Thursday, 19 December 2013

What can I say?

At last tapering is here. In contrast to all I have been saying for months the beginning of tapering saw a huge spike up in the Dow and the S&P. Volume was up a little but the question remains. What happened? Do we throw theory out of the window? I am not a big fan of theory but you do need some kind of map to guide you when you tread in uncertain territory.

I have four ideas as to what was in the minds of traders:

  • There is a stock market saw: "sell the rumor, buy the news" (and vise versa). There has been a worry about the beginning of "tapering" code word for the end of QE for some time. And who knows, that could have set the agenda for the pull back we have seen for the past couple of weeks.
  • Bernanke, in his last statement as Fed chair also indicated that interest rates would stay at their low levels for longer than had been previously indicated, past the point when jobless fell to 6.5%. This could have given traders confidence. Low interest rates, high share prices.
  •  The announcement had lots of good things to say about the economy so it might have boosted views about company performance
  • It could be a bull trap. A false rise to lure in uncommitted investors so the smart money can cash in bigger profits on their holdings
You all know me, I have a deeply cynical and pessimistic heart so my guess goes to the fourth explanation. That together with another skeptical idea: they may have cut back but they are still pumping $75 billion per month into the maws of the banks. They should worry.

For myself I have been hit hard by good news in the UK. Strong economic results, especially a better than expected unemployment figure, meant that the £ bucked the $ trend and made a stunning move up. There is also the prospect of higher interst rates which would boost the pound. Since the bulk of my holdings is now in Dollars I suffered a very painful hit.

Yesterday the UK stock market was unimpressed by the news, or maybe they worry that interest rates will rise. Today the market was buoyed up by yesterday's move in the US and overnight follow through in Asia.

Today will give us a better idea of what will happen next, perhaps.

Hope you all have a happy holiday. I know I shall.

Friday, 13 December 2013

Dogged by computer glitches and the latest pull back (is it over?)

The solution to my computer problem turned out to be a one day wonder. I closed and reopened Excel several times and the missing DDE links continued to do their job. But niggling in the back of my mind was the worry that the problem would return when I closed  down and reopened my computer. And so it proved. I opened up and sat looking at a dead Excel workbook.

A whole lot of sitting and thinking deep into the night and I finally nailed it. I had decided that the problem had to be caused by a system error, not Excel. I opened up the Control panels page and looked through each item, seeking inspiration. Eventually I reached the Recovery control and it occurred to me that if I re-installed a version of the system that had been in place before my DDE problem occurred I might be lucky. I did and I was. So I was back in business.

Then this morning Sharescope, which has been at the core of my share trading for some 15 years, stopped working. That was simply solved. I called the helpline and the problem was fixed in minutes.

My portfolio

All that has left me shell-shocked. I had noticed that the market has wreaked havoc in my portfolio, day before yesterday was particularly bad. It was only yesterday and today that I have had the emotional energy to fully survey the wreckage. It is bad but not quite as bad as I first thought. Three things make me a little more confident:
  • a big part of the problem has been caused by the weakness of the Dollar and the strength of the pound, an effect that I measure but do not act upon because I assume that in the medium term it will right itself. It is beginning to do that now.
  • I have taken a hit on GVC which represents a disproportionate share of my portfolio. I have no intention of selling any time soon because of its yield and strong fundamentals. In my opinion it is a thoroughly undervalued share
  • for most of yesterday my share selection was making a good comeback in the face of anther 100 point down-day on the Dow and a 60 point down-day on the FTSE. Hope springs eternal. I have to remind myself I know how to pick shares.

For those of you who are interested my current portfolio is as follows:

  • UK shares: GVC, PLE(don't ask me why, its one of these biotech stocks that may strike it rich one day)
  • US shares: RAD. (I took profits on GTN yesterday. With yesterday's ups and downs a 20% paper profit dwindled to 16% by the time the money was in the bank. Partly because I did not jump in quickly enough, but mainly because of the broker grabbed 2% for the FX transaction (I am revisiting my decision to buy foreign shares in my ISA))
  • CHINA shares quoted on the US market CREG RDA PME CCM HTHT BIDU HMIN VIPS CSIQ BITA DL SFUN EJ DHRM (I bailed out of JKS which was badly affected by the solar technology pull back)
  • Hong Kong shares: 921 1180 35 184 1999 (I cut losses on 1001 635 and 287)
Onwards and upwards!

The market

The market is in pulling back from its highs. I am glad that my mind has been on other matters so I was not depressed by this horrid turn of events. Friday's up move, inspired by good Non Farm Payroll figures (which went up by 203000 instead of the expected 180000) proved to be a false dawn. I goes to underline the fact that the market has a mind of its own, news may have an effect but it may be short lived if the players are determined to take their profits. The lucky ones, who still have shares to sell, get the unexpected boost of a day of higher prices. 

There are signs that the market may have encountered support. 
  • Yesterday it pulled back from its lows
  • futures are looking promising today
  • the FTSE and the DAX are looking a little stronger.

On the minus side the US Dollar is strengthening which suggests a risk-off attitude is beginning to emerge. The theory runs that the Dollar moves inversely to the stock markets. When investors have an appetite for risk they buy shares, when they start to worry they sell shares and run for cover to the US Dollar. That's the theory. Reality suggests that this relationship may be weakening.

I feel cautiously optimistic despite the wreckage in my backyard.

Tuesday, 10 December 2013

Computer says no

I am reasonably competent using my computer without being an expert. I know that other people fear their machines and worry about what could go wrong. Yesterday I hit the buffers. I have an Excel workbook that I have used for more years than I care to remember. It is fed data by a supplier via DDE links. It has run smoothly until yesterday. After a restart the data link was broken and nothing I could think of would fix it.

As ever my first port of call was the internet which on this occasion was no help. People had struggled unsuccessfully with the problem for years. Microsoft was notably silent on the subject. My data supplier (Sharescope) said it was the fault of Excel which got more and more buggy as it added features. Recommendation: use Open Office.

Having struggled for hours with Excel I moved to Open Office where the links worked fine but my beautifully crafted worksheets had been mangled. Worse, the macros which made the workbook such a joy to use and such an awesome analytical tool  had stopped working. A bit of research revealed that Excel macros are incompatible with Open Office. A complete rewrite would be needed, way beyond my skills.

Still, Open Office did the job in a rather clunking fashion. The result of all this was that I concentrated on the technical problem and not the fate of my shares. A blessing in disguise perhaps. Several of my holdings were in solar energy technology. The whole sector came in for a battering because a major player came in with bad results. In addition BITA was knocked back by a fund raising announcement. Net result: a disastrous Friday for my shares. Yesterday, when I was not watching, there was a follow though on the solar industry setback. Yet another ghastly day.

I continue to struggle with my computer problem. I have two lines of attack. The ideal solution would be a fix for the Excel problem to take me back to a system I know well. I could quickly update the sheet so it was possible to see how each share was moving through the day. Second line of attack is to polish the system on Open Office.

Then a brainwave struck. I went into Excel options and found some adjustments that let the DDE links work. Joy is unbounded. The only thing I have yet to do is to turn off Excel and turn it back on again. When that happens I may be back to square one. I'll let you know.

Today all those grumbling shares are coming back so perhaps it was a good thing to take my eye off the ball.

Thursday, 5 December 2013

The deed is done and some dog walking

The reorganization of my GVC shares into my ISA is done and pretty painless it was. I don't know why I worried. I spoke to my stockbroker who arranged a kind of Bed and ISA deal. That's where you set up to sell set of stock in one account and repurchase it in another simultaneously. The broker approaches a market
maker and transacts the deal. It worked like a dream. Within minutes it was done with the spread narrowed from 5 pence to half a penny per share. That saved me a packet. In addition GVC is registered in the Isle of Man and so does not attract stamp duty. I had to pay telephone dealing commission instead of web rate but that was well worth the money, it saved me a packet.

My only regret is that I did not do the trade a couple of days ago. GVC came out with a trading statement and the price shot up by 3%.  I would have preferred to have that profit in my ISA than in my SIPP. Even there the BED and ISA deal helped because I was able to do the trade close to the sell price instead of the buy price and managed to shift some of the profit into the ISA that way.

It was all quite new to me.

In order to purchase into my ISA I sold off poorer performing US and HK shares (DRAD LEE 1001 635 287). To do this I had to pay the 2% exchange rate fee. You will remember this is the whole reason why I shifted my only remaining UK SIPP share into my ISA: to avoid paying these outrageous costs each time I trade.

The markets

And what about that market pullback? It's been quite vicious but there are signs that it may be coming to an end. The FTSE and DAX are both up this morning and Hong Kong ended higher than it opened. China shares look fairly strong on the futures market.

The DOW and the S&P ended their day looking much stronger having recovered a large part of their losses. I prefer my old style charts because they show this level of detail. With that extra information I have a better idea of what might happen next. I am cautiously optimistic and look forward to spending all that extra cash in
my SIPP buying more China shares. My current holding has bucked the trend and I am doing well despite the weak market.

Dog Walking

Each morning and some evenings I take Alfie, our Parson Jack Russell, for a walk. Mobile phones are remarkable things what with their cameras et al. I use mine to record the amazing skies I witness most days. I thought I would share a few with you.

Tuesday, 3 December 2013

Time to worry

These market pull backs are always a worry. You never know how far they will go,

  • The Dow has come back one and a half percent from the high it made last Friday. 
  • The S&P is down 1%. 
  • The DAX had a really rough day today and is down 2%
  • The FTSE which made its high back at the end of October has drifted down 4% since then
  • The Nikkei is still making new highs
  • The Hang Seng is down 1% in one day
  • The Xinhua China rose a little today but is still lower than yesterday's intra-day high
Too early to call time but as you know I always worry about preserving my profits. A problem best left for tomorrow or the day after or the day after that.

I have a new question to solve. It is to do with the rules that govern the tax shelters that protect my portfolio from the Chancellor. The rules have changed so that I can now hold AIM shares in my ISA. Previously only the SIPP was eligible to hold those shares. I have a big holding of GVC, an AIM share, to which I am greatly attached:
  • it yields 11% dividend at current prices. 
  • it pays its dividend every three months
  • its dividend cover is 1.5 times
  • its PE ratio is almost 6.5 at the current price (that's an earnings yield of 15%)
  • Its EPS growth is forecast at 44% over the next 2 years
  • its PEG (Price earnings growth ratio) is 0.15 (anything below 1 is regarded as good)
  • the directors are heavily invested in the share and there has been a recent director's purchase
Now my problem is this:
  • If I move my holding to my ISA I will avoid all those ghastly FX cost problems that I have described in excruciating detail in earlier posts. I will free up cash in my SIPP that can be easily invested in foreign shares (because SIPP rules allow me to hold foreign currency.)
  • But to make the transfer I have to sell out of my SIPP and buy into my ISA. 
    • there will be brokers' fees 
    • there will be the spread between the buy price and the sell price (1.5%)
    • luckily the share is registered in the Isle of Man so it does not attract stamp duty. 

If I was confident that the share price would rise in the short term I could buy in the ISA first and then sell a higher price in the SIPP. However by any normal measure my portfolio is already overexposed by the number of shares I hold. If the price went the wrong way I would be stuffed.

Any ideas about how I can perform this trick would be gratefully received. (Remember I recommend nothing. You must do your own research)

Monday, 2 December 2013

Pounded by the Pound

My share picks have been doing reasonably well but my portfolio has failed to enjoy the full benefit. This has been because of the exceptional strength of the Pound and the weakness of the Dollar.

Since August the Pound has moved up over 8.5% from 1.51 Dollars to the Pound to 1.64. This has mostly been a Pound phenomenon since the Euro has risen a mere 3%.

Dollar weakness is often the result of a benign stock market. Confident investors  are willing to take risk. The Dollar is seen as safe haven but in a good investment climate opportunities for better returns tempt investors away from Dollar bonds and into stocks.

Good economic news has been coming out of the UK for some time and the coalition government's policy for reducing the deficit is bolstering the strength of the Pound.

The Euro zone is still plagued by fears about its stability of its currency so the Euro has not kept up with the Pound. Interestingly, a couple of days ago, Moody's upgraded its rating of Greek debt by two notches and S&P has made positive noises about the Spanish economy. On the other hand Dutch credit rating has been  reduced by S&P. So we still have a mixed picture for the Euro.

My portfolio has had to take the Pound's strength squarely on the chin. All that money I have invested in Dollar denominated shares has suffered from the weakness of the currency. That includes the Chinese shares for the Chinese currency moves with the dollar. My hard work in picking good shares has been undermined when I convert my performance back into Pounds. It is a risk that I have always known I was taking. The fact that I continue to do fairly well despite losing on currency suggests that my decision to avoid the UK stock market is the correct one. That does not mean that I would not like to see some pound weakness to help my returns.

British exporters must be hurting too so perhaps we will see some efforts by the government to curb the strength of the Pound. But that possibility is balanced by the inflationary effect of a weaker Pound and the risk that interest rates may be raised if the economy gets too strong.

Thursday, 28 November 2013

Onward and upward

The US market will be closed today for Thanksgiving. The indices plod on upward. The all time high keeps getting a little higher each day.

I have some US shares and I have gone back into the China  shares quoted on the US market so I am now fully invested again. For once I seem to have picked my moment fairly well. I bought on Monday when Chinese shares started weak but gained strength as the day progressed. Lets hope my luck holds.

 I have almost totally pulled out of the UK market but, judging by its performance, I have done the right thing.

Monday, 25 November 2013

I guessed right

I am a bit slow in updating this time. I have been writing a children's novel called "David and Katie and the Banker's Bonus." It is a holiday adventure story aimed at 8 to 14 year olds. The eponymous twins act as spies who dig out evidence that implicates a banker in a variety of financial frauds. The idea is to introduce children to explanations of financial terms they will have heard n the news while keeping them entertained through the medium of a thrilling quest. Over the weekend I got to the final chapters after the best part of two years work. I wanted to push on to the end so no time for blogging.

In my last post I pointed out that the US indices were banging their heads on significant round numbers. My guess at the time was that they would power on through. Those numbers caused the markets to pause for about four days and they then continue to make new highs. (I've had comments from non mathematical readers that my graphs are hard to follow, so I'm trying something new. If this simplified version, which shows just the daily highs and lows is better please let me know. Ditto if it is worse. I prefer the old style because of the extra information provided.)

I thought this would be the most likely outcome, partly because this time of year is traditionally bullish and because the flow of QE money continues.

I have taken advantage by buying some US shares and some Hong Kong ones. In HK I have bought 921 1180 35 1001 635 184 and 287. (Share codes in Hong Kong are numbers. You can get information about all these shares on the Hong Kong Exchange's web site.) Mainly because of strong performance by 921 the purchases made on Wednesday are already in profit despite the 2% cost of the foreign currency exchange.

I have pruned my China shares but plan to buy back as soon as the pull back is over.

All in all my portfolio is moving forward and I am making good inroads into my accumulated losses.

Tuesday, 19 November 2013

The madness of crowds

There is nothing magical about round numbers. But we all got very excited when the millennium came (and went). But think about it for a moment. That date was the 2000th anniversary of what? The guessed birth or conception date of the founder of  a religion whose nominal adherents represent less than a third of the world's population. In those two thousand years the calendar has been changed more than once and within the population of adherents there are disagreement about when crucial events occurred. The actual day means nothing. So why so significant?  We (I speak of a collective we driven in our enthusiasms by media pundits) get very excited by these numbers with all their zeros. Next year another frenzy will be unleashed as we are whipped up to recall that 100 years ago the First World War began and millions stood on the brink of their demise as they faced the guns.

I've more than made my point, forgive me. Yesterday the DOW broke through 16000 and the S&P broke through 1800 for the first time. Significant? Of course it is because the crowd has been looking for an excuse to bring the extraordinary bull run to an end. Here was an ideal opportunity. Prices lifted their way through the magic number and the sellers began to emerge. Will this be the end of the run? I don't know but I doubt it. The governments' newly printed money still holds sway.

But it is important to remain vigilant.

There was a nasty chart pattern was in the DOW. The sharp top to that final candle and the horrid pull back. suggests that this could signal something big. The S&P does not look so bad. On the plus side there is the fact that the market recovered in the last few minutes of trading and the modest volume of trade.

My Chinese shares were doing well until late in the evening when they suffered a big switch. Because it costs very little to go out and back in I am contemplating doing that to protect my profits and waiting for the dust to settle.

I sold my UK shares this morning. Their performance since I bought them on 25th October has been miserable. I leave them with no sense of regret. My timing for buying US shares in my ISA was poor, given what happened yesterday, but throwing in the towel may also be on the cards.

But I do have a new plan. It appears that shares on the Hong Kong market are mostly eligible for ISA investment. That's where my UK money is going eventually once it becomes clearer what the market is poised to do. The cash from the US shares will probably go the same way. Remember the chart in the last post which showed how relatively undervalued those Chinese markets have become.

A friend asked me about Indian shares. I am sure that the Indian market offers just as much opportunity as the Chinese one. The problem is practical. There are many Chinese shares quoted on the US market and there are all those Hong Kong shares. They are easy to buy and sell and fairly easy to analyse and understand. India on the other hand is a black box and trading the shares is impractical.

Sunday, 17 November 2013

What is it about those Chinese shares?

This is going to be a quick post. First thing to report is that I have bitten the bullet and bought US shares in my ISA. Just a toe in the water and sadly no China shares. But I have picked what appear to be the best selection criteria based on what worked between November and February in the past three years. China shares were there in the selection but they were not eligible for purchase in a ISA. The list I ended up with was BWEN RAD GTN LEE DRAD. I had to cough up 2% to convert £s into $s and will have to pay another 2% when I sell up. So the shares will have to do very well. And so they should judging by the back tests I performed.

Just a quick recap on how I set about picking shares. I use Vector Vest's data base to discover which selection criteria successfully found the shares that went on to perform best over a set period of time. The criteria typically look at PE ratios, expected rates of growth in earnings per share and past price performance. Vector Vest makes it possible to compare the success of different combinations of selection criteria. I look for ones which regularly outperform over different periods of time and then pick my shares by looking for those that currently match those criteria.

A theoretical example. Lets say that I discover that shares with a PE of less than 10, expected earnings per share growth of more than 20% and price growth of 12% in the previous three months have shown share price growth of over 25% over the next three months each year in the past three years. I would now look for the shares which currently possess those characteristics and buy them with the reasonable expectation that over the next three months they will achieve a price rise of around 25%. It's not rocket science if you have the data base capacity to make the calculations.

Now those Chinese shares that I bought. They made 18% in the past six days. This was the culmination of a roller coaster ride. The campaign started on 24th October when I bought half of the shares. I was fully invested on 5th November. If I take the capital I had invested on November 5th as my money at risk, my return over the 17 trading days was 14.6%. This is despite the fact that I foolishly pulled out and went back in one day resulting in the sacrifice of 2-3% of potential profit. It also included a couple of days of horrendous loss. You may remember I said that this was not a game for the faint hearted.  You need balls of steel to play the game.

So what are the characteristics of the shares I picked? They had an average PE ratio of 11 (earnings yield 9%) The expected earnings per share growth rate was 31% and they had a high price growth rate over the previous year. In short these were cheaply priced shares with exceptional earnings growth potential and a history of rising share price growth. Just the sort of companies in which one would want to invest one's money.

Another reason for putting one's money in China now is the relative performance of the Chinese stock market compared with the US one. The US market is bloated with all that QE cash while the Chinese market is packed with bargains.

Thursday, 14 November 2013

Panic stations

I am embarrassed to admit it! The sharp fall in the China market on Tuesday threw me into a panic. The weakness in the FTSE did not help. In a less agitated frame of mind I would have realized that the threat of an earlier interest rate rise was behind the fall in UK shares.

I was blinded by the fact that I had such a large profit to protect. So, foolishly, I decided to take my money off the table on what turned out to be yet another spectacular day for my selection of China shares..

I was lucky. Some of the move up in my shares took place first thing - not a good enough to make me change my mind because, I reasoned, shares like these can turn on a sixpence. So even though I was selling wholesale, I did rack up some early morning profits.

As the day wore on and prices continued to rise. I admitted my mistake to myself and bought back in the evening. Not too late to pick up more profit in the markets' closing hours. I managed about two and a half percent - on a day when I could have made about twice as much.

Lessons? My share picking system has not failed me. Big decisions made at start of day are often wrong - I must be more careful and strict with myself.

Here is a chart of my selection of shares. It shows why I had such a bumpy ride and why it turned out well in the end.

I have another decision to make now. My SIPP account is now moving forward nicely but my ISA account is stuck in a rut. UK shares just do not cut the mustard. The US generates much better profits far more quickly. But I am not allowed to hold foreign currency in my ISA account. The practical problem here is that exchanging currency into dollars and out again costs 4%. I have been too mean to make this payment up to now but achieving the sort of returns that these Chinese shares have provided makes paying this charge a viable option. It adversely affects the risk profile but I can stand that.

The other problem is that not all foreign shares quoted on the US market are eligible for an ISA and a brief investigation suggests that most of my China shares would be ruled out for that reason. So back to the drawing board.

My medical investigation went as well as these things do. Unfortunately It did not show all that the doctor needed to see so it needs to be repeated. What fun!

Wednesday, 13 November 2013

At last! But what next? AND seven film reviews.

It's been a long wait but, at last, I can report that share picking has brought home the bacon. As always, I might be speaking too soon but the last three days have seen a dramatic turnaround. In those three days my 10 Chinese shares have put on an average of almost 14%. How did I pick them? It was that wonderful Vector Vest tool, the Simulator. I back-tested looking for picking methods that have worked well in the past few months when the DJI was making small new highs but suffered big pull backs. Regular readers will know it has not been smooth sailing, and there may still be storms ahead, but, at least for this morning, I will bask in the glow ofwhat those shares have achieved.

As ever tomorrow may bring disappointment. Chinese leaders have announced the direction of reform for the next decade. Markets were disappointed that the planned changes were not bolder and Chinese markets sank taking other Pacific markets with them. It loos as though the US market may also see another day of weakness. But we are at a cross roads. The market keeps banging it's head on a ceiling and no-one can say for sure whether it will break out or whether we are at the end of the bull run. I just have to take each day as it comes. Judging by thge performance of the FTSE so far, it is not coming well.

I have mentioned that I have been unwell for a couple of weeks now. Today seems to be a bit better but tomorrow I have another unpleasant medical procedure. But there has been one big advantage. I have been able to catch up with some some serious film watching. And I have seen some crackers.

There was a beautiful Danish/English romantic comedy which started life with the title "The Bald Headed Hairdresser." It is now called "All You Need is Love." More appleaing to the US market I guess. It is a beautifully poignant piece. The charming and engaging main characters, played by Pierce Brosnan, Trine Dyrholm,  battle their way through the mess that cliche insists surrounds any big family event, in this case a wedding in a fabulous lemon grove in Sicily.

Then there was Denzel Washington in a relentless attack on the evils of drink called "Flight." Not a film to be watched if you are going by air any time soon. But a thrilling couple of hours all the same.

Another charming piece of romantic frippery was "Quartet". Set in a home for aging musicians it has the theme: it's never too late. It's main claim to fame are sparkling performances by Michael Gambon, Maggie Smith, Billy Connoly, Pauline Collins and a slightly stuffy Tom Courtney.

"Hichcock" starring Anthony Hopkins and Helen Mirren does not avoid the unpleasant sides of Hitchcock's character but flits over them lightly. It concentrates on the relationship between the man and his wife Alma. It acknowledges, as he did, that she was indispensable to his success. Helen Mirren's performance makes it abundantly clear that making her mark could only come from a woman who was a match for his strength of character.The story focuses on the making of Psycho and ends with a him explaining how difficult it was for him to choose new  material. There is a very witty allusion to his next film which mirrors the way Hitch would capture the imagination.

Then there are a few less happy choices. Worst was "Behind the Candelabra." Michael Douglas and Matt Damon fail miserably to capture the gay passion of Liberace and his young lover. The contrast with Sean Penn's performance in "Milk" could not be more stark. Candelabra shows no chemistry between the two. Instead you have two heterosexual actors struggling to play gay. Douglas does the camp thing, not hard given the Liberace trappings and Damon being nasty and greedy. There's no love here. Penn by contrast in the earlier film shows how passion can blind a lover to his objects manifest weaknesses. Oh what a waste was "Candelabra."

"The Reluctant Fundamentalist" loses all the ambiguity of the book. Instead of a subtle exploration of a very difficult subject, the movie resorts to the sledgehammer. All is black and white as is the wont of Hollywood and the American view of the world. A pity, for the film is made and played well.

Not so bad but extremely weak was "A Late Quartet." Another film about age and decline. It also harks back to some of the themes of "All you need is Love." If you pull out one brick in a structure the whole edifice may crumble. In this film the maker cannot be bothered to provide a believable resolution. It jumps from catastrophe to a new beginning without filling in the blanks.

And finally there was the latest Star Trek movie. New actors play the old crew. It is exciting but that's all you can say.

Saturday, 9 November 2013

Roller coaster ride

Still not up to much so short post.

This week has been a white knuckle ride. Thursday saw two big news events. Unexpectedly the EU cut interest rates indicating continuing worries about the European economies. The US announced much better than expected GDP figures. The result was a dive in world stock markets as the worry that QE might come to an end outweighed a potentially lower interest rate scenario and a stronger US economy.

Friday the US employment figures came out and not only were they much better than had been expected, but revisions of earlier estimates indicated that the employment level had been better for several months. It was extraordinary, the economic news was no different from Thursday and yet the markets recovered. A new high on the DOW and a strong upward move on the S&P.

I'm going to stick to describing what happened to my portfolio. Particularly all those Chinese shares I now hold on the US market. Over the day those shares dropped 5%. It's the sort of loss that left me reeling. Also it meant that a decision would soon have to be made about cutting losses. I'm lucky, I do not suffer sleepless nights. I take the loss on the chin and wait for tomorrow to guide me as to what to do next.

And then Friday. My shares stormed past Thursday's high and made a rise of 5.5%. I include charts of two of my winners. It keeps my spirits up. This is not a game for those of a nervous disposition, but I find it is worth reminding myself what can happen when I get it right. All that's left to do is to get it right more often than I get it wrong.

Monday, 4 November 2013

It pays dividends

I have been unwell for several days, hence no updates. Bit better today so hoping I'm on the way up.

Friday brought the second quarterly payment of the GVC dividend. Even on the current share price the dividend yield is running at around 10%. At the average price I paid since the share suspension, the yield I have achieved is closer to 12.5%. And I have upped my holding by 40% at the low prices that were offered after the x dividend date. All to the good.

Those frightening China shares are starting to move in the right direction, slowly slowly. FENG is still looking decidedly sick and is due to publish results on November 13th. I have to decide whether to wait out those results and risk another hit or perhaps some pleasant news. CISQ, on the other hand has moved into profit.

Here is a chart of Vector Vest's watchlist of Chinese shares that are quoted on the US markets. I bought on what I hoped would be a pull back but as you can see I jumped the gun. If the chart resumes its upward movement I may be tempted to pick up some more.

Th UK shares are doing OK and have covered costs but have yet to move into profit. III is 2.4% up but WIN which started well is now 2.4% down.

The indices have all pulled back a little but are running close to their highs. There is no evidence of a real end to the rally.

And so back to my sick bed.

Wednesday, 30 October 2013

Not for sissies

Bette Davis once said Old age is no place for sissies (my wife alerted me to this being the original quotation. I had heard it repeated by someone else using the word wimps. I have re-titled the piece appropriately). Stock market trading, the way I do it, is not for sissies either.

I need to remind you for the umpteenth time that I am not attempting to grow my portfolio, or even preserve, my capital so that I have a nice little pile to leave for posterity. I earn my livelihood from what I make in capital gains. I retired prematurely some 15 years ago with a totally inadequate pot of money. Since then I have only been able to afford a decent lifestyle because I have been able to generate exceptional returns from my meager pot. No superannuation, no regular flow of cash from any source. Just me and my savings. The returns I have made, exceptional as they have been, are too small to grow the capital, so continued high returns are essential. I have managed to navigate through two major stock market crashes and it is only in these last couple of years that I have found the going really tough causing my little pot to dwindle.

I put this down to the fact that I can't get my head round how the new players in the market operate. These are the banks and funds that are the beneficiaries of what is perhaps the biggest income redistribution I have ever known. After the banks lost almost all of their capital and pushed the economies of the developed world to the point of bankruptcy, governments have been furnishing them with social benefits on an unprecedented scale to help them rebuild their balance sheets. This money has found its way onto all the major capital markets  in the world (stock markets, foreign exchange, commodity and interest rates) and it and has distorted their operations.

Running risks

Enough winging! I have to make my living and I can only do that by reviving my talent for making my money work really hard. And the only way to do that is to take big risks. The last few days have demonstrated that risk taking is a two way street and I can lose as well as win.

The stock market continues to defy gravity and I can see no end to its upward movement. So, belatedly, I decided to dive in. I scouted round the US market and found that the big winners  through the gyrations of the US market over the Summer and the Autumn (Fall) were the Chinese shares quoted on the US market. Fine I thought. Good track record, good story (China is where the future lies). I'll go for this.

On the very day I bought in the news hit. NQ Mobile was accused of falsifying revenue and profits data. According to Bloomberg:

"NQ Mobile fell the most on record last week after Muddy Waters said the company inflated revenue and lied about cash balances in an Oct. 24 report. NQ denied the allegations, holding a two-hour conference call on Oct. 25 to discuss details of its financial statements." 
Their shares crashed taking with them all the shares that I had bought.

In two days those shares had lost 13% of their value. At certain intraday points the worst of the shares had lost over 30% of its value.

Big decision, Do I cash in my losses and run for cover or do I work on the principle that this will blow over? There is no road map, no sat-nav to steer me out of this hole. Just nerves of steel and self belief. I've held my nerve and held on. By the end of yesterday the portfolio of five shares had recovered 5% of its value.

You see what I mean about risk. If I had gone into that market just a few days before I would have made 13% in just a few days instead of losing it. But it took me time to build the courage and I missed the opportunity. And when I did take the plunge someone drained the tank of water and my dive into the market left me with a bloody nose. There's nothing to say what today will bring but taking risks is the only way I can make the money. I have to keep reminding myself: I've done it before, I can do it again.

Not a game for sissies.

Saturday, 26 October 2013

The stock market bites

That never ending rise in the stock market has frustrated me. So I decided to jump aboard the train. I prepared myself as well as I could using the strategies I know. I looked for the Vector Vest Unisearches that had done well over the past couple of months. I looked for ones which had done well if I had bought at the top of each rally and ones that had done well if I had bought at the bottom of pull backs. I found the ones that had systematically done well. I did not want to fill my portfolio so I picked five UK shares (bought Friday) and five US shares (bought Thursday).

In the UK shares I have had one winner (WIN up 3.6%) one neutral (JMI) and three losers. (CLDN III and RTT). A reasonable start since there were no real baddies and I more than covered costs.

The US was a different story. I found that the best performing selection was one that picked high VST Chinese shares which had been going great guns. I bought the best group (CSIQ EJ BITA FENG VIPS) and on Friday I watched one of my picks dive 20% before recovering and ending the day 8% down on my purchase price. I leave you to imagine my state of mind as the day progressed. I could easily have pulled out as my loss exceeded 20%. Luckily I hung in. But I will go in on Monday with frayed nerves.  Here's how the day panned out.

And this is what it looks like on the daily chart. Chartists among you will say that I was mad to go in. The chart screams correction. But I was buying on fundamentals. For me sharepicking is the name of the game. I have cash so I can weather the storm, I hope.

We're promised a storm on Sunday night/Monday morning. Lets hope we weather that too. 


 As well as the clock change that happens tonight. One less hour in bed.

Thursday, 24 October 2013

At last! A chink of light in my personal cloud and a link that throws some light on the foggy world of Quantitative Easing

My struggle with knowing what to do in the markets goes on. Yesterday's pullback looks as though it will be short lived So I still have the nightmare decision: do I jump aboard this speeding train?

However, I do have one bit of good news. GVC is performing at last. I first bought it in 2012 at about £1.60 and realized a chunk of profit during one of the one of the 2012 pull backs. I sold at 229 realizing 43% profit and pocketing a dividend which added another 7 percent to my bundle.

The share was suspended for a time while it absorbed its purchase of part of Sportingbet. When GVC re-listed I had to pay 263 to get back in so I lost a potential 15%.

This is currently my very best investment and as usual with these top performers there is something a little different. In this case we have a company providing services to the gambling industry internationally. It has a policy of running the business for cash and aggressively distributing that cash in dividends. It announced that it would move to a quarterly distribution before it was suspended. It has restarted paying dividends earlier than first announced and it has reported that it expects results for the current year to be ahead of market expectations.

Immediately following its first ex dividend date the price started to pull back very sharply. You can imagine that I felt very nervous especially since, currently, this was my only holding. (Attentive readers will know I've pulled out of my other shareholdings.) Nevertheless I felt confident in this share and bought more, twice, once as the price was falling (never catch a falling knife) and once at the bottom (still catching a falling knife but sometimes you're lucky).

The price fall has been caused by one of the major shareholders disposing of its stake (they been in the company for a while and they must be sitting on a hefty profit). The problem when one big seller tries to dispose of a big stake is to find a buyer. Too early to say for sure but it looks as though this a buyer has been found and a huge sale yesterday, or was it a negotiated buy, brought the price slide to an end.  Early to say but it looks as though my faith in the business may have paid off. Good thing too I have now well over 20% of my portfolio invested in just this one share. Not to be recommended! Incidentally I should repeat my ever present warning: I do not recommend ANY shares or ANY strategy. I am simply describing my own efforts to play the game.

So why have I been so convinced that this share is worth holding. Two reasons: I purchased the bulk of my holding when GVC's PE ratio was below 6 (earnings yield of almost 17%) and that was on a historical basis (i.e. not taking into account EPS increases, and the dividend yield was about 12%. And, it appears, there are no obvious nasties in the business. It screams cheap.

Anyway, net result is a sigh of relief that my gamble paid off and I look forward to banking those chunky dividend payments.

So back to the real world of hard decisions. It looks as though I may have to go back into the market. I'll give that some thought later today All the QE money is inflating the stock market and if it goes on that train beckons. I shall just have to be a bit smarter in picking my shares.

I have another radio program to recommend which addresses the horrors of Quantitative Easing and the looming disaster that it is hiding. As I listened I was chilled to the core. All that money we are printing (governments are us) is redistributing wealth to the rich and distorting commodity as well as stock markets. And no-one cares.

Monday, 21 October 2013

What have we here?

The fiscal cliff has been pushed into the beginning of next year. We have a whole lot of delayed statistical news to come in the next week or so. This will affect the thinking of the FOMC will alter their take on the future of QE. So more uncertainty. But a part of the market powers on. While the DOW is stalled on its run up, the S&P has taken heart from the fact that the US will not default on its payments (yet) and has risen to a new all time high.

A contrast that makes it hard to draw any conclusions.

Obviously I'm kicking myself for not being in the market. But safety, like everything else has its price. There is a good economic phrase which describes the price I am paying. It is "opportunity cost". I've missed my opportunity to profit, by sitting on the sidelines. Frustrating but there you go.

I have done a couple of things. When the fiscal cliff loomed I bought some more shorts on US treasury bonds. This time shorter term ones code PST. As the cliff moved away, they fell a bit.

GVC (a UK share) carries a 12% yield and a PE of 5.5, following a pull back on its price since it went ex dividend. I already had a hefty chunk of these shares and am sitting on a decent profit. I took the price pull back as an opportunity to pick up a few more. Remember I am not here to recommend anything. Just to report on what I'm doing.