Big fan of spaghetti westerns, with Clint Eastwood on screen, Sergio Leone behind the camera and Ennio Morricone providing the musical score, this column is happy enough – and honest enough – to look back on its efforts for 2021 and rank its stock ideas. as good, bad or just plain ugly.
Thinking back to the new selections made in Questor’s Tuesday column in 2021, what is striking is that there were few: only eight in fact. Of those, four – Clinigen, i3 Energy, Fuller, Smith & Turner and Essentra – are in the dark, though that’s just a start for the last three.
The others – Smith & Nephew, Ricardo, Lancashire and PZ Cussons – are not.
The lessons here are threefold. First, the small number of new selections made suggests that it has been difficult to track value – and since valuation, or price paid, is the ultimate determinant of ROI, patient inaction seemed the best policy. for this writer.
The recent shakedown brought on by the latest viral variant may present some new opportunities, however, so watch this space.
Second, the outlook has been clouded by the pandemic, increased government and central bank intervention in markets and inflation. If in doubt, don’t, as any good Yorkshireman would say. After all, there is no obligation to buy or sell anything and sometimes action for action can be expensive, as our foolish decision to lower the auction target has proven. . loose Morrisons in 2020 in 2021.
Third, stick to what you know. This column is not very expert on sectors such as insurance, oil exploration or metal prospecting and generally avoids these areas, even if they seem interesting. Attempts to get involved – Lancashire this year and positions in gold miners Centamin and Resolute Mining from 2019 – have generally led to pound losses, so no longer fool Questor for trying.
The biggest hits of the year have often been takeover situations, despite Morrisons, where impatience has proven to be costly. St Modwen Properties, Gamesys and William Hill dropped the offers and Clinigen received one, adding to previous picks acquired including Sky and Cobham.
This seems to be the ultimate confirmation that the pursuit of value is the way to go. To do this, it is best to look to companies with a solid business model and a balance sheet strong enough to cope with short-term shocks, unexpected incidents or macroeconomic headwinds.
Time is then on the buyer’s side and it may not take much for operational performance to improve, sentiment to change, and the share price to start rising. As Jim Grant observed, âA successful investment is having everyone agree with you – later. ”
A patient and contrarian attitude is also paying off at uranium storage specialist Yellow Cake and oil giant Shell, where sentiment could hardly have been more negative as the Cop summit year approaches. . 26.
Investors who apply strict environmental, social and governance filters will be less than impressed, but the facts are that global demand for energy continues to rise and these companies now offer work options, please. . or not. From an investing perspective, sometimes you have to trade the market you have, not the one you want.
It concerns the good. Bad ones include submarine cable protection specialist Tekmar, where evasive action spared us further losses, the mentioned gold miners and Serco, who is doing everything operationally and strategically correctly but does not deliver. not in terms of the stock market.
It is this column, and not Serco, that bears the blame for the overpayment in terms of stock price and valuation, an issue that continues to haunt us when it comes to Nichols and Coats. Again, valuation is everything and paying too much, even for good companies, can lead to poor returns.
As for the ugly, fortunately there have been few real accidents this year and this column’s preference for healthy balance sheets helps. However, decisions to sell Croda, B&M European Value Retail and Halma, as well as Morrisons, far too early in previous years, continue to cringe. Huge additional gains have been dropped.
âManage your winners and cut your losersâ remains a key investment discipline and this topic has yet to master, even after more than 30 years in the markets.
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