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Small Cap Value Report (Tue 20 July 2021) - placeholder

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Preamble for Tuesday

Lots of people have emailed me, and asked for some market comment.

As a value/GARP investor, I’m not really interested in market fluctuations. I tend to just research things in as much depth as I can, then buy amp; hold for several years. Some of them work, some don’t. If the results amp; trading updates disappoint, then I chuck them out. There shouldn’t be any emotion involved at all, and buy prices are best ignored amp; forgotten, because the market doesn’t know or care what we paid for our shares. It’s the occasional multi-year, multi-bagger, that makes the money amp; mops up all the mistakes.

Where are we now? This is what I see -

  • Takeover bids – loads of them, especially from overseas, suggesting that the UK market is cheap – which is bullish.
  • Low broker forecasts – results are mostly ahead of expectations, and there are many forecasts being raised a lot – this is bullish
  • V-shaped economic recovery, based on the economic data – this is bullish
  • Companies are generally reporting that they have adapted to covid, stripped out costs, profits are rising – this is bullish.

Set against that -

  • Momentum arguably carried many share prices too high in the anything amp; everything rally since Nov 2020
  • Balance sheet weakness was ignored by some punters – with inevitable consequences when reality comes home to roost amp; fundraisings are needed (I got caught on Revolution Bars (LON:RBG) in this regard, and there are plenty more banana skins out there – watch out!)
  • Stretched valuation multiples
  • Naive punters, new to the market, don’t know how to value anything, so prices are highly volatile
  • Thin summer markets, with little volume = extreme volatility
  • Mixed messages from central banks over interest rates
  • China threatening to nuke Japan
  • Profit-taking snowballing
  • Blah blah blah
  • Take your pick, it’s all nonsense to a certain extent!

Lots of people have emailed me, asking what I’m buying. The truth is, when you’re 100% invested, there’s not much cash on hand to buy anything. Although I have eked out a little cash to buy what I think are terrific bargains: SAGA at 303p. JOUL at 235p. BOO at 275p. As usual, just my personal opinions, and DYOR. We’ve discussed them all at enormous length here, so just search the archive for the bull amp; bear cases, if you’re interested.

As I always say to people who email me with great concerns about price movements – just try to work out your own strategy. Are you a trader? Or an investor? Most people think they are investors, but are actually traders – flitting in amp; out of things, trying to time the market, losing confidence when prices fall. Not many people can do that well, consistently, in my experience, and it’s a horrible way to live, being permanently on tenterhooks – who wants to live like that?

I think that, if we seek out great companies, with entrepreneurial management, they usually do well over the long-term. Nearly all the self-made multimillionaires I know, have made their money from a handful of major multibaggers – typically about 4 big investments over their career that have made them the really big money – which usually means holding, for a long time, often when the share was unfashionable. Everything else was a sideshow.




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