Friday 19 April 2013

Insights and tips from the UK Investor Show: The Long, the Short & the Wide

A good Christian loves his enemy but good shorter knows his enemy

Most of the notes I wrote during Tom Winnifrith's UK Investor Show will remain in my book since Paul Scott has made far better write ups of fund manager Mark Slater's presentation (excellent as always) than I could. You'll find them on Stockopedia: Pt1 and Pt2.

Shares mentioned in this blog

Alliance Pharma (AIM:APH)
Derwent London (LSE:DLN)
Shaftesbury (LSE:SHB)
Zoltav (AIM:ZOL)
Gulf Keystone Petroleum (AIM:GKP)
Churchill Mining (AIM:CHL)
Ocado (LSE:OCDO)
Cupid (AIM:CUP)
Proteome Sciences (AIM:PRM)
Quindell Portfolio (AIM:QPP)
ASOS (AIM:ASOS)
Juridica Investments (AIM:JIL)

The Long: Nigel & Nick

Tom conducted an interesting interview with small cap investor Nigel Wray and property developer Nick Leslau. Both are sure Britain's economy is heathier than the media, particularly the BBC, portrays.
"The UK is doing a great deal better than we're being told. A lot of companies are being created, there's real energy out there."

Retail property

House prices are too high according to the property man. Buy-to-let is dangerous, particularly in London. "Overseas buyers see London as a safe place to be" but it could go sour for instance if a new Gov't made a tax raid on non-doms.
Wray was not as negative, venturing that London & SE will continue to outpace the rest of the country and "There are houses in the south east worth buying."

Retail retail

Whole rows of high street shops were unanimously condemned, if not to demolition, at least to residential conversion. Tesco et al bully local councils to allow new superstore sites by playing them off against neighbouring councils, threatening to close stores and move.
"Pricing pressure will squeeze high street shopping into a third of its present size"
There are plenty of walking wounded chains who will pre-pack shrink themselves on the next blow. In a few years all you'll be doing is sipping a Starbucks while you plan whether to buy more shoes/clothes/bling in the boutiques.

The magic of franchising

A lot of Wray's fortune has come from his Domino's Pizza (LSE:DOM) holding, "The most predictable business I've ever been involved in." The outlets have remained 100% owned by franchisees, against his early expectations. That has helped the company's growth since a franchise owner will run the stores better than HQ ever could. It's a tough business late at night when the weirdos and drunks turn up. Wray is slicing his stake only because, at £1bn cap, Domino's no longer has the exponential growth potential he looks for.

Wray's wrap up

"Buy good small companies, on modest PEs, where directors own a meaningful percentage of shares."
He did mention Alliance Pharma (AIM:APH) where he is a 15% holder. I've noticed over the years that he does talk his own book.

Leslau's warning

"Leave property investment to the property specialists"
He recommended niche operators: Derwent London (LSE:DLN) and Shaftesbury (LSE:SHB).

The Short

Lucian Miers gave a walk through his process for selecting shares that deserve
short shrift, and particularly how to avoid disasters in these unlimited downside plays.
Miers finds short selling comes to him more readily than ownership simply because he finds it easier to spot companies that will fail than those than will win, especially in smallcaps.

Market timing and God save us from QE

Shares are being pushed up by negative real interest rates. "People think they are smart enough to see the warning signs and get out." They are deluded. History shows that optimists claiming QE will not end badly are wrong. The consensus is that QE countries will gradually inflate themselves out of trouble. In fact we will probably see a sovereign debt crisis.

The shorting process

  1. Read the accounts. Miers reads three or four years of his prospect's RNSs.
  2. Look at the corporate website to get a feel for how the company presents itself to the public. Is it all substance or show?
  3. Know your enemy: who are the company's owners, brokers etc. Are there bulletin board cheerleaders?
    An example of a share he did not short is Zoltav (AIM:ZOL). It is "grotesquely overvalued" but Roman Abramovich's son is part owner so it is too risky a situation.
  4. Instinct: Miers has often been advised to short Gulf Keystone Petroleum (AIM:GKP) but there's something about it he can't put his finger on. Thats' not much help to the rest of us who have a fraction of Mier's market experience.
  5. Timing: Avoid selling when the price is hitting new highs every day. He is currently monitoring Churchill Mining (AIM:CHL) whose only asset is interst in a court case in Indonesia. It has zoomed up on no news. Risk manage your short by waiting for it to drop 15% or even 25% from its peak.
  6. Patience: If you are forced out of a position don't try to get your money back ASAP. Wait until it's coming down the mountain.
  7. Getting out of a disaster: He doesn't hang onto soaring shorts like Evil Knievil does. He took a loss on Ocado (LSE:OCDO) at 100p from a 74p start. The newsflow was relentlessly positive, buy notes were appearing. It's on his watch list, waiting for sentiment to turn negative again.
Top tip - if a company tells you the shares are probably worthless then guess what, they are probably worthless. The RNS will use a phrase like "there is likely to be little or no value left in the equity" yet the market cap will often continue to levitate at well above worthless.

Lucien's top shorts

  1. Cupid (AIM:CUP) - the dating site operator. The business model is non sustainable - they are not providing the service the clients expect. The related party deals are "reprehensible" and it's not OK for those deals to be brushed aside in an RNS. The business will unravel quickly when it happens.
  2. Proteome Sciences (AIM:PRM). Previously known as Electrophoretics International, its shareholders have been waiting years for the jam. The CE is bailing it out and he's kept the balls in the air for nearly twenty years. The rule of thumb is:
    "The longer the potential has been there, the less likely it is to be realised."
  3. Hibu (LSE:HIBU) = Yellow Pages. The company has implied that the equity is worthless.
He also added one for the watchlist: Quindell Portfolio (AIM:QPP). It ticks all the boxes but it's too soon to short. The cap is £485m. The CE tweets every time a broker buy note comes out. The website is more focussed on pushing up the share price than explaining what the business does.

The Wide

I caught the end of a ding dong between the alarmingly large but charmingly civil bear Evil Knievil (Simon Cawkwell) and the CE of advfn.com, Clem Chambers. Evil said he did not know why he got ASOS (AIM:ASOS) so wrong - his short has cost £250k so far (and that's not his most expensive mistake by a long shot).
Clem: "Because it's an Internet company."
Evil: "Be that as it may."
Clem, even louder: "Because it's an Internet company."

And so on twice more. It was more of a heckle than help and Evil had had enough (and so had I). Being a bear of good manners he merely said "Please desist" but I'm sure the words in his head were shorter than that.

Evil's latest long tip is Juridica Investments (AIM:JIL) which is throwing off cash. I looked at this share a month ago. It has very tasty value ratios but the corporate governance* is unacceptable to me.

Evil's short tip was also Cupid (AIM:CUP) which to my amazement he called "a fraud, and I'm prepared to take a writ on Monday."
Find out why Cupid is a hot potato from these tweets.


* Juridica's funds are managed by a 36% owned company, Juridica Capital Management Limited (JCML). JCML charges its parent hedge fund type fees: 2.5% flat plus a performance fee that starts at 20%. This climbs in steps up to an incredible 50% of the increase in adjusted NAV. There is a hurdle but still. Oh and all three of JCML directors/managers are directors of Juridica. Why don't they just work full time for Juridica's shareholders instead of creaming off profits in the good times. More views on the Motley Fool boards here and here.

Disclosure: I am long of Alliance Pharma and short of Ocado.

18 comments:

  1. Investing tips are so effective. I’m going to acting upon these tips and hopeful there will not be any lose in my investments. I’m thinking for my retirement planning and wealth management.
    VCT

    ReplyDelete
  2. His is so interesting blog. You are best listing knowledge provide at this site. I am very excited read this nice article. George offers UK Property Investing opportunities and teaching Commercial to Residential Conversion.

    ReplyDelete
  3. Is there any Property Mentoring in UK who is going to give you any training with guaranteed project?
    If you are going to find that too with the training isn’t that will be a great opportunity for you?
    You will get training with one fixed project with $12,000 profit minimum like George Gannon. This is
    the only training site where you will have such a great option to prove yourself in front of the world
    with full confidence.

    Property Mentoring UK
    Property Development Mentoring
    Mentoring in Property
    Commercial Property Mentoring
    UK Property Advice
    UK Property Training

    ReplyDelete
  4. I am happy that I found in this blog it is interesting and this information will surely helping us. It’s always great reading such post, this post is good in regards of both knowledge as well as information.

    Brian Linnekens | Brian Linnekens USA

    ReplyDelete
  5. The very heart of your writing shilst sounding agreeable at first, did not settle very well with me personally after some time. Someplace within the paragraphs you were able to make me a believer but just for a while. I nevertheless have a problem with your leaps in assumptions and one would do well to fill in those breaks. In the event you actually can accomplish that, I will definitely end up being fascinated.
    Its such as you learn my thoughts! You seem to grasp so much approximately this, such as you wrote the ebook in it or something. I think that you simply can do with some% to force the massage house a bit, however other than that this is magnificent blog. An excellent read. I will certainly be back.
    London Property Investing

    ReplyDelete

  6. In George Gannon Property Training you will get two days commercial to residential master
    class source which is going to give you the strength to protect you from any types of awkward
    or risky situation. Here you will have detail support from your mentor with consultancy and
    pure gather of the knowledge with advice.

    Progressive Property Mentoring
    Property Mentoring
    Property Training
    Property Education
    London Property Mentoring
    UK Property Mentoring
    UK Property Education

    ReplyDelete
  7. Buy-to-let property is now a common feature of most tax payers self-assessment tax returns and the UK Housing market. There are a number of tax liabilities you will be faced with when investing in and renting out a Buy-to-Let property (BTL). With extensive experience and buy-to-let property tax expertise, vp associates assist our clients through the various tax liabilities they come across as they buy, sell or rent out the buy-to-let property

    ReplyDelete
  8. It’s amazing in support of me to truly have a web site that is valuable meant for my knowledge.Monument Capital Group

    ReplyDelete
  9. It’s amazing in support of me to truly have a web site that is valuable meant for my knowledge.full coverage on a car

    ReplyDelete
  10. Keep the balls rolling!! Nice posts you have given for us. faxless payday loans

    ReplyDelete
  11. Thankfulness to my dad who informed me relating to this blog, this website is really amazing. can new yorkers still get payday loans

    ReplyDelete
  12. Thankfulness to my dad who informed me relating to this blog, this website is really amazing.Forex Trading

    ReplyDelete
  13. It feels awe-inspiring to read such informative and distinctive articles on your websites.i need a loan

    ReplyDelete
  14. Waooow!!! Magnificent blogs, this is what I wanted to search. Thanks buddycompare life insurance rates

    ReplyDelete
  15. Hi to all, the blog has really the dreadful information I really enjoyed a lot.payday loan

    ReplyDelete
  16. The written piece is truly fruitful for me personally; continue posting these types of articles.Businessman Mark Curry

    ReplyDelete
  17. I sent your articles links to all my contacts and they all adore it including me. Mark Curry

    ReplyDelete
  18. Thanks for sharing about Insights and tips from the UK Investor Show: The Long, the Short & the Wide.............

    Parker Buchanan - Houses for Rent in London

    ReplyDelete