Member Info for strictlybricks

Matt,

I saw that you signed up for the blog back in July so, if you also signed up for the alerts, you'll no doubt have picked up on my views about trying to call the short term movements of the market - mad bar steward that it is...?

And the Bellway/Crest/Redrow price rises are off their earlier highs for this month - so that may prove to be just a pause or maybe a peak for the moment until the Brexit fog at least maybe thins to a mist.....?

However, and I've made this point on here before, I've learned that I'm more fearful of being in cash when I should be in shares than I am the other way around.... which is why I'm always fully invested apart expenditure requirements and Plan B money.

But I'm not trying to tell YOU what to do here...!

Strictly

Nige,

Yes, having been let down by Crest, Telford and now recently Redrow this year thus far, let's hope Bellway doesn't make it a full hand of disappointments on 15th October when their full time whistle is due to be blown...

And nothing wrong with Barratt, IMO, it's just too expensive for me.... in part, I suppose, a consequence of being a member of Kipling's ultimate knave's trap for fools - the FTSE100.

But maybe the day will come when they are once more in the zone (for me, obviously - they clearly already are for you).

A question to pose for share chat readers here at large....

Is it more nail-biting being in the market or out of the market at the moment...?

I'm sure, like Brexit or Remain, our views would differ on that..?

Strictly

Terrace,

We may be at the start of a real bride's nightie period..... who knows?... and surely it only matters if you're imminently looking take take cash out or, more pertinently for the musketeers, looking at some point to come in once your money is no longer parked (that's as in parked voluntarily, Sain!!!) in Telford.

Self-interestedly, you'll obviously be hoping that this is, indeed, aforesaid nightie as, if it keeps storming up, it's surely putting pressure on a decision to be made by those here who want to be invested in due course...?

After all, as we have seen, it currently doesn't seem to need good news for builders' share prices to go up, just an absence of bad news.

All of which has fanny adams to do with underlying performance, of course, but in "the Old Git and the Dog" parlance (and anyone reading this who hasn't read the blog will perhaps wonder if I'm off my meds...), the Dog may well be ready for a catch up to the Old Git and maybe even a spurt ahead (as he generally doesn't tend to slow down at the appropriate point...).

As Warren Buffett famously said "You pay a high price for a cheery consensus"

Strictly

Sain,

That's been costing you, while you wait, then....?

Strictly

Sain,

I’m not sure that it’s correct to consider that your money is locked up in Telford as there’s still a price being quoted...?

So IMO your money is effectively parked in cash and so you have a choice as to whether to invest right now or not....

Not my call obviously but I’m guessing that you’re going on the basis that No Deal hasn’t gone away and that the 10% uplift you’ve missed so far on your TEF money these past ten days will in due course reverse if Dominic regains the upper hand....?

This is where I think that you and the other musketeers are braver than me - as I’d be cacking myself that this is the all important, and all too short, period of time when the market has its long awaited big leap forward (just like Mao...) and that I’d sat on the sidelines and missed it!!!

I have found about myself that I can cope with share price volatility but I am fearful of the above...

That’s why I simply just remain invested throughout and ignore the bumps...

Strictly

Sain,

If you've read the particular post on my blog about it, you'll know that one of my three rules for investing is to be prepared at any point to be able to continue holding shares for at least five years...

That rule has served me well - including right through the credit crunch which, as far as I'm aware, was the biggest investing sh.tstorm for house builders during my lifetime so far (and I'm 67!).

That's not to say there isn't a worse one coming, but that could be for all sorts of reasons - many of which we can't see - and I can't odds that....

If the world for house builder shares continues into the future as it has done for at least the past thirty five years - because that's the period which, as Big Arnie would put it, "I have detailed files" for - then my ball park expectation, or at least what I budget for, is to continue to make an overall average of around 20% a year in underlying value, because that's what I've achieved over the nearly two decades I've been in this malarkey....

It might not be up there with world class hedge fund managers, but I'm more than happy with that level of gain and it is well beyond any expectations I might have had from before the time I "discovered" house builder shares.

That 20% average is through thick & thin... if, in the future, it involves another big bout of very thin, well, no doubt my five year rule comes into play again.

That's also allowing for overall flexibility for varying profit for builders due to the property cycle (Nige on here thinks that the property cycle is a thing of the past..... maybe he's right.... I don't know...? If he is right, well, that may or may not prove to be a bonus...? Who knows...?).

It also allows for the market ranging up and down in PBV, as it always has - I'm working on the basis that it will continue to be a mad bar steward over any short term period - but providing I have enough plan B to be able to wait until it offers me at least PBV of 1.5 once more - which is my intention - then that surely doesn't really matter, does it..?

If there's worse than the credit crunch coming down the pike, then I don't have an answer - other than maybe buy index linked gilts spread across different countries around the world in different continents...?

That is not investment advice to anyone, mind..!!!

I appreciate that my approach of completely ignoring the macro when making investment decisions is possibly seriously at odds with the views of some on here - but surely that's okay, it's all about the exchange of thoughts and ideas, isn't it, and occasionally someone comes up with something that may resonate elsewhere.

Strictly

Rapper's comment in itself is fair enough, but I would say that it is still, perhaps, risking letting the market determine value for an investor rather than someone deciding for his or her self....

Calling the market short term.... a dangerous game...

There are quite a lot of views expressed here and in other LSE house builder share chats from various contributors about what may or may not happen politically in the short term and also speculation about what that might then in turn do for/to share prices...

Suppose someone had taken the view that share prices were going to drive down further and so chose to sit it out in cash and yet, to their befuddlement and consternation, prices then go sharply up - as has happened in the past few days....

If they're sitting on cash, and had believed they were determined to stay there throughout, do they change direction and wade in if prices move up 10% (they've nearly done that already this month in Redrow's case, and Bellway and Crest aren't far behind...), 15%, 20%.... what percentage would make someone start to fear they were wrong and were in danger of seriously missing the boat if they felt that builders shares are actually already well undervalued but that they mysteriously know they are going to fall further .?

So, they re-enter the market, and then it does sharply turn down again..... after a swift change of underwear, do they then go to cash again in fear, and in the process losing money on the return trip..?

That's the road to ruin...

Surely far safer and more prudent to simply take a view on value - and then stick with it...?

I'm not trying to suggest that determining the value is necessarily simple, but surely the decision about whether or not that is what needs to be done is..?

Because otherwise, the market has a good nose for sniffing out flakiness in investors - sadly I've watched it happen in the past big time among my circle..... probably, with the benefit hindsight, some of the individuals involved should perhaps have asked themselves before they got in at the start, when the sun was shining, whether they had the right temperament for this...

Sadly, though - they didn't...

Ask Warren Buffett - that's how he sees it too...

Strictly

Steph,

To a man with a hammer, every problem is a nail....

Think about it...

Strictly

Steph,

I appreciate its your game, but have you considered simply just letting go of what is going on in the world of politics for this...?

You’ve quoted Buffett, one of his things is to not look at what is going on in the world, the economy, the macro issues and all that fine stuff and instead to just consider the value on offer...

Long term average PBV for house builders is around 1.5, and right now the best ones are cheaper than that.....

Okay, I’ll grant you, if John McDonnell becomes chancellor, with a clear majority of Labour MPs, and Momentum having prior to the election deselected all fairly normal MPs (I mean, not the ones who want to turn our nation into the new Venezuela) to replace them with Momentum boys and girls then, yes, I can see that that might be an issue....

But, in that scenario, I would have thought that a bit of a downer on our builders shares would not be to the forefront of our problems....!

Strictly

Terrace,

I made a further comment on all this on the RDW chat just now in response to Nige in case you don't usually scan that one - but I did also put chapter and verse on the blog about it this evening...

The short story, though, is I that sold most of my Redrow today to move into mainly Bellway but also some into your favourite builder...

Strictly

Nige,

I was impressed with the chutzpah of the new chairman in how he represented the dividends paid during the year, but at the same time I as somewhat underwhelmed by the results, with the upshot that I've spent most of today (because I was traveling all day yesterday) shifting Redrow down from having been around 90% of my holdings (because the perceived value gap up to yesterday, IMO, warranted that - whereas that gap has now not only evaporated it's gone the other way...) to now being just 21% in Redrow.

Fortunately for me, the market so far has seen things rather differently - which gave me a good opportunity to make the trades with an additional bounce of gain.

Bellway, my benchmark share, is now my largest holding along with some Crest which has also come back into the frame now...

If you're interested in the detail of this then have a look on the blog, as I've written extensively about all this there - so I don't want to get into another long spiel here...

Strictly

Terrace

I’m sitting in Bristol Airport at the moment waiting for a flight to Oslo so can’t give you chapter and verse right now..... but top three for me are Redrow Bellway and Crest, all neck and neck now after Redrow’s full time whistle this morning....

Strictly

Cyber

"RDW did of course in the 2019 FY pay out an extra 30p by way a 'B' share issue"

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

And you are, of course, correct - and that counts as a schoolboy error (or senior moment, if you're being unkind..?) on my part...

However, if it was a one off it's not really a big deal, as you've implied... (additional payment, I mean, not error on my part - they're definitely not a one off...)

Paying out big dividends is an issue, though, especially for investors who don't dig too deep into the numbers and don't look into and ponder the implications too deeply...

And they've certainly kept the excitement going for Persimmon, despite all the bad press, and, let's be fair - the directors have done pretty well out of it all so, as a self-interested marketing ploy, full marks to them...

Anyway - compare Persimmon and Crest, both paying big divs.

As it happens, close of play numbers tonight are exactly right to make my point.

Crest is on a PBV of 1.00 and Persimmon is on 2.00.

Ignoring tax considerations (that's another disadvantage of divs for higher rate tax payers, but never mind that for the purpose of this point...) if you wanted to re-invest Crest's div back into Crest you'd be repurchasing exactly the same amount of book value as was sold to give you the div in the first place.

Whereas, with Persimmon, you'd only be getting half the book value back.

Of course, banging out big divs gives a big div yield - a tumescent factor for some investors, and it also helps to keep up the return on equity (the big indicator for me) as you can concentrate on sweating your existing capital ever harder.

So, there has to be a flaw somewhere..?

And it's in growth that you find the shortcoming...

For the last two reported years, 2016 to 2018, Persimmon have increased BVPS from 795p to 959p, which is an increase of 21%

Whereas Redrow's BVPS has increased from 281p to 410p, and increase of 46%

And you can currently buy Redrow for 1.14 x book value so, at 2.00 x book for Persimmon - it's 75% dearer.

So either I'm seeing all this significantly incorrectly, or the market is completely out of whack...?

Strictly

James,

"Just out of interest (but real rather than academic, as I did initiate a position in BDEV earlier today as a live comparison with other builders I hold), is your MAIN problem with BDEV the true PBV, once you strip out the large chunk of goodwill which still loiters on the balance sheet?"

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

Firstly, yes - I always strip out goodwill.

Three components:

1) At close of play tonight, by my reckoning, Barratt's PBV is 1.47 (okay, slightly jaundiced, as I'm using their end of June BVPS of 402p as I don't assess it monthly for Barratt as I do for Redrow, Bellway and Crest) against Redrow's PBV of 1.14 (using my assessed September BVPS of 495p - though this is likely to shift a bit tomorrow as we have Redrow's full time whistle due to be blown.... all rather exciting..!).

2) Barratt's ROE, while hardly shabby at 22.1%, is inferior to the 26.0% I have in for Redrow based on an EPS of 94p - which is 3p higher than the scribblers are in for...)

3) Barratt are paying out nearly two thirds of earnings as dividend against only one third paid by Redrow.... this, IMO, is a serious shortcoming for Barratt.

The upshot of the above three points combined is that I have a book value weighting for Barratt (assessed against Bellway, now, as I'm sure you recall from the blog recently..?) of minus 20% as compared to Redrow's weighting of plus 10%

Put it all together, and Barratt is currently around 80% more expensive than Redrow in terms of how I assess these things...

So, as you can no doubt imagine, it's not even particularly on my radar at this level, beyond its usefulness as an indicator of wind direction.

Hope that clarifies it for you..?

Strictly

Reference my comment to Rapper recently:

"In my view, if you try to base any decision on what you think the market may do in the short term, the market is likely to make a monkey out of you..."

I would say pricing on builders shares thus far this morning is a good case in point...

Barratt have just delivered an absolutely cracking set of results this morning - their return on equity has increase again (as it has done for the past five years since they started making proper returns again after the credit crunch) from 20.3% to 22.1%.

Whereas I have a gradual decline in ROE penciled in for all the builders down to around 14% by 2026 (apart from Battersea Dogs Home, that is - I'm anticipating them maintaining an incompetence gap right through so have them in for 12%).

So, at the moment, Barratt are outperforming expectations - not just mine, as the scribblers had them in for only 70.4p EPS whereas this actually came in at 73.3p

And, for 2020, the scribblers' figure is only 69.2p, which would give Barratt an ROE of only 17.2%, a huge drop year on year, whereas that is not at all the game they're talking on their report today.

I've got Barratt provisionally at 78p EPS which would put them on 19.4% ROE so still a significant drop - but I don't want to go too far out on a limb - though Barratt aren't really in the zone for me as they're relatively much too expensive (a feature of being in the FTSE100, no doubt).

So, anyway, that was a long ramble..... the reason for this post is to point out that despite all the foregoing, Barratt's share price is down two and a half percent this morning while all the others are up...

What is that all about..?

Strictly

Rapper,

Blog invite sent - hopefully you'll have better luck sorting the signing up this time...?

Strictly

Rapper,

Okay - you just need to give me an email address then so I can send the invite from the blog...

Strictly

Rapper,

I seem to recall that you tried to join the Strictly Bricks Blog a while back..? (happy to send another blog invite if you'd like another attempt..?), and on there I espouse big time my three personal rules for investing (in house builders, that is, which is the only sector I invest in apart from my plan B money which is in Index Linked Gilts as that seems the best place to be with that in case my concerns about rampant global inflation come to pass... but anyway...) are:

1) Don't invest in heavily leveraged companies - I have the scar tissue from that one.... Barratt, leading up to the crunch.... didn't have this particular rule in my tool kit at the time.... unfortunately....

2) Be in a position to be able to wait at least five years AT ANY TIME without touching the money, capital or dividends.... that rule has been modified since the credit crunch.... before then, it was about being prepared not to make capital withdrawals and just rely on dividends if necessary..... if you look back to the credit crunch period, you can see that the old version of rule 2) doesn't work in extremis.

And the most important rule:

3) Don't be flaky (because, if you are, the market will find you out....!)

I'll leave it with you to reflect on whether these rules have any merit for you, but I can tell you that, for me, they are a lot of comfort in what many might perceive to be a risky business - investing in a very cyclical sector and, what's more, being prepared to go 100% into just one share if the perceived value gap warrants it.

And, trust me, I'm a real wuss about this stuff..!

Strictly

Rapper,

In my view, if you try to base any decision on what you think the market may do in the short term, the market is likely to make a monkey out of you...

There was a recent TV series called "Follow the Money".

In our game, though, it's all about "Follow the value"

Always DYOR, of course, but you can surely see from my earlier comment where I believe the best value currently lies...

Strictly

Terrace, Sain et al,

The world is full of experts with crystal balls, it seems....?

Meanwhile, back on planet Earth, let's just see what sort of numbers Bovis, Barratt and, most importantly, Redrow (the most important from my point of view, anyway, as I've got about 90% of my invested funds there.... doesn't make me a Redrow Musketeer, mind...!!) turn out this week...?

Strictly