Feb ’23: taking profits

February was cold, but mercifully dry. The days are becoming a welcome bit longer. London is filling up again, post covid, though Mondays and Fridays remain subdued to put it mildly.

Market movements in February

In the markets, February started strongly, but then something clicked mid month – something I will call inflationary gloom. That inflationary gloom has tempered markets considerably. The VWRL graph below tells the story – especially when coupled with the GBP:USD yellow line – showing how the GBP dropped 2% early in the month.

We ended the month with the USD up 2%, USA stocks and AUD down significantly, FTSE up, and bonds everywhere down.

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New Year bargains?

I did a post in June, some way into a miserable year in the stockmarkets, and wondered in print whether any key stocks could be considered cheap. This post is a follow up post.

What happened next?

My post featured 13 stocks. The thrust of my post was that these stocks’ prices had mostly fallen for a reason – very few of them got a clean (green) sheet suggesting they were ‘cheap’ at the time. And, surprise, those 13 stocks mostly fell after my post. Of the 13, 8 dropped and 5 rose.

I’m interested to note that the four most favoured stocks on my grid were four of the five that went up.

The only clean sheets ‘cheap’ stock last June was Unilever. At that point, it was at £36, which bought you a stock on a P/E of 16, 33% below its peak, with 7% revenue growth and a dividend yield of over 4%. That looked good value, and indeed since then it’s risen 16%.

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What’s cheap?

Ouch. As of the 16 June, my portfolio is down 9.5% so far in June. Admittedly, my portfolio is leveraged (don’t try this at home, or arguably anywhere else!). Presumably at some point, it’s time to rustle down the back of the sofas, sell off the candlesticks, or forgo a weekend out and use the cash to start buying?

How many do I have to swallow?

Swallowing knives

I have been nibbling at falling things for a few months now. That’s partly how I’ve ended up in my predicament – my leverage is higher than it’s been since the halcyon days of 2016. Everything I bought cheaply earlier in 2022 has now dropped further. For instance:

  • In January I bought my first SHOP for just over $800 (40% down on peak – me spotting a bargain). A bottom-hunting Limit Order then bought more in March, at just over $500. Then I bought more in May at closer to $300. Today, it’s at $305. My January purchase is down over 60%.
  • In February I topped up ULVR, deliberating rotating into something ‘inflation friendly’. In February ULVR traded at around £38. Today my February purchase is down about 6% at £35.61.
  • In March I topped up MMM, a long term hold, at the price I first paid for it over 6 years ago – around $145. Back then its dividend was around $4.44; now the (ever increasing) dividend is over $6. That was a third more income for your money. But since March it’s down 10% at $131. That dividend is going to keep increasing though, you watch.
  • In April I thought HL had become cheap, at under £10/share (down from a peak of £24 in 2019). In 2019 that £24 bought you a dividend of 33p – a yield of 1.4%. But the share price has dropped in the last 2 months over 20% to £7.66. Now the dividend is over 40p – that’s a 5.2% yield. That’s 3.7x more yield in 2 years.
  • In May I’m hurting some, but stretch my margin / appetite / common sense and buy AMZN for (old money) $2200. In the last month it’s dropped over 6%, with a 20:1 stock split not making an appreciable difference. I also bought ADS, thinking branded trainers feel reasonably inflation proof too, on a dip at €180. In the same month, ADS is down 10%.

The tech sector is where the pain is most acute. The car dealing companies CZOO and CVNA catch a lot of headlines, both down over 90% since January alone. Unprofitable growth businesses have typically dropped 60-80%. The FTSE doesn’t have any of these, which has helped protect it. But AMZN makes far more profit than its critics ever imagined, as does GOOG and META and of course MSFT. These are all down 30-50%.

Tell me when this stops

At what point do we hit the floor? A big problem right now is knowing where the floor is.

Continue reading “What’s cheap?”