Small Cap Value Report (Fri 29 May 2020) - Riots, JDG, JSG, VLE, SHI

29th May '20 by Graham Neary

51 comments 10057 reads

Good morning!

Today we have:

Judges Scientific (LON:JDG)
Johnson Service (LON:JSG)
Volvere (LON:VLE)
SIG (LON:SHI)

Finished at 2.40pm.

Short political comment - I'm slightly alarmed by overnight news from America about riots and looting.

Everything in America tends to be bigger and louder, and that goes for civil unrest, too.

Check out this tweet from the verified Twitter account of the City of Minneapolis:

That police building has been abandoned by the authorities and set on fire by the protestors.

I've seen videos of protestors climbing on top of moving vehicles and emptying large department stores. There is unrest in Minneapolis, Denver and LA.

But I don't want to overstate the importance of these events.

I was living in London during the riots of 2011, and remember thinking how strange they were - but they ended soon enough, and weren't talked about much afterwards.

It's no coincidence that they happened in August - rioting is much less fun in the cold and rain.

The relevance to investors is that we are about to have a very noisy election season in the US, and I'd expect tensions to be high for the next few months. We can look forward to thousands of headlines about the Trump/Biden contest.

Most of these stories can be safely ignored by investors, but I wouldn't want to ignore them completely.

The extremely divided country is still a great place to invest, but politics will be an important theme this year. For example, President Trump has just signed an executive order to make it easier to sue social networks.

The monopolistic power of Big Tech (especially Twitter and Facebook, but others too) could be vulnerable.

I own shares in Alphabet and through Berkshire Hathaway, I also own Amazon and Apple.

Since the outcome of this year's election will play a big role in determining US tax policy, competition policy, trade policy, and (increasingly) monetary policy for the next four years, I think it's compulsory to keep half on eye on it.

Judges Scientific (LON:JDG)

Share price: 4970p (+1.5%)
No. of shares: 6.3 million
Market cap: £310 million

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PhilHofGrowYourDough

29th May '20

Hi Graham,

Firstly, I whole heartedly expect this post to receive a lot of negativity. In my opinion it needs to be said so here goes ...

Re: riots ...

Do you not think you are missing the bigger picture?

For me the real story and the real threat to the US economy is the continued oppression of people of colour not the destruction of a couple of blocks of property. It feels to me as if there is a potential powderkeg on both sides and all it would take is a spark.

You're correct in saying this has happened before in the US but the difference is the US has a "leader" who proactively fans the flames rather than soothing. Who polarises rather than unites.

You said...

"Most of these stories can be safely ignored by investors, but I wouldn't want to ignore them completely."

For me, when something becomes divorced from the lived experience of individuals we are in big trouble.

Please watch a selection of recent incidents and for any other readers who feel like they want to respond I'll only engage if you have truly watched all of the videos.

Here's the footage of Floyd's arrest ...

https://edition.cnn.com/videos/us/2020/05/28/george-floyd-death-reactions-girlfriend-mayor-marquez-pkg-tsr-vpx.cnn

The police claimed he was resisting arrest but subsequent footage from the store which called the Police and from eye witness testimony including the shop owner indicated that he was compliant.

If this was your son, your brother, wouldn't you be raging?

Here's an account from an eye witness, listen to emotion in his voice ...

https://edition.cnn.com/videos/us/2020/05/28/george-floyd-arrest-witness-donald-williams-cuomo-intv-cpt-vpx.cnn

To me as I read your preamble it felt as if you were trivialising the response as "fair weather rioting" , a chance to have a bit of mayhem.

It's not just about Floyd either.
It's taken months to bring action in the Ahmaud Arbery case. Ahmaud an unarmed jogger was shot and killed on Feb 23rd and it's only as a result of huge pressure (and I mean huge pressure) that charges were eventually filled in May. One of the three men arrested was a former police officer.

https://abcnews.go.com/US/hearing-set-georgia-men-charged-ahmaud-arbery-killing/story?id=70906145

Then there's kids who are scared by Police behaviour (I wonder why?) ...
https://edition.cnn.com/2020/05/28/us/tye-anders-midland-texas-police-trnd/index.html

Then of course you just have the regular day to day racism which is being exposed more and more ...

Amy Cooper calls Police on a bird watcher in Central Park and claims (falsely) he threatening her life because wait for it ... he asked her to put her dog on a lead in a section of the park where dogs are required to be on leads.
https://www.thecut.com/2020/05/amy-cooper-central-park-dog-video.html

Or some guys working out in the gym associated with their office ...
https://nypost.com/2020/05/27/minneapolis-man-asks-black-tenants-if-they-belong-in-building/

On and on and on it goes ...

Imagine that ... having to have your phone ready all of the time you are out in case someone challenges you?

So why is this at all relevant?
Trump knows he's going to lose the election in the autumn. If he loses the elction in all likelihood he'll be arrested as the unidicted coconspirator in the Michael Cohen case.

He is going to use everything he can to prevent that from happening and riots provide him with an opportunity to respond as the tough guy which'll play right into his base. It's perfect for him. For me, it's on a knife edge and Trump isn't worried about the impact on anybody else but himself.

My prediction is this ...

Trump will either:

a) attempt to delay the elections citing Covid distancing precautions as inhibitors to a free and fair election

b) lose the election and claim it wasn't free and fair. We're already seeing him sowing the seeds of that by claiming:

i) that mail in votes are subject to fraud which Twitter fact checked him on.
ii) he's being censored by social media

Please let's try if we can to walk a mile in another person's shoes. We're here to make money but please let's not lose sight of the plight of our fellow citizens.

Warm regards
Phil

Just to give you a sense of the forces at play here ...

A guy was videoing the protest outside the Police station in Minneapolis when a "protestor" started to break windows ...

https://twitter.com/neetpolice/status/1266222612641992704

It's been suggested that this individual is a serving Police Officer identified by his ex-wife acting as an agent provocatuer presumably to shift focus from a mudering racist police officer to evil rioters.

https://twitter.com/GypsyEyedBeauty/status/1266162964727562240

Who carries a deployed umbrella to a riot?

timarr

attempt to delay the elections citing Covid distancing precautions as inhibitors to a free and fair election

He might be able to do that - but regardless his Presidential term ends on 20th January under the 20th Amendment and nothing he can do can stop that. The next in line is the Vice President, but his term also ends on the 20th January,

Now it gets interesting ... next in line is the Speaker of the House of Representatives - aka Nancy Pelosi. However, the House is 100% up for election in November - so if there's no election there's no House and therefore no Speaker ...

However, there will still be elected members of the Senate because 50% are elected every two years. Half of them will have to stand down but the remaining half remain in place. The next in line is the President pro tempore of the Senate who is currently the Republican Charles Grassley ...

However, the remaining sitting members of the Senate will have a Democratic majority subject to arguments over whether sitting governors can just appoint Senators. Assuming they can't then the Democrats get to elect their leader which means that the most likely future President if Trump manages to delay the election is ...

Elizabeth Warren or Bernie Sanders ... :)

So that ain't going to happen.

FREng

The New Yorker carried a relevant short story recently. Strongly recommended.

abtan

Watchstone (LON:WTG)

Hi Trident,

You asked about the prospects after the 150p per share cash return set to take place over the coming months.

I personally think that a share price of 170p is fair value (current SP is slightly above this).

Indeed I sold out of my position for c.165p recently.

There will be c.30p of cash remaining in the business, and an assumed share price of 20p.

So why would I sell?

I believe that the remaining business, black box car insurance , will be suffering as revenues were not large enough to cover expenses beforehand, and there won't be any new customers signing up right now, so for me, that makes the short term risky.

I know they are looking to sell this last business, but who would buy a loss making business in this climate?

It's been a great holding over the last few months, and was indeed the only thing I was buying in the 1st half of March (it was my largest position until a few weeks ago), but now that it's done what I bought it for (ie provided a cash rich safety net), I'm happy to move on until there is more visibility on their future revenues.

Cheers and good luck

Thornabian

I don't disagree with what you are saying at all here but I'm not sure this is the right place that this "needs to be said", Graham is just focusing on the investment view and trying to be objective in that focus.

With that said - I'm not a fan of Trump but him being president again is not bad for companies and there is a very real chance he will win again. China's actions in Hong Kong are giving him the perfect opportunity to bolster his core support.

Biden winning may not be so good for markets (higher taxes etc) but who knows, maybe it will.

Hi Thornbian,

What prompted my reply was ...

What would I think if I was black and reading Graham's report?

If I'm honest to me it felt insensitive.

Best of luck
Phil

Paul Scott

I agree with your hunch, but in my comment above I pointed out some recent data from the USA, which indicates a V-shaped recovery may not necessarily be impossible. There's also been positive data on mortgages, and demand for housing in the USA.

On balance, I'm leaning towards being negative, but it's important to look at data, especially when it contradicts our existing opinions/beliefs!

Laughton

timarr - it's The West Wing coming to real life

Westway001

I think Graham’s comments were made from the point of view of the effect on stock markets, rather than an analysis of the incident itself and those who perpetrated it.

UK_Investor_8888

I have seen some baffling incompetence (Iceland, massive queue outside, one till with long queue, and shortened opening hours) and Asda who seem to have solved the problem.

jonesj

Thankfully capitalism will move the custom to the businesses that behave competently.

Trident

30th May '20

Thanks Abtan. I was thinking of selling off my modest holding

Metatron

Hi PhilH - ever try asking yourself whether 'the continuous oppression of people of colour' story that u buy into is a story line that the virtue signalling careerist MSM wish to promote and do so by maximising every negative racist news story they can find to promote the racist angle whilst minimising coverage of any inconvienent stats that might counter it i.e what proportion of the millions of African Americans have been victims of direct racism or police brutality and if it is as widestream as the MSM claim then how come millions of African Americans are American patriots and thousands of African Americans have joined the American Police force over the years?
What is not reported is the extent to which the police may turn an eye to black crime the way that in the UK the police and others turned a blind eye to white teenage girls being exploited by ethnic sex grooming gangs in towns like Rotherham because the police officer and others were scared of being called racist.
Note all over in Europe there are ladies who have gone to the police claiming they have been raped by migrants .This news story the MSM tries its best to minimise reporting because it does not fit their politically correct worldview.If you research New Years Eve 2015 in Cologne you were find literally dozens of females claim they were sexually assaulted by a migrant mob.Initially the German MSM refused to report the story for 4 days and it was only after widespread video coverage on the internet that the news story was taken up.

Howard Marx

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Bigclaw

31st May '20

It might just be me but I find the SCVR comments section increasingly reads less like investing discussion and more like Facebook.. lots of arguing over politics and people desperate to have the last word. It is human nature to want to put a point across if you read something that you vehemently disagree with, but it just ends in lots of acrimony. Aside from anything else it means really good thoughtful investing posts are lost in the noise. Maybe we could get back on track this week? The thumbs up/down is there for posts you don’t like. Maybe G&P could delete posts and replies that veer massively off-topic? Just a thought.

Maybe G&P could delete posts and replies that veer massively off-topic? Just a thought.

While I agree with the point, it's Paul or Graham that set the tone for the day. Here Graham opened with a political comment on the US riots and we get a bunch of related opinions. The same is true whenever one of them leads off on Covid-19 or some other macro point.

Thats a very valid point. I also have no idea how the most people feel about this, they might disagree entirely with my view and enjoy the ‘banter’.

Lordyjordy

1st Jun '20

Well said. Not sure why the original poster has decided this is the right place to post such musings.

2nd Jun '20

well you could just ask the OP. You do mean Graham right?

Small Cap Value Report (Fri 29 May 2020) - Riots, JDG, JSG, VLE, SHI

Judges Scientific (LON:JDG)

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Graham Neary

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