SIF Folio In April: Should I Sell In Lockdown? Plus CAPD, HAT And MGP

28th Apr '20 by Roland Head

7 comments 3206 reads

It’s the end of the month. This would normally mean that it’s time for me to review and consider selling any stocks that I’ve held in the SIF folio for nine months or more.

In the turmoil of March’s market crash, I suspended my usual month-end review. I could see no benefit in selling stocks into such a negative market. This week, I need to decide whether to return to my normal trading rules or extend my selling ban until visibility improves.

I’ll also take a look at the latest news from three stocks which should be under review this month:

Capital Drilling (LON:CAPD)
H&T Group (LON:HAT)
Medica Group (LON:MGP)

The lockdown dilemma

In my main personal portfolio, all of my positions are held for the long term. Managing the crash has been relatively easy. So far, I’ve only sold one share in this portfolio this year (to swap for a better quality peer). Otherwise, all I’ve done is to selectively average down on some positions.

The situation is more complex for the SIF folio (which I also own in smaller size). This is essentially a trading fund, where the typical holding period is just over nine months. I expect most if not all of the companies in the portfolio to stage a decent recovery eventually. But in some plausible scenarios, this could take several years. I can’t wait that long.

My inclination is to wait until forward visibility improves before selling any stocks. But this could backfire badly. When forward visibility improves, the view could be grim. We could see a renewed market slump as the harsh reality of what’s happened hits investors.

Conversely, the world’s economies could rebound relatively quickly, cushioned by the vast wave of government support measures which have been put in place.

If I continue to sell stocks on my usual schedule, I’m effectively taking a neutral stance. This has been the strategy I’ve followed religiously over the last four years.

However, the current situation is unusually severe. It’s been 12 years since we had a market crash of this magnitude, and 100 years since we had a global pandemic. I think I can justify taking a more active stance in such circumstances.

My decision: On a long-term view, I share Warren Buffett’s view that stock markets will generally continue to rise. But over…

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Captaincarter

28th Apr '20

Hi Roland, having just engaged in both Investing / Trading & Stockopedia I welcome your transparency article as key to my learning curve. Can I ask are the £values actual pound notes invested. If so the negative values are a real eye opener. In particular Gulf Keystone. If it is actual money invested and as advised by many of the experienced traders I have read about, why has a “stop loss” not been activated

Roland Head

Hi Captaincarter,

I should have made it clear that SIF folio that's pictured in the article is a virtual fund, based on a £1m starting value in April 2016.

Although I am personally invested in these stocks with real cash, the amounts involved are much smaller!

Re. stop losses. I don't use stop losses as I have never been able to achieve satisfactory results with them. In my experience they are either too high or too low.

In more normal times, I do have a rule for SIF which forces me to sell stocks after a profit warning. I'm not doing this at the moment as almost every company on the LSE is expecting a hit to profits this year (except Plus500 (LON:PLUS) and its peers!).

Cheers,

Roland

IncredibleMosesLeroy

Roland,

I'd appreciate your thoughts on Finsbury Food (LON:FIF) - I picked up some after your thorough analysis earlier this year. I'm still reasonably confident but the lack of rebound (or any volatility) is confusing to a relatively new investor.

Cheers.

IncredibleMosesLeroy,

Thanks for your comment. I thought that the latest (COVID-19) update from Finsbury Food (LON:FIF) was fairly encouraging. Broadly speaking, the firm's foodservice sales (to cafes, etc) are suffering but sales through supermarkets are going well, as you'd expect.

https://www.stockopedia.com/sh...

Although it's too soon to say exactly what the impact will be, I'm not too concerned overall. I don't see any serious risk to the survival of the business.

Debt looks manageable to me and the firm appears to have access to enough cash to handle any short-term impacts. In my view, the shares look decent value at current levels, as far as anyone can tell.

I wouldn't read too much into the short-term share price action - this is a small cap (£80m) and liquidity isn't great. So dealing volumes could be low.

I'm quite comfortable continuing to hold, although of course this is only my opinion. Please DYOR.

Regards,

leishylegs

Thanks for your thoughts, as always, Roland. Very interesting and I agree with you that the market does seem somewhat false, or perhaps disconnected to reality. I also believe that the markets will ultimately recover but share your view that there may be some pretty grim updates on their way over coming months which could well lead to a further sharp leg or legs down. An interesting article on this from Seeking Alpha describes some of the disconnect from reality and the potential for chaos if millions of unemployed Americans stop paying their bills because they are literally unable to do so. Scary stuff as it explains how this could be the first step in the debt fuelled house of cards tumbling down.

https://seekingalpha.com/artic...

Richard

thank you Sir, i can now sleep more soundly tonight :)

brileen

1st May '20

Roland, once again thanks for a very interesting article. H & T looks an interesting possibility at this price but I have made no move so far.

My eye is also drawn towards one of your holdings ,GKP ,particularly since reading Michael Taylor’s recent note. I hold no oil stocks in my portfolio at present and have not for some time but at these prices unless you think that the industry is about to be wiped out , there has to be value and serious money to be made should things ever return to normal.
GKP has plenty of cash and as Michael pointed out directors have been buying shares. I have no doubt that if this share came up as having been in the SIF portfolio for nine months it would be evicted under your rules, I cannot get over the thought that buying these shares at his price would look to have been a clever decision in a couple of years time. After all what else could go wrong for the oil industry. Am I brave enough to have a punt?

Roland, do you have any further thoughts on this stock at this time?

SIF Folio in April: Should I sell in lockdown? Plus CAPD, HAT and MGP

The lockdown dilemma

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Roland Head

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