Member Info for VladamirPokrov

Johncut, sorry I was thinking you were another John. I think that it was John Fallon who mentioned M&G. What else are you holding and/or interested in at the moment?

MR Clyde is not quite what you think. He has a degree of knowledge and claims to have generated a a sizeable pile in his lifetime, which I believe, although not primarily through investing, as he would state, although he does stick his accumulated cash in decent-ish divi payers, but even then does not assess the divi cover correctly. But when you press him on detailed points and ratios etc, it often breaks down into a load of bluster. Whatever his capacity once was it is not fully there now, which I think in part accounts for his excessive abrasion.

Johncut - are you John..... on the DT who mentioned M&G a weeks or so ago? I agree that M&G may not be a very long term hold, although my typical holding period is 1 to 2 years and M&G is set to throw off so much genuine profit in that time period. One area where I disagree with the BH phase Buffett is the punch card of 20 businesses in a lifetime. So vast was the BH capital and so many the controlled businesses that this made sense. Key to BH Buffett was the control of insurers so that he could get his mitts on the float, the capital pool that insurers must hold, Buffett then would directly invest the float with devastating effect. The possibility of M&G's share price doubling over the next year or two seems very real, double the price and the price would only be about fair, not over priced. The Biden spend bonanza and business tax hikes is going to end in an awful mess in time. But possibly more time than some expect. The signs will be there to see, we could well have a pretty strong year or two before things begins to hit the fan. Clearly it is better to be in companies with great tangible surplus relative to market cap that are highly likely to be performing just as strongly in a decade - BWY, LGEN, RDW, but the medium term case of M&G is pretty strong and M&G is only a 10% holding for me presently and probably won't be much more.

Gunga - what is your view on M&G. I have taken a relatively small holding. Not the kind of business that you could hold and forget for a decade, but very cheap and the cash generation over the next 3 years looks like it will be considerable. Tangible surplus, i.e. yield plus annual build in tangible balance sheet equity, expressed as a percentage of market cap, looks like being 12% or more relative to the current share price. It may be just a case of hold for a year as the market comes to its senses, your thoughs?
Henry Boot - doing okay, the tangible equity build up has been steady over recent years, when the divi comes back fully, the tangible surplus will be around 10%, not bad you know not bad at all.
DT decided to verify and write up, comes out Monday I believe, no idea what they will say, but they did not question the extensive verification data that I submitted so presumably they agree, we shall see.

Strictly - I read your DT posts on fees, made me chuckle, a lot in fact. A couple of readers did get a little hot under the collar, but a lot of others agreed with and enjoyed your posts, clearly. Funny old thing, when I was previously in paid work, abrasive meeting, just for the sake of it, seemed like the norm and I hated it. When posting online however, abrasive responses, seem to be water off a ducks back to me, I quite enjoy a robust response to comments, although I always try not to respond in kind. Do you ever walk sections of the south western coastal path, you must be less than 2 hours away from all 600 to 700 miles of the entire walk.

Strictly - CSP, shareholder surplus - i.e. divi + average annual gain in tangible balance sheet equity over recent years, expressed as a proportion of Mcap - around 6%, not going to lose your shirt, but you are also unlikely to double your money over the coming years. I was a holder once, but I always had a niggle, a big one. You may notice in their own reporting CSP quoted an outrageous ROCE figure, bit of a standing joke actually. Jonas Crossland, Jonas the mighty, now retired from IC, greatly missed, was first to catch onto this. Inland Bizarrely decided to deduct all intangible assets from the ROCE calculation, the intangibles were the correct accounting treatment for the acquisition made a few years ago. But real money was paid for the acquisition, a decent acquisition at that, and those intangibles should absolutely be included in the ROCE calc. So I contacted CSP's investment liaison officer, as you do, asking about this, the reply was comprehensive, pretty sure it came from the FD, albeit through the ILO. They said that there is no statutory set way to calculate ROCE, which is true. They say that firms use all kinds of different ways of calculating ROCE, which is not true, there tends to be sector norms. They then went on to say that their way of calculating ROCE best reflects their business model or something like that, which was complete BS. Their correct ROCE at the time was decent at the time, early 20s% I recall. Their method took the figure well into the 30s% as I recall, like I said, it was a standing joke, but they could not see it, that concerned me and still does.

I like to assess businesses in terms of the shareholder surplus generated as a percentage of market cap. This is a far more reliable metric than say PE or PEG or even debt/cash adjusted Neff total return ratio, for the simple reason that earnings, after dividend deductions, frequently don't make it through to growth in tangible balance sheet equity, i.e. earnings can be grossly misleading.Shareholder surplus is calculated by taking the forward yield and adding it to the average annual growth in tangible balance sheet equity over the previous 4 years. This sum is then expressed as a percentage of the current market cap. Clearly the shareholder a surplus is not the only factor to consider in assessing stocks, but it is a very robust starting point.Redrow generates a shareholder surplus of around 13% relative to current market cap. This is less than half a fair price for Redrow. Business metrics are some of the best in the sector as well, certainly not cheap for any good reason that I can see.Vlad

LGEN is anything but a defensive share. Even after the gains of recent weeks, the yield added to the average annual growth in tangible balance sheet equity over the past 4 years, the sum then expressed as a percentage of market cap gives the shareholder surplus that the business generates. For LGEN the shareholder surplus is slightly above 10%. This means that the share price could nearly double from here before reaching a 'fair' price.
The share price may have stayed flat for several years now, recent fall and recovery excepted, but underlying that the build up in tangible equity within LGEN has been outstanding, leaving the business greatly under priced now.

Strictly - interesting to see the SMT manager, Anderson - they of the Tesla holding, going at Buffett or rather his approach with some venom.
IC interview at Christmas, talked of the anti-Buffett approach to investing. Now in Morningstar interview they say 'Buffet to blame for value tragedy'.
Interesting as this happened in 1999, then the bubble investors were queuing up to ridicule the Graham and Dodd approach to investing. Signn of the times I think.
Vlad

Strictly
I am very keen on calculating the business surplus as a percentage of current market cap, as the surplus as a ratio of what you are paying is all important. This is of course an inverted variant of the PE ratio, which also factors in the dividends and of course measures the average annual growth in tangible balance sheet equity over the previous 4 years, which, as we have often discussed is literally an order of magnitude more informative than the P&L declared earnings, most which evaporate long before they reach the balance sheet equity column, obviously I am allowing for the outgoing dividend payments.
Surplus is obviously the sum of the forward yield added to the average annual growth in tangible balance sheet equity over the previous 4 years. The sum of these two figures is then expressed as a percentage of current market cap. Obviously there is a multitude of other factors to consider, such as investor dilution due to share issuing etc etc. But the surplus percentage relative to market cap, is the single most important single metric and a robust starting point. The beautiful thing of course is that very few other investors or analysts use the surplus percentage in this way, in fact they generally don't use it at all.
So to Inland. I calculate the surplus to be high teens, which is very high. Due mainly to the strong build up in tangible equity over recent years. Inland do reclassify their asset values upwards where possible, I believe under the reclassification allowed due to renting out a part of the asset. This is something that the main house builders never attempt to do. Not a big factor for Inland, but if you also consider the higher debt ratio as well, I would not put Inland ahead of Redrow although I can see the buy case, I certainly don't disagree with it, but not tempted myself at this point.
Vlad

Strictly

You are definitely right about focusing on the underlying process and letting the market prices take care of themselves, which, over time, they do of course.

Vlad

Strictly - I would also add that post 2016, the house building sector as a whole was quite held back and yet the sector strongest, our holdings basically, powered on year after year with large growth in tangible balance sheet equity, which is why we have the current very strange situation where tech/pharma/new economy stocks are at the kind of levels seen in 1929 and 1999/2000, whilst at the same time, our high quality house builders are selling for genuine bargain prices.
Whilst other sectors are generally not not priced like tech etc, they are not at bargain prices either. In other words, if you broadened your search beyond house builders, I think that you would currently find thin pickings out there, relatively little of interest right now.

Strictly - thought I would reply to your DT post here as the DT article is slipping deeper into the archives now.
Post beginning of 2013 gains. Low 20s% compounding roughly since then, 2009 to 2010 was a period of particularly high gains as was late 2012. 2013 onwards began with a flourish, Barratt was on the up, then Dart, then Kentz, then Inland did okay. From 2016 things have been much quieter, but generally a quiet period for UK facing stocks, even the best ones, which in part explains why we still find these very strong pockets of opportunity within the UK stock market.
My approach has evolved, back in 2009 and still in 2013, I was not really focused on the surplus which heavily overlaps with your approach to tangible equity. Back then I was looking for a low PE, decent earnings growth and a solid balance sheet that was not deteriorating. That approach is a reasonable starting point to find stocks that will out perform but obviously the tangible equity growth and the correlation with earnings was a big omission back then, although requiring both earnings growth and balance sheet strength did tend to weed out the major earnings to tangible equity offenders.
I will always look beyond house builders and I currently hold LGEN, about 30% of my total roughly, but it is telling that 70% of my holdings are BWY an RDW and I do regard house builders as my main sector. I don't have a strong view on whether your approach in terms of just house builders is right or wrong, I don't think that there is a right or wrong here. Having read Guy Thomas's Free Capital, it is clear that within the broader value growth method, individual's do develop an element of personal niche in their individual approach over time.
Specialising in one sector allows you to really get a grip on the companies involved. Also, investing is a slightly socially oddball activity. Whilst our time is our own, which is a tremendous thing, investing tends to invade the mind, being able to switch the investment mind off at the right times is an important factor in the well being of the long term investor. In other words, specifics of the individual approach often come down to the approach that leaves the investor in a comfortable place in the long term - and if the approach is clearly working, who can argue with that.

One question Strictly - as mentioned, I like to assess surplus - i.e. average annual growth in tangible shareholder funds, i.e tangible balance sheet equity, i.e. net tangible assets, i.e. tangible book value over the past 3 or 4 years expressed as a percentage of current market cap, and added to the current and/or historic annual yield - the sum of these two gives the surplus generated,
Now suppose I found a great business that was very attractively priced, giving a surplus over 10%, which is what I am looking for, but, say around 10% of earnings did not reach the balance sheet on average over recent years, how would you see that?
I ask, because, with such a large surplus, the loss of earnings on route to the balance sheet is never going to be huge. Accounting complexities mean that not all earnings hit the balance sheet. Some business will not declare profits that don't reach the balance sheet, they will write down profits with the required cost provisions until earnings and tangible equity growth match, which is the ideal. Clearly a discrepancy of any size between earnings and tangible equity growth is a major concern, but if the tangible equity growth is sound and high relative to market cap, albeit slightly down on earnings, this is not necessarily a problem is it?

Strictly - see below:

'Basically after the Covid falls, when it came to buying back in March, I mostly exited in Feb, Bellway and Redrow stood out in quality terms and the likes of Vistry were perhaps slightly cheaper on some metrics, but clearly for good reason, so I stuck with Bellway mainly and also Redrow'.

As stated above I am not advocating a buy case for Vistry, I don't hold Vistry, I hold Bellway and Redrow - and LGEN of course.

I think that Vistry/Bovis has traumatised you. Years of watching the realatively weak performance has taken a toll on you. Have you considered Bovis watchers stress counselling for Bovis trauma!

Strictly - Vistry, I was interested back then, there was a view held by IC around that time that after the recent takeover margins and ROCE might improve. But since the Spring I have felt that this was probably a premature assumption. I still think that as the sector recovers, Bovis will still likely beat the market and may do okay relative to the HB sector in the sense that the relative weakness is in the price. Countryside Properties was also a business that I held but backed away - mainly because they calculate ROCE based in tangible assets only, ignoring the intangibles on their balance sheet from the recent acquisition, for which they paid real tangible money. This obviously sent their ROCE into the 30s and was all over their report, when pressed they told me that ROCE is non-statutory in its method, which is correct and that others often use their method of ROCE calculation, which is not correct.
Basically after the Covid falls, when it came to buying back in March, I mostly exited in Feb, Bellway and Redrow stood out in quality terms and the likes of Vistry were perhaps slightly cheaper on some metrics, but clearly for good reason, so I stuck with Bellway mainly and also Redrow.

Strictly - MR Clyde is from a management culture where getting in the first strike in a meeting is seen as an objective - I have referenced this on the DT before. Unlike many people that I have worked with in the past where wild accusation and point scoring where frequently the entire objective of the whole meeting, if you press MR Clyde after his initial brash response, he quickly settles down and becomes quite constructive. His comments, although sometimes outlandish, have a measure of substance and he is quite a good practical economist and often comments on the economic articles. So despite the initial response abrasion, I do quite enjoy RM Clyde's input, he certainly moves along the discussion and often triggers input from others.

Strictly - yes I am here. Like Vistry, Crest is selling cheaply but the weaker margins and ROCE do not give these businesses the kind of quality protection that Bellway and Redrow enjoy. Also the build up in equity as a proportion of current market cap appears lower for Crest in recent years, which affects the net surplus quite a bit relative to the big two in quality/value terms.
Also Inland, decent business I agree, but they do fall over themselves to reclassify their assets to current values using the method that ST of the IC is always yacking on about - is it NRPA NAV, something like that. Essentially if you can rent any of the plot out it is no longer classified as a land holding for house building but as a investment rental property, so if you are so minded you can reclassify. ST of IC thought this oh so clever, I never liked it. I have not kept up of late but Inland were art this a lot a few years ago.
Vlad

Strictly - on this point about a company's earnings per share not fully translating into the equivalent equity growth.
The first question must be, where do the evaporated earnings go, given that such evaporations are seemingly somehow allowed under accounting rules. They don't go to intangibles from a business purchase as that would show as intangibles above the asset value of the purchase, they don't go as depreciation or amortisation, as this would be deducted from earnings as well. Further capitalised spend would surely show as an asset and non capitalised spend would be treated as an expense or cost, so how can the earnings not translate into balance sheet equivalence without the practice being fraudulent?

I see Forterra as a very solid business. Getting the housing sector going again will be a government priority, house purchase stamp duty holiday for a bout a year is expected to be announced shortly. Forterra has a strong operating margin and great ROCE. Extra production capacity from next year, which will be needed. The housing sector must rebound strongly, otherwise there will be no wider recovery and no big Conservative majority at the next election.