End of October YTD: 38.9%.
17th Nov YTD: 36.9%
This post is going to take a slightly different approach to the usual ones. At this time of the year I like to reflect on the past year. I’ll cover the highlights and lowlights of the year. I’ll also run through my plan of attack to put me in a good position to benefit going forward.
Like I said in my About Me section. The stock market is the biggest and best game in the world and I want to have the best strategy there can possibly be.
As of 17th November my account is up 36.9% YTD. This is above what I am looking to achieve yearly with the FTSE All-Share at a lowly <5% YTD. But reflecting on the year it’s not been great in terms of the decisions I have made during it. Without some mistakes I believe I would have been over 50% by now.
Coming into the year my approach was to buy rapidly growing companies which are in a solid uptrend. My Trading Rules cover my main criteria. Anyway at the start of the year I was holding the following TRD, G4M, BILN, PRSM, KWS, SOM, PEL, MYSL, SPE. My aim was to concentrate in 5-7 holdings.
Only BILN was held due to its valuation. The other all broadly met my trading rules criteria.
I will run over where I exited my positions (the final sell) and give them a rating of how good a decision they were. On positions entered during the year I will list the first entry date as well.
SPE. Sold on 26th @ 336.5p. 8.4% loss. Sold to reduce # of positions held. On technicals it was bouncing nicely on the 50MA. Badly timed as results were on 30th. Shot up after results. Should have held into results. Decision score: 3/10.
PRSM. Exit 6th @ 391p. 4.9% loss. Loss making company. I decided to have a stop below 400p. Unfortunately it took me out. Maybe I should have had a wider stop. Score: 8/10
TRD. Exit 17th @ 65.2p. 29.6% gain. Fell below 50MA and I sold to keep the gains. On reflection I should have sliced some at 78p. Score: 5/10
SPE. Entry 24th March @ 501p. Exit 6th @ 447p. 11% loss. Bought the breakout above 500p after results. That quickly failed. Decided to keep the stop along 50MA. Sold out on breakdown of 50MA. Could have waited for break of significant number 500p. Stop also could have been higher. Score:7/10
CAPD. Entry 16th Feb @ 59p. Exit 6th @ 53p. 8.6% loss. Missed any breakout and was looking for a chance to get in cheap. Bought into the story that this would be flowing in cash. Terrible idea as price continued to drift. Cut loss around 150MA. Disaster from start to finish. Score: 0/10
MYSL. Exit 31st @ 107.5p. 7.4% loss. Didn’t seem to be going anywhere so cut it as better opportunities elsewhere. At one point it has spiked to 130p and I even added at these lofty heights. Should have turned a profit on this but my poor add points meant ended up with a loss. Score: 3/10
SQZ. Entry 6th Feb @ 26p. Exit 24th @ 26.5p. 1.5% gain. Like CAPD I bought into the story. Took position when extended. Should have cut the position quicker. Lucky to get a positive exit. Score: 3/10
SDX. Entry 6th April @ 54.2p. Exit 24th @ 44p. 19.3% loss. Entry was ok. I should have been out closer to the 50p level. Score: 5/10
TRD. Entry 6th April @ 72p. Exit 17th @ 58.5p. 20% loss. A favourite of mine after my previous position. Believed it was back on track and got sucked into the story. Not a good buy point and compounded by adding before it dropped back again. Had plenty of chances to get out. 200MA even was up at 66p when it crossed it. Score: 0/10.
SPE. Entry 7th June @ 360p. Exit 24th @ 366p. 1.2% gain. Another I tried to pick up on the cheap after believing the story. Lucky spike on results allowed me to exit with a small gain. Score: 4/10
FUTR. Entry 31st August @ 320p. Exit 8th @ 312.5p. 3% loss. Tried to time a breakout above 320. Didn’t happen and sold out quick with a view to rebuying. Gapped on results so no chance. Score: 7/10.
PRSM. Entry 7th June @ 811p. Exit 12th @ 1086p. 27% gain. Original purchase poor entry. Added on breakout. Sold too early. Score: 5/10
SOM. Exit 26th @ 276p. 20% gain. I sold this once it was clear it couldn’t hold the 200MA. Funnily my small sell triggered a bunch more and it plunged on the day. Perhaps I could have taken some off the table around 300p. Unfortunately the chart broke down so it didn’t become a big winner. Score: 8/10
BOO. Entry 11th @ 191.5. Exit 12th @ 203 p. 5.9% gain. Though I had got the bottom but next day price reversed intraday so I decided to exit. Score: 8/10
I also traded 2 stocks on what I called the Twitterati Stock Challenge. They both made considerable % gains but I stopped the challenge as following all the rampers is annoying and I also lacked the time to do it properly. But if you know how to get in before the main herd you can make a good living that way. Not a style I approve of though and a lot more effort to do. It also does have risks as the companies are complete garbage so will fall huge amount very swiftly.
Summary of exited positions
14 in total. 6 gains and 8 losses. 9 of the 14 were entered and closed this year so far. The other 5 were positions held from last year.
Including the positions held from last year all these 14 positions account for about 3% of the portfolio net worth in total. So a pretty negligible effect from the 14.
The only noticable >1% of portfolio loss was the position in TRD from April – August. The noticeable gains mostly came from SOM and TRD which were held from the previous year. In fact most of their gain was in 2016 so they didn’t actually contribute this year. The PRSM position June-September contributed >1%.
Of the 9 from this year almost all have a terrible entry point. They are either bought on an extended run or on a significant pullback after a run. The exits on the trades are no better with very few being anywhere near where I would call a good exit point.
Additionally my dabble into oil sector in CAPD, SQZ and SDX proved to be bad timing. They were all between Feb and July. Looking at the AIM sector over that point doesn’t present a good picture as I basically got in at the top and out at the bottom. Luckily I was in some of the stronger ones and the positions were small so they didn’t impact the bottom line.
My main issue was that I had decided to ignore the sector as most of the stuff is garbage. But then it turned into the biggest winner of all the sectors in 2016 and I had gained nothing from it. So this decision was probably mostly based on the fear of missing out incase this continued for another year. Which is never a good place to be.
Obviously all the 14 exited positions above haven’t been where I made my money this year. So the real gains are in the positions I am still holding.
Some people have the strange view that it doesn’t count until it’s banked. But that is just nonsense. If you are worried about banking your profits you don’t have the mentality to let the winners run and make the really big gains. Paper profits are not magically going to disappear.
So lets start with the best and then work our way through them.
KWS +150% average gain
Entry: 18th Nov 2016 @ 500p. Adds 550p, 600p, 800p
Top sliced: 1150p as >30% portfolio. Sells around 500p to derisk as I went in heavy.
(Green boxes = buys. Red = sells)
Not a good entry place as chart was extended. But it was such a great looking chart and I had see the acquisition strategy pay off incredibly well before in VCP (Would now have returned over 1000% from where I bought if I held my original VCP position from 2015). So I knew their strategy could pay off with some big gains. And I liked the industry as I was a software developer and had outsourced work in the places I had worked at. So I bought a large position over a few days.
It’s blown past all predictions and shown no signs of slowing. I haven’t even had to make any difficult decisions as it’s only tested the 50MA so it’s probably the easiest to hold big winner I have ever had. Hopefully it’ll keep going for a few more years.
G4M +100% average gain
Entry: 14 Oct 2016 @ 325p. Adds ~420p, 555p
Sliced: 800p, 770p to derisk
Another extended chart which I bought into. Incredible growth with global expansion plans. It’s had some rough patches below the 50MA. But stayed well clear of the 150 & 200 so far. However as the latest results failed to set off the next run I have taken half off the table. I will add on the next breakout if it happens and look to be out if it breaks down below the 200MA.
Entry: 24th July @105p. Adds: 118p, 125p, 135p
I did actually hold this @ 36.5p in Nov 2016. But closed it as I preferred the other companies that I was in as I understood them more than this one.When I did buy it @ 105p was after some big news and everyone else had started to notice it so it wasn’t ideal. But it was so strong that I added a few more times. I sold a few after getting a few too many. All signs point to it carrying on up.
Entry: 15th Nov 16 @ 225p
Sliced: 26 Sep 2017 @ 280p
This was a valuation play. The employee benefit trust were a forced seller. The theory was once they were out then the rerating could begin back to over 300p. Instead other sellers have come around so it’s taking a long time. Also pays out a good dividend so I don’t mind waiting too much but did take half off at 280p after it spent a few days stuck there. I will cut the rest if 280p isn’t breached on the next update.
Entry: 1st Sep @ 165p. Add: 171p
Bought on the gap on results. Added on continued strength. Should have added again on recent breakout but missed the chance. Will look to add on strong results. Potential to be a decent size winner.
Entry: 30 Aug @ 1040p. Adds: 1010p, 1310p, 1050p, 930p
Was waiting for a pullback on the huge run up. Never came so then I started buying. After results pushed it up again I bought near the top. Finally a pullback happened and I added even more. High risk but the margins on games are huge and Jurassic World is something that has a huge market. Add in the 10% stake by Tencent who are the world largest game publisher in the world along with doubling the rate of releases and it’s a great setup ready to deliver some incredible titles and some massive profits. This has real potential to deliver some huge gains despite it’s huge rise already.
Entry: 26 Sept @ 840p. Adds: 895p, 930p, 1000p, 990p,
Sliced: 905p, 1030p
Originally a valuation play for me. I was just going to stay in till £10 but it hit that very swiftly. So after more analysis I can see this continuing to grow for a while. it’s also the best way to play cryptos that I have come across. PLUS have high customer growth with falling cost per acquisition and rising revenue per customer. Most of this is driven by the crypto boom over the past year and the boom has just kept growing. Broker forecasts can’t keep up with the growth. Could soon overtake IG Index in profitability. No idea why the current chart weakness is about but PLUS does have a history of the chart being detached from reality of what it is achieving. Slightly worrying but has stayed above 50MA. In the past it has always recovered swiftly so i don’t expect anything different this time. I am going to hold at least till next year regardless of the chart as I believe the valuation is far too low and the results will be way ahead of broker forecasts again. And I want to have some exposure to the crypto boom without directly buying any particular crypto asset.
Entry: 19th July @ 204p. Adds: 210p, 214p, 221p
Bought aggressively on gap up after disposal of low margin business unit. Going forward business is geared for growth with great margins. Chart has started to look a bit worrying but results are on monday so will see what happens.
Entry: 22nd Nov 2016 @ 3.475p. Adds: 4.1p, 4.25p, 5.1p, 5.6p
This is a real tiddler at a market cap of only 4m. I bought aggressively and added on breakout to new highs. But when chart broke down I took no action and got into the cycle of postponing the decision till the next update. When the update came it always sounded good. Once at 4p I thought there was no way it would go lower and would probably have a good size bounce on results. I also knew selling my position would move the price so didn’t sell any as I wanted 4p to hold. But it broke 4p after results despite the company’s claims of being on track. I did add a few at 2.75p but quickly sold them at 2.925p as I didn’t really want to put any more capital in to this. Anyway the latest update came and sure enough it was a profit warning. So it’s plunged even further. It is however looking very cheap now if you take the latest results despite the miss on earnings. And it’s hard to imagine the company messing up as badly next year. If they meet expectation next year this should comfortably be back above 6p. So I haven’t decided what to do as I don’t see much downside. But this breaks all trend following rules. So I will probably take half off and leave the rest till at least the next update. But overall a complete disaster and I should never have ignored the chart and accepted a much smaller loss. I should also never have taken such a large position initially in such a small illiquid company. I don’t even know why I am really debating keeping any as it’s clear I should just exit and move on from this disaster.
At the peak PEL was 17.4% of the portfolio. Today it stands at 4.7%. So in 6 months since the peak it’s fallen over 10%. In the meantime the portfolio has returned 33% over that time. So if I’d sold at 17.4% of the portfolio and compounded that 33% I would have added 6% to the portfolio. So that’s a 16% swing in the portfolio through my poor choice. Which is why I would be on over 50% YTD without PEL.
Summary of current holdings
Looking great: KWS, IQE, RFX, FDEV
On the ropes: G4M, BILN, TTG, PLUS
Knocked out the ring disaster: PEL
The entry points have tended to be pretty extended. I’ve got away with it in most of the companies but I really need to start taking safer entries. I also need to be a little slower in building up the positions as PEL has shown what can happen if it turns. FDEV could have also ended up the same way.
I’m generally happy with how I’ve managed the positions giving them plenty of room to run where I can. But obviously the huge errors in PEL have been extremely costly. Potentially costing me 16% of where the portfolio could have been.
Spread Betting (SB)
In September I opened a SB account. I had a view of margin as an unnecessarily risky tool that should be avoided. However I noticed it is used by quite a few PIs so did further research and found out it doesn’t need to mean you take any additional risks. In fact with guaranteed stops you have an insurance tool that isn’t possible with regular shares. So you can trade with an additional safety net. It also cuts out any tax worries so all in all I have completely changed my view on spread betting and am now actively planning on using it.
So far I have taken a few positions through IG index and one position through Spreadex. IG offer better spread and I prefer the platform so I will stick with mainly using IG. But occasionally you will find some shares can’t be traded on one or they have limits so then multiple accounts become useful.
Another provider who offer the best spreads of all are CMC Markets. But their range of stocks is lower. They also have a great feature of allowing you to see level 1 so you can trade sizes that give you the best prices possible. I haven’t yet opened a position through them as they didn’t list anything I wanted to open since my account was setup.
Overall Summary of the year so far
So this is what I wrote coming into the year:
“my strategy is to buy a small concentrated portfolio of Small Cap growth stocks which are profitable and have momentum behind them. I start with small positions and then average up in the ones that do well till they reach my maximum position size. I’ll then run the positions till they give me reasons to sell.”
Looking back that is a pretty good summary of what I have done. And the returns so far show that it is an effective strategy. It’s also a strategy which allowed me to not have to spend much time on the market. Which was ideal for me a year ago.
However my actual execution on timing of buys and sells has been poor which means I am taking on completely unnecessary risk. The returns mask the poor decisions I have made that have had an impact on the bottom line.
Here is the data on when I have been buying and selling broken down by month and then by ticker.
I’ve added a 1/3rd column as I run 3 portfolios. My SIPP, ISA and dealing account. So when I enter/exit a position it is generally done across all 3 so 1/3 of the activity is a more realistic number of how active I am.
|Ticker||Count of trades|
So roughly 37 trades across 21 companies over the year. 2 of them were for the TSC so really it is 19 companies that I have had core positions in.
A majority of the activity comes in bursts as I sell something and then very swiftly allocate the cash back into something.
In an ideal world I would have just become more concentrated in the 5 best of the original 9 over the year and be holding 5 huge winners.
The original 9 were: TRD, G4M, BILN, PRSM, KWS, SOM, PEL, MYSL, SPE
Out of them only KWS, G4M and PEL have survived. And PEL has ended up being a disaster and shouldn’t be here anymore. So unfortunately most of the original positions broke down and I had to exit. Of the positions entered over the year we have 3 strong candidates in RFX, FDEV and IQE which are looking likely to be remaining in the portfolio for a long time.
Going back a year my scenario was vastly different to now. I was in a job abroad, spent a limited amount of time looking at the markets and had a small window of time to make decisions as the time zone difference meant I only saw the last few hours of the market every day and had about an hour between waking up and being in the office.
Now I am dependent on making a living off the market and have plenty of time to research and develop what I am doing so have no excuse for not looking to improve what I am doing.
It’s also become clear over the year that the UK market is lagging behind and there are better opportunities abroad. So I will no longer be limiting positions to the UK and will start to buy the best from the US and Europe as well.
In regards to the broader market I have followed the long term indicators which have always been bullish and remains so. In my january post I wrote the following:
“I do buy into the view that the current market (99-17) does resemble the market of 65-82. We have been in a secular bear market and are now challenging the resistance points that could see us enter into a secular bull market. If the market does breakout into a secular bull then I’ll have had some extremely fortunate timing as this will go down as one of the best times in history to get into the market. So it’ll mean my odds of being able to rely on the market for income will be significantly higher than they would be if we continued in a secular bear.”
I stand by that statement and believe we have just had the first year of a secular bull market. So expect some incredible gains during the next 5-20+ years with bear markets being smaller and less frequent than the past 20 years. The last bear market was late 2015-early 2016. So I am not expecting one to happen prior to the end of 2018. But I will keep an open mind and know the broad market indicators will give me signs of when it starts. So I just need to make sure I don’t ignore them.
I see so many people chopping and changing their cash position on twitter despite the market being barely able to string a few down days together. They’ll then buy back in a few weeks later when the market has carried on without them.
I think people are more cautious than ever. Among my peers I barely know anyone who invests in the markets aside from through their pension. Unfortunately we grew up in an age where the world has has so many blowups most of my peers won’t go anywhere near the stock market. Once I start seeing a larger % of peers getting into the market then I will start to think that maybe we are nearing a big top. But that happening seems near impossible to envisage during the next 10 years.
So I’ll just stick to following the indicators and continue to make the most out of the strong market.
Sure the UK market has gone sideways lately and experienced a small correction. But it looks like a very healthy correction so far with the averages continuing to look healthy. When you then look at the wider context of the world market indicators it’s clear that money continues to flow in to equities. So I am pretty confident it won’t be long before the UK markets are once again into new highs.
The Plan going forward
Main Goal: Manage the risk.
Secondary goal: Go Global. Expand into US and European equities.
Entries: Stop chasing extended stocks and focus on purchasing the breakouts.
Exits: Much tighter and stricter on initial positions. Take risk off if it isn’t moving as expected.
Follow the rules: Buy the strongest stocks in the strongest sectors in the strongest market.
No more valuation based entries: No more cheating the trends based off some valuations. While having growth along with a low earnings multiple is great, the chart must dictate when/if I enter.
Positions: I am removing any goals on how concentrated a portfolio I will aim to have. 5-7 proved to be tougher than I expect to achieve. I also made poor decisions based on trying to reach that goal. Instead I am currently looking to take the approach of looking at taking positions based off the risk at stop. So positions may end up as a large % of the portfolio but the trade itself has been executed with minimal risk throughout.
Global portfolio: No longer limiting myself to the UK. The UK has performed well over the past year but when you look at some of the other countries it’s obvious there are stronger markets out there. So going global should allow me to find even larger winners.
To help accelerate my risk focused strategy I have signed up to Trading Bases. www.tradingbases.co.uk which is run by Jase. Not only does he have some excellent risk management but he also focuses on buying the breakouts and has read the same books I have.
So far I am a few days in and the content in the members area has exceeded all my expectations. I have learnt more in the past few days then I did in my first few years of investing. If you want to save a few years of potentially costly investing mistakes then I would strongly recommend joining up. Even if it’s only for 1 month.