Small Cap Value Report (5 Sep 2016) - CAMB, VTU, SDY, KOOV, BLV, CARR, REDS

Monday, Sep 05 2016 by

Good morning!

This morning's report comes to you from an alley on a side street in Corfu old town!

I'm flying back to the UK on Weds. So there will be a normal report today & tomorrow, but Weds will be late I'm afraid, as I don't get back home until about 3pm. I'll still do a report, but it will be late afternoon/early evening on Weds. Sorry about that.

My experiences of fund management

EDIT: Clarification - Fundamental Asset Management

I seem to have accidentally caused some confusion, for which I apologise. Fundamental Asset Management has asked me to clarify that the only part of their business I was involved in was a minor portfolio service called the Small Cap Value Portfolio.

So the SCVP had nothing to do with FAM's core business of IHT portfolio management, which is of course continuing completely as normal! (and is an excellent, well-run, strongly performing service).

One reader apparently misunderstood, and thought that FAM was shutting down, which obviously it isn't! This has caused a few red faces, for which I profusely apologise.

Over the last 3 years, I helped to run a portfolio management service, called the Small Cap Value Portfolio, through an excellent FCA-regulated firm called Fundamental Asset Management (who are specialists in IHT planning portfolios). Working with FAM has been terrific - they're really genuine, decent people, and have a wealth of experience in AIM stocks.

I've not mentioned it here before, as it could have been seen as a conflict of interest (i.e. being seen to drum up new clients by mentioning it here), so Stockopedia asked me not to refer to it here in the past. I did however declare all positions held, within my usual disclosures here, as if I held them personally (which I did in nearly all stocks anyway).

However, seeing as we're winding down the very small SCVP service (due to failing to reach critical mass to make it cost-effective), I thought it would be worth a mention, to pass on some snippets on what I've learned from 3 year's work, helping to (as part of a regulated team) manage other peoples' money.

NB. This has no effect on FAM's main activities, as noted above.

Firstly, it's incredibly stressful! If you lose your own money on a share that goes wrong, it's annoying, but you learn the lessons (if there are any - sometimes it's things you could never…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

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Cambria Automobiles plc is a motor dealer, which is engaged in the sale and servicing of motor vehicles. The Company is engaged in the provision of car vehicle sales, vehicle servicing and related services. It is a retailer of new and used cars, commercial vehicles and motorbikes. It operates on a dealership-by-dealership basis. It operates from approximately 30 sites with a total of over 50 dealer franchises. It operates dealerships across England, from the North West through the Midlands, down to Kent in the Southeast and across Exeter in the South West, trading under local brand names, such as Dees, Doves, Grange, Invicta, Motorparks and Pure Triumph. Its brand portfolio comprises Abarth, Alfa Romeo, Aston Martin, Dacia, Ford, Fiat, Honda, Jaguar, Jeep, Land Rover, Mazda, Nissan, Renault, Seat, Triumph, Vauxhall and Volvo. It also provides ancillary services. It offers finance and insurance for the execution of the transaction along with service plans to maintain the vehicle. more »

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Vertu Motors plc is an automotive retailer in the United Kingdom. The principal activity of the Company is the sale of new cars, motorcycles, and commercial vehicles and used vehicles, together with related aftersales services. The Company is engaged in the provision of management services to all subsidiary statutory entities. The Company operates a chain of franchised motor dealerships offering sale, servicing, parts and bodyshop facilities for new and used car and commercial vehicles. The Company also operates various franchise dealerships, such as Volvo, Volkswagen, Land Rover, Audi, Mercedes-Benz and Jaguar, and operates Honda dealerships in the United Kingdom. The Company operates approximately 125 franchised and over three non-franchised operations across England and Scotland. The Company's subsidiaries include Bristol Street First Investments Limited, Bristol Street Fourth Investments Limited, Vertu Motors (VMC) Limited and Grantham Motor Company Limited. more »

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Koovs plc is a supplier of branded fashion garments and accessories for sale by a third party through Website principally in Republic of India. The Company offers dresses, tops, jumpsuits and playsuits, skirts, trousers and leggings, cardigans and pullovers, lingerie and sleepwear, and swim and beachwear, among others, for women. It offers shirts, t-shirts and polo shirts, vests, jeans, jog pants, shorts, hoodies and sweatshirts, coats and jackets, and innerwear and socks, among others, for men. In addition, the Company offers bags and wallets, accessories, sunglasses, jewelry and watches. The Company offers its products of various brands, including Knockaround, KOOVS, Kultprit, Pataaka, Pepe Jeans, Shuffle, Sole Threads, Vans, Voi Jeans, Modello Domani and Mr Button, among others. The Company's subsidiary is Koovs Marketing Consulting Private Ltd. more »

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66 Comments on this Article show/hide all

Trident 5th Sep '16 7 of 66


Very interesting to hear about your fund management experiences. I have some money in Fundsmith, an open ended fund which applies numerous filters to their choice of companies, and once chosen they do not chose to sell often, and Terry Smith advises the Fundsmith investors to do likewise.

I think the state of mind required comes not just from discipline, but also having enough money to satisfy oneself that if it is the right strategy, then to stick to it, with some degree of equanimity.

When exposure to potential losses is material, inevitably we spend our time looking at our stocks. This is why running winners is amongst the hardest thing to do.

I am trying to decide before I invest whether I am in a particular stock for the short term, or the longer term, to help me make that call. The jury is still very much out, as to whether I am an any good at making those judgement calls (its a daily battle!).

One of the things I like about Stockopedia is that controlling the 'monkey mind' is its central tenet, and applying filters. But then monkeys are in general foragers, and arguably really we need to be farmers.

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LongbeardRanger 5th Sep '16 8 of 66

In reply to post #149256

Isn't that at least partly because laptop batteries run very hot?

I understand that Tesla (who are quite possibly not representative of electric vehicle manufacturers in general) have extensive cooling to ensure that the battery does not get too hot, hence reducing the effect of excess heat on the battery pack.

There are a number of other factors in play here, not least things like usage patterns:

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Etonkush 5th Sep '16 9 of 66

Is there a reason why you haven't commented on the excellent Koovs (LON:KOOV) update today? You have always commented on it in a very negative way previously.

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FREng 5th Sep '16 10 of 66

In reply to post #149265

The Samsung problem was reported as a manufacturing fault that caused accasional fires during charging. The 777 Dreamliner had lithium battery problems too - also (from memory) attributed to a manufacturing fault. The underlying problem seems to be that lithium batteries can lead to significant fires once a fault occurs (whether this is because lithium is highly chemically reactive or because of the high power density in the batteries is not clear to me). Some airlines have stopped allowing lithium batteries as cargo because of the fire risk.

Battery lifetimes seem to be based on the number of charge/discharge cycles, and teh instructions with my Macbook advise running the battery nearly flat before rechargeing, to prolong batter life and capacity. That's not the way most electric car users will want to manage the charge in their vehicle, in my opinion.

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Trident 5th Sep '16 11 of 66

In reply to post #149247

Some comment that the weight of car batteries is leading to a requirement for increased brake pressure, leading to more brake pad dust entering the atmosphere as a pollutant.

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Paul Scott 5th Sep '16 12 of 66

In reply to post #149280

Hi Etonkush,

We crossed in the post! I have updated the article for the latest trading update on Koovs (LON:KOOV)

Regards, Paul.

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FREng 5th Sep '16 13 of 66

Re Koovs (LON:KOOV) : looking at their July results, I couldn't reconcile the fund raising and loans with the stated movement in cash and NAV. It looks high risk to me and the Stockopedia computers seem to hate it, but the market has driven the price back up and seems happy with the trading update. The performance of this share is a complete mystery to me!

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kalkanite 5th Sep '16 14 of 66

Hi Paul

Thank you for sharing your experience with fund management. Your point about loading up on your high convictions and running the winners remind me of this piece written about Ben Graham...

"In 1948, Ben Graham through his company Graham-Newman Corporation bought 50% of GEICO for $712,000. By 1972, this investment was worth $400 million, a 562 bagger. The gain in GEICO would contribute more profit to Graham’s partnership than all the gains from all other investments combined. The irony is that Graham rarely invested more than 5% of the firm’s capital in one company, but with GEICO he invested 20% of the firms capital. Graham’s most successful investment ever came when he broke his rules and made an educated concentrated bet."

First million is a #####

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tabhair 5th Sep '16 15 of 66

In reply to post #149247

An interesting thing to do with the car dealers is to plot the share price against new car registrations. There seems to be a pretty tight correlation, well there was until the correlation broken down a few months ago (car sales went up, share prices went down). Seems to me that the market is forecasting a decline and that's baked into the share prices even if we haven't seen it on the bottom line. 

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cholertonandrew 5th Sep '16 16 of 66

Thanks for the insights into your portfolio management experience. I find the general comments about market behaviour and strategies really useful alongside of course the company analysis. It's good of you to share too.


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Etonkush 5th Sep '16 17 of 66

Brilliant- thanks for all the good write ups!

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FREng 5th Sep '16 18 of 66

In reply to post #149310

Tabhair: If the correlation with car registrations reverts to the mean, what would be the % increase?

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hayashi22 5th Sep '16 19 of 66

In reply to post #149307

The microcapclub article is well worth reading-don't think I will join though. It would be interesting if readers had some examples of companies which fit the investment criteria listed. Maybe Avesco!
Certainly one learns more from losses than gains in terms of how to develop a portfolio. Sad fact of life.

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tabhair 5th Sep '16 20 of 66

In reply to post #149328

If you're to go by new car registrations, then most of the car dealers should be hitting new highs. Of course, you shouldn't value a dealer on the wider car registration figures, you should look at the underlying earnings being generated. However, the earnings figures themselves also suggest the share prices should be at new highs. So it's clear that someone sees bad news for the dealers, and has sold to try and get ahead of the news. Whether the bad news exists or not, I have no idea!

Disclaimer - no position in any of the car dealers for me. Not saying it won't turn out to be a good investment. It's just I am not sure I want to invest in a cyclical retailer that's selling into a sector that is experiencing record sales. If you were to put a gun to my head though, I have been impressed with Cambria. They generate excellent returns, are smart about acquisitions, have good management with skin in the game, and are still a tiddler in the UK market, so the runway for them to grow is huge.

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biloseli 5th Sep '16 21 of 66

In reply to post #149283

Lithium-based batteries are very prone to thermal runaway (, and normally contain active protection electronics to stop the battery being used outside safe limits. Manufacturing faults, an unsuitable environment (e.g. too hot) or failure / damage to the battery management circuitry can create dangerous conditions for lithium batteries. Metallic lithium is highly reactive and can burn spontaneously in air, so if the battery package fails to keep air or water off the lithium it can start a fire which causes the failure of other nearby cells. (EDIT: Lithium ion cells avoid using lithium in a metallic state for safety reasons).

Lithium batteries are supposed not to have a "memory effect" so discharging before recharging shouldn't be necessary. My own experience with (mainly) laptops over the years suggests lithium ion batteries used to have a bit of a memory effect about 15 years ago, and had short working lives, but over the last 5 years or so I've found the long-term charge storage greatly improved. I've read more recent advice suggesting life is based mainly on amount of charge added / drawn, so discharging before charging actually shortens life.

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iwright7 5th Sep '16 22 of 66

In reply to post #149331

How true that you learn more from your mistakes. Its tempting to congratulate yourself on a few successes, but if its really a big helping of dumb luck what do you learn from that?

In the past I tried several systems (Value, Zulu etc) often buying companies with below market average PE and shunned higher PE shares as too risky. After about 2 years I realized that it is big mistake for me to bottom fish in a lot of low PE stocks because I have not got enough patience to wait years to see if/when they will come good. The result was many shares that track sideways, or worse and overtrading.

Higher PE shares normally have more growth/momentum potential and a track record of financial success, so I now have a mixture of high QM/high PE companies (like accesso Technology (LON:ACSO) and £ABDP ) and cheaper lowish PE/High Stockrank ( like Somero Enterprises Inc (LON:SOM) and £TRI ) hopefuls that look undervalued. This way a foot in 2 camps and and I can relax in the belief that a wise selection of quality companies (cheap and dear) will ultimately outperform the market. Ian

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JohnEustace 5th Sep '16 23 of 66

In reply to post #149247

I could be out of date but I think the Leaf has the ability to switch off or reduce the regenerative mode. You need to have Mode B selected for maximum regeneration and minimum brake use which does take a bit of getting used to.
Regarding charging, remember that the majority of UK households don't have driveways to charge their cars on.

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PJ0077 5th Sep '16 24 of 66

In reply to post #149349

"How true that you learn more from your mistakes"

I really like the following quote from Rita Mae Brown (I have no idea what her investing style is!);

Good judgment comes from experience, and experience comes from bad judgment.

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JohnEustace 5th Sep '16 25 of 66

Excellent article Paul on the fund management experience.
Being contrary I'm going to disagree with those saying the best lessons come from our mistakes. Surely the advice to run your winners is a key example of being prepared to learn from and build on your successes? Catch yourself doing something right and do more of it is my summary.

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iwright7 5th Sep '16 26 of 66

In reply to post #149370

Surely a mistake is over trading and selling too early! Choose the better companies and have confidence in your decision and them! Ian

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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