ed_miller

Private Investor

Joined 11 Sept 2015
303 comments
0 posts

Biography

Full-time private investor (3 years, as of early 2018), UK share investor (10y), ex-metallurgist.

I like growth, quality, value and rosy outlooks; high & consistent (or growing) margins & returns, growing recurring 'sticky' revenues & strong, growing operating cashflow. I analyse accounts and financial and valuation parameters. I like Jim Slater GARP (Growth AT a Reasonable Price) & Joel Greenblatt 'Magic Formula' investing best - I am now using price-action to time entry & exit, following the major price trend as per Robbie Burns (Naked Trader), William O'Neil & Mark Minervini (combined with quality fundamentals for shortlisting) to improve performance. Peter Lynch is a hero and every bit as quotable as Warren Buffett (another legend, obviously). John Train should be more widely known among part-time investors.

Valuing cyclicals on the basis of low historical or current P/E ratio is a newbie error (as is liking them on the basis of high current margins and returns) - if you don’t understand that, read Michael Cahill’s Making The Right Investment Decisions. While you’re in the mood, read Pat Dorsey’s The Little Book That Builds Wealth, to understand sources and indicators of competitive advantage; it won’t take long.

I have always held my shares for years (even cyclicals! - a newbie error), but have really come to appreciate liquidity having seen the effects of its absence in micro-caps. The traders are right: no point holding when the major price trend has broken down, so long as one can read a price chart (resistance & support, trading volume, moving-average cross-overs) and time entry and exit well. Peter Lynch says that cyclicals are like blackjack: stay in the game too long and it's bound to take back all your profits. So now I am being more active and will trade FTSE 350 shares as well as buying and holding high-quality growing small-caps. Over-trading is likely to be my new vice whereas all too often I under-traded.

Investment strategy

I like growth, quality, value and rosy outlooks. Quality means [ideally] recurring, 'sticky' revenue, high and consistent margins, returns & operating cashflow. I use fundamentals for shortlisting and price-action for timing: following the major price trends - I am trying to cut my losses short and run my profits. Am trying not to ignore profit warnings but I'm finding reacting to them for micro-caps is expensive if the problem is likely to be just a temporary hitch. I'd prefer to be able to hold a small fast-grower for years while it just keeps growing, but I'm not averse to short-term trades in FTSE 350 shares - owning micro-caps has made me appreciate the advantages of liquidity. I love a bargain but I'm trying to remember to ask myself: is this a good company? The only micro-caps I buy are the quality ones (or those that look like they are beginning to become so) in case I get stuck in them. They need more diversification than for large-caps: dependent on just a few customers, they are more prone to profit warnings (their fast growth sets them up for a fall too, with tough comparables). Also, having many small micro-cap positions improves their liquidity. I read the 7am RNS company announcements every morning, buying when the market opens if I can get a quote, else with a limit order the same morning. I find nearly all of my shares that way. I didn't intend to do things that way but found it works for me.....mostly: I do sometimes call the market response wrong! Also, if selling in response to profit warnings, it pays to act quickly.