SIF Folio: With Stocks Going Down Like Ninepins, TEG Hits My Screen

10th Mar '20 by Roland Head

22 comments 3743 reads

I’m writing this on Monday 9 March. Earlier today I saw the price of oil fall 20% and the FTSE 100 open below 6,000 for the first time since February 2016.

Today’s fall has left the FTSE 100 down by 20% so far this year. Already, the coronavirus outbreak has led to the biggest market correction since I launched my rules-based SIF fund. So far, we’re not at 2008 levels of distress, but there’s no doubt this is a serious situation.

Sticking to the rules

Here at Stockopedia, we talk a lot about the importance of overcoming behavioural traits such as overconfidence, loss aversion and recency bias. When times are good, it’s easy to claim mastery over these academic concepts. But when the going gets tough, it gets much harder. As the saying goes, everyone’s a hero in a bull market.

One way to stay disciplined is by running your investment portfolio using a set of rules, rather than subjective judgements.

Stockopedia founder Ed Croft has done this since 2015 with the NAPS Portfolio. And I’ve been doing a similar thing since April 2016 with my Stock in Focus fund (archive here). Both portfolios have outperformed the market since their inception.

Naturally, the SIF folio has suffered in the sell-off we’ve seen over the last month. That’s to be expected. When the whole market falls, your portfolio does too. I’m not really too concerned about this.

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The only thing that I am watching is for signs that any of the companies I own might be in danger of lasting damage. Among the biggest losers so far are those companies with links to the oil market. The price of a barrel of Brent crude fell by about 20% to $36 on Monday. This is likely to hit three portfolio stocks - Aggreko, BHP and Gulf Keystone Petroleum. Should I be worried? Let’s take a brief look at each.

Aggreko: I suspect the oil price crash will lead to a renewed crackdown on spending by oil producers. This wouldn’t be good news for generator hire firm Aggreko. The group already faces the risk that major event contracts such as the Tokyo Olympics could be cancelled this year. However, the firm’s recent results showed improved profitability, decent cash generation and a reduction in leverage.…

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InvestorJohn

10th Mar '20

There is potential for an uplift for Ten Entertainment (LON:TEG) if the virus blows over but people stay in the UK for their holidays this year (Staycation). This could happen if people are nervous and don't book anything until its too late (I Hold)

CheshireUK

I think at the moment cash is king. Apart from people not wanting to go Ten Pin Bowling for the next few months, the fall of the stock market is a sign of the real fear that the world is in unchartered territory at the moment. The unknowns include how long people will stay away from public places, and how many companies can actually survive a loss of income for an extended period.

Zipmanpeter

There is also an age factor to consider. Although £TEN are family orientated and will no doubt suffer badly over next couple of months, I would judge their core market is young people/families and these will be less affected and go back to normal faster than business targetting "wrinklies" closer to my age!

Roland Head

Hi Zipmanpeter,

Thanks for highlighting this. This has reminded me of one point I didn't mention in the article -- bowling is an activity that's mainly aimed at families and young(er) people in their local area.

As far as I can see, TEG doesn't have any exposure to the travel or tourism markets. I see this as a positive.

Regards,

Roland

Hi LumpedOn,

Interesting stuff, thanks for sharing. I agree that anecdotally I haven't seen any evidence that people have changed their behaviour yet (except in certain aisles at the supermarket). But as you say, the eventual impact, if we experience an Italy-style lockdown, is hard to predict.

However, the market can see what's happening in Italy now and must know that it could happen in the UK. So I think that at least some bad news is priced into the stock. And I'd be surprised if a company that appears well-founded like Ten Entertainment (LON:TEG) is laid low by a couple of months of difficulties. Famous last words, but we will see.

Re. Redrow (LON:RDW), this is a business I rate quite highly and I agree that the government won't let the housing market go easily. The current valuation is certainly an improvement, but I'm still a little nervous about the direction of the housing market after such a long bull run. Ultimately, affordability could become an issue, in my view.

PriceOwen.Trading

I have a small holding in TEG. Great little company. However I've been rather happy with the returns on (LON:SUK2) I wouldn't be buying atm. More misery to come surely? Seems common sense to think that way. Hopefulness to think the other. Hopefulness has never made me money.....

Alexicek

11th Mar '20

i am new to investing and stockopedia. I cannot understand why you would hold a position in GKP stock which has a stock rank of 47. why when armed with these data on stockopedia would you ever be in a poorly ranked stock?

sorry if this is a niaeve question.

Hi Alexicek,

Thanks for your comment. When I added Gulf Keystone Petroleum (LON:GKP) to the portfolio in September 2019 it was trading under more favourable conditions, with much higher oil prices. So the picture has got worse, but my policy is to hold for a minimum period of nine months before I review positions.

Hope this makes sense!

stonor

12th Mar '20

Hello Roland .

Thank you for your exhibition of stoicism , also your bravery in experienting in dangerous times .

Good luck , Julia .

Hi Lumped On .

Please be careful not to "catch a falling knife" !

Julia .

mikelevie

But it does have exposure to 'social distancing' !

13th Mar '20

How often are you rebalancing holdings? Only if they fail your rules?

ChrisLong

14th Mar '20

I hold Ten Entertainment (LON:TEG) and decided to keep holding. Like others, I think that venues orientated mainly towards younger people will do quite well, and could even benefit if their clientele are banned from other activities or from their workplace.
I think too much of the advice fails to differentiate between young & healthy people on the one hand and elderly or unhealthy people on the other hand.
Of course, Ten could suffer if later advice makes them shut down, but I am prepared to risk that as a temporary effect.

slc72

thanks for discussing TEG - I am a holder and had been boiling an ever increasing stake until recently. For me it fits the model of a business that makes money out of something people are not going to stop doing in the long term over the next 100 years plus. Ok bowling will evolve, but they have brought all the other family entertainment in to their venues, including screens with Prem. league games playing above the bowling alley. Bit distracting but a good idea. I did end up cutting my holding earlier this week, as want to see what the next few weeks bring.

I did call them up last weekend and they had v few slots available, and that was already after a couple of weeks of covid19 media saturation. Generally I would like to just make sure I get back in before the value starts to go, and at the same time not by in too early and miss more covid19 value.

One question I have is their dividend and how that will be maintained. I think if we are in a prolonged recession and they can keep their generous div. that will make them attractive for people who want to build up equities that provide decent income.

*building, not boiling

Alter EGO

Hmmm....imho Ten is at risk of much greater falls in the short term. I can see bowling alleys closed, given greater controls that will inevitably be introduced on the gathering of people due to the virus....

Thanks, Julia!

Hi Alexicek,

I don't rebalance holdings unless they have doubled in value (sadly, rare). Otherwise I let them run until they are sold. I sell shares after a minimum of nine months or when they no longer pass my screening rules.

The only exception is that I generally sell stocks following a profit warning.

Regards,
Roland

Caper4

agreed. A certainty I would have thought

Edward King

15th Mar '20

I look forward to Ten Entertainment's full years results which are due to be published 25th of this month, but the old saying " to see the bottom of a falling market is like trying to catch a falling knife" is hard to forget in times such as this.

SIF Folio: With stocks going down like ninepins, TEG hits my screen

Sticking to the rules

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Roland Head

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