Should I top-slice any of our Marshalls holdings?

[TheMotorcycleBoy]

Hi folks,

We could really do with some advice on this one. Back in 2018 (we when first started invested) Mel and I have, arguably, been a little gung-ho in "crystallising profits" and top-slicing.

For example we sold our first TUNE (Focusrite) holding in May 2018 after only 7 weeks of ownership after the stock rising to about +15% (from 409.5/ to 485.0p). (Only to repurchase again at 440p in September 2018).

Similarly we top sliced some (40% of the holding) BUR (Burford capital) which we purchased in March 2018 for 1497p in July at 1972.4p (+31%), and then re-bought twice in the Autumn dip at 1496 and 1399.

However I've since started to ponder things and I'm questioning whether to continue this practice, (e.g. due to how much money I'm making our broker and since there is always risk that I'll won't be able to continue to replenish at a low price again).

But we are now sorely tempted to sell some of MSLH shares. These are split across 2 ISAs:



So I did consider selling about £600 from the second holding on friday at 582p. But then I decided to search for reasoning behind the markets increased sentiment.

I found this, a summary of 2018 results which was released on 14th March 2019:
https://www.marshalls.co.uk/documents/r ... esults.pdf

and since it looks like everything is looking good growth wise, I decided on friday not to top-slice. However now the stock is at nearly six quid, and last autumn I did a Discounted Cash Flow for MSLH and only valued them at 418p (I assumed 12% growth for first 3 years, then 2.5% forever). I also did some Earnings Power Valuations and the highest valuation I arrived at 515p, by using what I thought I could forecast from lookings at the 2018 HY results.

I'm still thinking that we should continue to hold, since even at today's prices the dividend yield is 2.55% and furthermore it looks as if the divi will continue to growth.

Any advice appreciated,
Matt and Mel

(BTW we are investing for growth and income, i.e. not pure HYP etc. in case that effects people's advice)

[Itsallaguess]

However now the stock is at nearly six quid, and last autumn I did a Discounted Cash Flow for MSLH and only valued them at 418p (I assumed 12% growth for first 3 years, then 2.5% forever).

Hi Matt,

Your table of holdings shows that your December 2018 purchase was at an average cost of £4.21 per share.

If your autumn Discounted Cash Flow calculation only valued them at £4.18, what was the justification for the £4.21 purchase a few months later?

Cheers,

Itsallaguess

[TheMotorcycleBoy]

However now the stock is at nearly six quid, and last autumn I did a Discounted Cash Flow for MSLH and only valued them at 418p (I assumed 12% growth for first 3 years, then 2.5% forever).

Hi Matt,

Your table of holdings shows that your December 2018 purchase was at an average cost of £4.21 per share.

If your autumn Discounted Cash Flow calculation only valued them at £4.18, what was the justification for the £4.21 purchase a few months later?

Cheers,

Itsallaguess

To be honest the actual buy price of the shares was 417.4p. The Average cost of 4.21p per share is from the addition of brokers fees I think.

I'd also done an subsequent earnings power value valuation for the stock later using a forecast I made based on MSLHs 2018 HY results

https://www.marshalls.co.uk/documents/r ... esults.pdf

which indicated 10% EPS growth. That EPV valuation gave about 515p per share.

And to be honest my DCF calculation was probably pessimistic. That is I only modelled for growth at 12% for the first 3 years, then 2.5% till perpeuity. So averaging the two valuations made me think that setting my buy limit at 418p could work out to be pretty sweet.

And of course we've only been doing this investing stuff for one year! So my valuations are presumably a little bit lame...

Matt

[TheMotorcycleBoy]

So anyway what do you people think? Topslice or hold all?

What do you people do in the kind of situation I outlined above?

[tjh290633]

Matt, to me it looks like you are a bit trigger happy. I judge the performance of shares on a relative basis, using my median holding value as the yardstick. This is because the overall market movements affect the absolute values.

I judge whether a share has gone overweight by its value relative to that median holding value. At what stage you decide that it is overweight depends on how many holdings you have and their holding values. However my first step in trimming occurred because two holdings rose above 10% of portfolio value and another was at that point, this in 1997 and I was conscious that the rules for funds had a limit of 10% for a single holding. I had 17 or 18 holdings at the time. The three were Lloyds TSB at about 16%, Zeneca at about 13% and Prudential at about 10%.

I trimmed them all back to below the 10% level, by amounts which made for an economic trade. As my holdings rose above the 20 level, I changed my trigger point to twice the median, later they had risen to over 30 holdings, and holding values had increased, so I changed the criterion to 1.5 times the median. Obviously at twice the median, selling half would have allowed me to buy a further share at median value, but I usually sold 20-25% of the holding, and repeated the exercise if or when it was needed.

You appear to be trimming at much smaller rises, which can be largely down to market movements, and I feel that you would be better off letting nature take its course, as it were, until a much larger rise makes you take action. In my own case, RIO rose above my trigger point the day before it went XD for its ordinary and special dividends, the resultant substantial fall removing the temptation to trim.

TJH

[Itsallaguess]

Matt, to me it looks like you are a bit trigger happy. I judge the performance of shares on a relative basis, using my median holding value as the yardstick. This is because the overall market movements affect the absolute values.

I'd agree with all of that, especially regarding the potential for seeing general market movements in a stock-specific sense...

It looks like Matt is in this investment period for the long-haul, and whilst taking profits like this is nice in the early years, and is probably something most investors do to some extent prior to a more relaxed 'settling-down' period, I think the time, effort and expense of doing so is something most of us subsequently look back on and regret to some degree.

In terms of 'rights of passage', however, at least it's one of the more pleasurable ones, and not just for the brokers involved....

Cheers,

Itsallaguess

[77ss]

Hi folks,

We could really do with some advice on this one. Back in 2018 (we when first started invested) Mel and I have, arguably, been a little gung-ho in "crystallising profits" and top-slicing.

For example we sold our first TUNE (Focusrite) holding in May 2018 after only 7 weeks of ownership after the stock rising to about +15% (from 409.5/ to 485.0p). (Only to repurchase again at 440p in September 2018).

Similarly we top sliced some (40% of the holding) BUR (Burford capital) which we purchased in March 2018 for 1497p in July at 1972.4p (+31%), and then re-bought twice in the Autumn dip at 1496 and 1399.

However I've since started to ponder things and I'm questioning whether to continue this practice, (e.g. due to how much money I'm making our broker and since there is always risk that I'll won't be able to continue to replenish at a low price again).

But we are now sorely tempted to sell some of MSLH shares. These are split across 2 ISAs:



So I did consider selling about £600 from the second holding on friday at 582p. But then I decided to search for reasoning behind the markets increased sentiment...

NO!


There's nothing wrong with realising a short term gain, but you need to try to set yourself some general guidelines rather than agonise over each individual case.

You are thinking about top-slicing MSLH - selling £600. Your realised profit would be £163. Is that really worth it?

If you want to realise the gain, then sell the lot - a profit of £760 looks much more interesting.

Don't do anything unless you have a researched alternative home for the cash.

I used to have some short term profit taking guidelines for myself when I was still building:

Minimum share price rise of 10% in 6 months (or 20% in a year)
Minimum capital gain of £1000
Avoid missing out on a declared dividend
Researched (and higher yielding) home for the proceeds

Don't worry about how much money you are making for the broker - it is how much you are making for yourself that matters.

Having a sensible home for the proceeds means that you don't have to worry about whether or not you can buy back at a lower price, although as a practical matter I used to wait a few weeks, just to see. Sometimes market oscillations can be your friend.

Please understand that I don't know anything about the company - just making some general points.

[EssDeeAitch]

NO!


There's nothing wrong with realising a short term gain, but you need to try to set yourself some general guidelines rather than agonise over each individual case.

You are thinking about top-slicing MSLH - selling £600. Your realised profit would be £163. Is that really worth it?

If you want to realise the gain, then sell the lot - a profit of £760 looks much more interesting.

Don't do anything unless you have a researched alternative home for the cash.

I used to have some short term profit taking guidelines for myself when I was still building:

Minimum share price rise of 10% in 6 months (or 20% in a year)
Minimum capital gain of £1000
Avoid missing out on a declared dividend
Researched (and higher yielding) home for the proceeds

Don't worry about how much money you are making for the broker - it is how much you are making for yourself that matters.

Having a sensible home for the proceeds means that you don't have to worry about whether or not you can buy back at a lower price, although as a practical matter I used to wait a few weeks, just to see. Sometimes market oscillations can be your friend.

Please understand that I don't know anything about the company - just making some general points.

Thanks for responding to the OP, I think this is very sound advice and I will tuck it away for personal use.

[TheMotorcycleBoy]

Matt, to me it looks like you are a bit trigger happy. I judge the performance of shares on a relative basis, using my median holding value as the yardstick. This is because the overall market movements affect the absolute values.

Thanks, TJH. You are definitely right in the trigger happy assessment. Out of me and Mel, it's invariably me who makes the fast decisions. (Not always for the better).

I judge whether a share has gone overweight by its value relative to that median holding value. At what stage you decide that it is overweight depends on how many holdings you have and their holding values. However my first step in trimming occurred because two holdings rose above 10% of portfolio value and another was at that point, this in 1997 and I was conscious that the rules for funds had a limit of 10% for a single holding. I had 17 or 18 holdings at the time. The three were Lloyds TSB at about 16%, Zeneca at about 13% and Prudential at about 10%.

Thanks for this. How do I determine my median holding? On your's and others encouragement I have started on the end of each month to unitise Mel and I's consolidated ISAs. I also do some summarys, here is one done at the end of February:



Note for the above summary the 5th is fraction that holding is of the total market value of our foli, and the 6th one is the fractional P/L for that holding. Also note that this summary is sorted by P/L - I do however have a corresponding one sorted by % of market value - if that's more helpful.

So TJH, given summaries such as these, can you describe what I need to do to calculate median holdings and the kind of rebalancing criteria which I should be applying?

many thanks,
Matt

[TheMotorcycleBoy]

It looks like Matt is in this investment period for the long-haul, and whilst taking profits like this is nice in the early years, and is probably something most investors do to some extent prior to a more relaxed 'settling-down' period, I think the time, effort and expense of doing so is something most of us subsequently look back on and regret to some degree.

Yes, I see what you. And yeah we are definitely in it for the long haul.

NO!


There's nothing wrong with realising a short term gain, but you need to try to set yourself some general guidelines rather than agonise over each individual case.

You are thinking about top-slicing MSLH - selling £600. Your realised profit would be £163. Is that really worth it?

If you want to realise the gain, then sell the lot - a profit of £760 looks much more interesting.

Don't do anything unless you have a researched alternative home for the cash.

I used to have some short term profit taking guidelines for myself when I was still building:

Minimum share price rise of 10% in 6 months (or 20% in a year)
Minimum capital gain of £1000
Avoid missing out on a declared dividend
Researched (and higher yielding) home for the proceeds

Thanks for this 77ss. Especially for the loud shout! Yes, I'm thinking that everyone is making some very sound remarks. Holding the shares is probably wise - they are still quoted as yielding (divi yield) about 2.55% even at 599p.

And the icing on the cake is that I can't honestly think of a better home for the money. Most of the other holdings we have are rising, and we have recently topped several others.

Yes, I think we are currently holding!

[kempiejon]

In my value/trading portfolio I have some guidelines much as 77ss has suggested about minimum percentage gains and absolute amounts also holding period and having a clear destination for any released cash. Another to add to the list is if you have identified shares as undervalued before you buy them you should have an idea of what over valued looks like, before you buy, set this amount down as a potential selling price but be prepared to do the work again if you see this target met. I found it difficult to chose when to sell even with rules. My HYP is much easier. Since I committed to buying income rather than hunting capital gains I like that I don't have to worry about when to sell anymore.

[TheMotorcycleBoy]

you should have an idea of what over valued looks like, before you buy, set this amount down as a potential selling price but be prepared to do the work again if you see this target met..

Yes, ideally I should recalculate their value again now. But based on what others say I think I should hold - well at least until I discover what TJH meant about the "median holding" concept and how best to apply this to our foli.

Matt

[Charlottesquare]

I also do some summarys, here is one done at the end of February:



s,
Matt

I suspect part of the issue re top slicing and costs is how broad your portfolio is, 30 holdings spread over £50k is fine if you intend to just buy and hold/build, albeit still pretty large, but if trimming and slicing is on the agenda you possibly have too many holdings for the money invested for that to be a particularly efficient approach, with an average holding value at circa £1,700.

Just a thought as on average a 20% uplift re a holding will only add £340 gain re that holding, if only part to be sold much less, when considered with trading costs they likely, as you say, will have a significant impact.

p.s. when I did trade shares more I sometimes would (for the stellar ones) sell enough to get my cost back and in effect carry the balance as a free ride, but you really need pretty stonking percentage gains and I found these few and far between.

[PrefInvestor]

Hi Matt,

Having had a quick look at your portfolio, personally I would make the following observations:-

1. You have a lot of small holdings (£1,500 or less). The effect of stamp duty and commission on the purchase of holdings of this size is considerable (depends a bit on your brokers charges) and this means that you have to make considerable gains before you start making a profit. Personally I work with a minimum holding size of around £3,000 to avoid this problem.

2. For a £50,000 portfolio having ~30 holdings is too many I think IMHO. Follow up on point 1 really.

3. Re Marshalls specifically, if the share is doing well why sell it ?. Is there some problem that you are aware of ?. As others have said unless you have somewhere else that you have already researched to put the money then it might be better to just hold ?. You sound as if you are top slicing a lot, in doing so have your considered that you just might be taking money out of things that are doing well and putting them into things that arent !.

4. When buying do you use limit orders to try and get the best price ?. I always do that. I look at a chart for the stock for the last couple of weeks pick a level that I think that the stock might realistically get to and set a buy limit order at that level and then sit and wait. You may HAVE to end up buying at the current price, but using limit orders you might get a better one.

5. If I have a target stock in mind to buy I always check its ex-dividend dates and if possible I wait and buy then. You get to buy at the XD price which means more shares for the same investment amount. And you might benefit from recovery in the stock price post dividend as well.

6. You mentioned doing a discounted cash flow calculation for Marshalls in one of your posts. Personally I use Simply Wall St to do that stuff, see https://simplywall.st/user/views/157/popular-view. They do a good job of looking at all aspects of a stock I think, dividends, debt, earnings etc. Much easier and quicker than doing it yourself !. I also use this to check out any new stock that I plan to purchase.

7. Holding MANX telecom I see - nice one !. Bought at 215 this week as I recall ?.

Anyway feel free to ignore my observations if you like, but I thought that they might interest you.

Good luck with your investments !

ATB

Pref

[TheMotorcycleBoy]

Hi Matt,

Having had a quick look at your portfolio, personally I would make the following observations:-

Thanks PI for your comments - I appreciate them all! The more the merrier....

1. You have a lot of small holdings (£1,500 or less). The effect of stamp duty and commission on the purchase of holdings of this size is considerable (depends a bit on your brokers charges) and this means that you have to make considerable gains before you start making a profit. Personally I work with a minimum holding size of around £3,000 to avoid this problem.

You're right. We had to start somewhere I suppose. We started in March 2018 with £7k across 7 stocks. Then we added a few bonds (probably silly) and a world equity tracker (probably good). Then we just kept going.

(broker charges are £5 per trade and 0.5% stamp duty on FTSE equities)

2. For a £50,000 portfolio having ~30 holdings is too many I think IMHO. Follow up on point 1 really.

Yes, but we are starting to focus on mainly topping up our "preferred holdings" - i.e. the ones we still think were sound buys. Also the amounts we are putting down each purchase is slowing increasing e.g. between 1100-2500.

I've just had a count-up of our latest foli, and we have 4 bond holdings, 1 index tracker, and 26 separate equity holdings. I planning to mainly continue topping up existing holdings, and try not grow the number of equity holdings we have to much more than 30. How does that sound?

3. Re Marshalls specifically, if the share is doing well why sell it ?.

Yes, I think you're right. FWIW, though we'd not considered completely selling it - just skimming off extra (in order to put towards a subsequent topup/addition).

You sound as if you are top slicing a lot, in doing so have your considered that you just might be taking money out of things that are doing well and putting them into things that arent !.

We've only really topsliced once before TBH. But since we've only been investing for a year, so it's all part of a learning experience.

4. When buying do you use limit orders to try and get the best price ?. I always do that. I look at a chart for the stock for the last couple of weeks pick a level that I think that the stock might realistically get to and set a buy limit order at that level and then sit and wait. You may HAVE to end up buying at the current price, but using limit orders you might get a better one.

We always use limit orders! For buying and selling.

7. Holding MANX telecom I see - nice one !. Bought at 215 this week as I recall ?.

Yes. We sold it at 215p on Friday - and put the proceeds into topping up our Victrex holding.

Anyway feel free to ignore my observations if you like, but I thought that they might interest you.

I won't ignore them and they definitely interest me. Indeed I'd like it if you or anyone else can share your views on a practical number of straight equity holdings in a concentrated foli. A leading fund manager (Keith Ashworth-Lord of UK Buffetology), says between 25-35. But he does it for a living..... So I'm thinking that for an eager private investor with a day job already then 20-30 is probably plenty. What do you think?

Many thanks
Matt

[kempiejon]

Hi Matt,

Having had a quick look at your portfolio, personally I would make the following observations:-

1. You have a lot of small holdings (£1,500 or less). The effect of stamp duty and commission on the purchase of holdings of this size is considerable (depends a bit on your brokers charges) and this means that you have to make considerable gains before you start making a profit. Personally I work with a minimum holding size of around £3,000 to avoid this problem.

I agree with this idea to try to keep costs down but there's nothing anyone can do about stamp. Some providers offer discounted fixed trading days iweb, Halifax and AJ bell you buy for just a couple of quid but the cheapest selling I have seen is £3.95 from Halifax.

[PrefInvestor]

Hi kemplejon,

Well no you can’t avoid stamp duty on single stocks, but there is no stamp duty on ETFs and many ITs. Personally I am no lover of having too many single stocks in your portfolio anyway, too hazardous for my liking !. Been there and tried that and didn’t go much on it. Too many single stocks get hit by big falls and I’m not a HYPer, capital matters to me.

ATB

Pref

[PinkDalek]

I agree with this idea to try to keep costs down but there's nothing anyone can do about stamp.

Yes, unless, of course, one purchases (for instance) AIM equities where there is no SDRT, as the OP has done in the case of Bioventix, Burford Capital***, Strix and Zytronic.

Looking at the AIM content, there may be more than those I’ve listed, I think the OP should let us know their risk strategy in more detail. Are they looking for quick gains, such as might occur on AIM (and the possibility of quick losses) or more for the longer term type of holding. Which could always include AIM of course.

I only ask as given the OP has not been investing that long and having quite so many AIM shares at such a stage might indicate more of a trader by nature. Not a criticicsm by the way, I hold some AIM shares which existed before AIM was created!

As for Marshalls, I’m very LTB&H. I’d let it ride but that’s my Investment Strategy (noting the board we are on) and most certainly doesn’t work all the time, especially not in more recent times (for me anyway).

Perhaps the OP should try and recall what caused them to buy Marshalls in the first place (plus the top-up) and whether those reasonings still exist.

*** Then there’s no SDRT on foreign equities, I believe.

[TheMotorcycleBoy]

Thanks PD,

Yes, unless, of course, one purchases (for instance) AIM equities where there is no SDRT, as the OP has done in the case of Bioventix, Burford Capital***, Strix and Zytronic.

Looking at the AIM content, there may be more than those I’ve listed,

Yes we have several AIM stocks (though less weighting in them than in the bigger indexes). The others are Advanced Medical solutions, Central Asia Metals, Alliance Pharma (recent addition), and Focusrite.

I think the OP should let us know their risk strategy in more detail. Are they looking for quick gains, such as might occur on AIM (and the possibility of quick losses) or more for the longer term type of holding. Which could always include AIM of course.

I only ask as given the OP has not been investing that long and having quite so many AIM shares at such a stage might indicate more of a trader by nature. Not a criticicsm by the way, I hold some AIM shares which existed before AIM was created!

Hmm... tricky question, i.e. our risk strategy. (Don't worry about criticism, have skin like a rhino). Well, I like to think that we are probably medium-high strategy. i.e. otherwise we'd just be in funds, not straight stocks. But given by how much we like "Fundamental Analysis" (see the company analysis board), we like to really analyse things (i.e. the reports and figures first) before taking the plunge. We definitely don't buy based on IC tips etc. alone.

The rationale for our stocks, I think, is to generally prefer FTSE250 ones (e.g. Games Workshop, Marshalls, Bodycote, Renishaw etc.). We do have some AIM stocks and our criteria here is high OM and high ROCE if possible and minimise debt. Similar rationale for FTSE100, except more of an onus on decent divi policy.

As for Marshalls, I’m very LTB&H. I’d let it ride but that’s my Investment Strategy (noting the board we are on) and most certainly doesn’t work all the time, especially not in more recent times (for me anyway).

Thanks yes we (at this moment!) seem to be fixed on holding. If just our MSLH was up like it is, and other fave stocks looked very cheap, then maybe the argument to sell some MSLH and grab another would be more convincing....but to be honest most of our boats have risen somewhat of late....though MSLH has been exceptional.

Perhaps the OP should try and recall what caused them to buy Marshalls in the first place (plus the top-up) and whether those reasonings still exist.

Ha ha! Two completely different reasons..... the initial purchase was because we thought "oo, we need a diversified portfolio", so we started to think in terms of sectors. MSLH looked good from the numbers perspective in terms of building + construction materials so went for that one.

The top up came because I spent the later part of last year really trying to focus on Fundamental Analysis, and I used MSLH (and NXT) as a guinea pig, pet project. I realised that it looked quite good on this front.... then their 2018 HY1 came in... and I redid some more analysis trying to project what I thought it might be worth. And then when the dip in Nov-Dec happened it seemed too good to be true and I got into setting quite hopeful limit-buy orders, and so the second purchase came in.

You perhaps find this a little too haphazard...but 1) we are still learning the ropes 2) I guess I don't like to stand still for too long!

thanks for all your remarks
Matt (and Mel)

[tjh290633]

Thanks for this. How do I determine my median holding? On your's and others encouragement I have started on the end of each month to unitise Mel and I's consolidated ISAs. I also do some summarys, here is one done at the end of February:

(Table deleted)

Note for the above summary the 5th is fraction that holding is of the total market value of our foli, and the 6th one is the fractional P/L for that holding. Also note that this summary is sorted by P/L - I do however have a corresponding one sorted by % of market value - if that's more helpful.

So TJH, given summaries such as these, can you describe what I need to do to calculate median holdings and the kind of rebalancing criteria which I should be applying?

many thanks,
Matt

Assuming that "MRKT" is the current value of each holding, then sort on that column to rank holdings by value. I think that you have 30 holdings, excluding "Cash", and so the median is the average of the value of the 15th and 16th holdings. You can also get the value using Excel's MEDIAN() function, applied to your list.

I have sorted your table and added a column:



I hope that makes things a little clearer.

TJH