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.