Member Info for strictlybricks

EP,

Correct re Vlad/Bogdan ~ we also have a line of communication outside of LSE and Telegraph share chats as we seem to be on such similar song sheets about this stuff...

However, while I recognise the name Atticus, I hadn't connected that with you...

I still don't understand your comment about having a conversation with myself, though ~ but perhaps I'm just being thick...?

Strictly/Gunga

"Funny you say you have a DT discussion going with yourself. It's pretty obvious just from the prose who you are!"
..................................

EP, not sure whether that was directed at me or someone else...?

But, in the Telegraph comments, my moniker is Gunga Din.

Strictly

"And I've not looked at Mitie, though, now you've raised it, I might take a quick butcher's and get back to you on that?"
.....................................

Moneybox,

I gave Mitie a 30 second slide rule session, and they have negative net assets and are a Vicky Pollard case on the earnings, so they're way out of the ball park for me...

Even if they were a house builder ~ which they ain't.

So no cigar on that one, I'm afraid, though I am impressed you kicked off with both Bellway and Redrow...! :-)

Strictly

"I've run your financial points through a Sharepad filter and It churns out these companies:

If we discount FXPO (high risk right now) and ITV (basket case) we're left with 4 builders, fags and facility management."
...............................

Moneybox,

That you've taken the trouble to give this some consideration to come up with a list is worth responding to...

I couldn't imagine myself investing in fags...

While I'm not a buddhist, I do subscribe to some of their thinking, and "right livelihood" would be part of that which would certainly kibosh investing in cigarette companies for me (though I'm not passing judgment or taking a moral view in respect of anyone else's investment choices here, it's a personal thing for me).

I've never looked at FPXO, so I'll take your word on that, and, as you imply, what sort of road are ITV on..?

And I've not looked at Mitie, though, now you've raised it, I might take a quick butcher's and get back to you on that?

Which leaves the builders.

I'm entirely invested right now across just two companies ~ Bellway & Redrow ~ so nail very much on the head with those...!!

Berkeley I instinctively never trusted and in particular their intended wheeze pre-credit crunch to complete a big shareholder capital return plan and award themselves (by "themselves", I mean the board of directors) a bonus of (I think it was?) around £500 million in all.

That's where King Jeff no doubt got the idea, and it was always bo..ocks from an investor's point of view IMO ~ a huge payout for nothing special and the destruction of shareholder value by paying out far too much in dividend, etc, on a high PBV (the high PBV resulting from the excitement caused by the big divs, but I don't think it's a very popular point to make on this particular share chat).

So that leaves Taylor Wimps...

They and Barratt are not far from being in the frame for me, but are long term lesser performers yet still being more highly priced on a PBV basis makes for quite a gap.

The other company of interest to me ~ one that is in the frame (by that I mean that it's close enough for me to be calculating BVPS for every month end or ex-div date ~ and that typically comes out within 2% of accuracy which is sufficient for me as I look to trade between these companies on a minimum perceived value gap of around 5%) but they are currently indisposed with recent poor performance and a projected lower ROE than Bellway and Redrow.

They do have a tendency for a touch of the Vicky Pollards too, which is a tad disappointing.

To sum up though, I'm now 70 years old, I've honed my game over more than twenty years, and I'm a lazy git when it comes to it.... so I'm now at the point where if it don't need mending don't fix it... twenty two years to the start of this year have returned an average 20% a year, and I passage plan forward at 15%.

Happy to chat further about it if you like..?

Strictly.

"However, any and all information that has a tried and tested formula is of interest to me, and I would be happy to hear your criteria for investing if you are willing to share it."

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OldGuy,

As it's you... :-)

These are my now 12 criteria (started with the eleven right back to 2003, only adding the twelfth, this year, following having overloaded with Inland shares…. This proved an expensive one to have added later rather than sooner... but such is life...)

And they were these…

1) Price to book value less than 1.5.
2) Average return on equity at least 15%.
3) Price earnings ratio less than 10.
4) Good track record for at least 10 years.
5) Organic growth rather than takeovers.
6) Not in a heavily regulated industry.
7) No competition from abroad.
8) Not in a technology industry.
9) Caters for a real, ongoing need.
10) Doesn’t spend much on fixed assets.
11) Easy to follow accounts.
12) Addition made 19/2/22, in the light of experience with Inland shares, I now have a twelfth condition: The share must have enough market liquidity to be able to able to be bought & sold in appropriate volumes

Anyway, hope you find them to be of some use.....

Following these rules pretty closely, I am very happy with the returns I've made over the past two decades ~ this investing in house builder shares malarkey has provided my entire income for many years (apart from, for the past few years, a basic state pension).

Strictly

Steve,

Okay, my mistake...

Only that you mentioned Aviva and L&G in a response to my comment on Tuesday...

But no worries...

Strictly

"The dividend in Aviva and legal and general aren’t as high as persimmon but they are solid payers with great growth prospects over the years to come. "

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Steve, in case that was a comment intended for me, as the name implies, I only invest in house builders ~ so I haven't done any research into the two companies you've mentioned....

In 2003, I came up with eleven criteria for investing in shares and they have stood me in good stead throughout (even though I added a twelfth earlier this year in the light of a particular investing experience along with its expensive lesson learned...).

I imagine that if I put them up here then everyone commenting would shoot one or more down in flames, but then how to invest, and what to invest in, is a personal decision for everyone for themselves at the end of the day…

As I’ve implied, I’ve done well over two decades in sticking to my own rules, and other companies, for one reason or another, don’t ever seem to quite cut the mustard.

And although, over the years from time to time, I have been tempted to consider other companies in other sectors, that's always been for like driving up to a house on the market that you're interested in and for which you've read the estate agent's sales pitch...

None of these companies ever seems to warrant my getting out of the car and ringing the doorbell for a further look ~ metaphorically speaking of course...

Investing in sensible house builder shares (because they ain’t all that… sensible, I mean…) is not a get rich quick scheme ~ but it has proved to be like winning the lottery in slow motion.

Strictly

PS.

Senior moment on my part...

I omitted to state the bleeding obvious (I had intended to at the time) that, of 1), 2) and 3) components of gain as detailed in my presious missive, 3) is obviously unsustainable over the long term and is therefore in large part illusory, or unsettling, depending on which way it is headed...

It becomes like the words from Rudyard Kipling's "If"

"If you can meet with triumph and disaster, and treat those two imposters just the same".

That's our old pal, Mr Market, for you, ain't it..?

On one day you want to buy him a pint, and on another you want to give him a good kicking..!

Strictly

CSDI & BB,

With the notable exception of the covid iceberg, which I did manage in large part to swerve, that was the only occasion I have been other than fully invested in twenty two years

And, as I don't expect to be able to spot another iceberg coming, I anticipate gains to come from three things:
1) underlying gains made by the companies themselves, comprising both retained BVPS and dividends paid.
2) trading between different house builder shares, continually pursuing perceived best value.
3) increased PBV.

Number 3) has had a significant part to play in a comparison of Bellway, Persimmon and Redrow for the period 2013 to 2019 inclusive ~ I'm choosing that period as it doesn't include my "cheating", i.e. going partly to cash to my advantage.

Over that time:
Bellway's share price increased 268%, from 1,037p to 3,819p, and PBV increased 41% from 1.11 to 1.57.
Redrow's share price increased 370%, significantly better than Bellway's, from 161.5 p to 759p, though their PBV increased similarly to Bellway's, 52% from 1.07 to 1.63
Persimmon's share price increased 236%, similar to Bellway's, from 800p to 2,686p, but at the cost of a much bigger PBV increase ~ this was 92%, from 1.41 to 2.71.

Sorry that this is a lot of numbers...!

Sticking with price movement rather than value movement, and now including dividends re-invested, and also annualising the gains, Bellway has made an average gain of 24.2%, Persimmon 24.8% and Redrow 27.6%.

This was a particularly fecund period for the sector, and what's more, both Bellway and Redrow achieved it, like Persimmon, with the helping hand of PBV rise, but, unlike Persimmon, this didn't take them into eye-watering PBV territory (that covid subsequently whacked prices the following year is neither here nor there for this)

The core aim of my investment strategy or, at least, it has been since 2013 when I upped my game on record keeping, is to beat the benchmark, i.e. Bellway, by an average of 6% a year.

This rate results in a further doubling every twelve years.

For that period, I averaged 31.4% a year, so I beat Bellway by an annualised 7.2% ~ which I am more than happy with ~ and Persimmon by 6.6%.

I was more tardy against Redrow, but then I'm not fortunate enough to be a drinking buddy of Captain Hindsight (who is never there when you need him, is he..?) but I'm not intending to beat myself up about that.

I am likely the wussiest investor you'll come across here ~ I am 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.

So, going partly to cash in 2020 was a risky, and probably one-off, aberration for me, as I don't see myself doing that again any time soon...

Another time, there might be a discussion to be had about the Credit Crunch ~ unlike my covid investing experience that was one beast of an iceberg I steamed smack into..

Don't mention the war, and all that..!

Strictly

B
Between you, you've thrown a few numbers at me here as a kind of challenge...

I've spent enough time on the computer this afternoon, so I'll no doubt have a look at these and come back on this before too long....

One thing, though....

I'm working on the progress of book value, not price.... the former being much the safer trajectory over the longer term upon which to assess a company...

Share prices, with their accompanying fluctuating PBVs, relying on Mr Market as they do, are far less reliable...

And just to make the point, I'm not trying to sell anyone my ideas or my thinking on investment here, just comparing notes... this investment malarkey's been very good to me over more than twenty years and throughout that time it's been far more a matter of evolving, and hopefully improving, the process, rather than having had any Damascene moments that have radically altered the game for me.

Strictly

BB,

Firstly, re Redrow being an outlier...?

No, it's very close to Bellway in being perceived best value for me ~ no other companies come close for me ~ and the upshot is that my entire investment pot is spread 90% Bellway and 10% Redrow.

That might make some here shudder, but I've been in this since March 2000 and have been more than happy to be 100% invested in a single share at times when the perceived value suggests I do so.

To your other question, let me use the period for 2013 through to end 2021.

This is the period for which I have, as Big Arnie would put it "detailed files" and I haven't sorted 2022 yet.

Two components to this:

Firstly, the underlying percentage gain in book value per share and, secondly, the impact of increasing that by re-investing all dividends on the day received...

Capiche..?

I mean, for example, if Persimmon paid out a 60p dividend on a day when their price to book value was exactly 3.0, you could re-invest that back into Persimmon shares and buy 20p of book value.

That, to borrow from the Stones, is through the past darkly.

To look at it with more realism & clarity, Persimmon's dividend policy combined with their high PBV has just cost investors 40p of book value for every dividend in the process of book value to dividend back to book value...

Hopefully it makes sense...?

To put actual performance on this, for the period of 2013 to 2021, Persimmon made 201.2% book value gain including the shares bought with the dividends re-invested on the day.

By contrast, Redrow made 334.3%.

And Bellway made 274.7%, so they trail a bit over that period but over the long term they have knocked Redrow into a ****ed hat ~ and also, while they are currently underperforming Redrow a tad by way of ROE, they do have other attractions, notably that they, once again, (just like coming into the Credit Crunch) have the strongest balance sheet in the sector.

Not for nothing are they our investing group's benchmark share and not for nothing are they affectionately known as "Ghost Dog" ~ but you would have to know the film to get that...! ??

And my final point on this, if you think about it, is:

If current dividend & performance trends continue for the companies referred to above, Redrow & Bellway are going keep on increasing their book value at a significantly faster rate than Persimmon, and, even though Persimmon (on any recent year's figures) well outperform the others, that doesn't give the full underlying picture...

Which is that Persimmon need to run faster & faster even just to try to stop falling behind at an ever faster rate than they are doing now....

But if investors don't step back to look at this bigger overall picture, while they might well be singing “I’ve got ninety thousand pounds in my pyjamas…” when the div arrived, actually, they ain’t doing quite so well overall as they thought…

Strictly

"Also their dividend schedule is bizarre to say the least inmv. "
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Upo,

Persimmon are one of the very small number of companies I monitor given that, as the name implies, I only invest in house builder shares.

Of the house builders I keep an eye on, Persimmon are in a class of their for return on equity in recent years ~ however, for the reason given below, apart from anything else, I don't invest in them.

You probably know the back story to the dividend policy...?

It comes from the time of King Jeff, who copycatted Tony Pidgley's game of a big shareholder capital return plan which, funnily enough, also incorporated a big pay day for Pidgley and his pals if they pulled it off...?

Sadly, for them, they didn't ~ as the whole idea was bushwhacked by the Credit Crunch, whereas, in sharp contrast, as pretty much the whole country knows it went wildly well for Jeff and his cronies...

My next point is likely to be contentious, as others here may not see things the same way...?

As I see it, however good Persimmon are at their game of top-notch bottom line performance, they are now victims of their own success in respect of their dividend payment policy.

Because it has pulled in investors so well that it has taken Persimmon's PBV well up out of the usual range for house builders ~ and I've been tracking this stuff going back forty years (well, I've been in this game for twenty, but have figures going back much further).

For much of the time they've been paying big dividends they've been up around 3.0 PBV and, even now, they're at around 1.7 compared to fellow FTSE100 builders Barratt and Taylor Wimps at around 1.1 and 1.0 respectively.

The upshot is that they continue to pay nearly all of the earnings out in dividends, because otherwise how do they cut back without seriously upsetting the market ~ given that the direction of travel of dividend size would then be opposite to other big builders..?

Which, in turn means, there's relatively less business growth, and meanwhile, at a PBV of 3.0, investors have effectively shed two thirds of the earnings because that's the difference between the return on equity achieved and the dividend yield ~ all very nice to have arriving in your bank balance though it may be.

To put some numbers on this to back up what I'm saying:

In 2013, reality check earnings for Persimmon were 90.8p EPS compared to Redrow's 15.7p, i.e. 5.8 x higher.

By 2019, the last full pre-covid year, Persimmon made 253p EPS compared to Redrow's 77.6p, i.e. now only 3.3 x higher.

And on top of this there's obviously a sizeable risk of a further relative slide in Persimmon's share price compared to Redrow et al.

That's a risk I don’t want to take ~ apart from the significant dilution of shareholder value because of the big divs paid out.

Strictly

MM,

Well, it hasn't bounced thus far, so check your inbox...

Strictly

MM

It failed again....

Perhaps either if you can come up with a different email address or, plan B, I could put out an APB on the blog for one of the other people from LSE share chat who've joined the SB blog via using a temportary email address to put one up here for you and so on to me...?

Let me know...

Strictly

MM,

I tried emailing you on the address given, but that bounced, so please confirm...?

Strictly

PPS.

I thought I recognised the name....!

I see you also comment in the Telegraph investing section and currently have a chat going on with Dan Walon there....

In case you're interested (and it's the seeming long term perspective that you take that interests me, as it suggests there may be some common ground as I'm largely a rear view mirror, rather than windscreen, investor), I have separate investment-related discussion with Dan, Bogdan and others outside of public share chat forums like this and they are part of the eponymous blog (the Strictly Bricks blog, I mean..... so-named because I ONLY invest in house builder shares).

If that appeals, let me know on here....

Strictly

Tom,

PS. To back up my rudeness about Bovis/Vistry, their reality check average return on equity from 2013 to 2021 (by reality check, I mean working using BVPS movement, adjusted for dividends paid) is by my calculation 9.2% compared to Bellway's far superior 16.9%.

Considering that Bovis/Vistry's PBV is currently by my reckoning 48% higher than Bellway's ~ being 1.23 (this is not so accurate as for Bellway and Redrow, mind, as Bovis is far from being in the zone for me) against Bellway's 0.83 ~ I see that as the triumph of hope over experience.

From 2019 to 2020, Bovis' reality check BVPS fell from 840p to 659p by my calculation.

Nightmare...! :-)

Strictly

Tom,

Our nickname for Vistry, aka Bovis, is Battersea ~ as in dogs' home ~ which probably gives you a clue about the level of esteem with which it is held in our circle.... :-)

To try to answer your question as I understand it, it's about always pursuing best perceived value.

So if, for example, Bellway became 10% better perceived value than Redrow, or whatever, so I moved across, then the gap continued to widen, then, yes, Bellway is in that instance becoming ever better value so I just stay with it until things turn round as, until then, ceteris paribus, I'm still in best perceived value...

Conceptually, being prepared to hold on an ongoing basis at any time if the value never switches back again.

Of course, in the past, it always has at some point though it could sometimes take years...

Might be helpful to think in terms of a metaphor for this.... water.... which is always trying to fall/seep/leak/drip down to the lowest level....

In our case, the lowest level is best perceived value.

It does help somewhat not to have an itchy finger on the buy/sell button.... not always easy...!

Strictly

MM,

Nothing too complicated to sort the book value per share in how I do it, as follows:

Take the net balance sheet equity of the most recent balance sheet, knock off any goodwill & intangibles (a lot of that on Barratt's balance sheet, but Bellway and Redrow are fine), and divide by the number of shares in issue (some companies are better than others on updating that) which gives you BVPS per the accounts date.

Then take the estimate of earnings for the year (for this calculation, this is often weighted between the two halves of the year as companies usually seem to have a tendency to make more in one half or the other), divide by 12 (notwithstanding any weighting) and multiply by the number of months gone.

Adjust for any ex-div date passed, and that gets you there...

May seem convoluted, but once you've figured out the accumulated formula you need, the spreadsheet automatically updates any revision in projected EPS.

And I'm typically within about 2% of accuracy, which is good enough to trade for the gaps I take.

Bellway is my benchmark share, and since I've been keeping accurate records for this, from 2013, I'd beaten Bellway by around 6% a year... may not sound much, but that doubles your money over what you would otherwise have had over 12 years.

Largely swerving the covid iceberg in 2020 has upped the average to around 10%, but I consider that a one off, fairly lucky move, and anticipate the average will slip back again in due course.

The thing with this is, I may now be an old fart of 70, but I have a lot of younger people in my group whom I'm helping with this and over a 36 year period, this performance results in three doublings above buy & hold which means ending up with eight times the invested capital ~ so it really is worth paying attention, apart from the pleasure of itself in beating the market, albeit slowly.

But, to return to your question directly, no, I never mess with the figures on balance sheets, revaluing landbanks or whatever, I'm not that clever.

I do, however, completely ignore declared EPS figures, which are often great works of fiction, and simply go from BVPS to BVPS adjusted for dividends paid to find "reality check" earnings...

Some companies, notably Galliford, are a nightmare with this.... they so baffled themselves with their own bulls..t a number of years back that they had to do a rights issue in the middle of the sweet part of the cycle, FFS!

Bellway's weighting is zero ~ it's my benchmark after all...

Currently, Redrow is on + 10% as its ROE is somewhat higher. But that means that, as of close of play tonight, Bellway is 4.4% perceived better value than Redrow.

I have been trading from Redrow to Bellway over the past week or so to take a 6% gap, but it's now closing again.

Bellway has a stronger balance sheet. As at the most recent balance sheet, overall liabilities were 32% of BS compared Redrow's 54%.

Strictly

"This time round RR is being smart, and share price is outperformng BW's for the first time in 20 years."
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MM,

If you've looked at 20 years or more across these two companies then that suggests you pay attention to long term track records for this sector, as do I...

I've been in this for around 22 years but have the key numbers on Bellway going back almost 40 years...

It might be interesting to know more about how you're defining "outperforming"?

To give you a brief synopsis of how my investing circle looks at this in case it's useful at all, we give a book value weighting to each of the house builder shares we track, and from there come up with a price to weighted book value.

The weighting is our best assessment of relative worth for each builder per £1 of book value, and takes into account such things as (primarily) medium and long term return on equity, dividend policy, consistency, balance sheet strength, etc.

So, it is an amalgam of these to come up with a view, for better or for worse...

And part of this is getting to a more accurate book value per share, assessed for each month end or ex-div date, and the track record for this is that it mostly comes out within 2% accuracy once the next figures are published. For the most part, we're happy to trade on narrow perceived value gaps, but not generally less than 5% so the 2% accuracy is good enough for purpose.

Bellway ~ the Ghost Dog of house builders in my view ~ is a company I have a high (no, make that the highest) regard for and is one that I'm prepared to be 100% in if the perceived value gap is worth it (IMO, of course).

Some of my fellow investors find that prospect a tad unnerving, but then they're making their own investment decisions at the end of the day and twenty plus years in this says it works well enough....

Not stellar gains, perhaps, but it's definitely been like winning the lottery in slow motion.

So, the upshot of my long preamble is that, in our process of finding best perceived value, Redrow & Bellway have criss-crossed each other continually.

Obviously, we can't call this in advance ~ not being drinking buddies with Captain Hindsight ~ but when the perceived fair value point coincides with the gap between the two prices, it offers opportunities to trade while still continually seeking best perceived value.

Hope that makes sense, whether or not it's of any use....?

I find it's often worthwhile discussing this stuff with others who are thinking about it to some depth, regardless of the degree to which they seem to be on the same song sheet on this...?

Strictly