Small Cap Value Report (Tues 7 April 2020) - Placeholder

7th Apr '20 by Paul Scott

78 comments 10033 reads

Good morning, it's Paul here, with the placeholder to start off with at 7am. It's anybody's guess what happens next, in this bizarre new world we live in.

Probably like most people, I'm trying to figure out what the hell happens next? When not sure, I just try to do a base case, then an upside & a downside scenario.

In my head, it goes something like this;

Base case - short term economic shutdown, the like of which has never been seen before. Unknown outcome, but recovery at some point (unknown timing).
Downside scenario - CV19 might recur, or linger, or worsen, leading to unknown economic disaster
Upside scenario - CV19 peaks, then recedes, and economic activity resumes in the next few weeks.

We need to know which of the above it will be, in order to value shares.

Therefore, it's just guesswork right now.

Personally, I remember thinking to myself in Torremolinos in early Feb 2020, that this looked really bad, and hedging, only to be almost wiped out by a whippy movement in the indices. Since then, it gives me no pleasure whatsoever to say that my hedges protected me very well, and have provided lots of fresh cash to buy beaten down small and mid caps. It feels sick to talk like this. We lost John's mum yesterday, when the hospital turned off her life support, as this evil virus took over her body. We must have been one of the first households in London to be taken over by CV19. We battled it for 3 weeks, and sadly we lost Madeleine yesterday. I am just numb with it all. But we have to carry on.

What to look at next?

Housebuilders - generally really good balance sheets. Worried that I missed the +12% rise yesterday?

REITS - I could be wrong, but have gone big in Newriver Reit (LON:NRR) and small in Hammerson (LON:HMSO) - I think both should survive covenants, but we'll see

Retailers - could be a disaster, but I couldn't resist MKS at 100p. Says it has lots of liquidity.

That's probably it for now. I'm so tempted with Wetherspoons, Greggs, and others. Have bought Dunelm. I see this as an opportunity to move up to some better quality shares.

Fundraisings

Well done to WH Smith, getting a placing away.

Many, even most, businesses need to raise money.…

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cafcash49

7th Apr '20

Hey Paul, I haven't read the comments but I am sure all will be sympathetic, I just want to say 'hey mate, take some time off, you shouldn't be writing today, take some time out'.

Look after yourself.

Trident

Tracsis (LON:TRCS)

I am a holder of this stock. It has a number of interests in transport based systems, and has been hit by the drop in train traffic, and event cancellations (it provides man power and metrics to manage event traffic).

However, for those interested it does have as one of its investments an interest in Vivacity Labs, which provides traffic data info to local authorities, to enable them to measure policies against data outputs.

My thanks to the Tracsis board on London South East (one of the few areas of that website to find a vaguely sane conversation) where I saw some of the links below. Interestingly Vivacity adapted some of their pedestrian metrics to judge social distancing (based on anonymous data).

Obviously, this is not to say this makes it a great investment, but it does touch on appropriate data capture relevance, and could be something of interest for the future.

https://www.linkedin.com/pulse/social-distancing-data-from-oxford-peter-mildon/

https://vivacitylabs.com/

Muggles

For what it's worth, and coming from a position of currently being 100% cash, I'm trying very, VERY hard to sit on my hands and resist temptation. I've got a list of 18 stocks I want to buy (mostly income stocks as I figure this is a rare chance to buy cheep) and am working really hard to do nothing. I have almost cracked several times. The key things I'm using as cues to sit tight are:

1) looking at the live business feeds of several news websites seems incredible - 'huge' gains on days when we get nothing but bad news. Seems bonkers to me

2) FTSE hasn't broken through resistance at about 5800, although it is testing it is again today. If it does, I might reconsider.

3) Exponential moving averages are still very much in bear mode.

4) There is still huge volatility, which (I'm told) tends to indicate a bear market)

5) If I do 'miss it', I won't miss ALL of it. Plus it would signal things getting back to the sort of environment where my usual tried and tested rules for buying and selling are applicable - so why would I be worried about that?

On the flip side, I'm wondering if 25/3/20 represented what William O'Neal called a follow through day marking the start of the upswing.

Overall, huge fear of missing out going on. What's that old saying? "The markets can stay irrational longer than you can remain solvent". Maybe in this case it is "the markets can stay irrational longer than you can hold your nerve"

davidhowman

Take the rest of the week off, only do a report if, and only if, it is of benefit to you, forget about us and think of yourself for a while until you feel you want to do something.

5mulf

Hi Paul. I concur with comment below. So sorry for your loss. If only humans could hibernate! ?Take care. Simon

Housemartin2

Is 3 years a very short time to have to refinance that debt ? I would have thought that Govt debt would be sold at much longer dates to allow the possibility of inflation (greater now than BV) to make the refinancing cheaper. ok will cost more now but not that much & surely worth it. Perhaps its a mix point ?

greenhat2

Paul, sorry for your, John's and John's family's loss.

cmpeckham

"Would you lend money for 3 years at 0.204% ?"

Yes I would do and a small part of my portfolio is doing exactly that. Your question sounds as though you think the idea is ridiculous. Why? What other asset class is so obviously a better choice that it negates any need to own short dated gilts?

It can't be cash because that 0.204% is the market's best guess for the profile of cash interest rates over the next 3 years plus a term premium. Bear in mind that interest rates can be negative and the chance of that happening over the next 3 years is non-zero. Does negative interest on your cash make 0.204% sound more appealing?

Interest rates had gone negative in several countries before any issues associated with coronavirus. Now they are even more likely, and even more likely to be passed on by the banks to their depositors (don't shoot me I'm only the messenger).

Leebod

Cheers Tamzin. I listened to Johns webinar today and found it really useful. Looking forward to the next one.

IncredibleMosesLeroy

I'm in the same boat.

90% in cash and spend about an hour each day watching my portfolio-to-be add yet more % points. However, I suspect that despite being a relative novice at this I'm doing the right thing when I see:

IATA lobbies gov't with announcement that airlines cannot afford to give out refunds, and Jet2 cancels all holidays well into June.

£DTG rises by 9%.

I don't understand, and if you don't see the play then there isn't one (for you). Will sit on the sidelines for a bit longer.

Doggy100

Sylvania platinum will 60p plus soon

Cash rich and platinum on the up

charlene

So sorry to hear about your loss, my thoughts go out to you both, sadly i feel that so many of us will be affected by this terrible virus.

what are your thoughts on sylvania platinum

I think there a good thing?

is 60p unrealistic?

samanddee

Paul - sorry for your loss.

Gromley

I am just about out of mental bandwidth for the day. ( I am a very small and very remote part of the battle against Covid following a 'project' I picked up recently) - as a back office Jonny I don't expect any plaudits but aside from my efforts to ensure that I can support the clinicians rather than be a burden - I just find myself exhausted when I consider the extra mile(s) some of 'my' clinicians are putting in to this effort.

I didn't though want the to let the day go without adding my voice to the commiserations offered to Paul and John at this time,

I'm not sure if Paul always reads the later comments on these posts, but I did just want to offer something that might raise a smile in these troubled times,

I am particularly moved Paul by your loss given that I have 'known' you (digitally) for probably close to two decades. We used to regularly get each other chastised on the old Motley Fool bulletin boards by one TMFGrow for our "late night exchanges". (Wouldn't it be good to know what George is doing these days?)

I think we probably met at Mello (when there was still a restaurant called Mello) about 15 years ago, although that evening was particularly hazy!!

I have particularly though enjoyed our most recent meet ups and out new ritual; which goes something like this :

We end up sitting next to each other at the end of the day and have a really interesting discussion.
About five minutes in, you burst out of your seat declaring "Oh so you're Gromley!"
An indeterminate amount of time passes, where we solve ALL of the worlds problems; but sadly with no-one on hand to take minutes our wisdom is lost. :-(

Somehow we both get 'home'.

I am mourning the lost opportunity to meet up again in May - but perhaps when the restrictions are lifted we should choose the other end of the day and meet up for breakfast!

Anyway, sorry to be so irreverent at this time, but I just wanted to reflect how well you are loved and perhaps give you a little chuckle in these trying times.

Best,

Tony

(AKAGromley)

simoan

8th Apr '20

couldn't agree more. I was sitting in my back garden thinking "what is better use of my time, answering a poster who vents his spleen and accuses minervini of being a d*ckhead who spews claptrap, or watching Feymnan's amazing lecture on the laws of gravity?"

I think maybe your time would be better spent reading some behavioural science books. I'd start with Richard Thaler's excellent "Misbehaving". Your short post had so many biases in it it was probably enough for a PhD thesis - Fear Of Missing Out, confirmation bias etc. And why do you feel the need to follow anyone? You've been around since way back in TMF days and the fact you've still not found your own investment approach and follow some Guru is a little bit worrying and sad to be honest.

This comment is under review

Ramridge

Collector

I suspect one of the tentative ways out of this lockdown will be sports events being televised and played behind closed doors for contractual and entertainment reasons. This would likely make gambling companies some of the early rebounders.

Small Cap Value Report (Tues 7 April 2020) - placeholder

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Paul Scott

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