2017 - Newbie Investment Principles

Introduction

Not entirely a new(bie) investor, I have been picking up shares on and off over the last 4 or 5 years, without really doing that thing investors talk about, which I now understand is called 'actual proper research'.  As an example previously I would presume that finding 3 positive articles online about a stock and the fact the price had taken a recent hit as a good buy opportunity (as long as I took a quick squiz at the books). So the contrarian mind-set was in place somewhat, but unfortunately laziness ensued.  

About 7 months ago I decided enough was enough and committed to following better practices.  This included offloading those 'investments' I held since I couldn't remember why I bought them in the first place!  Instead, I would now keep an investment diary, in addition to learning the skills necessary to be a successful investor and putting them to practice.  This is mainly by reading my way through the many great books and articles available focused on the subject. 

This was also one of the reasons for subscribing to Stockopedia for the great resource of information. I'm sure as members the majority would agree the stock reports and readymade screens are invaluable for pointing out ticking time bombs, before investing too much of our precious time researching the company, or more importantly investing in it.

Purpose

The intention of this post is to help me remain accountable to these principles with the cash I have to drip feed into my account in 2017 and highlighting lessons learned along the way.  By laying it out here for all to see and committing to re-posting later in the year.  Fear of having to 'explain Myself' to the Stockopedia audience should hopefully keep me on the straight and narrow.  

I have 9k already invested (see table below), 5k available to invest and about 10k currently invested in various tracker funds via a monthly direct debit, the idea is I can easily tinker with the asset allocation divest from these if needed. 

The story so far

From the about mid 2016 I have built up a portfolio of 13 stocks, not including Joules (LON:JOUL) the one stock I have sold off so far.  This one unfortunately hit my stop loss just prior to a big trend upwards, so that one is on the naughty step.  The lesson there was not to set my stop losses too tightly in future.

At the moment I will invest somewhere between £600 and £1000 pounds per buy trade, depending on some of the key fundamentals that indicates the risk such as the liquidity, market cap and my conviction on the share itself.  I have a long position in the following:

Unsurprisingly the ones in the red territory were bought without doing what I would now consider proper due diliegence on the share.  What does this the above mean in term of gains so far?

A modest 5.76% gain since starting to build a portfolio 7 months ago.  My real objective here is to get to a position where I can make 20% returns.  So as stated earlier, the aim of this post and any subsequent ones is to validate these principles over the long term.  

Rules to Follow

As mentioned above I am focused on mid-cap growth stocks.  I have taken my preferred rules from some other screens including the Slater Zulu and the Naked Trader-esque screens.   

What I ended up with was the newbie growth screen, which gives me 4 stocks to choose from currently.  I'll use to help identify new share ideas as well as other means.  The one with the highest StockRank I'll take a look at now is Empresaria (LON:EMR), a recruitment agency based somewhere in England.  Its a great looking stock report at first glance with a StockRank of 97.  The share price has gone up over 21% over the last 12 months, it looks like the market is factoring in an expectation of increased earnings fuelled by the recent acquisitions.  This was up 5.4% on Friday 3rd Feb, some other up front stats I like to look at include:

Market Cap: £62.0m

PE Ratio: 8.85 (vs industry ave of 13.4)

Pre-tax profits: £8.1m

PEG: 0.47

Net Debt: £10.2m

Operating margin: 4% (this is quite low for me)

Latest trading statement is positive:  Adjusted profit before tax growth is expected to be approximately 23% year on year, representing a record profit level for the Group.  Net fee income is approximately 20% ahead of the prior year and diluted adjusted earnings per share is expected to be up 12% on the prior year.

Industry Outlook: I'm not that sure about the recruitment sector, I imagine its quite cyclical, although the job market seems pretty buoyant at the moment. 

Red flags: I take a Dragons Den approach to looking for any negatives, I imagine Peter Jones or Deborah Meaden scrutinising the balance sheet and questioning management decisions.  It helps remove any cognitive bias, rather than just excuse the fact the CEO purchased a new private jet, the Dragons will not accept that kind of behaviour nor my investment. In this case I guess the main issue could be the jobs market.  With the bigger players the uncertainty surrounding Brexit could have an impact in the future, although this company is globally well diversified.

Overall: I like their diversification geographically and that they are focused on acquiring businesses in the technology sector.  I'm not convinced I haven't missed something so will take another look at this before making an investment decision.  In my next update I'll let you know how I get on.

Next Steps

I have a few other stocks on my radar, I'll try to allocate a bit of time each day to researching them and monitoring my current positions.  As mentioned above I have some more funds to drip feed into my ISA.  Overall the chief aim of holding somewhere between 15-20 stocks and continue striving towards 20%+ gains on a consistent basis.

Those 'potential' consistent gains compounded over the long term hopefully means I can eventually become free to do it full time (the holy grail).  Otherwise it will become a case of leaving it to the automation of the cheap tracker funds and focus on something else (the brutal 'possible' truth).

Hopefully if I continue to focus on strategy, doing the research and cutting my losers this will be achievable.  I believe keeping an simple investment diary (I use a basic template in word) will help me keep track of what's working and what has gone wrong.

I'll commit to posting an update with how I get on, if anything it will motivate me towards staying true to these principles.