Before doing this, I think it is worth noting a couple of factors. I did put another PE investment in and in reality received quite a substantial dividend from one of my PE investments. As these are not publicly traded I value them at cost or zero, depending on how they are doing. As none of them look like they are going bust, none of them have changed in value. It is very much a valuation based on the underlying business rather than the market perception. In my opinion the likelihood is that 2020 will be a lost year for most companies but dividends will resume in 2021. This thinking is also the way I am looking at my public equity portfolio.
I also bought some more gold. I don’t revalue this, just keep it at cost. IMHO it is the second best insurance policy for the ultimate black swan, as should cash become worthless I thing gold will survive as a medium of exchange. It also is tax free and highly transportable.
I do believe that from the depths to which we are sinking and will continue to sink we will eventually be able to substantially repair our economy. But that could well be 5 or more years away. I think its St Louis Central Bank that is predicting up to 30% unemployment in the US and Goldman Sachs has put out 15%. Current predictions seem to be for circa 7% in the UK but I think these reflect status quo bias as forecasters anchor from where we are and miss the huge shocks to the system that are going to hit.
The government in the UK is trying ideas, but many of them are more ideas from civil servants and Oxford economics graduates rather than business people living in the real world. As such they sound good, but the implementation is weak. We have seen the emergency loan system not work as banks were expected to take 20% of the risk on companies that by their own admission were struggling to survive. We have a furlough system that should repay 80% of some staff costs that 5 weeks after it’s start date is still not up and running and may well be through its period end before companies can claim funding. At which point with massively reduced demand they will still lay off workers so the scheme achieves nothing.
I have always thought cash is a good position and in the current market possibly a great one, so I am working on the basis that if in doubt cash it out. I also am taking cash back into my bank account. I think the collapse in the market will not benefit retail brokers and it could be very difficult to get cash back if they run into trouble. I use a few brokers to limit risk and whilst Barclays handed the cash back as fast as ever Hargreaves' website had issues and the cash took days to come back from any of the accounts, and they limited the amount I could pull out in a single day. Not confidence building.
Given I see the economy as being grim for quite some time and the downside as being quite severe my underlying position is not to follow high risk opportunities but to seek out those companies that have the money or scale to last. I also think we will see an increasing move to (A) Reshoring and the strengthening of supply chains (B) AI and Robotics over people (C) Digitisation, whether that be in the retail or office space. It is worth remembering that Covid19 whether designed in a Chinese laboratory or from eating undercooked bats or Pangolins is only one of many Cornaviruses known to exist in China. And quite probably not the most deadly.
Significant Sales
Avation; I think Avation is a reasonably well run lifestyle business. My holding in it was based on an asset backed limited downside with a potential upside as the business is for sale and would be worth more as part of a group than independent. However in early March as Coronavirus began to bite I perceived that the asset backing would significantly diminish so sold my position. There is still a possible upside but I would expect at a much reduced level. I closed this position for about breakeven
Brand Architekts Group; Last month I took a taster position in this business as they had an awful lot of cash relative to its overall position. But early March they put out an RNS that largely said that they had lost control of their brand business, had been deselected by existing customers and completely failed to give sensible numbers in the areas they claimed should be seen as green shoots. I don’t trust management that will not give me facts and am not a fan of overusing non GAAP measures. Also they are in an area with big brands and big budgets to be deployed when shopping reverts closer to the previous levels. I was also rather underwhelmed by their choice of new CEO. So on the basis that why would I hold a business that management doesn’t seem to be in control of I sold. I closed this position for a circa 15% loss.
Threadneedle China; I do not have the knowledge to invest directly into China and therefore used a fund to do this. However as my overall thesis is now much less positive on China and given the ongoing China v West issues I have closed this position on a bounce. Position closed for a small (5%) loss. I think also as Luckin Coffee is now demonstrating the level of fraud in western listed Chinese companies exceeds all rationale understanding.
Volvere; Nothing wrong with this business. But It had hit my target price after a couple of upswings that I could not see the reason for (so I did not revalue) so I took my sale. Position closed for a 22% gain.
Significant buys
Aeorema; This is a very small relatively cash rich business in a cash poor market. I think it will be around, unlike many of its competitors, in 2021 and added a few more to my existing position.
Alphabet; I think Google is undervalued, has a lot of cash and will be here in 5 years time. Given the major themes underlying my individual investments I think it’s a good investment for the long term.
Cenkos; I again added to my holding Market Cap £22m, cash at bank £31m. At the moment I am not sure there is much value on the business but £31m is a 40% MoS, so I added.
Gold; I am a long term small buyer of gold. It has a number of benefits that as I get older increasingly appeal.
Microsoft; I have been wanting to buy Microsoft for quite some time but like many always missed the boat as it was “too expensive”. However not only have I felt that the underlying valuation was increasing but when the shares came down 25% I felt that I had to take my chance. I put in two starter buys into MSFT this month.
Vistry; Before the crash I think Vistry had done well to turn around the mediocre Bovis business and pick up the decent part of Galliford Try. Perhaps at the time by paying a little too much. It is still the same management team and there will still be the same shortage of supply when we come out of the crisis. It is easy for the government to pump money into the economy through help to buy etc and already has the scheme in place. Recovery may well be slow but it looks as good an opportunity as any. Also the Directors and senior managers have been buying. Not enough perhaps to move the share price but enough to affect themselves individually and thereby demonstrate real commitment.
As it is clear that no government really knows what it is doing in the Coronavirus crisis, and given much of what we are doing is based on data from China, which is widely now recognised to be fictitious, I don’t think that we will get a proper plan until there is a test for antibodies to show that people have had the illness, which is largely asymptomatic, and can get back to work.
The occasional big upsweep does suggest to me that there are a lot that want equities to do well, and the financial crash and its aftermath means that there is nothing much else that can be used to generate real returns.
As I have said earlier I think the recovery in the real world will take some time, but the stockmarket is supposed to predict the future and so recover earlier.
Given all this I do not think there is a great rush to get back into the market, which may/probably will go lower than it has. However the pressure is on for a recovery and FOMO will play a part. As such I intend to routinely be a buyer, but on a limited scale. Very much the “Proceed, but with caution” of Howard Marks. Though I will continue to look out for a Buffett style bucket of gold. However with such an uncertain future these will be hard to find.
All of that being said if you have made it through to the end I hope you and yours are well and stay well during the Pandemic and remember its only money. Though "everybody needs money, thats why they call it money". - Dany DeVito