Learning lessons

[garindan]

Before we plunge into our next investment, we might want to pause to reflect on our poor recent record and see if we can learn something for the future. Learning from mistakes is, after all, one of the primary benefits of such a club

If you look at this report on our past investment decisions, you'll see that we did reasonably well up to this time last year (albeit it in a rising market).

Note that the report can only show decisions where we were voting between different stocks, but the record from June 2016 onwards reads as follows:

For each stock, the % figure shows how much the price has risen or fallen since our decision. The stock in bold is the one we invested in.

30 Jun 2016
Taylor Wimpey +55.21%
International Consolidated Airlines +52.24%
Greene King -9.68%

22 Sep 2016
Mitie Group +13.32%
Inmarsat +20.49%
Vodafone -9.48%

10 Jan 2017
Carillion -6.41%
Costain Group +17.88%
NCC Group -37.35%

12 Jan 2017
Costain Group +20.55%
Petrofac Ltd -5.49%
Berkeley Group +9.34%
Carillion -7.60%

With the exception of Mitie, we seemed to have an uncanny knack of picking the worst possible option

The positive, though, is that each time we had identified at least one really good option - we just failed to choose it. Had we chosen the best-performing stock we'd have seen average gains of 28.5%

So perhaps we need to look at how we're making the final decision?

Anyway I hope this provides useful food for thought. We shouldn't be afraid to acknowledge mistakes and the fact remains that those putting their cashback into the investment club have earned a greater return than they would have done in cash

[garindan]

I was looking at the exact same thing myself a few weeks back. I think our investments since BREXIT was announced back mid last year have been a) a little more risky and b) in a market that has seen some big sways that have accentuated gains/losses.

First off the bat though, I personally think we have been extremely unlucky with the NCC situation - there simply is no doubt we were misled by the board's report, which turned out to be masking (whether deliberate or not) some fundamental shortcomings in parts of the company. Had we know that we would not have been investing - I'm quite sure about that as we have traditionally been more cautious in approach. My gut feeling is we'll see a recovery here to some extent. Just not sure how much. It might need to go down a bit more before going back up though, as the new management has to recover the situation and might need to make some markdowns and changes that could potentially hit the price negatively. Then again, it is not unusual for such decisions to actually improve the price.... On the plus side - there is plenty of chatter that even without the part of the business that has been hit with issues the share price reflects at least the value of the better performing parts alone. This is why I think our best call here is to stick with this one and see what happens, even if it takes a fair bit longer than we'd have liked.

From the 30th June selections - two of those listed were shares we had identified as having potential to gain having made massive price drops - in construction and airlines, both due to BREXIT. We could consider ourselves unlucky not to have chosen one of them. The result was probably my fault. In effect I think I had a big bearing on the choice we made as I had originally voted for Taylor Wimpey but as I was the only one to have done so and the choice was too close between the other two to have a clear result I changed. If I had chosen IAG then we might have made more money at the point we'd have sold. I'll come back to that point right at the end.

The above also isn't necessarily a fair comparison for the decisions we made, as we did select some shares as income and others as short-term gains. Comparing one to the other is not ideal. However, what it does show is we'd have been better off, at this point in time, purchasing all but two of the short-term gain ones over any of the long-term ones. It does not take into account dividends received but even so it still shows that.

How I see the above is:

- 30 June - it was a crazy market at the time and we played the cautious card not choosing the share that had crashed in price
- 22 Sept - we did OK choosing the share that had crashed in price
- 10 Jan - we were plainly misled
- 12 Jan - we played the cautious card again

When we come to invest next time I think we really need to be checking out whether the shares are being shorted. We have both ITV and Carillion, which are both heavily shorted right now and are both price depressed. With these two we have really good dividends so it is less of a worry.

The final thing I would like to mention is expanding on the point I raised earlier - we would have sold Taylor Wimpey, IAG, Inmarsat and Costain (had we bought them) and I am 100% certain we'd have done for less than the current percentage premium prices shown. I think 15% would have been the target for each. As as we have seen from owning Essentra and Mitie - the prices can fluctuate and any trackers you have set can result in them being sold before you reach +15% premium point. Therefore, as much as it would have been marvelous for us to have bought Taylor Wimpey, for example, at the time it is highly likely to have been sold well short of the headline 55.21% premium price. In fact the prices were so volatile at the time it may even have meant we didn't make much at all. Maybe a lesson here is to reconsider how we use trackers....

This is the reality of investments

[BeautifulSunshine]

Is it just me or in the absence of stimulus from Garindan nothing happens.

[garindan]

Is it just me or in the absence of stimulus from Garindan nothing happens.

Well Rich started this one and you started other threads, as have a few other members. Certainly more posts would help further but we have a reasonable contingent of respondents once threads have been started. I think it seems to be more the role of officers to start threads and then have some responses, at least that is the way history seems to be playing out on the forum so far. That is fair enough, so long as members do not then feel selections/votes and so forth are being driven entirely by me etc... That is why I always try and encourage input, suggestions and so forth

[garindan]

any trackers you have set can result in them being sold before you reach +15% premium point.

Indeed. So perhaps a further lesson to learn there?

I'm not a fan of "stop gains". I prefer "ride your winners"

I think stop losses can be useful on riskier stocks (would have helped a lot with NCC) but not so useful for when the market turns against a large, fundamentally-sound FTSE 100 company

Luck does play a part, of course. But I think if we just write off our mistakes as "bad luck" we will fail to learn. As a club that actively researches and picks stocks, we should at least aspire to try and beat the market. Otherwise, we may as well just shove all the money in a tracker fund

[garindan]

But I think if we just write off our mistakes as "bad luck" we will fail to learn.

For sure - I agree. I don't think I was doing that en-masse.

However, in the case of NCC I firmly believe the board misled everyone. Investment analysts, investors and the alike were all fooled by the sound announcement of the board and comforted by the share purchases made by the board members. This is the root cause in the scenario that saw the share price fall through the floor as a result of such a stark turnaround in a matter of a few weeks. It's perplexing and frustrating at the same time. The paper loss on this share is ~4% of of our total member investment, which is a massive chunk when you consider we are ~9.5% up overall. 13.5% up would sound a lot better.

Maybe the lesson for us as a club, at this point, is to avoid the FTSE all-share for the moment and stick with the FTSE250 or even just the FTSE100.

[Richard Frost]

Maybe the lesson for us as a club, at this point, is to avoid the FTSE all-share for the moment and stick with the FTSE250 or even just the FTSE100.

I hesitate to say this especially as I am on the way out. But this is what I was suggesting a year ago.

[garindan]

Maybe the lesson for us as a club, at this point, is to avoid the FTSE all-share for the moment and stick with the FTSE250 or even just the FTSE100.

I hesitate to say this especially as I am on the way out. But this is what I was suggesting a year ago.

Happy to hear thoughts from everyone irrespective of if they be a member, outgoing member, past member or non member!

I guess the contrary argument presented is ITV fell off a cliff at one point too - however with that one there is ~7% dividend payback per year.....

[Richard Frost]

One of the problems is that the club has a variety of members all of whom have different criteria with regard to risk. There are some who want to take a cautious approach and others (whom I think are a minority) who would back Gold Panning in the Thames. It is hard to find a balance. Esp. with such a small amount of people involved.

[garindan]

One of the problems is that the club has a variety of members all of whom have different criteria with regard to risk. There are some who want to take a cautious approach and others (whom I think are a minority) who would back Gold Panning in the Thames. It is hard to find a balance. Esp. with such a small amount of people involved.

The truth is we had set conditions from within which we should be working - FTSE250 inclusive. With NCC we drifted outside them, which I probably should not have allowed in hindsight.

Your point is why I think setting up a separate fund, for those members wanting to put their own money up and purchasing more risky type investments, would work better for us as a Club. Then those members wanting to can play those kind of stocks as they wish and it not affect the current fund etc...