Hi, Paul here. Usual placeholder article for the morning.
Sorry, I messed up, and forgot about this placeholder article. So I've written a new article here (now called Part 2).
Sorry about that. I won't be adding any content here, but will leave this in place, as readers have added comments.
Regards, Paul.
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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »
Gaah! Clumsy fingers. Meant to give this the thumbs up but missed the target and gave it thumbs down instead. Sorry!
Morning Paul & all, ITM Power (LON:ITM) is one Graham has described as interesting before - Hydrogen generation & storage, just opened an Australian office. RNS talks about the potential down there rather than the actual orders. Would appreciate yours & other investors' views.
I know their big announcement was on the 23rd but I also wondered what people thought about Westminster (LON:WSG) - I bought a small chunk. Cheers!
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As news is a bit slow today I thought I would mention one of the most important 'lessons' I have taken to heart from reading the Stockopedia articles this year. Profit Warnings and what to do with them.
The e-book is available here: The Profit Warning Survival Guide
and the Profit Warning Discussion Thread
Better still is the 30 minute webinar
The one very simple 'rule' I took away from it was that it is best to sell shares that had a profit warning as soon as is practical. Forget about dead cat bounces etc., in the long run you are better off selling than living in hope of a recovery.
I will grant you however that there are occasions where a bit of analysis may indicate that the profit warning is not 'structural', as Paul Scott has mentioned in the past. In other words, what gave rise to the profit warning is relatively easily 'fixable'. The problem with that, in my opinion, is that when you own the share in question it is difficult for many investors to do such a dispassionate analysis for it to be meaningful. Even if it is 'fixable' selling at the time of the profit warning may still give you an opportunity of buying the same shares at a lower price.
Throughout the year, whenever I have come across an RNS issued profit warning of a share that I have had a passing interest in, I placed them in my "Profit Warning" portfolio. Thus I was tracking the share price after the profit warning had been issued. The results can be seen below:
Character (LON:CCT) -7%
Entu (UK) (LON:ENTU) -94%
Fairpoint (LON:FRP) -37%
Flybe (LON:FLYB) -28%
HSS Hire (LON:HSS) -45%
Quarto Inc (LON:QRT) -17%
Revolution Bars (LON:RBG) +4%
Somero Enterprises Inc (LON:SOM) -2%
Tasty (LON:TAST) -54%
Granted this is a very small sample that from the outset has a number of personal biases to begin with. The point is, it works for me. For that, I have Stockopedia, (Ed Croft & Ben Hobson) to thank for prioviding me with actionable research.
Thanks Carcosa
It was an invaluable report and your follow up, although as you say is "a very small sample", it does back it up somewhat.
It would be nice (if you have the time) to see the upside versus downside, e.g. FRP -37% but was up 5% from the close on the day of warning. Just coming from the angle, what % on the upside would be needed to cover a Short position on such events. So for FRP a 10% Stop would have been sufficient to yield a risk reward of at least 1:3.
Hope this makes sense and thanks again for sharing.
In response to Carcosa's thoughts on profit warnings:
1. Your numbers are very interesting and useful and do confirm the conclusions drawn by Ed and Ben.
2. I recently read something similar in Mark Minervini's first book. His conclusion was always to sell if your holding drops by more than 10%. He compared his actual results to what would have happened if he had always sold once a share dropped by more than 10%. His conclusion was that the losses he had made by holding on to shares that had dropped were far greater than the gains from those few shares that recovered - sufficiently so that a strict regime of selling after a 10% drop would turn an overall portfolio loss into a large gain.
His conclusions may not be fully relevant to us as his investment approach is intended to identify the right time to buy as well as a fundamentally good investment. So maybe we need to allow for the possibility that we are buying good stocks that the market has not yet recognised.
However, over the last year I have been trying to be more rigorous in taking my losses quickly while running my gains. My portfolio return has been more than double any previous year, at least partly because of this.
