CIC Strategy Going Forward in 2018

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CIC Strategy Going Forward in 2018

Post by BeautifulSunshine » Mon Jan 15 2018 6:00am

Following on from this comment by Beachboy:
Beachboy wrote:
parchedpeas wrote:I think a large part of the problem is that there are about four of us on here discussing this, and two of those four aren't even in the club! Where is everyone?!
The short answer for me is 'out'. To be fair much of the discussion has only taken place yesterday and today over the weekend and so it is perhaps not that surprising that some people are busy. Also quickly scanning it, the contents of the discussion are a mixture of our woes re Carilion (understandly given the current position and the title of the thread) and some comments related to this more generally re strategy. I can see the natural linkages and how this flows as a conversation but I would be more inclined to provide more comments on a wider CIC strategy in a dedicated thread because much of what is being mentioned here I have raised and/or agreed with previously (e.g. need for stop losses, be clear on why we hold a particular share etc.) and so I am not sure there is much to be gained by repeating again in this thread.
viewtopic.php?p=207925#p207925

This thread is purely to discuss the CIC Strategy going forward in 2018
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Re: CIC Strategy Going Forward in 2018

Post by kevinchess1 » Mon Jan 15 2018 7:57am

My thoughts
To set Stop/losses on ALL our shares
A new Chairman
To take a look at all of holdings, apart from the 3 most recent, with a view to selling some
We have 13 shares, well actually 11 now, and that's too many
I would suggest selling 2 or 3 with a view to buying 1 but purchasing a lot more of the new share
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Re: CIC Strategy Going Forward in 2018

Post by Beachboy » Mon Jan 15 2018 6:42pm

I will post further when I have more time but a few initial thoughts on current areas that are being discussed:

Chairperson
I agree we need to clarify and have some direction for the position of chair. My view is that Garindan was doing a really good job, with detailed, balanced and thoughtful posts before his unfortunate absence for family reasons. Therefore I think the first thing we should do if it is possible is to try and ascertain from Garindan, if or when he will return. If he is planning to return in the next couple of months I would propose an interim arrangement to cover for this period. If not then yes we need to carry out a proper process to select a new official in this position. He could obviously always resume the role again in the future.

Stop/Loss
This has been mentioned by various people, including me before, but having a stop/loss in place on all shares to minimise any losses seems a sensible.

Understanding the plan for each share
Again I have mentioned this before, but I will flag it up again. I feel we need a clear plan for each share that we purchase (e.g. is it for short, medium or long term capital growth, is it a long-term hold for its dividends etc etc). We are also lacking a clear way of seeing an easy summary of this - one solution would be that we add this to the table of investments so we have a quick/easy reference with more details held in a dedicated thread(s). Also that way we might end up with a better balanced portfolio made up on short/long term/dividend payers etc. Also something like that will hopefully help us better review how they are performing - at the moment we tend to be judging all shares against their current share price but this might not necessarily as important if it a long-term dividend hold as one which is bought for short term gains (e.g. you wouldn't worry too much about Mo Farah's marathon position after the first 95m but for Usain Bolt's position in a sprint race would be more crucial).

Dedicated Threads
I would find it useful to have dedicated threads for each share, key CIC strategy debate that include important discussion that do not go off topic and have fairly strict scope for posting along side some more chatty style ones. I think both have their place.

Periodic Reviews
It would perhaps make sense to have a CIC AGM (or at least some other kind of regular review) to review all the Officer posts, review strategic priorities etc.

Ok that's a few thoughts for now. :thumbup:

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Re: CIC Strategy Going Forward in 2018

Post by pieman » Tue Jan 16 2018 1:46pm

Just to say I agree with everything in Beachboy's post above.
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Re: CIC Strategy Going Forward in 2018

Post by Richard Frost » Sun Jan 21 2018 11:20am

Beachboy wrote: Chairperson
I agree we need to clarify and have some direction for the position of chair. My view is that Garindan was doing a really good job, with detailed, balanced and thoughtful posts before his unfortunate absence for family reasons. Therefore I think the first thing we should do if it is possible is to try and ascertain from Garindan, if or when he will return. If he is planning to return in the next couple of months I would propose an interim arrangement to cover for this period. If not then yes we need to carry out a proper process to select a new official in this position. He could obviously always resume the role again in the future.
Has anyone done anything yet/made a start or are you all going to hobble on until the next crisis?

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Re: CIC Strategy Going Forward in 2018

Post by kevinchess1 » Sun Jan 21 2018 12:14pm

No of course they havent
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Re: CIC Strategy Going Forward in 2018

Post by Beachboy » Sun Jan 21 2018 2:19pm

William Joseph1 wrote:
Beachboy wrote: Chairperson
I agree we need to clarify and have some direction for the position of chair. My view is that Garindan was doing a really good job, with detailed, balanced and thoughtful posts before his unfortunate absence for family reasons. Therefore I think the first thing we should do if it is possible is to try and ascertain from Garindan, if or when he will return. If he is planning to return in the next couple of months I would propose an interim arrangement to cover for this period. If not then yes we need to carry out a proper process to select a new official in this position. He could obviously always resume the role again in the future.
Has anyone done anything yet/made a start or are you all going to hobble on until the next crisis?
I have been waiting to see what other members think. This is just my view. There seems to be some support for the idea I suggested but certainly not enough to feel mandated to be able to take action. I would happily drop Garidan a PM, which is the only way I could contact him because I do not know him personally. It might be that other people have a better way of making contact, for instance I think he and Richard may live quite close and might have met to sign the original CIC paper work. Also I had hoped there was a small chance that Garindan might be scanning the forums occasionally and felt able to respond.

If there is a clear consensus amongst the CIC that we should contact Garindan to try and ascertain his current position before looking to appoint a new Chair or not I am happy to PM him in the absence of a better suggestion.

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Re: CIC Strategy Going Forward in 2018

Post by Derbiean » Sun Jan 21 2018 2:59pm

Beachboy wrote:
William Joseph1 wrote:
Beachboy wrote: Chairperson
I agree we need to clarify and have some direction for the position of chair. My view is that Garindan was doing a really good job, with detailed, balanced and thoughtful posts before his unfortunate absence for family reasons. Therefore I think the first thing we should do if it is possible is to try and ascertain from Garindan, if or when he will return. If he is planning to return in the next couple of months I would propose an interim arrangement to cover for this period. If not then yes we need to carry out a proper process to select a new official in this position. He could obviously always resume the role again in the future.
Has anyone done anything yet/made a start or are you all going to hobble on until the next crisis?
I have been waiting to see what other members think. This is just my view. There seems to be some support for the idea I suggested but certainly not enough to feel mandated to be able to take action. I would happily drop Garidan a PM, which is the only way I could contact him because I do not know him personally. It might be that other people have a better way of making contact, for instance I think he and Richard may live quite close and might have met to sign the original CIC paper work. Also I had hoped there was a small chance that Garindan might be scanning the forums occasionally and felt able to respond.

If there is a clear consensus amongst the CIC that we should contact Garindan to try and ascertain his current position before looking to appoint a new Chair or not I am happy to PM him in the absence of a better suggestion.
Can't hurt to PM him fingers crossed he'll respond quickly :thumbup:

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Re: CIC Strategy Going Forward in 2018

Post by BeautifulSunshine » Sun Jan 21 2018 6:37pm

Carillion's collapse was for many people a bolt from the blue - a large UK company that had no obvious problems went bust in a little more than a year.

Even the company's directors seemed to have no idea what was about to happen. In the annual report published in March, they signed off a "viability" statement saying there was no reason to think the company would have financial difficulties in the next three years.

Outside the company, however, there was widespread scepticism.

Investors had begun betting against Carillion shares as long ago as 2013.

Six months ago, at the height of the City scepticism, one quarter of all the company's shares were being used in "short" trades, an unheard of proportion for a large quoted company.

One hedge fund manager complained at the time that the trade had become so popular that it was no longer worth doing - the cost of borrowing Carillion shares, normally the necessary precursor to placing a short trade, had become prohibitive.

What did the short-sellers see that the company's board could not? Here are four of the tell-tale signs that (with hindsight) gave hedge funds and others sufficient confidence to bet that the company's shares would fall.
It's too good to be true

Carillion reported average margins of about 4%, twice the normal going rate for construction companies.

While some of this could be explained by the company's mix of business, with potentially lucrative service contracts and high-margin work in the Middle East, it seemed suspiciously high to some investors.

And high-margin work is good, as long as you actually receive payment. Industry insiders say Carillion was owed about £400m from Middle East contracts when it went under.
Longer payment terms

Construction industry veterans know that when main contractors come under pressure, their first port of call is making subcontractors wait for their money.

Late payment is endemic in construction, but Carillion was making its suppliers wait 120 days.

There was other evidence too; stories in the trade press about the woes of angry subcontractors, which enough to give keen-eyed hedge funds reason to think that cash was tight at Carillion.
Debts may have been larger than most thought

Carillion had plenty of debt - about £850m at the time of its last annual report - although this had grown much larger by the time of its demise.

But that figure did not give a full picture. To help speed payment to its subcontractors, Carillion, in common with other large contractors, used a system called the Early Payment Facility.

Its suppliers could take their invoice to one of Carillion's lenders and be paid. The bank took a fee, and Carillion no longer owed the subcontractor, but the bank.

This sum was not included in the published debt figure, but was in the accounts under a different heading - if you knew where to look.
A new regime coming

All companies that have long-term contracts have to wrestle with the tricky question of when the profits should be recognised in the accounts.

If they abide by the actual flow of cash from the deals, then the results would be very lumpy, with big losses early on followed, hopefully, by profits in the final years.

Accounting rules allow companies to smooth the profits out, but it is a matter of judgement. If the judgement is too optimistic, profits can be booked too early.

The accounting rules are changing, with a new standard (IFRS 15) coming into force this year. It will force companies to be tougher, matching reported profits much more closely to actual cash flows.

It is not an unreasonable assumption for a hedge fund that the new accounting standard would be likely to hit Carillion's reported profitability.
Image copyright Reuters

It is worth remembering that the investors were betting only that the share price would fall.

Most probably expected that - as had happened with Carillion's big rival Balfour Beatty a few years earlier - there would be a string of profits warnings, a share price plunge, painful write-offs and a slow crawl back to normality.

It turned out to be much worse than that. As the interim chief executive Keith Cochrane set out in his witness statement to the court that approved the liquidation, the company had nearly no cash left at all.

The court requires a deposit to be paid to secure the liquidator's services; Carillion did not have it, relying instead on the government to come up with the sum.

The Financial Conduct Authority keeps a record of short positions in companies listed on the London Stock Exchange. Bear in mind that while the short sellers turned out to be right about Carillion, they have been wrong many other times.

And a short position may be just one part of a wider trading strategy - the table does not tell you anything about the reasons for the trades, or the wider context.
http://www.bbc.com/news/business-42744949

in future we need to bear in mind the following:
- Any stories in general, trade or specialist press;
- Where is "This sum was not included in the published debt figure, but was in the accounts under a different heading - if you knew where to look."?;
- Notification and disclosure of net short positions [Financial Conduct Authority]
https://www.fca.org.uk/markets/short-se ... -positions

A few good lessons to be learnt and move forward once again...
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Re: CIC Strategy Going Forward in 2018

Post by garindan » Tue Jan 23 2018 3:31pm

Please see here.
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