Marched up to the top of the hill and down again-My 2018 Portfolio Review

Tuesday, Jan 01 2019 by

2018 was my 26th year of running a family portfolio.  Identifying, understanding and controlling risk has been my saviour, initially as a soldier for 20 years and then for the next 20 dealing with Credit Risk.  In 1992 I decided to take investment seriously, understand portfolio management and measure my performance.   In 2012 I retired from the City and became a part time investor, recording my investment thoughts on a family blog that may allow  the next generation to find new Pooh traps, rather than fall into the ones I have already discovered.   I entered 2018 with a 25 year record of 15% annual gains and a standard deviation of annual return of 15% and below I provide my review of 2018 as presented to my family which may help others who have endured an uncomfortable year to 'soldier on'.

Before I lay out my performance for the year you need to know what risk management ground rules I apply to my portfolio. 

Firstly in terms of number of holdings I hold between 40 and 50 at any one time, of which the top 10 are around 60% of the total value.  With one exception, which I will come to later, no share can be more than 7% of my portfolio.  Indeed I discipline myself to stop buying any share, no matter how elevated my level of conviction, when the share reaches 5% of the portfolio value.    I exit the year with 6 of my top ten shares the same as I entered the year.  And three that joined the top 10 were 11th, 12th and 13th in the start of year list. 

Secondly, once I have understood a business and trust the management which typically takes two to three years, I generally hold my shares for a long period.  The share with the shortest holding period in my top 10( Sopheon (LON:SPE) ) which was ‘fast tracked’ in 2017 and 2018 while the others may have been holdings for longer, sometimes in excess of a decade. I am very conscious of liquidity and price manipulation so try to stay above £100m market cap, although there are exceptions.

Thirdly, I do recognise a circle of competence, or more accurately, my universe of incompetence.  I do not understand utilities and telecoms so avoid them completely.  With consumer stocks, both defensives and cyclicals…

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Hurricane Energy plc is engaged in the exploration of oil and gas reserves principally on the United Kingdom Continental Shelf. The Company's acreage is on the United Kingdom Continental Shelf, West of Shetland, on which the Company has approximately two basement reservoir discoveries, each containing approximately 200 million barrels of oil equivalent (MMboe). Its licenses include P1368, P1485, P1835 and P2294. The Company has approximately 450 million barrels of 2C Contingent Resources on acreage. Its Lancaster discovery is located in blocks, including 205/21a, 205/22a and 205/26b. The Whirlwind discovery is located across blocks, including 205/21a and 205/22a in the West of Shetland. The Lincoln Basement prospect is located in 205/26b block. The Typhoon prospect is located in blocks, including 204/22a, 204/23c, 204/27a and 204/28a. The Strathmore Prospect is located in the 204/30a block, and contains oil in Triassic-aged sandstones. more »

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Volvere plc is a holding company. The Company identifies and invests in undervalued and distressed businesses and securities, as well as businesses that are complementary to existing group companies. It operates through Food Manufacturing segment. Its food manufacturing segment consists of the Company's subsidiary, Shire Foods Limited (Shire), which is engaged in manufacturing frozen pies, pasties and other pastry products for retailers and food service customers. more »

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RWS Holdings plc is a holding company, which provides intellectual property support services (patent translations, international patent filing solutions and searches), in life sciences translations and linguistic validation. The Company provides specialist language service in other technical areas. The Company has four operating segments: RWS Patent Translation & Filing division which provides patent translation and filing services: RWS Patent Information division which provides a range of patent search, retrieval and monitoring services as well as a comprehensive patent database service accessible; RWS Life Sciences division which provides technical translations and linguistic validation to the medical and pharmaceutical sector. This division includes the LUZ, Inc, and RWS Language Solutions division, which provide non-patent or non-life science technical translations. more »

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  Is LON:HUR fundamentally strong or weak? Find out More »

9 Posts on this Thread show/hide all

donald pond 1st Jan 1 of 9

An excellent read. If I had to point out one weakness in Stockopedia it would be the relatively thin coverage given to oil and mining stocks. Hurricane Energy (LON:HUR) is an obvious case in point, but there are many others, and it is noticeable that some of them are close to the top of the stock ranks. (Hurricane Energy (LON:HUR) is obviously not, because it is not yet producing). This may be because Paul and Graham steer clear of the area, but it would be good if Stockopedia could think about getting some expert coverage (please, not Malcy!).

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jonno 1st Jan 2 of 9

Congratulations on a very readable and informative summary of your investment process and portfolio holdings, which I shall re-read in detail. A 5% gain is an admirable result in what has been an awful market, especially for UK small caps and AIM in particular, I though that I was doing well to finish the year without loss. I have an indirect holding in Hurricane Energy (LON:HUR) through the investment fund Crystal Amber Fund (LON:CRS), but am prompted to research the merits of a direct holding on reading your comments.

All the best for 2019

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tournesol 1st Jan 3 of 9

Thank you CJ.

That's a really great post. One of the best I've read on Stockopedia.

Congratulations on being such a very capable investor and thank you for taking the time to tell us about your approach and for sharing your thoughts about your current holdings.

I'm particularly interested by your holding in Hurricane - it's also my own biggest holding at around 8-10%. In the 30 years or so since I started investing I have focussed primarily on the oil and gas sector. I spent much of my working life in that industry in both major integrated oil companies and also in smaller independent E&P's and have a reasonable grasp of the industry from both an operational perspective and also an investment point of view. I am extremely impressed by HUR and its founder Dr Trice. I agree with you that HUR offers an asymmetric balance of risk/reward and (conditionally) with your assessment of its value as somewhere between the extremes of zero and 200p. I say conditonally because the higher figure is substantially constrained by the expectation that a successful outcome for the Lancaster EPS will trigger a take-over. If there is an outright sale within a year or two, the 200p figure is a reasonable expectation of the proceeds. If however the stars align and after a successful outcome for the EPS a take-over is frustrated/resisted/avoided then the long term potential for HUR is a multiple of 200p perhaps as much as 2000p or even more.

My own very rough assessment of risk/reward is as follows:-:

probability of failure (ie value = zero) say 10%

probability of base case success (ie value = 200p) say 80%

probability of best case success (ie value = 1000-2000p) say 10%

Should be said that HUR is at a critical stage of its development. The FPSO is currently en route for the Lancaster field. If the sea conditions allow it will arrive on site within the next few days and will be hooked up to the plumbing which has already been installed in advance. The taps will be opened and oil production will start. This will inaugurate the Early Production System which will provide proof of concept and unlock the overall project.

The departure of the FPSO from Rotterdam last week triggered a rise of 10% on the last half day of trading. This is a potentially volatile stock at a particularly exciting stage of its journey. It's not a widows and orphans stock.


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Ramridge 1st Jan 4 of 9

Great post, cjdown.

Just a small remark. Perhaps you should be comparing the performance of your portfolio against the FTSE 250 benchmark, as its profile is closer to this index than the FTSE 100. In which case, you are under valuing your relative performance as the FTSE 250 was -16% compared to FTSE100 's -12%.

For my part, I follow a strategy that is poles apart from yours. It is largely based on Minervini principles, viz. a short to medium term horizon, a hybrid technical and fundamental approach, a total portfolio of no more than twelve stocks, usually less than ten. When there are no clouds in the sky, I am 100% invested, and when there are dark clouds and visibility is poor, I can be 100% in cash.
Performance in 2018? Just squeezed in +3.5% .
Today, I reviewed my trades over 2018. What went well and what went badly wrong. There are three key lessons emerging from this analysis that I need to address.
1. Stick to the method I have devised. Invariably I lost money where I had no business buying the stock. For example, I keep getting suckered by falling knives. That's got to stop.
2. Wait for confirmation signals before investing. I need to kick FOMO out of my psyche.
3. Trust my method above my instincts.

All the best to everyone for 2019.

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aflash 2nd Jan 5 of 9

I do recognise a circle of competence, or more accurately, my universe of incompetence. I do not understand utilities and telecoms so avoid them completely

Oh My God!!! 

Here am I sweating over Oil and Gas, happy to make a hit on a small holding when I can and relieved to get my money back on HUR Huricane and here is somebody who keeps out of two sectors that consistently provide me with capital gains and dividends year after year! 

One has to be very price and x-dividend date conscious, take multiple small profits (and losses) and pay lots of brokerage but that was how I was trained.

Just shows that all techniques work if you are attentive, consistent, acquire knowledge and discipline.

cjdown's column also shows that there are high class investor-subscribers who seldom post, work hard and produce results. 

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back2value 2nd Jan 6 of 9

CJ, what an interesting and informative post - thank you.

Good timing, in your case, with regard to selling Zytronic - I waited until the price had fallen back to a tiny bit above my entry price of 2 years ago before selling, so I suffered no capital loss but obvious opportunity cost for the time consumed getting nowhere. The dividends have softened the blow, of course and I see that ZYT now has an 8+ percent yield, which given the strong cash position must be secure. I just feel that the management lack ambition, and a letter to the CEO politely suggesting a special divi went completely unanswered, which didn't impress me too much. I therefore have my doubts about whose interests they are running the company in. Perhaps they are simply making ZYT juicy enough to be taken over sometime soon? It wouldn't surprise me.


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Damian Cannon 2nd Jan 7 of 9

Great write up cjdown and thanks for posting. It seems that we share a number of holdings and also something of a similar approach - although I'm perhaps less consistent in following the QV/cash approach espoused by Keith Ashworth-Lord than you are! As it happens I got his book for Xmas and have read all of his monthly shareholder reports over the holiday period. Both are rather illuminating and I hope to apply some of his rules with any future investments.

Anyway I'm curious about a couple of your holdings: GB Group and dotDigital. I hold the latter and like their quality characteristics but the share price rather lagged in 2018. I see them as building momentum through some sensible partnerships but would be interested in an alternate view. With GB Group they came up on my radar recently and look pretty good at a cursory glance; however I'm wondering what you see as particularly special about them to deserve deeper analysis and perhaps investment?

Keep up the good work,


Blog: Ambling Randomly
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Monty9 2nd Jan 8 of 9

Thank you cjdown, for the excellent overview of your portfolio and what drives it. I think I make decisions on a slightly similar basis as you but can't get my head around momentum and have no structured risk management / loss limitation strategy, which cost me 20% this year! IQE did most of the damage but as it now trades on fundamentals at which I would initiate a new position, I continue to hold - perhaps third time lucky.
It must be quite difficult, even embarrassing, to objectively review one's portfolio and its performance in public, however that same dynamic gives the information greater value.
Here's to 2019.

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cafcash49 4th Jan 9 of 9

Thank you for sharing your 2018 experience and mentioning shares, some of which I will explore.
We may have met at Mello or Share Soc but you have probably changed a bit since your photo was taken. :-)
Good luck in 2019, I know it's not luck, what we do but we all need a bit of it as well. My 2018 was poor but it has made me become a more careful and considered investor and I have a more considered checklist before I invest.

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