly

FMF,

I agree that Persimmon probably had the higher PBV due to its big div which was a legacy of the reign of King Jeff...

That the current crew have now ditched that legacy is, in my view, a good thing...

Because, as I've pointed out here in the past, Persimmon's return on equity is WAY SUPERIOR to the rest of the pack's...

And from now on, it seems clear to me that they don't intend to spaff it all away on very high divs on resultant very high PBVs.

Hence, while I'll own that, like Syd Barrett, I reached for the secret too soon (I mean, I bought into Persimmon from trading Redrow and Bellway shares too early), I remain roughly equally split a third each Bellway, Redrow and Persimmon...

As a suggestion, I would recommend to any serious investor looking at this to set up a spreadsheet, type in Persimmon's book value from say a decade ago, apply their achieved ROE each year but only show paying out a third to a half of the earnings in dividends and so-called shareholder capital returns...

Have a look what that then does to the book value per share...

And then apply the scribbler's forecast earnings from here, with a modest div, and see where it goes...

This is not a lot of work, but it is enlightening...

Strictly