The Lemon Fool

Hariseldon58 wrote:The dangers of capturing a falling knife ?

It has only been a month, but this is already an eye opener for me around dangers of single stock picking, to have 3 absolute stinkers in a fairly flat market is somewhat sobering.

I’d assumed you were shorting them.

Walrus wrote:It has only been a month, but this is already an eye opener for me around dangers of single stock picking,

At the level of single stocks, past performance can be a guide to the future. Obvious enough why, economic conditions, trading environments, management performance etc. should correlate from one measurement period to the next.

It's only once you get to the whole market or a sizeable subset of the market, that these factors cancel out and the mathematics of throwing a coin regains possible relevance.

Walrus wrote:Well one month in and the Dog Conviction Fund has had a shocking start.

Three double digit losers and a chunky loss in BT.

Petrofac -18%
Centrica -15%
Imperial - 13%
BT -6%


This fund has been seriously bad for your health if you are chaser of dogs.

Bright spots are Apple up 3%, GVC up 2 percent and marginal gains on GE.



Hmmmm, Average down on Petrofac perhaps.....

Did you ever consider that April 1 might not be the best day to kick off?

I have held those 4 for some time (BT since it was a dear little puppy) and have also been badly bitten by them all. What I want to know is when are you going to have them put down or do you think they can still improve with training? Maybe you are thinking of switching to a different type of pet? How about a few chickens which can be relied on to lay you a regular supply of eggs, albeit not golden, and make a nice roast at the end of the day; or cats which sleep much of the time but bring in the odd mouse and now and again present you with a litter of kittens which you can sell to pay the vets bills and catfood? Or you could just take a nice stroll round a zoo from time to time; much less work and worry! Dogs are not the only creatures and their tail wagging can be deceptive.

Here are my dog-like efforts over the past 6-7 years viewtopic.php?f=8&t=6417

--kiloran

Walrus wrote:BT PE 8 Yield 7.8

Owns EE a quality outfit in my view, in a sector which is here to stay. Huge barriers to entry in terms of investment outlay. Bombed out share price, can't really see you much downside here.

Huge capital investment program to stay in the game for Fibre to the premises.
Massive pension liability & shortfall.
May not leave much for dividends.............

I hold, toying with the idea of topping up, but nervous about this as a selection

TUK020 wrote:

Walrus wrote:BT PE 8 Yield 7.8

Owns EE a quality outfit in my view, in a sector which is here to stay. Huge barriers to entry in terms of investment outlay. Bombed out share price, can't really see you much downside here.

Huge capital investment program to stay in the game for Fibre to the premises.
Massive pension liability & shortfall.
May not leave much for dividends.............

I hold, toying with the idea of topping up, but nervous about this as a selection

Why would you consider topping up in view of what you (correctly) said? My view is that I'll hold in the hope that things buck up, in which case I'll benefit, but I'm not prepared to risk any more money because I can't really see it happening to any degree. The pension fund in particular is a nightmare which I don't see abating. Needless to say, I'd be delighted to be proved wrong.

Actually the pension issue is one of the reasons I am attracted to the BT, and currently long.

Guess that's what makes a market, differences of opinion.

TUK020 wrote:Huge capital investment program to stay in the game for Fibre to the premises.

Has there been talk of spinning off Openreach as a separately quoted entity?

dealtn wrote:Actually the pension issue is one of the reasons I am attracted to the BT, and currently long.

Guess that's what makes a market, differences of opinion.

Please explain. I must have missed something.

Alaric wrote:

TUK020 wrote:Huge capital investment program to stay in the game for Fibre to the premises.

Has there been talk of spinning off Openreach as a separately quoted entity?

There has been quite a lot of talk about it and a number of demands for that to happen but so far as I am aware, it's no nearer happening. I could be wrong but I think the pension fund may play a part in this, i.e. make it difficult.

Bouleversee wrote:

dealtn wrote:Actually the pension issue is one of the reasons I am attracted to the BT, and currently long.

Guess that's what makes a market, differences of opinion.

Please explain. I must have missed something.

I await dealtn's perspective, but my answer would be liabilities would be marked down in the event of interest rate rises, so buying BT ahead of a rising rate ramp could be quite smart

TUK020 wrote:

Bouleversee wrote:

dealtn wrote:Actually the pension issue is one of the reasons I am attracted to the BT, and currently long.

Guess that's what makes a market, differences of opinion.

Please explain. I must have missed something.

I await dealtn's perspective, but my answer would be liabilities would be marked down in the event of interest rate rises, so buying BT ahead of a rising rate ramp could be quite smart

I am a contrarian by nature. I look for asymmetries as a start point. The "pension issue" is an extremely interesting example, where the (vast?) majority of investors, commentators etc. take its existence as a "known" negative. The vast majority of those will do no research into what is priced, and whether it makes sense or not. So much so I reckon many would still be negative, or reluctant to investigate it, should a company have large liabilities with a P/E of 2 or 3, or a share price in this case sub-50p. That makes no sense.

If on top of this you consider negative real interest rates to be an anomaly in the forward interest rate curve you might consider how to take advantage of that. When you discover that most assumptions are for ever increasing longevity when the evidence suggest this view is at best "mixed" you might consider that as interesting too.

Anyway I haven't looked in detail at the latest statement (something I will probably get round to in the next few days), but the Pension deficit has moved from £5.7bn to £6bn over the year in question. Depending on how you view such a move this is either a 5% worsening, or relatively unchanged. Interestingly though using the FTSE as an easy (but not wholly accurate) benchmark, asset prices were broadly unchanged over the period. On the liability side the discount rates used moved "against" the company. Nominal yields fell from 2.65% to 2.35%, real yields from -.44% to -.87%, and inflation from 3.1% to 3.25%.

So with no meaningful assistance on the asset side, and 3 of the liability factors all having a negative effect, the "deficit" that seems to set tremors amongst most commentators, only worsened marginally. It is certainly conceivable to have a year where 10-20% capital gains are achieved on the asset side. I can conceive of even "random walk" moves in interest rates, and inflation, that reverses the moves over last year (or more), let alone what a full normalisation of interest rates would achieve. Even then I suspect many commentators would be worrying about a company whose scheme has a 5bn (or 4 or 3) deficit!

Eventually you could have a transformation where a situation of assets at £52bn and liabilities of £59bn could become, say, assets £65bn liabilities £45bn. It will be interesting to hear commentators concerns about significant pension surpluses in due course. Before that you will have the situation where the £2bn funding into such schemes will be stopped, which becomes available for either capital investment or debt repayment or dividend payments.

Is this probable? maybe. Is this possible? Certainly. Is there an asymmetry? Undoubtedly.

dealtn wrote:Eventually you could have a transformation where a situation of assets at £52bn and liabilities of £59bn could become, say, assets £65bn liabilities £45bn.

That might depend where they've invested the assets. Increasingly sponsors of defined benefit schemes have felt obliged to hold either indexed government securities at a negative real rate of return, or fixed income government securities at rate between 1% and 2%. Either way it may reduce risk in the form of asset collapse or volatility by reduces returns as well.

Bouleversee wrote:

Walrus wrote:Well one month in and the Dog Conviction Fund has had a shocking start.

Three double digit losers and a chunky loss in BT.

Petrofac -18%
Centrica -15%
Imperial - 13%
BT -6%


This fund has been seriously bad for your health if you are chaser of dogs.

Bright spots are Apple up 3%, GVC up 2 percent and marginal gains on GE.



Hmmmm, Average down on Petrofac perhaps.....

Did you ever consider that April 1 might not be the best day to kick off?

I have held those 4 for some time (BT since it was a dear little puppy) and have also been badly bitten by them all. What I want to know is when are you going to have them put down or do you think they can still improve with training? Maybe you are thinking of switching to a different type of pet? How about a few chickens which can be relied on to lay you a regular supply of eggs, albeit not golden, and make a nice roast at the end of the day; or cats which sleep much of the time but bring in the odd mouse and now and again present you with a litter of kittens which you can sell to pay the vets bills and catfood? Or you could just take a nice stroll round a zoo from time to time; much less work and worry! Dogs are not the only creatures and their tail wagging can be deceptive.

There is life in the old dogs yet.....

Alaric wrote:

dealtn wrote:Eventually you could have a transformation where a situation of assets at £52bn and liabilities of £59bn could become, say, assets £65bn liabilities £45bn.

That might depend where they've invested the assets. Increasingly sponsors of defined benefit schemes have felt obliged to hold either indexed government securities at a negative real rate of return, or fixed income government securities at rate between 1% and 2%. Either way it may reduce risk in the form of asset collapse or volatility by reduces returns as well.

Yes, that's true.

Last asset breakdown I saw was approx. 35% in bonds (or cash), some of which no doubt is Index Linked. Equities approx. 20%, Investment Credit about the same, with the remaining 25% in what is loosely categorised as "other growth" or property. I doubt much has changed to those ratios (they were approx. the same for the preceding 2 years).

Asset growth, from annualised investment performance (ie. not as a result of additional company funds injected) varied from 8-12% in nominal terms (or 8-10% inflation adjusted) over the last 3 years with available information.

dealtn wrote:
Eventually you could have a transformation where a situation of assets at £52bn and liabilities of £59bn could become, say, assets £65bn liabilities £45bn. It will be interesting to hear commentators concerns about significant pension surpluses in due course. Before that you will have the situation where the £2bn funding into such schemes will be stopped, which becomes available for either capital investment or debt repayment or dividend payments.

Would you go so far as to suggest that such 'high-pension-deficit' companies might even act as a bit of an investment hedge if rate-rises were seen faster than might be 'generally palatable'?

I wouldn't have too much conviction that this might be the case, but it's one of the little things that's stopping me exiting a couple of companies in similar situations....

Cheers,

Itsallaguess

Itsallaguess wrote:

dealtn wrote:
Eventually you could have a transformation where a situation of assets at £52bn and liabilities of £59bn could become, say, assets £65bn liabilities £45bn. It will be interesting to hear commentators concerns about significant pension surpluses in due course. Before that you will have the situation where the £2bn funding into such schemes will be stopped, which becomes available for either capital investment or debt repayment or dividend payments.

Would you go so far as to suggest that such 'high-pension-deficit' companies might even act as a bit of an investment hedge if rate-rises were seen faster than might be 'generally palatable'?

I wouldn't have too much conviction that this might be the case, but it's one of the little things that's stopping me exiting a couple of companies in similar situations....

Cheers,

Itsallaguess

I think the words "might" and "possible" are appropriate. I would think that companies whose demand for their product is dependent on the disposable income of their customers will be less forgiven by the market in that situation of rates rising, and available cash (and credit) to spend reducing.

However, it is probable that rates will be going up as a result of rising demand, or inflation in the economy, so it's not at all clear. I suspect the MPC will be less than pre-emptive in raising short term rates which affect demand, but the market might be quicker to adjust longer term rates (and that is more important in valuing pension liabilities). The other scenario short rates might increase would be to protect the currency, which is probably an outlier too, but with a certain issue never far from the headlines that's by no means ruled out. No doubt such an occurrence will have differing levels of impact depending on the company.

So time for a dog update 6 months in.

GVC up 40%
Apple up 37%
GE up 16%
Vod up 9%

Lloyd's down 5%
Kraft down 5%
BT - 14%
Petrifac -20%
IMB - 32%
centrica -34%

So overall down 6% , but a pretty hairy strategy so far. Centrica and IMB really do need putting down.

If you'd stuck with your original selection of IG Group Holdings you'd have had another "winner" - up ~ 30%.

Not as good as the Apple replacement though but better than your other addition of General Electric.