Diary of a private investor: 'Dash for so-called trash shares has given me a 16pc return this year'
My shares which had been hardest hit – such as Enterprise Inns, which owns pubs – began to rise faster than the rest.
By James Bartholomew
Last Updated: 10:48AM BST 06 May 2009
'Enterprise Inns, which owns pubs, began to rise faster than the rest' Photo: GETTY This year has started extraordinarily well. As at the beginning of this week, my Individual Savings Account (ISA) in which I have most of my investments was up 16 per cent. That compares with a four per cent fall in the FTSE 100 index.
How on earth did this outperformance happen?
In the first few months, things went badly for me. But from early March, everything changed. My shares which had been hardest hit – such as Enterprise Inns, which owns pubs – began to rise faster than the rest. Some people have called this a "dash for trash" but that is unfair.
What has happened, rather, is the reverse of what occurred in 2008. At that time, panic and fear set in. I remember it vividly and felt it myself.
People sold out of any company that had the slightest element of doubt about its future: clothing companies – "demand might collapse"; banks – "you can't trust their supposed assets"; house-builders – "probably will go bust"; heavily-indebted companies – "the banks might pull the plug". Investors sold them down. Then others saw the shares falling and joined in the selling. The shares fell further and further to – I would suggest – absurdly low levels. Shares in Enterprise Inns fell so low that, to my mind, the share price was mere option money on the company's survival.
These companies were not really 'trash'. They were just ones who had extra problems to face in the recession. My difficulty was finding the courage to buy shares that had done nothing but fall for six months or more. How could one presume to call the bottom?
Well, I don't claim to have declared 'the bear market is over' loud and clear. The best I managed was to say in March that shares were "extremely good value". But I did steadily start re-investing, especially after Tim Congdon said with such confidence that the economy would turn round towards the end of this year because of the 'quantitative easing'.
I bought more share in R.E.A. Holdings, a palm oil plantation company, in Enterprise Inns, in Home Products a Thai DIY store chain, Staffline, a blue-collar recruitment company, Griffin Mining and a few others. Most of these have risen and some of them quite spectacularly.
I bought more REA Holdings at prices varying between 209p to 287p.The price has since soared to 350p. I added to my original purchase of Enterprise Inns at 69.75p with further purchases at 93.5p and 128.25p. Since then they have they have reached 160p.
One of the most satisfying moments came when Harvey Nash, a company that recruits staff particularly in Information Technology and outsources IT work, produced a good set of results last week. I have held a 'full weighting' in this company for many months now – that is to say a full ten per cent of all my financial assets. It seemed remarkable good value.
Now, finally, the stock market was reassured that yes, this company is getting through the recession in good shape. Its business model is working. The shares jumped by over a quarter in a single day. It was relief and the beginning of belief.
Frankly it has been a very exciting time and I think it will go further, albeit with relapses. The companies in which people lost almost all faith are still cheap on normal criteria. I am continuing to move out of 'safe' investments into more adventurous ones. Last Friday I bought a few shares in Carpathian at 22.75p. The company invests in Eastern European commercial property. It produced results and the conclusion of a strategic review that day.
The company announcement was one of the most impressive I have ever read. The managing director described the company's situation with clarity, addressing all the issues and details which investors and his bankers would want to understand. Yes, the company has endured a major loss in asset values.
Yes, it has been in breach of some of its banking covenants. There were details of each property and the loans attached. I reckoned that with such competent, articulate leadership the company will be able to keep the show on the road. Meanwhile the reduced net asset value is apparently 80p – more than three times the current share price. Worth a flutter, I thought.
To pay for this, I sold my recently purchased holding in index-linked government stock. The time will come for outright inflation hedges like index-linked stock. But perhaps that time has not arrived yet.
Right now it seems the turn of the shares which were heavily sold down to return to more sensible valuations. The fallen have become mighty. The rise of a share from a miserably unkind valuation to a fair one can mean a doubling and more.
http://www.telegraph.co.uk/finance/personalfinance/investing/5277843/Diary-of-a-private-investor-Dash-for-so-called-trash-shares-has-given-me-a-16pc-return-this-year.html
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