We know that the stock market hasn’t been too kind to long-term value investors since March 2020 as a result of the COVID-19 pandemic. Plenty of portfolio positions around the world quickly when from being ‘ in the black ’ (profitable) to being ‘ in the red ’ (unprofitable).
Our stock pick last month Aggreko has performed well, earning 23% gains so far. Here is a short summary.
Hi investors, As many of our regular readers know, we follow the same routine at the end of each month in order to select our monthly stock pick. This routine can be broken down into 4 simple steps: Step 1 - High-Level Screening (Stocks analysed - 2750 ) We run a high-level screen for all companies available on the London Stock Exchange (LSE) using our list of key parameters ( you can read about these in our ebook ). Only around 3% of all stocks in the UK meet our strict criteria. Step 2 - IVI Evaluation (Stocks analysed - 50-80 ) We then assess each company using our Inherent Value Index (or IVI) evaluation method. This method takes into account key financial data, past and projected, and often removes a further 35-70 companies from the list. Step 3 - Stock Pick Selection (Stocks analysed - 10-15 ) At this point, we are left with fewer than 20 under-valued, dividend-paying companies (approximately 0.5% of the companies available on the LSE). From this list, we evaluate annual reports and company announcements to ensure that we have left no stone unturned before making our selection and circulating to our stock pick subscribers Step 4 - Investing (Stock selected - 1 ) Once the data analysis is complete, we wait for the first weekday of the month before investing our hard-earned cash into a company which we believe will stand us in good stead over the coming months and years. Simple but effective. Plus500 Ltd In the summer of 2019, after going through this rigorous analysis, we landed on a company called Plus500 Ltd (PLUS) as our July monthly stock pick. From our analysis, this international financial firm appeared to be trading at a heavily reduced share price of only £5.24 , having had a tough year in the market. Tighter regulations had meant a crack down in their industry, and many investors pulled out of the company believing it would not survi ve. However, our IVI method revealed a VERY strong set of financials and believed the market was wrong. Within 3 weeks, the stock price had risen by a whopping 25% which prompted Joe’s blog post in late July. Despite this short-term win , our analysis indicated that the company was still very much under-valued . As a consequence, at end of July 2019 we followed the numbers again and made a second investment into PLUS at a share price of £6.11 . For the rest of 2019, the share price continued to climb through £7.00 and £8.00, paying (literal) dividends along the way, until on the 4th March 2020, it had hit £9.57 per share. Then came Monday 9th March 2020: ‘ Black Monday ’. Global markets were turned on their heads as investors came to the realisation that the COVID-19 pandemic would disrupt life as we know it. As the share price fell to £7.31 on 16th March, we wondered whether we’d missed the boat to sell. Should we sell and take the profit now? Or should we hold and hope for a recovery? As ever, we looked at the numbers. After conducting further IVI analysis, we opted for the latter; at the current share price, the IVI method indicated that the company was still under-valued by the market. The share price duly bounced back towards the end of March and continued to rise throughout April. By 24th April 2020, the company was trading at over £12.50 per share. At this valuation, according to our calculations the company was moving from under-valued to a fair valuation status. This led us to asking 2 questions: 1. Do we trust in our IVI evaluation method and think that this company is no longer under-valued? YES 2. Would we be happy to take the profits gained so far to re-invest into other under-valued companies? YES It was time to sell . We sold our stake in PLUS at a share price of £12.51 . Overall, the numbers really speak for themselves when you work out the overall % profit over the 9-month period.
Data visualisation housing stocks using radar chart FTSE 100
Hi investors, So, this Monday (9th March 2020, or ‘Black Monday’) investors across the world witnessed one of those sobering feelings as global stock markets turned uniformly red . Billions of dollar s were wiped off the face of the Earth by a swirling vortex of terror - one part unchecked spread of coronavirus , one part oil price war . Before 9am UK time on Monday, over £120bn was lost from the FTSE 100 alone , which closed down 7.2% . A drop like that in a single day hasn’t been recorded since the financial crash in 2008 . Interesting times lie ahead… However, do not lose hope ! People react irrationally during market downturns, and it is at times like these that investors need their decisions to be directed by their heads more than by their hearts . For example, we know that the companies which we invest in are good companies . Some are even g reat companies that have been around for decades, through several market crashes (and oil price wars )! And because of this, we will continue to invest regularly into the UK stock market as we strive towards financial freedom. Anecdotally, the stock market takes a downturn every 10 years . The last ‘crash' was in 2008, and we could be on the verge of the next blip. But as Warren Buffet would say: “Be fearful when others are greedy. Be greedy when others are fearful .” With this in mind, we spied an interesting exerpt from an Investors Chronicle (IC) supplement this week, which recommended ’10 Shares for Your ISA’ . Obviously, we couldn’t resist putting each company through our Inherent Value Index (IVI) evaluation to see whether any of these companies were good value investments . As outlined in our free ebook “The Start Investing Guide to Stock Screening” (which you can get for free by subscribing here ), we have certain metrics that we live by when it comes to picking stocks :
When we first started screening for stocks back in January 2018, the first few months produced surprising results: housing companies , seemingly making money hand over fist, were trading at a huge discount . At Start Investing we follow the numbers, and the numbers told us to cash in on these strong companies that had been beaten down by Brexit uncertainty. We continued to buy until early 2019, by that time housing stocks made up a large portion of our portfolio and even though we hadn't seen much of a return by then we trusted the strong financials these companies were reporting. Below is the result of our February 2019 screen, as you can see, 7 of the top 11 are housing companies : Bellway, Redrow, Bovis Homes, Countryside Properties, CRH, Taylor Wimpey and Persommon.
Hi investors, And just like that, it's been two years since the birth of the Start Investing Stock Portfolio (SISP). After buying into our first company on 19th December 2017, we've been regularly adding to the SISP on a monthly basis, and tracking the growth performance and incoming dividends. In this biennial review, we thought we'd share with you exactly how it has performed throughout 2018 and 2019. TL;DR Summary Over the last 2 years, our Monthly Stock Picks have outperformed the FTSE 100 by 13.2% and the FTSE 250 by 5.6% Dividend payments increased the growth of our portfolio by an additional 5.7% (not too long to read now, ey?!) As you will see, it really has been a journey of two halves... 2018 - Into the Deep End Total Number of Companies in Portfolio by 31st December 2018: 14 Best Performing Portfolio Stock of 2018: Rio Tinto PLC (RIO) +4.8% 2018 was a tough year for investors in the UK stock market, and the SISP was no exception. The poor performance over the 12-month period was ascribed to a combination of global volatility for equities and the uncertainty surrounding Brexit. Following a very positive start in January 2018, the SISP went on to perform similarly to the FTSE 100 Index over 12 months, both of which beat the FTSE 250 Index.
Something pretty exciting is happening to the Start Investing Stock Portfolio . September will be our 20th month of investing £300 per month into our stock picks, meaning we will have invested about £6,000 into the portfolio. Our average dividend yield (remember, this is the % of how much money we put into a stock that is paid back to us in the form of dividends) is about 5%. This means that next year we will get a whole month’s stock pick paid for by dividends! 5% of £6,000 is £300! WE LOVE DIVIDENDS. This is also a very good way to see compounding interest at work. Here's a question for you: How long will it take for all 12 months’ picks to be paid for by dividends? The first one took 20 months right? So is it 12 x 20? 240 months or 20 years ? Nope. If we think we need £3,600 in the form of dividends to pay for 12 months of picks, we need a total portfolio worth £72,000 (5% of £72,000 = £3,600). Here is a breakdown of how the next 20 years will go if we keep adding £3,600 and reinvesting our dividends.
