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Good morning, it's Paul here with Monday's SCVR.
Please see the article header for the companies I'll be reviewing today, which have issued trading updates or results.
Share price: 58.3p (down 9% today, at 10:45)
No. shares: 766.3m
Market cap: £446.8m
One of the joys between Christmas and New Year is the time it brings us all. After all the mess of gift giving and receiving is over and relatives have left… there’s a moment where you realise you’ve finally some time for yourself. It’s in these gaps that we have moments for reflection, to make new resolutions, to read, to ponder… or just lie around and eat a pot of honey. I found myself nostalgically reading “The Tao of Pooh” and reflecting on some of the things I’ve got wrong in 2021 - namely trying to do when not doing would have done just fine. On reflection, the NAPS embodies a number of taoist principles, and it’s in this vein that I’ll review what’s been another good year.
The NAPS Portfolio appreciated by 28.3% through 2021 (excluding dividends & transaction costs) versus the FTSE All Share at 14.5% (18.6% including dividends). In spite of a reversal from the 39% high on September 1st, it has been a remarkably strong showing in a year when so many portfolios have suffered.
Owning shares in high quality companies with the power to protect their valuable cashflows from competition is an investment strategy that intuitively makes sense. It’s an approach that has the fingerprints of successful investors like Terry Smith and Nick Train all over it. But how do you find these shares, and can they offer any protection from the kind of wild volatility we’ve seen this year?
Quality is an all-weather factor that crops up in strategies of all stripes. Value investors, for instance, often rely on company quality as the catalyst that will sooner-or-later trigger a price re-rating. Momentum investors, meanwhile, often view
Buffett calls the distinction between value and growth ‘fuzzy thinking’ because expected growth is a component of value.
If you think of a stock’s intrinsic value as its future cash flows discounted back to the present day at an appropriate rate - tricky to do in practice, but conceptually sound - then some cash-generative, high ROI stocks on a forecast PE of 50x are in fact cheap and undervalued.
It’s just that much of the value resides in future cash flows driven by present day investment. This future growth is hard to account for but that creates opportunities. Things seem expensive when they are in fact cheap.
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