At the end of January my fund was down over 1% taking the rolling one year figure to 13%, slightly lagging the FTSE 100. 13% is down a long way in relation to the December one year figure (22%) but that's due to what happened last January rather than in this one (last year's was much better).  The goal as ever is to out-perform the FTSE 100 by an annualised 5% in any rolling 5 year period, but it's more of a hope than a goal. Having a returns goal in stock market investing is a bit like having the goal of it being sunny tomorrow. The current effort to increase the number of holdings to twenty stumbled slightly as two companies were sold and two were bought, as detailed below.

Sold - AGA Rangemaster (LON:AGA)

Somewhat surprisingly, AGA turned out to be the 'least undervalued' company on a quantitative basis and its sale returned 22% in only three months.  I bought AGA using version 0.1 of my evolving scoring system, which is a quantitative model to sort and screen stocks for further analysis. I'd say about 80% of any buy decision is based on this score with the remaining 20% going to soft qualitative research. The model looks for equity selling cheaply relative to its historic earnings and AGA certainly fitted that description.

My quantitative research is quite limited and if you like that sort of thing you will find many better exponents of it listed on the web site. When doing this soft research I typically ask just four things:

  1. First, is the company that I'm buying now substantially the same company that produced the historic earnings? It can often be the case that valuable assets are sold off during restructuring and a special dividend pays out the proceeds to shareholders. In that case the company is not the company that earned the historic returns and so the numbers are misleading. As far as I could see the AGA I bought was more or less the AGA of the last 10 years, minus their foodservice company which they sold in 2007. 
  2. Second, why are the shares so cheap? For AGA the drop in share price started in late 2007 and seemed to be directly tied to the recession rather than anything specific to the company. 

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