Small Cap Value Report (27 Jan 2016) - CRE

Good morning!

What an interesting day yesterday! I was privileged to be given a guided tour of the new Bloomberg building under construction - it's going to be spectacular when finished - a statement new building right in the heart of the City, costing allegedly something like £1bn! I've never been on a building site before, apart from trying to hot-wire dumper trucks on a building site next to my parent's house when I was about 10 lol! It didn't work, as of course they were diesel.

After that, I rushed up to the Old Street technology area on my brompton, for a fascinating visit to a new social media company, that is hoping to eat Facebook's lunch - or the starter anyway, if not the main course.

After that, I met a new friend in a pub in Victoria, to discuss ideas for jointly writing an investment book - exciting! The lure of the devil's urine was too much I'm afraid, and Dry January shuddered to a halt last night, with freely flowing pints of Becks. Oh well, 4 weeks complete abstinence wasn't a bad effort.

As regards the markets generally, the only truthful thing I can say is that actually I have no idea which general direction we are heading. The tendency is to get nervous on down days, and get excited on up days, which of course is the complete opposite of what we should be doing!

I'm finding many wonderful trading opportunities right now - bear markets are fantastic, as people behave irrationally, and sell things based on sentiment instead of fundamentals, so (selectively) there are rich pickings to be had, from foolish sellers. My long-term portfolio is down slightly YTD, but if I told you the % gain on my trading account this YTD, you wouldn't believe me. It's been a ridiculously good year for me so far, with the HOME bid interest, plus good updates from BOO, and profits from US large cap shorts & longs - timing is everything.

It's dawning on me that I'm actually quite good at short to medium-term trading, and maybe not as good as I thought I was at long-term investing? As my mentor always says to me - "Just do more of whatever works, and stop doing things that consistently fail".

Thinking about critical comments directed at me in backwaters of the internet, I would just like to confirm that I do indeed get loads of investments wrong! Everyone does. I'm not claiming to be some guru, and people should largely ignore my opinions on shares, as plenty of them will be wrong. However, more are right than wrong, and that's what it's all about - last year my win:lose ratio was 60:40, and that delivered a very satisfactory overall result.

Hopefully this year the average might improve to 75:25 - that's my target - so I can't afford any more schoolboy errors like Plexus Holdings (LON:POS) - stupid, stupid mistake on my part, to imagine that the company might somehow be impervious to market conditions. Whenever we get cocky, the market has a habit of giving us a hefty kick up the backside!

Creston (LON:CRE)

Share price: 104.5p (down 14.7% today)
No. shares: 58.7m
Market cap: £61.3m

Profit warning - I've been looking out for a canary keeling over in the metaphorical mine, and I think this could be it - a profit warning from a marketing group, with the key bit saying;

However, in the first few weeks of 2016 the Group has been advised by a number of clients, across multiple-industry sectors, of project delays and cuts. Some of these relate to client specific circumstances, and others are due to increasing concerns that some of our clients have about the trading outlook for their businesses given the current uncertainty in the global economy. This will lead to significantly reduced revenue growth for the Group in the fourth quarter compared with the Board's expectations, and given the proximity to the financial year-end, there is limited opportunity to mitigate the impact on operating profit from the reduced revenues.

Commentators tend to have an optimistic bias, but personally I just tell it as I see it, and this looks bad to me.

Therefore, I will be reviewing my portfolio later today, to reduce, or eliminate my long positions in any companies which are fully priced, but reliant on cyclical spending by companies. I think there could also be shorting opportunities - a friend has suggested that I re-open my short on Facebook, as it's on a massive valuation, and of course all marketing expenditure is likely to fall in a downturn - it's the first thing businesses cut when they get nervous, as it's discretionary spend, and is easy to cut.

It's tempting to go bottom-fishing, as Creston has already dropped nearly 40% from the peak last year. However, experience hasn't taught me enough, but what it has taught me is that it's usually wrong to buy at the first sign of trouble. Things can & do fall much further than we initially imagine.

(our singing postman has just paid a visit. Somebody really does need to tell him how awful he sounds - his headphones may spare him the full horror... no I shouldn't be so mean spirited - if he's happy and he knows it, then let him clap his hands! Or howl like hyena anyway. I blame Simon Cowell - he created the delusion that everyone sounds like Stevie Wonder)