How About Some Market Perspective..?


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Go on, admit it…at this very moment, you’re glancing at a business anchor who’s busy losing their mind on your telly. Yes, left, right & centre – lots of markets are correcting. Or should I say collapsing, tanking, plummeting, nose-diving, slumping, free-falling, or simply never ever recovering ever..! And if you can look past the hyperbole, some are unfortunately entering actual bear market territory. Kinda gets the blood pumping, eh? You really should switch off the TV, and just go meditate (or run a marathon) instead! It definitely could save you a few quid & a few stupid decisions. But we’re all too human – and now we’re addicted to this 24/7 diet of escalated corporate & market drama, so it’s become easier than ever for the media to stoke fear (and greed) in our hearts.

Traditionally, a 10% market reversal was defined as a correction, while a bear market was at least a 20% decline. But now the business media’s upped the ante, unilaterally adopting something like 3% & 10% as the new thresholds (respectively). [And I suspect politicians & central banks aren’t far behind]. Look at them now – glued to their desks, fuelled on Red Bull, and kitted out with adult diapers (think about it…live TV, energy drinks & too much excitement?!), they can barely contain their glee at this renewed market turmoil. Which is, of course, sheer madness…

But here we are, lapping it up – feeling so very serious about the market yet again. Because a reversal invariably hits us out of the blue, with the reasons why only trailing after, in its wake… [How many talking heads highlighted a global growth slow-down two months ago?! But now it’s the glib explanation you’re hearing on every business channel]. I mean, we began September with so much promise?! Personally (& somewhat counter-intuitively), I was fairly bullish myself – and I still think I read the charts correctly as being quite promising (though I definitely wasn’t keen on a 2,000+ S&P). Unfortunately, the price action & the charts never quite followed through, and now September & October are living up to their more usual grim reputation.

So, what am I going to tell you here..?

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TGISVP – An Updated Snapshot


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Unfortunately, after starting with such promise, the months of September & October now appear to be living up to their more usual fearsome reputation. At this point, we’re forced to commiserate over a 10% correction (in round numbers) for the ISEQ from its most recent (early-Sep) high, including a 6.3% fall last week. And the fact the index is down almost 14% from its (end-Feb) 2014 high just compounds the misery. But corrections also present a good opportunity to re-evaluate battle plans… Now, I’ll obviously be reviewing The Great Irish Valuation Project in greater detail at year-end, so I’m going to strictly limit my comments here.

Updated snapshots of this year’s top winners & losers might prove instructive… [NB: Each stock’s gain/loss is simply measured from its TGISVP evaluation date (i.e. Feb-May, except for NTR), so actual YTD performance rankings of stocks might look a little different]. First we have the Sewer Shit:

TGISVP Oct Losers

Maybe it’s worth picking through the rubble for a couple of bargains? Hmm, perhaps not – with a couple of notable exceptions, all I see here really are bombs that may still explode in one’s face. As for ‘investors’ who already own some of these stocks, what can I say…if they’re stupid enough to buy ‘em in the first place, I’m surely not the person who’s going to persuade them to finally cut their losses & run!

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Newmark Security…A Real Steal!


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[First, I should give a hat-tip to Universe Group (UNG:LN) – my first write-up, and this recent post particularly, may prove quite relevant here. Despite a significant retracement in the past year, UNG’s delivered a 125%+ return in the past two years, and I believe it continues to offer substantial upside potential. Which inspired me to seek out & research a number of other (relatively) similar companies…]

…And I came across Newmark Security (NWT:LN), which has been AIM-listed since 1997. Newmark’s a leading provider of electronic and physical security systems to ensure the safety & security of company personnel and assets. It has two divisions, consolidated around two companies which have been in business since the ’80s: The Electronic division (Grosvenor Technology, acquired 2002) – design, manufacture & distribution of access control and workforce management systems, and the Asset Protection division (Safetell, acquired 2000) – design, manufacture, installation & maintenance of bullet/attack-resistant screens (doors, walls, etc.) and cash management systems.

At first glance, a GBP 19 million revenue/9 million market cap company looks like a real tiddler in the security industry. But a client list (see here & here) which includes the Post Office, Tesco, Broadgate Estates, Network Rail, and the Met, plus relationships with Assa Abloy (ASSAB:SS) & Loomis (LOOMB:SS), all demonstrate Newmark punches well above its weight. And despite selling an OEM product range via value-added resellers & installation companies, an impressive 42%+ gross margin also attests to the quality of the company’s products, service & relationships (and the profitability of its niche). But why don’t we let the numbers do the talking…

I’ll tackle this in two stages, beginning with the six year period ending in 2012. [Note the April year-ende.g. FY-2012 is the financial year ending Apr-2012. btw To highlight I’m not cherry-picking here, 2005-06 revenue averaged GBP 12.9 million (i.e. similar to the subsequent 6 yrs)]:

Newmark Fins 2007-12

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Investing Haiku


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So, I was reading Basho the other day – as you do…

He is, of course, the most famous of the four great haiku masters. Haiku were originally hokku, the opening stanzas of collaborative linked verse poems (haikai no renga, or renku), which gradually evolved into independent poems – in the late 19th century, Shiki renamed them haiku. They have 3 main characteristics:

- Their essence is ‘cutting’ (kiru) – the juxtaposition of two images, separated by a kireji, a Japanese form of verbal punctuation. [There’s no specific English equivalent – a caesura is functionally similar, while Western haiku writers usually employ a dash or ellipsis]. This two-part structure, with the kireji prompting a mental leap, ideally links and contrasts two distinct (but related) images or ideas.

- They consist of 17 on, arranged in three phrases of 5, 7, 5 on. On are (uniformly short) Japanese sounds, which Western writers interpret as syllables. Since English syllables are generally longer & more varied, 12 syllables are about equivalent. Despite this, many English haiku writers adhere to a traditional 5, 7, 5 syllable format, while using three lines to reflect the three phrases of a haiku.

- They include a kigo. Again, this doesn’t translate easily – Western haiku writers often focus on nature, but won’t necessarily include a specific seasonal reference. Ultimately, the intent is to use objective imagery (show, don’t tell) to illuminate a feeling, a scene, or even the human condition…

Following in the footsteps of Ezra Pound, the mad old fascist himself, I decided to tackle some haiku – in English obviously, but otherwise in (fairly) traditional format. And just to complicate matters, I also chose to focus on investing as an underlying theme – arguably, just another reflection on the human condition:

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Argo Group…Time for a Sale and/or a Wind-Down?


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Here’s a copy of a recent letter to Andreas Rialas of Argo Group (ARGO:LN) – the letter speaks for itself…

August 29, 2014

FAO: Andreas Rialas, CIO

Cc: Michael Kloter, Chairman
      Kyriakos Rialas, CEO
      David Fisher, Director
      Kenneth Watterson, Director

Argo Group Limited
33-37 Athol Street
Isle of Man

Dear Andreas,

Further to our prior conversations, I would like to confirm I now speak for 15.6% (in aggregate) of Argo Group’s outstanding shares. Excluding insiders, this represents 25.0% of Argo’s external shareholder base. Supporters now include well-respected funds and investors such as Church House Investment ManagementXXX Capital Management, Guy Thomas, and over two dozen other Argo shareholders.

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NTR plc…Wind of Change?


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NTR is a strange beast, neither fish nor fowl. Of course, regular readers will recognise that tends to intrigue me – the best opportunities often arise from misunderstanding & neglect. And NTR’s balance sheet intrigues me even more… But whoa Nellie, we’re getting ahead of ourselves here! Let’s back up:

We should begin with the Roche family dynasty – here’s a good potted history. Tom Roche Senior founded National Toll Roads – its first venture, the East-Link toll bridge, opened in 1984. The company slowly expanded, completing the West-Link bridge in 1990 & adding a second span in 2003. With the advent of the Celtic Tiger in the late ’90s & the completion of the M50, traffic volumes & revenues exploded, and the company became a goldmine. The government, in its wisdom, then decided to buy the West-Link in mid-2007 – just ahead of the credit crisis! NTR subsequently monetised the NRA’s index-linked payments of EUR 50 million pa (from Aug-2008 to Mar-2020) for an up-front consideration of EUR 0.5 billion. This was a great deal (followed shortly thereafter by an even larger sale of its Airtricity stake), but unfortunately the company was also in full Celtic Tiger mode at this point. With Tom Roche Junior taking the helm after his father passed away in 1999, NTR had ambitiously transformed itself into a developer & operator in renewable energy (solar, wind & corn-based ethanol) and sustainable waste management – in Ireland, the UK & across the US.

By Mar-2007, in just 3 years, the balance sheet more than quintupled to EUR 2.0 billion (funded by 1.5 billion of total liabilities)! Accompanied by a share price which managed much the same feat – I specifically recall the brokers hailing NTR as a new Irish blue chip to every last punter with a pulse & a wallet. [When I mention the company’s listing ‘status’, you’ll realise this pitch was even more dangerous than it sounds…] But investors eventually started getting cold feet – the shares peaked at EUR 7.00 in Jan-2007, well ahead of the crisis. Because of the West-Link & Airtricity sales, the company was sitting on a large cash pile as it entered 2008 – but it was also burning close to EUR 0.7 billion pa of free cash flow at the time. And despite the financial crisis, the spending never stopped… In Apr-2008, management actually embarked on a brand new investment folly (solar energy) with an initial USD 100 million deal to purchase a controlling interest in Stirling Energy Systems. Well, you know what came next…

I’ll spare you most of the blood & guts, let me just highlight total equity (exc. NCI) bottomed this year at EUR 117 million, down nearly 90% from a Mar-2008 peak of EUR 1.1 billion. [NTR’s real annus horribilis came in FY-2011, with a loss of EUR 381 million – one of the largest non-banking losses in Irish corporate history]. And the share price suffered even more horribly – reaching a EUR 0.25 low in Aug-2012, down 96% from its peak:

NTR Decline

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Mea Culpa (II)…


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Continued from here.

vii) ‘Sorry, I don’t have any sure-fire winners’

Do I feel confident about my portfolio? Yes, I do…

But with an important caveat:  I feel long-term confident. I’d even dare to say I expect to out-perform my benchmark indices. [Well, another caveat: That’s really not my objective – I’m more focused on absolute returns & generally improving my risk-reward ratio].

But do I feel confident about my individual stock picks? No, not necessarily…

Unfortunately, this is a reality we all face as investors. No matter how diligent your research, no matter how rigorous your quantitative & qualitative analysis – all too often, individual stocks feel just like a roll of the dice. Most obviously, the insidious effects of fear & greed are to blame – but no matter how hard you stamp these out, you’re still subject to the tender mercies of Lady Luck. And there’s no escaping her. [Though it helps if she looks like this…] As any good boxer will tell you:  If you box, you will get hit… The sooner you resign  yourself to rolling with the punches, the better – but don’t forget, the best boxer (usually) wins in the end.

And over time, investing skill & experience will inevitably beat luck, while diversification is also your ultimate secret weapon. Sure, I confirm my portfolio allocation for each stock I write-up – and that’s a great indicator of my confidence level – but the real lesson I preach is diversification, not concentration. Imposing relatively mechanical limits within your portfolio (see Well, Are You The Right Size?) is a great way to remove emotion from the equation. [Over the years, I’ve homed in on 3-7.5% as an optimal allocation for a single stock, in a portfolio of 15-20 (core) holdings]. As any smart investor will tell you, they’re usually confounded by their portfolio winners & losers in any one performance period. And trying to predict (or buy) just a few top picks is a fool’s game. So, no matter how confident you are, you still need to spread your bets…

viii) ‘I’m sorry it’s a micro-cap, and you hate the price & spread’

Well, really, I’m not…

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Mea Culpa…


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Surely about time I address this post to readers – the majority of these mea culpas are genuine apologies, the rest are probably just a little cranky:

i) ‘Sorry I didn’t get to your email/comment sooner…’

I like to think I’m fairly good at keeping up with your emails & comments – well, most of the time! As I’m sure you know, if you neglect to answer an email immediately, it’s all too easy to lose track of it. There’s also a daily mountain of spam I have to traverse – at this rate, I should be ditching the investing lark, ‘cos apparently I could be making an easy million squid a day instead… [I must applaud the sheer persistence & inventiveness of the Nigerian people – so definitely an economy worth considering! Guaranty Trust Bank (GRTB:LI), anyone?] But hopefully I get to (almost) every email in the end, even if it takes a week or three – if I don’t respond in a timely manner, just ping me again.

Unfortunately, I tend to suffer from a ridiculously compulsive version of ‘If you don’t do it well, why bother doing it at all?!’ So emails invariably seem to demand a specific & in-depth reply – um, which I often have to get ’round to completing… Might be a good idea to keep track of some of my recurring reader dialogue(s), and summarize/respond to them more systematically here instead – we’ll see, perhaps it might offer up a couple of interesting insights for readers.

But please, keep ‘em coming, they’re much appreciated. Investing’s ultimately a pretty solitary activity, so ‘work’ socializing tends to be a more deliberate affair – emails/comments are a great opportunity each day to just hang out at the ‘water-cooler’ & shoot the breeze with fellow investors!

ii) ‘Sorry, yeah…actually, I did see that headline’

There’s obviously blogs out there providing excellent daily/weekly updates of the latest & most relevant news, weekly reading links, company & valuation updates, plus other interesting snippets & topics. Clearly, this blog isn’t one of them…

I’m definitely grateful for & awed by their industrious contribution, but personally I’m more than happy to rely on the fact you’re all reading & analyzing the same headlines as me! ;-) And from my perspective, individual headlines usually only add very incrementally to the mosaic of knowledge I already have about the markets, sectors & stocks I’m interested in. And in my defence, I also fall back on my Twitter account – I’ve somehow managed to accumulate an horrific 8,000+ tweets at this point, so surely there’s some interesting & contemporary tweets among them!?

iii) ‘Sorry I poured cold water on your favourite stock’

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H1-2014 TGISVP, Portfolio Performance


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Now, let’s take a look at H1-2014 performance for The Great Irish Share Valuation Project. The valuation phase (covering 80 companies) ran from Feb to May, so the mid-point of these posts (March-30th) is the most appropriate start date for benchmarking purposes. Since then, the ISEQ is down 5.8% (as of end-June), so any TGISVP out-performance will be doubly welcome…

Actually, the ISEQ’s recent decline has been even more pronounced – since its end-Feb high, the index is down 9.5%. [And we have a similar pattern with the UK’s AIM All-Share, down a whopping 12.7% since its March high. Clearly, the major indices have been performing very differently…I expect to revisit this divergence in my next post]. Despite that, it’s worth highlighting the ISEQ still managed a 3.5% gain for the entire first half – a nice reminder the Irish market seems to enjoy disproportionate first quarter gains nearly every single year.

OK, before looking at overall performance, let’s have some fun – who were the individual winners & losers to date?! [Remember, for each stock, we’re only looking at gains/losses since its TGISVP evaluation date (i.e. Feb-May), so these tables don’t necessarily reflect full H1 performance…though I’m sure there’s plenty of overlap!]. Here’s the Sewer Shit:

TGISVP H1-2014 Losers

This includes most of the usual suspects – junior resource stocks on their inevitable march to zero… Continue reading


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