Small Cap Value Report (20 Jul 2016) - VTU, JDG

20th Jul '16 by Paul Scott

42 comments 17433 reads

Good morning!

I'm walking wounded today, after a bit of a session last night. I was celebrating some good news, of putting to bed my last big legacy issue from the 2008 financial crisis. I can't go into details now, but it will all be in my book - work has started on that.

A friend gave me a copy of "What I learned from losing a millions dollars", and suggested that I write a similar book about my experiences in the financial crisis. I retorted that, for a start, put a zero on the end of that number. There are lots of books out there supposedly telling us how easy it is to make a fortune from the markets, and explaining how clever the author is. There aren't enough books explaining how easy it is to get things disastrously wrong in the markets (which often happens after a long period of outstanding performance, as it did with me). So I intend writing just such a book - but with a happy ending - focusing on what I learned from getting things so badly wrong in 2008. If it stops just one other person from blowing up through combining gearing & illiquidity as I did, then it will be worth it.

As I've mentioned before, I made disastrous mistakes in 2008, and learned some very painful lessons, the hard way. Hubris has hopefully now turned into humility - an essential first step to learning lessons from the mistakes we make in life. I love this quote, attributed to an author called Will Rogers;

Good judgement comes from experience, and a lot of that comes from bad judgement.

(I never know whether to put an "e" in the middle of judgement or not. Have just googled it, and apparently the version with an "e" is the conventional English version, which is my preference)

Anyone who claims to get all, or almost all, their investing decisions right, is a liar. As mentioned yesterday, a 60:40 win:lose ratio is perfectly adequate to give terrific overall results - especially if you ensure that the winners are generally larger positions, and the losers smaller ones. So we shouldn't beat ourselves up when we get a stock idea wrong. The important thing is to learn from each experience, and mistake.

As ever, my mission here at Stockopedia is to flag up potentially interesting shares, and warn you away from dodgy shares.…

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The Phoenix

20th Jul '16

Hi Paul,

Great to hear youf finally writing the book I would suggest a style of narrative about how you got started in shares I remember you from the early Mike Walters days and how you learned stuff to scale in bigger over time.

How you spotted Indigo rode it all the way up lived the dream the Aston, Mayfair Flat, Nights partying in Brighton, how it started to go wrong and how you got back on top by nailing Trinity Mirror I remember you saying somewhere took roughly four years to get your confidence back.

It would be good to have some insight into what alerted you to the big winners and losers but people like a story and the glitz element so personally think a 50/50 wplit between your trading stratergies and your life story would be great. I rate you and the Naked Trader as two of the 1% who can walk the walk unlike the forex snake oil salesman.

You have a facinanting story to tell my friend and I have a feeling it will end up reaching a wider audience than you think.

Keep up the great work would be intereted to know if you still intend to do the webex on how you spot dodgy companies at some point.

Regards

Andy

MrContrarian

Fooled by Randomness is outstanding. You can't predict where black swan events may occur, by definition.
After several big disasters caused by overconfidence in my judgement, I now use the antidote "What if I'm wrong?"

MichaelFBS

I believe Paul was "short listed" for Free Capital but did not (bizarrely) make the cut.

I am very much looking forward to his book.

I am not sure about broker notes (I do not feel the lack) and http://www.stockopedia.com/content/why-relying-on-broker-forecasts-can-only-end-in-disappointment-142379/ by Ben Hobson re-inforces that view.

LongbeardRanger

Purpleski,

I am with you on not relying on broker notes for actual investment analysis or making buy/sell decisions.

Where they are (or would be) useful is in establishing what the market consensus is and, hence, what is likely to be already discounted/priced in. That can be relevant on understanding things like how a share might respond to a good/bad trading update, etc.

Personally, as a firmly long term and low turnover investor, I try not to take too much notice of that kind of stuff but it would be useful if I traded a bit more and I sometimes think it would be helpful for smaller cap shares where it can be hard to find commentary on what the institutions think (if anything!).

Paul Scott

Yes, that's right. I use a full service broker, and am classified as a professional investor - so my broker emails me tons of research every day.

Also, because I write these reports, the PR companies often forward broker notes to me, and results presentation slides on results days, and arrange calls & meetings with management of their clients, which is very helpful. So having a "press" hat can be handy!

Hopefully I do a good job acting as a conduit between companies & private investors.

Regards, Paul.

Hi Purpleski,

Sorry, I accidentally clicked on thumbs down - in error, had meant to click thumbs up!

Yes that's right, Guy Thomas wrote a chapter about me in Free Capital, but in a bizarre (and I think rather stupid) decision, the publisher edited out my chapter, despite it being an absolutely riveting yarn. The reason was that they only wanted success stories, whereas mine was a success to failure, story! I was annoyed about that, because I think investors would have benefited from hearing about what can go wrong.

Regards, Paul.

dfs12

Hi Paul, thanks for confirming. I noticed a comment elsewhere on Stockopedia that in the old days Hemscott Pro provided you with broker level estimates. I've had a hunt around, off the back of that comment, and I can't find anyone doing them these days. Are there any options at all for a PI? Really appreciate your work and I've noticed the profilic output in the last few days... are you trying to break some sort of record? : )

Hi longbeard,

Good post, I agree with you.

For me, broker notes are useful estimates of what profits a company might achieve. But it's only a starting point. So you'll notice in these reports, I usually sense-check broker forecasts, and there will be times when I think the broker is either being too optimistic, or too pessimistic. Those can be good anomalies to create buying or selling opportunities.

I ignore broker recommendations & price targets, as they're complete nonsense a lot of the time, and obviously hugely biased.

Broker notes are also very useful for background info, and understanding companies & their business models.

Overall, I find them enormously helpful, but everything should be challenged, and only used as pointers.

The other thing to watch is changes to forecasts. That little graph on the StockReport is absolutely brilliant for monitoring that. If brokers are lowering forecasts, then something is probably going wrong operationally, and there could be a profit warning on the way.

Regards, Paul.

Damien84

Absolutely brilliant work Paul

I read everyday and checking in here around 11am has become part of my daily routine :)
I can mind buying shares in Globo in 2013 and reading the BB in advfn. At the time there was a heated debate between bulls and bears and your name kept coming up with the bear case. At the time i knew little about balance sheets and cash flow statements so i had no idea how to look for 'red flags'

I sold out as soon as i had an indepth read of your reports and its fair to say you save me (and many other readers) quite a bit of money! Since then i have learned alot more about how to value companies and balance sheets from reading here every day :)

Looking forward to reading your book.

Regards, Damien.

Hi dfs,

Actually, I'm having lunch with Research Tree tomorrow - a subscription service for PIs, giving access to some broker notes. I've trialled it, and think it's quite good - but not quite enough decent quality brokers are submitting content yet.

I'll report back after chatting to them tomorrow.

Regards, Paul.

Excellent - thanks, Dave

ed_miller

21st Jul '16

Thanks Paul - You do a great job levelling the playing field for us PIs, though you shouldn't need to in regard to brokers' notes. I am sure the directive inhibiting open access to brokers' notes was not intended to give institutional investors access to "privileged" information, but that is what it is doing, at least from the perspective of PIs. Just because such notes need to be interpreted with care (as indeed do company statements, news articles etc) does not mean private investors are better off being denied them.

Regards,
Ed

Samsgrandad

Thanks for that Paul. Can I ask if you find the time to run over today's figures for JIM and TSTL.
Both are cash generative and dividend paying but valuation isn't my strongest suit.

pobby

Hi Paul

Superb material as always and plenty to digest and learn from.

Enjoy your visit to Research Tree - it's a great initiative but I think their pricing is too high (just only "gold" level available so far). In your view which brokers are "more on the money" than others?

Crisps!
Peter

Paul,

Thanks - yes I agree re the graph on the StockReport. To me, the direction of change in forecasts is more important than the absolute level of those forecasts and that feature is fantastic at showing that (though like all these things, less reliable the fewer brokers there are, so it rather breaks down when looking at some of the small caps).

You do a great job letting us know about broker estimates etc for the shares you cover, obviously not a complete solution though! Access to broker research is something I might be prepared to pay for in the right circs, obviously brokers need to be paid so they're not going to give it out for free (unless it's generating commissions - unlikely when it comes to PIs), so maybe a paid subscription service would work. I'll have to have a look at Research Tree.

Re Free Capital, great shame IMO that your story was left out. A fair criticism of that book is that it doesn't show investors facing/overcoming adversity (I felt a number of the people featured had been lucky and "hit the jackpot" in investment terms - though obviously they had had the sense to take advantage of that. A few of them on the other hand clearly had repeatable, well thought out approaches that clearly didn't rely on luck.) Not saying that you rely on luck by the way - as you clearly have an intelligent, thought through, repeatable approach - these days at least! I for one would love to read a book by you.

hayashi22

I wasn't aware of that! From memory the 12 success stories were not divulged by name but one or two sort of emerged with the passage of time. After all there must have been a plenty of people who wished it could have been them. The other thing was that all their individual strategies were totally different -some were day trader types others long term holders. Some equities -others fx etc.

Hi Paul

No problem re thumbs we have all done it (hopefully this will be addressed by Ed in the new site!)

Absolutely agree with you about the chapter on you in free capital. As Oscar Wilde said "experience is simply the name we give our [or other people's] mistakes". My italics.

The publishers could easily have added it/add it to the Kindle edition at no cost. Still your book will put it right.

I think you do an excellent job of being a conduit but (ignoring whether I think them of much use though LongBeardRanger gives a good take on them) it does seem unjust that material (unless specifically paid for by say a potential investor/purchaser) is available to a specific few depending on some arbitrary criteria that may or may not be apropiate.

Taken to the point of rediculousness then an argument could be made that small investors should not have access to full accounts or admission documents because they are far too complicated and abstruse unless one is a qualified accountant.

Does anybody know what is the policy/regulations in the US?

Thanks
Michael

Yes looking at the book they were all anonymised (is that a word) but Paul mentioned in another SCVR a few years ago that he missed the cut. He confirms this in comment 29 above.

nehpets

Totally agree with much of what has been said with regards broker notes - Crazycoops has pretty much nailed it I think in his post. Clearly the price targets are nonsense but the forecasts for EPS, dividends and the like are very useful indeed. As has been said, many of these brokers would have been given a nudge in the right direction (at least) by the company concerned so is of immense value to PIs.

The amalgamation services by Stockopedia and other providers are very useful but for me it is not quite a replacement for a list containing individual broker forecasts (with dates of the latest forecasts) which is why I was so dismayed over the recent events at Morningstar - my own massive spreadsheet of forecasts are based on some of these so I have been floundering a bit recently.

I have to say though that the free offerings from the likes of Edison and Equity Development are at least a match for any real broker note I have seen (particularly in the case of the former) but this relies on the company paying them for research,

Anyway, I think it is a real scandal that PIs are disadvantaged in this way and considering the only difference in content between a note from Edison and a note from Investec for example is that the latter is only available to paying clients, it seems to me as though this ridiculous law is more due to lobbying from brokers who (understandably) don't want their notes available to all and sundry for free than it is for concern over private investors.

Small Cap Value Report (20 Jul 2016) - VTU, JDG

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Paul Scott

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