Member Info for strictlybricks

Terrace, I've got numbers on Bovis going back to 1998, and they've always been poor performers.... so let's see if the new boy does good...? I'm not holding my breath just yet, though...

2227, to firstly answer your question as succinctly as possible, because I've pondered this matter at great length on my blog that I write under the same name as my nom de plume here, 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. Because, based on over 30 years of record keeping, sensible builders' shares have ALWAYS recovered, and continued onwards and upwards thereafter... That succinct answer took a lot of getting to, though, over a number of years.... and the road to it is the question "What if you try to call the market by going to cash and you're wrong, and the market carries on up?" I mean, what if you sold Redrow at the 556p it currently stands at and go to cash, and then the price motors up to, say, 650p? What then? I've never found a good answer for that one, and so I've never, in seventeen years in this investment malarkey and which for me is my entire livelihood, had the cojones to do it. But I do very much switch between different builders' shares - and it is about all that that I write on my own blog. I'm now straddling two discussion processes because although this is ostensibly a Telford share chat it is the one you can come to for some decent, sometimes challenging, discussion and especially compared to some often, frankly, fairly naff comments on some of the other companies' share chats. But while I do agree with the regulars here that TEF as a great company, that doesn't amount to any sort of loyalty to TEF on my part, as I aim to be totally dispassionate, whereas others here do seem to have that loyalty... And I think perhaps you bumped up against recently from your comment yesterday? So my own blog is where I can perhaps express a more free ranging view without feeling I'm risking treading on anyone's toes like maybe some buddhist chatting away at the back of a catholic church? For the other part of your post, the inference is that you might be considering other sectors? I've looked at the FTSE100 at large in detail, company by company, balance sheet by balance sheet, many late hours spent on it, to come to the view that overall as an entity it is a trap for the unwary - so I think I am probably in tune with Steph on that one, and I wouldn't touch it as a prospect for investing. In essence, in the same way that TEF is the only one for some of the regulars here, the house building sector is the only one for me, and more specifically those with land banks because, as Mark Twain said, they don't make it anymore. But none of this constitutes advice - that's a dangerous road to go down from both sides - I'm just giving a perspective... but I do at least put my money where my mouth is, so to speak, and so have to stand or fall on what I say and then do! Anyway, hope that helps - and good luck with whatever direction you take from here.

2227, ah, well - then I agree with you about prices at that time... at the end of June 2015, I was all in Redrow... Telford were on my radar at the time but were relatively too expensive still for me and that didn't change until September last year when I started moving money across from Redrow... In the interim, apart from a brief excursion in and out of Crest for a few days end of June/early July last year, I stayed in Redrow. But, as I said before, currently I consider Bellway, Redrow and Telford to be too close to each other value-wise for me to call - though others no doubt are using different methods to evaluate these shares and may be able to identify a worthwhile value gap where I cannot? All interesting stuff, though.. :-) And thanks for your response.

Bernie, as the name suggests, I only invest in house builders. And I move money around between them to pursue perceived value - because although they tend to move together as a sector they don't move exactly together and that's where the opportunity is. But a view I've held for some while is that if I was forced to choose just one share to buy and if I had to hold that share for at least ten years then it would be Bellway. So given your relatively smaller involvement in the sector, I can't argue with your choice! Nige, thought you'd gone a bit quiet! You might have picked up from my blog that I've moved significantly back into Bellway and Redrow lately?

I think I was making the same point as you....? I am a big fan of Bellway and have been moving money back in there recently.... but I posted here unintentionally because there's not really any debate going on here. And on the Telford chat, I think I'm regarded as something of a heretic because I do invest in other builders apart from Telford - though I am a big fan of that company also... And with Redrow being the third one in the frame for me currently.

To be honest, it was a senior moment on my part (maybe because I'm due to start my OAP this month?) as I'd intended putting this on the Telford chat not the Bellway chat... Hence the references to Telford... However, doesn't change that Bellway is a great company from an investor's point of view, IMO, yet scarcely noticed on here it seems?

...And meanwhile, Bellway, a company ten times the size of Telford and with the best 30 year track record in the business, has only warranted six posts on LSE share chat ALL YEAR - the equivalent of about a couple of hours' worth on a normal day at the office for Telford.... And they've just put out a splendid trading update this morning... Funny old world, ain't it..??!!

Nige, I've just sent the message by email to Nige_W@hotmail.com so hopefully that's arrived? I only signed up for the Premium whatsit temporarily so I could send you the message. If the recipient also has to be signed up, well, the Premium is about as much use as a chocolate teapot then, isn't it? So next job is to cancel it again - probably one of the briefest memberships they've had!

Nige, I've just sent you a message directly but, never having used that facility before, I don't know if you have to check an inbox, or whatever, to pick it up? So I'm just letting you know on here.

If you go with your view that all the builders, sans Bovis, are much of a muchness performance-wise (which I don’t necessarily go with but let’s say for argument that they are) then you are still left with price to book values to compare for relative value as an investor. And the house builders’ share prices move like a herd, in that they more or less mostly move together but single animals in a herd do peel off from time to time for whatever reason. And this is when to be the Wolf of London SE (not quite the same ring to it as the Wolf of Wall Street, I grant you) and pick one off. An interesting exercise, that I first thought to do around 2006, is to download a long-term price graph for each builder off FT.com website, which has a really good graphing tool, and overlay that with a set of grid lines for 1.0 x BV, 1.2 x BV, 1.4 x BV, etc. You obviously need to pick up details of the BVPS for the years going back, so there’s a bit of legwork involved if you don’t have these, but the end result is seriously illuminating and shows the PBV quite accurately at any point at a glance going back for as many years as you’ve carried out the exercise for. Do this for several builders of equal standing and you can compare and clearly see the opportunities that opened up historically for switching across, backwards & forwards, between shares to your financial advantage because their relative PBVs have crossed and re-crossed each other. My experience has been that seeing that those opportunities have always been there gave confidence in the notion that this is likely to carry on and therefore provide the basis for a whole investing strategy. And so it has, ever since. Fundamentally, having latched on to house builders in 2003 as the sector to be in, this has provided the whole foundation of investment performance for myself and the people in my circle who are in the same game. Nige, I’m not trying to persuade you, or anyone else, to change how you invest - but merely offering a bit of detail on something that has worked really well for me for the past 14 years since I first properly “got” the whole opportunity of investing in house builders.

Nige, if you take the gain in book value since the 2007 pre-crunch high, then, up to June last year when I made the calculation including dividends, Bellway are up by around 90% and Persimmon up by around 70%, so there is a significant gap in favour of Bellway. But the bigger value difference, again in favour of Bellway, is PBV. Currently, Bellway are around 1.6 and Persimmon around 2.4, so Persimmon are 50% more expensive for a somewhat less successful most recent eight year performance. Where Persimmon have scored is in successfully bigging up their own performance. Firstly, by a more substantial post-crunch write-down making their subsequent returns on equity seem better. Secondly, by announcing a nine year dividend plan some years back which seemed stunning at the time if just taken at face value but, although a bold move, wasn’t anything special in the light of having done the maths on all the builders going forwards. But the market seems to be still awarding them the cigar for that, so fair play to them. To sum up, though, from a value perspective, I don’t see any contest. But you are pursuing a different way of doing this and of course you may prove to be right in terms of short term price movement if your method calls this right more often than calling it wrong. Although most of what I’m doing has come from learning and, hopefully, understanding the nature of the particular market I’m in based on experience and relevant research & number crunching, I did also gain a lot from Warren Buffett’s ideas in the early days. And I absolutely agree with his view that so-called Efficient Market Hypothesis is hogwash. So it’s then a matter of how you apply this? Taking a value investing approach has certainly worked for me over the 17 years I’ve been doing this, and is also the only one that makes sense to me. However it may well be that what you’re doing will also work for you? But my bottom line is that I would still come back to my previous post, and suggest considering having a way of checking how well your method is actually working for you over the long term?

Nige, for anyone managing their own investments, I reckon that it�s worth knowing how you are doing compared to simply buying & holding, and something that has worked for me in this regard is bench-marking against Bellway. Why Bellway? Well, it has a long term track record, going back to 1983; it doesn�t use high gearing, with the consequence that it hasn�t had any nasty altercations with rights issues; it doesn�t buy other companies, so hasn�t accumulated value-destroying intangible assets on its balance sheet; and it has quietly got on with it and if you�d simply invested your moolah in Bellway in 1983 and then just sat back and scratched your bum from there on, then, of all the house builders, that�s where you�d have done the best - blissfully compounding away at around 15% a year. To give you my figures, since the start of 2003 to end of 2016, I�ve beaten Bellway by an average of 3.6% a year � which ain�t much, I know, especially given that I put a fair amount of effort into this investing malarkey. But breaking that down, it does look better more recently. From 2003 to end of 2012, the average improvement is only 0.5%, but for the last five years the average is 11.5%. So there�s a learning curve exposed there, hopefully, and I reckon I�d be delighted to be able to continue at that rate from here - but I think it takes more than five years for the proof of the pudding, and all that. To put some specifics on this, 100p of Bellway at the start of 2003 turns into 770p with dividends re-invested, whereas I�ve taken 100p up to 1,260p over that time, which I�m more than satisfied with overall. So that was all a rather long-winded way of suggesting that even if, as you�ve suggested, your numbers don�t easily provide for you to check your past performance, it might be worth monitoring from here on..? And finally, Nige, if you reckon you could come up with a better company than Bellway to benchmark against, well, I�d be interested to hear of it :-)

Nige, I hadn’t come across Company Refs so have just googled it. I’m imagining that, while it might be useful if you’re scouring across hundreds of companies looking for pointers, I’m only looking at about ten companies, all in the same sector, and, of those, only four are interesting to me currently – that’s Telford, Redrow, Bellway and Crest, and in that order. And I put far more faith in long term track records, which can be obtained from the companies themselves, along with the forward guidance the management give, rather than what the pundits and analysts might have to say – as who knows their real level of competence is or what axes they may have to grind, and also their collective track record for getting it right isn’t impressive. My view on Bovis is that while it might be the cheapest house builder based on price to book, that doesn’t, of itself, make it the best value buy. At the start of 1998, Bovis and Bellway had almost the same BVPS. Bovis was 185p and Bellway slightly less at 183p. Fast forward to end 2016, and Bovis BVPS is now 780p and Bellway is1,522p. During that time, Bovis declared dividends totalling 343p and Bellway 545p (ignoring the timing of payments – insignificant for this exercise), so Bovis only made 938p over the time while Bellway made double that at 1,884p. Over that time, Bovis’s average ROE was 12.2% against Bellway 16.4%, and that is certainly not a trend that has improved for Bovis, rather, it has worsened as, on the most recent accounts, Bovis’s ROE is 14.6% against Bellway which is 25.0%. So clearly Bellway is a better prospect. By how much, well, that’s not so straightforward, is it, and requires a judgement call? Re your next point, yes, Taylor Wimps and Barratt both nearly destroyed themselves through debt come the deluge. Redrow is a slightly different case – the king returned, and hopefully all is now well in that camp? I feel particularly reassured that Steve Morgan takes no salary but owns a shedload of shares so, more than maybe any other head honcho for a FTSE350 company (I don’t know for sure because I haven’t checked) his interests seemed fully aligned with ours as shareholders – which I think is a good thing! I haven’t got to grips with your system yet but I suspect that there is a fundamental difference from what I’m doing in that your method seems to rely on anticipating short term share price movements?

I’m not suggesting that that can’t be done successfully (so perhaps a discussion on investment performance using this at some point might be useful?), only that I am not able to do it. My whole investing strategy is to rely on the notion that, in the end, price follows value - though I might have to wait at least five years for this to happen under some circumstances, as in the credit crunch, and so need to be able to leave those shares in place that long to avoid a good kicking from the market. The other aspect to this is that there is the relationship between a share and its price and then there is also the relationship between a share and the other shares in its sector – and this is where you, Josh and myself seem to be on the same song sheet, though we have different ways of utilising this. I reckon it’s very hard to decide on the real value of a builder’s share in cash terms, and I also reckon that the market only rarely, if ever, takes the price up to full value. There are times when you could cash in with a lot of confidence that the price would fall from there – but that ain’t quite the same thing, is it – and I’ve never had the cojones to do it in the sixteen years I’ve been in this game. I don’t know if you’ve ever graphed a builder’s share price against the underlying book value, but a picture paints a thousand words and it’s surprisingly clear to see that when the book value sneezes, the share price catches double pneumonia. Justified perhaps in the case of highly geared companies like Barrratt, Taylor Wimps as they were at the time but not so in the case of companies like Bellway that always had much more prudent balance sheets. Rather than trying to evaluate a builders’ share in cash terms, for a wussy investor like me it feels safer to try to assess the value against other builders and switch as and when accordingly. I’m more fearful of being out of the market when I should be in than I am of being in the market when I should be out. The reason being is that if I’m out of the market and prices carry on up then how do I go back in? Whereas, if I’m in the market and prices go down, I can simply wait for it to recover. And that, so far, is what I’ve done. In 2008, I had to sell my house and move in order to achieve that but it was the right call at the time, and has proved to have been the right call since, and the share recovery since then has been splendid – as I imagine you’d agree providing you’ve been getting it fairly right in what you were holding at any time?

Firstly, Nige, I had noticed that Josh didn’t exactly let you down gently in expressing his thoughts on your system - however, the fact that his bedside manner was a tad harsh doesn’t diminish what he had to say! Perhaps the more positive & helpful approach would be to look for the common ground between us? My take on this is that the three of us are all into builders shares, we’re all seeking value, and we are all prepared to switch around between shares to achieve this based on our differing ways of assessing the alternatives. And this isn’t a zero sum game, so we’re not in competition with each other. Having said that, I would say that Josh & I are closer about which shares we rate the highest and also in our respective methods of coming to our views. But hopefully there’s something to be gained all round from considering different points of view, even if that only means that we feel reinforced in our own methods. I also personally find that the process of writing my ideas down to explain to others helps to bring me more clarity. Teaching is the best way to learn, I reckon. Not that I’m trying to teach you as this is an exchange of views but I’m saying this because I do also write a small private investment blog for family and friends who have come into investing in builders’ shares by following my lead. Maybe one or two of them might comment on this thread if they pick up on it? Josh, I am still considering your preference for ROCE so that’s something to perhaps come back on another time, and also same for your system, Nige, otherwise this would be pushing an already long post! For now, I’d just like to make a few points that are hopefully salient.

Having sold a business in 1984 and initially having put the capital with different investment funds for the next 16 years, I finally started in this investing for myself lark in 2000, and this is now very much my living, by buying into a large number of well-known companies, across numerous sectors, whose prices had fallen significantly in the face of the first dot com boom. By 2003, I’d realised that I’d essentially only made money overall from just two sectors, retailers & builders, and that the retailer gains were probably a one-off as they recovered from the market’s over-reaction to the overly-hyped prospects, at that time, of online retailers such as boo.com. And, as part of this, I did some pretty basic analysis on every company in the FTSE100 at the time to find that, overall, it was going nowhere and that, in its entirety and to paraphrase Kipling, it was effectively “A trap set by knaves for fools”. And, many years later, Hargeaves Lansdown showed that to be so by calculating that 15 years invested in the FTSE100 since the millennium, with dividends re-invested, had produced an overall gain of just 52%. Whereas, if you’d been invested in builders over that time, as I have, and if you had also been enhancing your gains by switching between shares successfully, you’d no doubt have achieved many times more than the FTSE100 performance. And I was essentially only using company balance sheets to come to that understanding about the FTSE100. Total tangible book value start and end of a four year period, change in debt over that time, etc. To my mind, the reality was far different to the story suggested by EPSs and P/Es for these companies individually. And I think this is where Josh & I may not necessarily be in alignment. Take a current FTSE100 company, Next. I’ve just run some numbers. Tangible BVPS: 2012 120p; 2016 182p; increase over 4 years 62p. Add ordinary & special dividends actually paid (rather than declared) during the four years, total 769p, gives total gain 831p per share. So, in my way of seeing things, that’s a total effective EPS for the four years of 831p, whereas stated total EPS = 1,565p.

So, average EPS just over 200p, for a company that has no real assets barring reputation, in a sector suffering death by a thousand cuts due to on-line retailing. Personally, if I was open to investing in non-builder shares, which I’m not, I wouldn’t want to be paying more than 4 or 5 x earnings for that, so £8 to £10 a share, whereas Next’s actual price is 38 quid. So I think the market’s having a laugh, but I guess time will tell? Now Bovis. Their pre-credit crunch high was just over 2 x book, whereas Bellway’s was just under 2 x book. But, based on long term track record of ROE, Bellway were much the better company, at 10 years’ average ROE of 22.4% compared to Bovis at 17.9%. Scroll forward to current, and Bellway’s price is 55% above their previous price high whereas Bovis’s is still short by 28%. So, in my view, not only was Bovis hugely over-priced in 2007, it was clearly there to see at the time. And Bovis’s **** poor returns shouted that all was not well back at the ranch. And now that has come to pass. My next point is that I trust balance sheets more than P and L accounts and particularly over the longer term because, in the end, there’s nowhere to hide. Consider Persimmon. They did two smart things to push their price up successfully. First was a heavy land-bank write-down compared to, say, Telford who just kept on going. So, measured from the bottom post-slump, Persimmon looked like the dog’s whatsits but, measured from the pre-crunch high, they’re nothing special, behind both Bellway and Telford in fact. The other smart thing they did was a “me too” on Berkeley with a nine year forward dividend plan which looked amazing at the time. That was, until I number-crunched the nine years forward for all the builders to find that they were also likely to make a similar level of gains and payments over that nine years. Again, nothing special performance-wise for Persimmon but they did win the cigar for thinking of it and then having the cojones to do it. But the upshot is that they’re currently way too expensive for me, Gunga Din. So, enough of that - I’ll wait to see if you chaps come back on this?

Josh, thanks for your considered & informed response to my post, I appreciate it. My impression from your posts over time is that your investment strategy is similar to mine, in that I only invest in house builders, I’m always seeking to be in the best value and, when there is a worthwhile gap, I’ll switch shares. This seems somewhat in contrast with most of the regular contributors to the Telford share chat who seem committed to buy & hold, and also at odds with many contributors on other builders’ share chats here who often seem rather pre-occupied with short term share price movements. On the whole, I’m only really concerned with short term price shifts insofar as they affect relative value between shares as I trust that price follows value in due course. Where you and I may differ a little is that I look mainly backwards, at longer term track records, to then take a view on likely ROE trajectories rather than taking too much notice of analysts’ forecasts. A recent case in point is Redrow. I’ve had them down for 83p EPS for 2019 since last summer, whereas analysts at that time had them down for 56.28p, so I was seriously adrift. Now Steve Morgan, an understated chap at the best of times, has guided at 77p, and I’m now more confident of my figure, which was based on how the ROE was likely to shape up. We’ve mentioned Redrow, Crest and Telford. The other builder in the frame for me is Bellway – similar long term performance as Persimmon for two thirds of the price. Bellway is my benchmark company to judge my performance against, as an investor could have just sat in that share scratching their bum since 1983, re-investing dividends, and making an average 15.7% gain in value per year ever since. Over the past five years, since the builders started to sort themselves out after the existential trauma of the credit crunch, switching between shares has given me around an extra 10% a year above Bellway’s performance. After selling my business in 1984, I had my money sat in investment funds until 2000, but from there I’ve managed my own shares, and for the last 13 years have been in housebuilders once I came to see that that was where decent returns were if you could live with the share price volatility. I come at this from a business background rather than an accounting one, whereas you seem to have a more formalised knowledge that suggests you have accountancy training relevant to the analysis required for this? So in that respect you are maybe one up on me! So, to get down to it, I’d like to give your use of ROCE a little more thought as, to date, that’s not been a focus for me, and maybe I’ll come back to you on it. In the meantime, I’m happy with the results I’ve been achieving over the past 16 years - though I think we’re not too far apart in what we’re doing here so maybe there’s some insight to be had on either

Josh, I agree a good set of results for Redrow, though not so sure re Crest Nicholson? The analysts seem to like Crest somewhat more than they do Redrow, maybe because Steve Morgan seems to be his own man and also maybe because he owns 40% so doesn’t need to curtsey to the City too much, and so maybe the company’s own forward guidance of 77p EPS for 2019 will now give the scribblers a kick up the bum. If you take Crest’s 2016 stated EPS of 62p against BVPS start of year of 239.22p, in theory that’s an ROE of 25.9% However, if you take end 2016 BVPS of 271.34p and add divs paid through the year of 22.4p, that gives 293.74p less start BVPS 239.22p which suggests actual 2016 EPS of 54.52p which gives actual ROE of 22.8%. And this doesn’t shine against Redrow’s 2016 ROE of 24.3%. And as I have PBVs for Redrow of 1.51 and for Crest of 1.88, that puts Redrow well ahead in my reckoning in terms of best buy. You might have slightly different PBVs because I update my BVPS figures every month to best estimate rather than just use most recent actuals from accounts. However, I’ve been impressed with your number crunching over time, and I’d be interested to know if you agree with my figures?