Portfolio composition (Snazzytime)

Following on from riccie, I’ll bear my soul with my portfolio percentages.

I’ve taken a very different approach but happy to receive any comments, critical or otherwise.

These positions are as at the end of Q1 2021.

BOO 4.7%
KWS 4.6%
BVIC 4.1%
AVON 3.8%
AUTO 3.6%
Fundsmith 3.6%
JOUL 3.5%
VCT 3.5%
SMDS 3.3%
IOM 3.2%
SOM 3.1%
CHRT 3.1%
MRL 3.0%
DOM 3.0%
LTG 2.9%
NCC 2.9%
BME 2.9%
ABDP 2.7%
ITV 2.7%
SUS 2.5%
DVO 2.6%
PAY 2.4%
GNC 2.4%
INL 2.3%
EQN 2.2%
VTU 2.1%
ESNT 2.0%
ACSO 1.3%
MTVW 1.3%
BVXP 1.2%
SYS1 1.1%
Cash 12.4%

Snazzy

2 Likes

Hi Snazzy,

Many thanks for the list! I am familiar with about a third of the shares, having looked at BOO, AVON, VCT, SOM, DOM, ABDP and ACSO for SharePad and owning SUS, MTVW, BVXP and SYS1 myself. I am vaguely aware of most of the others, but some I do not know.

My first thought is whether 31 holdings with none greater than 4.7% is likely to outperform in any significant way.

Mind you, you have said you are a relative novice so a good spread of shares is understandable. And you may have trounced the markets anyway!

At the moment I struggle to see an over-riding theme or stock-picking approach at play here, other than a bias towards small- and mid-cap shares.

But I think over time you may gravitate towards a particular investing style and perhaps concentrate on your best ideas with fewer holdings. Keeping with 31 names of no more than 5% may in the long run give a performance similar to holding some small/mid-cap funds, but without the aggro of worrying over individual shares.

Would be useful to understand if you have a weighting limit in place, where anything over, say 5%, is trimmed and recycled into something else and thereby keeping the weightings quite low. How would you enjoy the returns of a Games Workshop-type multi-bagger?

How will the 12% cash be deployed? More positions, or top-ups of existing holdings?

Maynard

Thanks for your advice Maynard.

I fully expected that very valid overview and cannot disagree.

Agree - best to say that I’m still feeling my way although I have tended to have an appetite for growth over income but mindful of the higher risks.

Yes I have had in mind a weighting limit of 5/6% having been badly burnt in the past holding onto (for me) a sizeable holding of bank shares during employment which represented around 60/70% of my ‘portfolio’ at the time. It ultimately cost me dearly when the 2008 banking crash arrived. That was quite a wake up call.

I have tended to do some top slicing and re-allocate across my best existing ideas or a new watchlist share. Currently I open a position with cash cost of 1.5%-3% of portfolio (depending on confidence) and top up along the way but with a maximum cash investment per share of 5% of current portfolio total.

I am aware that if I am to achieve superior returns I will need to develop a more concentrated portfolio. Ultimately I need to reach a balance of increased concentration but still being able to sleep comfortably. That is of course a very personal sweet spot to hit.

Of course we all strive to have a Games Workshop multi-bagger in our portflio. Indeed I should own one (Boohoo) but due to lack of confidence / experience I sold at 60p when it double bagged. I bought in again at 175p but the lesson was learnt.

I do have some double baggers which may yet have the legs to become multi baggers (KWS / AVON / MRL / ABDP / SOM) so I’ll be looking to run my winners in future, unless the investment thesis radically changes.

Cash will be used to top up existing holdings when opportunities arise. I regard my current 30 equity holdings (plus Fundsmith) as being a maximum. Ideally I intend to reduce this over the next 12/18 months to a maximum of 20 and increase my maximum individual holding to around 10%-12%.

Snazzy

1 Like

Hi Snazzy

I’ve looked at Somero in the past and found myself lacking enthusiasm. The metrics are great in terms of ROCE, CROCI, EBIT margin and FCF conversion but…

Revenue and EPS grew for 3 of the last 4 years but dropped last year to the level of 4 years ago. Meanwhile the share price has been oddly unlinked, growing for 2 years, then going back to base in 2019, when the company was growing. Then the shares have climbed since the start of 2020, while the financials went into decline. Covid-19 seems to have knocked them hard. Is it the talk of stimulus spend that makes you believe the company will get back on a growth trajectory?

1 Like

hi Diogenes

I like the metrics, strong returns and strong cash position. Excellent yield including special dividends.

Their strength is in the North American market which appears to have healthy pent up demand. Stimulus likely to help and their product range appears to have a ‘best in class’ standing with high barriers to entry.

I first bought in 2017 and have since topped up along the way. If I include the dividend (including another special) due to be paid on 30/4 then I have already had a shade over 20% of my capital returned via dividends. Add to that a capital appreciation of 40% then what’s not to like? I’m happy to run this one while the North American market remains in good shape.

The real dogs in my portfolio are EQN and ESNT, both of which I have held for 4/5 years and which I probably should have pulled the plug some time ago. They are currently showing losses of 48% and 40% respectively (including dividends received).

Snazzy

I

1 Like

@Snazzytime I saw your post and thought of this video. It might be useful watching for you

the video I was initially after was one where Mark makes the point if you have a 1% portfolio position ( say something you once held and it has tanked by 90%) then it is far better just to sell and move on, to clear it out and free up your head space. Because even for such a share to double in price in future would have an immaterial impact on your portfolio. His main point was to ‘get rid of the noise’

Apologies I cannot find this video but I felt the above was also relevent to your portfolio which at first glance appears quite diversified. Perhaps you will let me know if it was relevent content.

I do very much rate this guy’s perspective.

Edit: it is this video at 11:48, but worth watching the first 11 mins to get context https://www.youtube.com/watch?v=vS4xikmIlfQ

1 Like

Thanks riccie

I watched the 2nd video (the one you originally intended to send) which was very interesting. Some observations:

  1. The long tail of small investments doesn’t really apply to my portfolio as my range is very narrow, unlike his example which had a spread from 0.1% to 20%+. Non of my holdings is below 1% and some of my smaller holdings are just an initial opening position. However the point is well made that these small and rather irrelevant holdings are best disposed of unless you have the conviction to add new money to them.

  2. Having an ‘at cost’ limit for any one holding is excellent advice as I have learnt to my cost. My two largest ‘at cost’ holdings in the past 7 years have both been failures. In both cases I should have ceased averaging down much earlier. I now apply a 5% maximum ‘at cost’ limit.

  3. Even if you apply strict selling criteria, it still wont stop you making some bad decisions. For example I sold to take a loss on HIK a couple of years ago only to see the stock recover and more than double in fairly short time. I think you just have to accept that mistakes will be made - you simply have to minimise them.

  4. I think the biggest cause of delaying selling is holding on in hope of recovery even though deep down you know things are going in the wrong direction. You know you should sell but what stops you is the fear of missing out on the (hoped for) recovery. Hope rarely comes riding to your rescue in such circumstances.

Snazzy

2 Likes

If I can add to this thread…

The size of a portfolio and their individual weightings is to a large extent dependent on an investors’ experience and knowledge.

It’s nice having a large portfolio for the sake of safety if it is constructed across a reasonable number of sectors. This minimises the risk of significant financial loss and also, provided you have time, the opportunity to analyse different types of companies and build your experience. It allows you to ‘stay in the game’ for a long period.

Downside is that it also means returns are highly likely to be mundane; you are trading a large portfolio for the ability to learn about investing in shares. I remember in the early days I would have a spreadsheet generating a few financial ratios and a couple years later those few becames best part of fifty financial metrics.

However for making money the best number of shares to have is one. One share only. Except it has to be the highest gaining share in the market. A somewhat impractical proposition.

A more practical proposition is to own 10 - 15 shares. But those shares need to be well researched and over the long term should produce significant market beating performance. 10 - 15 shares is as much as one person can reasonably expect to keep on top of.

3 Likes

Thanks guys, I’m finding this really useful. I think it’s about time to clear out some of the small, no-hoper stocks that I have and get the funds working for me

Enjoying this thread and thought I would share my experience. Intellectually, I’m for portfolio concentration. Who wouldn’t argue with backing your best ideas? I have often vowed to concentrate my portfolio more.

In practice, though, I am a diversifier. You may have come across the Share Sleuth portfolio I managed for Money Observer magazine and now run for interactive investor. It is a model portfolio but I do own all the shares myself. The portfolio has 26 shares. The reason it has so many is that when I have some spare cash to invest and I have a choice between adding a new share that I have researched and feel confident about or increasing investment in an existing holding I also feel confident about I almost always chose the former.

If I look back at the big winners in the portfolio over time (it has been running for nearly 12 years), they only seem like my best ideas in hindsight. At the time, I didn’t have a strong conviction that they were lots better than the other shares. However I do believe that if I own a portfolio of 20-30 shares in companies that produce something useful and have decent strategies run (usually) by owner managers thinking about the long-term there will be some really good ideas in there!

My experience so far is it is possible to prosper with a medium sized? portfolio and from a personal perspective I enjoy being involved in a wide range of companies though I accept that in general more concentrated portfolios will produce more extreme results.

It used to be said of Peter Lynch that there was never a stock he didn’t like. He did OK!

3 Likes

Interesting thoughts Richard.

Like you I have tended towards adding a new idea rather than topping up existing holdings. The tendency towards more diversification rather than concentration is perhaps a reflection of a more cautious nature and wishing to sleep easily at night.

I accept this approach will not lead to any major outperformance of benchmark. I’m happy for now to settle for a modest level of superior performance and enjoy the challenge of achieving this.

We all seek to find multi baggers to bolster portfolio performance and indeed we all need 10% or so of our holdings to be extremely strong performers as these are the ones that drive the bottom line. Then you need to constantly consider how long to run your winners and whether to top slice - that’s a lengthy topic on its own.

But to take portfolio concentration to an extreme level I wonder how many people who, had they been fortunate enough to buy an early slice of, say, Microsoft as part of a highly concentrated portfolio would have had the nerve to hold on without top slicing and thus allowing that stock to dwarf all other portfolio holdings? I think such a person would be one of two - either an already wealthy person or a (reckless?) gambler, both of whom are capable of sleeping easily at night. I’m afraid neither is me.

2 Likes

Funnily enough, this echoes my experience. I want to build gradually to a few big positions but by the time I have the spare cash, a new idea has seduced me. But I think I am getting a bit better. It shows that it is actually difficult to run what fund managers call a process