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.