Redde – sold
Decisions, decisions. In the stock market you have to make them, never being sure if they’re right or wrong. Anyway, I sold my holding of specialty finance company REDD (Redde) today.
I bought it in Jan 2014 when it was called HHR, at a price of 5.753p. Adjusted for consolidation, it’s 57.53p. I see from my notes that I put a FV of £420m on the company, with a reference to my blog (http://is.gd/DccgYZ). It was a Magic Formula stock. The shares are currently worth around £460m. Blimey. The system works!
I had actually lost track of my original decision, so it was good to refresh my memory. REDD became a momentum share, which is when I kind of got sloppy in my thinking. I just let the momentum run.
Momentum investing is something I have been thinking about lately. I am firmly convinced that if you play momentum, you are going to need an exit strategy. I had used PV50 (price vs 50dMA) in the past, and it stopped me out of EZJ too early.
The problem as I see it is that PV50 is often an area of support, so if it dips below that figure, what do you do? Is it a sell, or actually a buy? At what point do you say that momentum is broken?
I now have a different strategy, which worked well on my recent sale of APH. It is very simple: a percentage of the 52w high. That way, you can allow shares to pull back or consolidate without losing your position. On APH I set it at 20% below the 52w high.
On reflection, I figured that 20% was too loose, so I set it at 15% for REDD. The stop was triggered today, so I bailed.
Let’s take a look at the chart:
You can see that there’s a consolidation area at around 160p. It then ran up to 180p, which proved to be level of resistance. With today’s price moves, you can see that the 160p area has been broken.
By my reckoning, the next support level is at around 140p. It looks like that’s where it is heading next. My sale today certainly wouldn’t have helped!
It occurs to me that if you are going to set target prices, then don’t set round numbers. 160p is very obvious as a consolidation region. Suppose you set your stoploss at 160p, and it gets hit. You’ll quit the trade, but how do you know it’s not an area of support, and the shares won’t bounce back up again? It looks like every man and his dog has configured their software to trigger an alert at 160p. In which case, it’s difficult to figure out what to do. That’s why I like a stoploss based on the 52w. It gives goofy numbers, making them harder to predict, which is what you want.
So, in summary, I was in at 57.5p, and out at 153.5p, including all transaction costs. Dividends are ignored. That’s a gain of 167% over a little less than two years. Come to daddy!
I am relieved to get out, in a way, as my holding was top-heavy. People might have suggested top-slicing. I’m not sure I’m a fan of that, though. If a trade is good, then why top-slice? If a trade is bad, then get out.
It will be a long time before I repeat the success of that trade. I do have a winner that it up more than that, but I consider it a long term buy and hold, and I don’t want to start getting too clever with it.
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7 comments
An extra thought here ... I was scanning through the site Trading Bases (http://www.tradingbases.co.uk/), and he offers a lot of sensible advice. Perhaps part of the trick is not to have an oversized position. That way, you don't feel pressure to top-slice, and can ride the whole position to the top.
Just an idea.
Hi Mark,
Are you saying you won't sell TAST if they drop 20% from the 52wk high?
NI
That's right. I would keep it. I don't have a stoploss on it.
Maybe my psychology is a little faulty on this, in that I have made money too easily on it. But I think sometimes, if you think you've got a good share, you should probably hold onto it. Maybe if my assessment changed, perhaps due to information that I didn't like, I would change my mind. We would have to see. Management have got skin in the game, and I don't think they're about to do anything foolish.
The thing is, I'm reasonably confident that this will be a successful growth story, so I don't want to mess around with it.
For something like Redde (LON:REDD), yeah, it's an OK company, but I have no great conviction in it. It was a value stock when I bought it, turned into a fantastic momentum stock, so I just ran with it.
Mark, I also bought into Helphire early before the recovery started, after Paul highlighted it on his first StockReport webinar around June 2013 (cheers, Paul!). Looking back I see I bought a nice chunk of these in my SIPP on 27-Jun-13 at 3.65p (36.5p post-consolidation).
Like you, I agonised (probably on a weekly basis) on when or if to sell these as they kept going up, without any major pull-backs or slips in executing - in fact recent messaging indicates they are still exceeding management/market expectations.
That said, it became quite a large holding so last month I sold 3/8 of the position (on 23-Oct-15 at 175p) - naturally it carried on going up after that, but I still felt as though I'd done the right thing in top slicing. Fast forward to this past week and some recent weakness turned into a rout after the Chancellor's Autumn Statement in which a crackdown on spurious whiplash claims was announced. Thankfully the company clarified on Friday that the revenue for injury claims in its legal division represents only 2.5% of group revenue, and the price quickly recovered from 140p to above 160p, and up on the day.
However, it's clear that the momentum trend has popped, at least for now, but I'm prepared to wait for the company's December trading update and see if there is any impact, or any slowdown in the outlook statement.
Thankfully I've inadvertently become a LTBH investor as I don't have time to review the daily movements, so holdings are allowed to run and run. Naturally, that hasn't helped my oil stocks and mining trusts!
Anyway, looping back to when to sell, it really depends on personal circumstances and portfolio sizing decisions. Having top-sliced to then see Redde (LON:REDD) continue on up it was a bad decision; however when the price dipped under 175p it's all of a sudden a good decision...! But factor in the retention of 5/8s of my initial position and I've missed the top again - so I can't win, and it is pointless to over-analyse the position. I'll just say I'm content to hold for now and see what the company states in the next few weeks.
All the best,
SM
Actually, I get the impression from your writings that you're a far better investor than me, so I dare say that anything you do will be far more sensible than anything I can say.
Yes, I can understand your view on top-slicing. Because of the large gains, holding it was uncomfortable for me, too. I think sometimes one has to be sensible about these things and not take on more risk than one is prepared to.
Redde (LON:REDD) had an amazing run, and went to a PE of over 20. So there were grounds for suspicion about just how long the trend could continue.
I agree about the pointlessness of over-analysing. And I think there's a lesson here: no method is perfect, whether it's growth, value, momentum, whatever. We all just have to try to find a system that works significantly better than chance.
It's actually confusing to know where REDD ended during the day. Goodle says it's down 3.2% to 155.82p, whilst Stockopedia says it's up 1.2% to 163p. Last night, I think Yahoo said it finished up, but now it says it finished down to 155.82p. London South East reckons the price is 163p. So there's a fair bit of noise in what ought to be a fairly straightforward number.
It will be very interesting to see what happens next week. The 160p support now looks like it might be kinda intact, so you never know, it may bounce. Fundamentals still seem positive, so it's a question of whether they will support the current valuation.
Interesting. And best wishes to any holders out there.
Peace.
Thanks for the article - very rational.
I don't hold Redde but I appreciate your 'when-to-sell' idea, which is very tough as we all know. 20% from 52w high seems sensible.
What's the winner you consider long term buy and hold?
Lol. I should have expected someone to ask that. And the answer is ... Tasty (LON:TAST). They own a chain of restaruants.
I bought them back in Oct 2012/Apr 2014 at approx 59p. So I'm up 225% on that one so far. Adminttedly the valuation looks very racy, so there is a degree of belief that valuation will catch up with growth.
It's run by the Kaye family, who have a good knowledge of the sector. I owned $PRZ at one stage, too which was also run by the Kaye family. Unfortunately it was taken over. If memory serves I think I doubled my money on that one.
I wouldn't want you to think that my stockpicking is a neverending succession of doublers, though. I've made plenty of mistakes. Lonmin (LON:LMI) was my most recent egregious error. I bailed out at 26p on that one, having bought at 172p. As the saying goes, it's never too late to sell. LMI now stands at 1.19p, having washed out previous owners in a highly dilutive rights issue. I believe the Schroders value team had it as their favourite pick before the drop, so it was a huge mistake for them.