Member Info for strictlybricks

Monty, I just read through (not thoroughly, but enough to get the gist of it) that article you put a link up for...

I think the writer has bamboozled himself with the mountain of numbers he's used, whereas he simply hasn't gone back far enough on the rights ones...

The short and simple reality check is that Bellway has returned an average 16% ROE since 1983 (so the author's notion of 9% is about 77% out...!) and a reasonable average selling price is around 1.5 PBV.

That the PBV, moves around a lot is just the nature of the investing-in house-builder-shares game, and it's not likely to change, so, yes, it ain't for the faint-hearted perhaps...?

But Vlad and I are certainly aren't complaining, are we..?

Strictly

Monty, you might find the numbers I put in this Telegraph article in a comment today useful...?

I don't want to write them all out again here...

https://www.telegraph.co.uk/investing/shares/questor-forget-gamestop-hype-stick-knitting-likes-crest-nicholson/

The thing about Bogle is to understand about being hammered by fees.... that was his core selling point, his raison d'etre.... (it's reckoned his legacy is saving investors $100 billion a year.... Wall Street must have loved him...!).

Most people are stunned by the reality that if they make 7% a year, then, by paying 2% a year in fees, after 50 years you've effectively lost two thirds of what you would have otherwise had if you'd not paid any fees...

Doesn't seem possible, does it..?

But that's nothing...

If you run that forward for 300 years, instead of just a measly 50 years, on a spreadsheet (as I did, out of curiosity and being a bit of an anorak for stuff like this), you'd have lost 99.8% of your money, so just by paying a fund manager 2% of the 7% gain, you'd have got to keep just £2 out of every £1,000.

Sounds incredible, doesn't it...?

Something for Methuselah to watch out for, I suppose...?

But there's nothing new under the sun... I referenced Einstein in a previous comment.... this is what he was talking about....

But now we all have Excel, anyone with a couple of brain cells and a computer can work it out for themselves, you don't need Einstein's IQ to figure it out, do you...? :-)

Strictly

2227,

if you calculate reality check earnings from the balance sheet, using tangible net assets each end, divided by number of shares in issue to find tangible BVPS, and adjusting for any dividends paid in the period, I have that result as first half EPS for Barratt of 35.8p rather than the declared 34.3p

And if you compare that to the declared h1 2020 EPS as a comparative, that was 33.8p.

So, that's a 6.0% improvement which, coming out of covid, I would say was pretty damn good.... not that I'm an investor in Barratt ~ too expensive for me right now ~ but I'm interested insofar as where the sector as a whole may be travelling, and Barratt is the first large, well performing, house builder out of the traps with a fairly covid-impact-free set of numbers - I mean, post lock-down for builders for the whole six months...

And that's declared h1 2020 EPS.... if you calculate the reality check number for Barratt h1 2020 (and I appreciate that many people may not rate this as a valuation method, but that's up to them, and all I can say is that it's worked very well for me over many years....) then the EPS figure is only 21.7p.

Well down, in other words...

But what has prompted this message is: out of interest, what caused you to be looking for such a high first half EPS of 50p?

Strictly

Monty,
This was the Telegraph article:
https://www.telegraph.co.uk/investing/shares/questor-watchdogs-taking-heat-vodafone-getting-grip-costs-buy/
And this was the Python clip:
https://www.youtube.com/watch?v=ZmInkxbvlCs
I was trying to bring a bit of levity to the topic.... after all, if someone's an investor in Vodafone, FFS, they need something to cheer them up...!
To be frank, IMO, all those Telegraph investing articles, and nearly all the comments, are a waste of time and effort if what you're after is useful input.
I reckon you're better off reading pretty much anything on Warren Buffett.... that's what I did in my early stages in this, the man has so much to offer.
But in the end, unless you have someone to lean on in this whom you entirely trust both in terms of integrity and ability (and it has to be both), I think you're better off making your learning & understanding truly your own so you can make your own investing decisions based on sound understanding and reasoning, take full responsibility for them and then trust your judgment and stand firm regardless of what that w.nker, Mr Market, is up to...
You've probably picked up that I have an investing blog to help my circle.... it goes by the same name as my moniker here, funnily enough...
One of the most important things I've tried to convey there is that the highest paid quality in the world is confidence... and I have three rules for investing, the third, and by far the most important of which, is: Don't be flaky.
I bang on about it all the time on the blog, to the point where, I hope, everyone has it running through them like a stick of rock...
Because, when the next big bad boy comes at them down the pike, as it surely will at some point, they're gonna need to be able to trust themselves.... or Mr Market will almost inevitably take them out at the knees... 'cos that's what he does...
And covid, thus far, hasn't been much of an investing bad boy, really... typically, half a year's profits evaporated for house builders... and, so far, that's it, though I'm not saying there isn't more to follow..?
Comparing that to the credit crunch, as the Black Knight would have said "Twas but a scratch!"
And, re 10% extra a year, and all that, I strongly recommend you invest plenty of time playing with percentages and time scales on a spreadsheet... it's likely to be "an epiphany in slow motion"
That's how it's been for my lot, many of whom don't think too much about numbers.
Perhaps ponder on the deep wisdom of Einstein.... after all, he was no slouch, was he..?
He said: "Compounding interest is the eighth wonder of the world... those who understand it earn it, and those who don't, pay it"
Sounds rather glib & trite, doesn't it...?
Trust me, really, it ain't..!
And, lastly, find yourself a Youtube video clip of Jack Bogle explaining the tyranny of long term compounding costs.... that's been a real eye opener for a few of my crew, I can tell you..!

Strictly

PS

Monty, obviously I have no idea how old you are (and, given the moniker you've used, did you watch that clip I posted on the Telegraph..?) and therefore what time scale you're looking at...?

But a number to conjure with is this:

If you could make an extra 10% a year ~ through trading between shares based entirely on perceived best value and NOT by trying to call the market ~ on top of whatever you anticipated making through buy & hold, and if your time scale was 30 years, you'd end up about 17 times better off than you otherwise would have done....

And if you're drawing down a steady amount from that regardless, then that only increases the multiplier further still.

So, buy & hold in the right shares is all well & good, but it's NOTHING LIKE what you can achieve through pursuing value if you can get it right...

So I guess it depends how important it is to you and how much you enjoy your day job...?

Me, I'm in my late 60's, and I've built & owned businesses, one of which I sold, but these days, when it comes down to it, I'm a lazy git when it comes to work - so this suits me fine and I can help all my people along with it at the same time, and all without having to leave the house in this time of plague...!

Strictly

Monty,
In answer to your points:

1) I always go to the balance sheets and work it out for myself... that way, you get the "reality check" numbers, not the "mythical" ones.... for example, I'm only interested in tangible assets and ignore intangibles, and I don't pay any attention to declared earnings per share beyond comparing them to the reality check figures than come from the balance sheet.

2) I think you only have to read a bunch of typical readers' comments in the Telegraph investing section to get an idea about that.... many investors seemingly have all sorts of weird & wonderful notions running through their heads about all this... take Vlad/Bogdan, an oasis of sanity in a desert of nonsense, but he still gets stick there... someone recently called him an "eastern European sociopath" in the Telegraph online, though the comment was quickly taken down again, and it seems to me that all he's trying to do is to help people to see sense.

You may have seen a discussion I had with someone on that Vodafone article the other day....? That's what you're up against... at the end of the day, TBH, I only went into the Telegraph investing comments section to pursue a discussion with Vlad, as he's very clearly on the same song sheet as me and that has funnily enough coincided with a similar long term performance.

3) this may be a short question, but it would require more than a short answer to cover it well... in essence, yes, I trade, but only insofar as I'm a seeker of perceived value, or a value tart to put it differently, in that I'm happy to hold for how ever long is appropriate but show me a perceived value gap and I'm there...!
It's more convoluted than just PBV, or anything, as not all house builders are equal... yes, I put a fair bit of time into this, and it's been my entire living now for nearly two decades, but then most of my family & friends have followed me into this over time having seen how well it's gone, and the majority of the time & effort I put into investing now is spent helping them...

We have nicknames for some of the companies.... Bellway is Ghost Dog (you'd no doubt understand that that's a compliment if you've seen the film), Battersea Dogs Home for Bovis (clearly that ain't in praise of it) and Vicky Pollard for Galliford (neither is that!).

That should give you some hints...

Nothing wrong with buy & hold if you choose the right companies.... buying Bellway in 1983, you could have averaged about 14% a year gain ever since just by sitting there and scratching yer bum...!

Strictly

Vlad,

I see you're taking some flak today in the Telegraph online due to your stance on Fundsmith....

I did check out Mr Smith's compounding rate out of curiosity and I saw that the chap having a pop at you just earlier seems to be correct in that Fundsmith has compounded at 20% (well, 19%, but Iwouldn't want to be pernickety....) though that was up to February 2019 so I don't know what it now is to date and it may have slipped a tad for 2020...?

I'm continuing playing with varying timescales for share holder surplus (which seems to be a "Vladism", as I haven't come across it elsewhere and, checking with a few of my compadres on the blog, they hadn't heard of it either so hopefully not just me being an ignorant peasant..?) and I'm still thinking it has potential for another bearing on the all important book value weighting...

Don't know if you're interested in pursuing this as a conversation topic...? One or two of my lot would be, I think, either by email or on the blog or, failing that, here....

Strictly

Vlad,

I've just been having a play with shareholder surplus (SS) for Bellway and Redrow as that's been slightly different to how I've previously calculated relative value though to pretty much come to the same conclusions, I reckon.

So, I thought I'd run some numbers past you to see if you concur (setting the formula up for this on the spreadsheet was tricky, bit of trial & error, but I think I'm there now)...

I've used projected EPS for the three years 2021 to 2023 of 320p, 360p and 400p for Bellway which is higher than the scribblers but these are numbers that make sense to me in terms of ROE against other builders.

For Redrow, I've used scribbler numbers for EPS for the same period of 61p, 67p and 76p.

I've assumed one third of earnings paid in divs in each case, and I've averaged the progress for the percentage return so, as projected EPS grows each year, this does flatter the SS number a bit.

The upshot is that this shows both companies, Bellway and Redrow, on exact par, at an SS of 14.1% a year (as I've implied, that's against the current share price rather than a possibly higher one down the line - which is why I say the figures are flattered...)

As part of this, I've also re-delved into the B share wheeze that Redrow undertook in 2019, and which I think I've mentioned elsewhere lost them a brownie point with me, and I'm happy now with their past track record which, for the past eight years on this measure, shows better than Bellway's....

Working off the current price, so over eight years this is hugely flattering to both companies, but life's complicated enough and it's the comparison that is relevant to me for this not the individual precise numbers, and that gives an SS for Bellway of 22.8% and for Redrow of 28.2%

Of course, in its favour, Bellway has decades long consistency, top notch long term average ROE and class leading strength of balance sheet.

The upshot was that I improved Redrow's weighting today to zero, which puts it on par with Bellway, which has prompted a bit of smugness on the blog as there are others who always considered Redrow should be on par so, okay, get over it, they were ahead of me on that...!

Anyway, the further upshot was that I moved a bit of Bellway, and all my Crest, into Redrow today and am now about one third each Bellway, Inland and Redrow whereas yesterday I was only 11% Redrow.

Strictly

Vlad,

I haven't seen that, do you have a link...?

BTW, a couple of people from this share chat have recently joined the blog... you interested...?

And, as part of that, I've been playing around with your notion of shareholder value, except I work off the progress of an individual share rather than the company as a whole....

After all, I only own shares, not whole companies...

I want to put it together a few different ways on my spreadsheet, to see if it has anything to offer to further enhance my book value weighting process, I'm far more interested in that TBH than sheep & goats...

Don't know if you've done any sailing...?

I like metaphors, and, before electronic navigation and all that fine stuff, you necessarily used a hand bearing compass while sailing along the coast to get a fix to confirm where you were....

Picking out three recognisable landmarks, you take a bearing off each one and plot them on the chart... they never line up exactly and you end up with a triangle called a "****ed hat".... you should be somewhere within that and the smaller the triangle, the more accurate a fix you've taken.

And IMO, this is very applicable to our situation ~ I'm considering that your approach may be a valid different landmark I can take a fix off of and hopefully it will reduce the size of the ****ed hat on the chart (in this case, of course, the chart being the spreadsheet).

I think there's some potential for both of us in this, as we aren't necessarily using the same landmarks, and there are several others in our investing "crew" who might contribute....

If you're reading this chaps, you might want to put a comment up here to either confirm or maybe to warn Vlad off getting caught up in this...!

Strictly

Cash,

I've just sent you an email so if it doesn't arrive please let me know - otherwise we can continue "off air"....

Strictly

Cash,

PS

I overlooked to comment on your point about calculating earnings...

Couple of elements here...

Firstly, it is Vlad who uses total company equity, etc. not me, and so I'm probably closer to what you do...?

But, as my second point, I consider that, on the whole, profit and loss accounts can be works of great fiction and so, for the calculation of any important numbers, I ignore both these and declared earnings per share.

Whereas, balance sheets are truth boxes... okay, they may wobble around a bit on the values, but those wobbles don't disappear for future years for the purpose of working out how a company has actually done - unlike declared EPS which can move on with no forensic evidence left in following years if you're mug enough to take any notice of them...

Whereas, if a balance sheet has been overstated by, say, 20% of value, you can't just lose that.... you have the choice of carrying on the same degree of deception every year, losing it noticeably in a single year attached perhaps to some sorry tale of woe, or to lose it gradually and degrade reality check earnings over a number of years...

Bit like "Silent Witness", isn't it..?

If I ignore any concerns about leverage, all I need is the tangible BVPS each year end together with the div per share actually paid out in the year and then I can work everything I need out from there if I have a good number of years' track record - as is the case with Bellway, right back to 1983.

IMO, a typical company annual report of over 100 pages is a mountain of dross to be sifted to find the nugget of truth...!

Of course, far from everyone will agree with this....

Strictly

Cash,

Re Bellway, I've got 2020 start of year BVPS of 2,372p and end of year BVPS 2,427.3p, so a change of 55.3p plus div paid in year of 100p = total reality check EPS of 153.3p which is pretty close to their declared EPS of 156.6p which is usual for Bellway and is one of many reasons I like them as an investment prospect.

So perhaps check your numbers against those...?

Re the blog, as I'd mentioned to Ilikehousebuilders recently ~ though he/she hasn't come back to me thus far ~ you need to put up an email address here, probably best being just a temporary one, so as to make contact off-air (so to speak) and take it from there....

BTW, don't know if you've ventured here from the Telegraph online investing section chat...?

If not, and if you have a subscription for that so you can access the readers' comments there, if you take a butcher's at the links below and scroll down you can find a couple of extended conversations about Bellway, and all that, there between Vlad and me albeit we both have different monikers there - but they will no doubt be apparent...

https://www.telegraph.co.uk/investing/shares/number-stocks-falling-investors-protect-savings/

https://www.telegraph.co.uk/investing/shares/top-five-value-stocks-buy-2021/

Strictly

"Have had first hand experience of Bovis / Vistry but not a share I’d buy"
....................................

Arturo, just to underline that I share your sentiments on Bovis ~ known affectionately as Battersea Dogs Home in our investing circle ~ I'll give you a few pertinent numbers....

For the past ten years, Bovis's real return on equity has been 5.6% a year compared to Bellway's 15.8%.

For any long term holder of Bovis ~ and that would surely be someone who looks at these things through a very different lens to me ~ that has translated for the eight years since start of 2013 (eight years not ten, as that is the comparative I have handy) in a share price gain for Bovis of only 69% compared to Bellway's 188%.

And yet, despite that, Bovis's PBV is STILL right up at 1.47 compared to Bellway's somewhat more modest 1.19.

That is NOT a subtle value gap, is it...? :-)

To use a footballing metaphor, the story ~ I mean, the one that Bovis have clearly been telling successfully for many years given the above numbers ~ equates to Ronaldo's legs, and those numbers above equate to the ball...! :-)

Strictly

So, given

"Would appreciate your comments."
................................

Arturo,

I'd refer you back to the comments I made to Oi_ Oi_....

I currently have them as best perceived value out of the four that are very much on my radar currently and, in fact, right now I'm holding all four which is not usual...

However, due to relative size, Bellway is currently my largest holding.

The thing with Bellway, for combined consistency going back decades, and sector leading low balance sheet liabilities , it's in a class of its own...

IMO, obviously...!

But I'm giving you any sort of recommendation, here, mind... I don't even tend to go that far with my family & friends who invest similarly...

I appreciated your view expressed here based on experience of dealing with them.... mine is only desk-based research, i.e. what can be discerned on a computer screen.... :-)

Strictly

Oi_Oi_,

You have an advantage on me, it seems, as you have some personal knowledge of the Inland crew....?

What you've said underlines my feelings about them, though, so that's helpful.

However, by far the most important element for me is the numbers... and I don't mean any numbers that involve our pal, Mr Market, I mean book value per share & true earnings per share each (i.e. completely disregarding stated earnings, which in some companies are a work of fiction worthy of Enid Blyton, IMO) and calculating the correct number for myself by taking start & finish BVPS, deduct starting figure from final figure then adjust for dividends paid during the year...) and taking the true return on equity using that figure.

On that basis, I've pencilled in going forwards an ROE for all the builders I track of around 14% by 2026 - apart from Persimmon whom I don't entirely trust, and Battersea/Bovis/Vistry who have been a profit basket case since before the start of this century.

It doesn't matter too much if I'm out, as long as that's fairly consistent across the companies... Barratt's update implies the sector may be doing better than the pundits fear..?

Anyway, on that basis, by 2026, my projected figures put Inland, using a similar ROE to the others, on a PBV and P/E that's over 30% better value than Bellway, my benchmark share.

So, if their share price went to 100p a share while the others stood still, that would then make Inland relatively more expensive in my book, but only by a single digit percentage, so still in the zone.

And being small, which they are, and nimble, which I think they are, potentially gives them an advantage if market conditions shift in their favour...

So, while I've got them in at a negative weighting against both Bellway & Redrow, subsequent events from here may even show the weightings should have been the other way around... then they would still have been cheap at a quid..!

So, who knows...?

It's probably fair to say that, within my investing group, I am the one with perhaps the most faith in Inland - certainly to the extent that I have put my money where my mouth is far more than the others have...

So, I guess you & I are both looking forward to their full time whistle with some interest..... I've got them in for a loss of 6.2p a share.... I'm not imagining the accounts will declare that - but that doesn't interest me, as my number comes from the book of truth...

The balance sheet...!

Strictly

"Strictlybricks - what are your thoughts in respect of the Barratt results"

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

Oi_Oi_, I have only had a quick skim though this morning, probably re-read again later, but my overall impression was that they're talking in terms of a higher ROE than the 12.9% which is what the scribblers' forecast 2021 EPS of 50p would imply...

Barratt are on my list of shares I track ~ it's a pretty short list, 8 house builders, and two of them, Battersea (aka Bovis/Vistry) and Persimmon, are way out of my price zone ~ but, along with Taylor Wimps, Barratt are also currently too expensive for me , so I'm not paying close attention to them as I'm happy moving around between the other four, which are Bellway, Inland, Redrow & Crest.

I don't have a view on how Barratt's update would bode for Inland - and from reading your past posts here, you seem to have a pretty good handle on what's going on at the sharp end - but I'm bemused to see that Inland's share price keeps drifting down lately.

I would, not doubt, now be buying more Inland, but they are already currently my second largest holding next to Bellway, so I'll just have to take their current price slide on the chin for the time being... I mean, I'm already holding well enough for such a small company...

If you've read my past posts ~ mainly on the BWY chat ~ you may have come to understand that I am a seeker of perceived best value, and that I am happy to wait for that old w.nker, Mr Market, to come round to my way of thinking...

As of last night, in my view, Inland were best perceived value by a country mile..... as of this morning, they're now best perceived value by a mile and a bit...!

I do like Inland's spread of activities, though and, for me, this seems to quite well mitigate their rather high borrowings.

Also of big comfort is that the boys running Inland have been round the block before - when they built Country & Metropolitan and sold to Gladedale before the credit crunch... good achievement on both counts, given how things went in 2007/8....!

So, I may be wrong on this, but I'd have to be pretty damn wrong to be on the wrong side of it value-wise, and, in the meantime, I'm happy to wait for that old w.nker (Mr Market, I mean) to make a mistake in my favour...

I've been in this house builder shares malarkey for over twenty years, and he always does in the end...

Strictly

"I would not put Inland ahead of Redrow"

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

Of itself, I don't put Inland above Redrow....

Redrow has mostly sat for me on a par with Bellway, but there are now a few factors to consider:

Bellway's safer balance sheet, Redrow's recent skulldugery (IMO it's skullduggery, but not all my lot agree with me about that and they're obviously entitled to take a different view) with its B share cash-in and one in twenty one share reduction (I really didn't like that, especially when they'd not long before boldly stated that ideally they'd be paying out no dividend given the mid twenties ROE they were making at the time, then they slipped and joined the wannabees to some extent, I mean, to please the investors who don't think this stuff through properly.... I'm very aware that doesn't include your good-self, of course...) , and also that Steve Morgan has now left the company and look how that worked out last time....

And also, in respect of long term profit, there's no contest, as, unlike Redrow ~ sans Steve Morgan at the time ~ Bellway didn't get it all Pete Tong through the credit crunch.

So Redrow currently have a negative 10% book value weighting with me (whereas some of my crew have it on par with Bellway....) Inland's weighting is negative 20%.... I could take Inland right down to negative 30% and it would still be better perceived value currently for me than Redrow, such is the extent of the gap between their respective PBVs.

I could be wrong, and especially in the short term.... but I can wait....

Strictly

Hi strictly,
Can you send me the address of your blog?

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

Ilikehb,
It's a private blog, that I set up about five years ago mainly for my circle of family and friends who have followed me into this investing-in-house-builder-shares malarkey over the years (though there are a few contributors who have joined from the LSE share chats, mainly the TEF share chat going back to before that company was taken over if you check that out), and you'll need an invite sent directly from the blog to you in order to be able to access, so you'll need to put up an email address here first - even if it's just a temporary one just to make contact to start with...

Strictly

Phil,

As implied by my moniker here, I only invest in house builder shares.

Currently I'm spread across four holdings - in descending order of percentage, that's Bellway, then Inland, then Crest then Redrow.

So I've got a lot of my money in Inland shares....

For EPS for the next three years, the scribblers have Inland in for 9p for 2020, 11p for 2021 and 15p for 2022.

However, these haven't been updated since before covid struck in February, and they had struck me as a bit optimistic anyway.

I've got them provisionally in for a loss per shares of 6.2p for 2020, 9p EPS for 2021 & EPS 11p for 2022.

So, I'm way below the official forecasts...

Yet, despite that, I still have Inland in as currently being (according to a value weighting that I use as a currency for shares in order to be easily able to trade between them) nearly 20% better value than Bellway - the main reason they're not my largest holding is due to Inland's much smaller size as a company and the consequent share trading liquidity issues.

Where I perhaps differ from other contributors here is that I'm happy to pursue perceived best value and leave Mr Market ~ a mythical figure I don't have much regard for over any short term period of time anyway ~ to sort himself out in due course.

I've been in this investing-in-house-builder-shares-malarkey now for more than twenty years, and that investing philosophy has stood me in good stead over that time.... that doesn't mean I never get a tad nervous or uncomfortable, but it IS an approach that, in my moments of doubt & fear, I can fall back upon.

That's always been the case up to now, at any rate, though I can't, of course, speak on behalf of the future...

So, what I'm coming to is, just imagine if those rather out of date scribblers' numbers were still more or less valid for 2021 and 2022 (I can't imagine they are anywhere near right for 2020 as they are pre-covid forecasts and, for a start, there was a substantial precautionary share placing as a response to several lost land sales due to covid, and, by my assessment, that zapped around 3p a share off share holder value for a start).

My point is that, if the scribblers are pretty much right, then that, I reckon, would bring me to halve my book value weighting for Inland, and THAT would take them, on my spreadsheet, to being more than 30% better value than Bellway currently.

So, on that basis, my figures would have to be well wrong for it not to be worth waiting for that old nutter, Mr Market, to pull his finger out..!

Strictly

Keith,

I've just sent you an blog invite so, if it doesn't arrive along with a separate email directly from me, please let me know...

Strictly