Dead Fussy about Quality

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It must have been early Last Week that an Interview Video with Warren Buffett was doing the rounds on Twitter and watching that inspired me to bash out a quick Blog Draft one Night Last Week and with a bit of tweaking it should be ready for Publishing once some other ones that are earlier in the Queue get their 15 Minutes of Fame.

In fact, here is the Video - it is merely 7.5 minutes long but in that time the wisdom that Warren Buff puts out is pretty remarkable:

https://www.youtube.com/watch?v=T6HHwOoq9M4

Watching this piece of epic genius, it confirmed some thinking that has been ruminating in the WheelieBrain for some time about my Approach to selecting Stocks for my Portfolio.

To an extent I have always been fairly selective with what I have put into my Portfolio but my intention is to get a lot more fussy about what I Buy and indeed what I Sell from the Portfolio. Obviously there are 2 Parts to this - on the Selling side of things I have noticed time and again how as a Long Term Investor, selling Good Stocks too early has been by far my biggest error over time and I have put a lot of effort into avoiding this problem - the main ‘Solution’ being to TopChop rather than Selling entire Positions and thinking long and hard before any Selling Decisions.

This thinking has also been enhanced by consideration of how my Income Portfolio which I barely ever do anything to has performed very well over recent Years and one of the Key Elements here is that it only holds 12 Stocks and I have put a lot of thought into what Stocks I put into it. I suspect that if I get just as particular with my ‘Normal’ Portfolio then that could lead to improved Performance and also mean that I do less with regards to Buying and Selling within the Portfolio - that of course also lowers Costs.

In fact, I am not the only Person to have noticed this ‘Less is More’ aspect to managing Portfolios and just the other Day a mate on Twitter mentioned to me that he had been forced to ignore his Portfolio for something like 9 Months but in that time it had done really well. I often see Anecdotes along similar lines and you hear Stories like how a 90 Year Old Lady passes away and when they look at her Portfolio she is hugely Rich and has basically done almost nothing apart from buying some very High Quality Businesses many Decades ago and just sitting on them and reinvesting the Dividends received - it is an Anecdote but I can see how this works in practice.

In addition, this is not something that I obsess about at the moment (heck, I am a Young Chap at merely 53 Summers !!), but it is apparent to me that as I get older I might find I am less able to actively manage my Portfolio and indeed I might even end up moving the Entire Portfolio to a similar Approach to that I use on my Income Portfolio - that was part of my rationale for starting the Income Portfolio in the first place to see how well it worked in practice.

On the Buy Side of things, I have obviously been fairly Selective with Stocks I have bought but I feel a need to get a lot more Fussy about what I buy and also with regards to how it ‘Fits’ into my Overall Portfolio and what it brings to the Party. As careful as I have tried to be, I am clearly making Errors and on obvious one from Recent Years was to buy Golden Prospect GPM - OK, there is a chunk of Hindsight Bias here and my view of Gold has changed but frankly I think if I had really committed my Brain more at the time of Buying I might have decided to avoid it. My logic is that I should not be buying things that are so dependent on something (i.e. the Price of Gold) which is in fact hugely variable and largely unpredictable - as I say I have probably changed my view of Gold but quite simply it doesn’t seem to be any use to Man nor Beast whatever the prevailing conditions are - it is useless in Inflation, useless in Deflation, useless in a Crisis, useless in a Boom, well, you get the picture, Gold is just simply useless. As I also mentioned there is huge Hindsight Bias here but if I had worked harder perhaps I could have figured out how the movements of the Gold Price are entirely random and it does nothing that the ‘Experts’ claim it will.

So I guess what I am saying with regards to GPM is that there is a constant Flow of Ideas that I write down in my ‘Little Black Book’ (if you go to the ‘WheelieBin’ Page of this Website then you can find the Updates of what is actually written down in my Book), and I am sure that if I had spent more time, and more WheelieBrain Power, on looking at the Alternative Options for Stocks to Buy at that time, then surely I could have found something better. And at least I could have bought a Stock which paid a Dividend which straightaway would have increased the Returns I was likely to get from a Stock over that which GPM offered (it doesn’t pay a Dividend).

If you go to the ‘WheelieBin’ Page you should find a Checklist there of Stocks ‘Not to Invest in’ which is a List of Attributes of a Stock which usually rule it out from an Investment point of view. However, I don’t really have an Alternative Checklist which is Attributes that I really like and would perhaps guide my Buying Decisions better - for instance, one ‘Rule’ on the Checklist could be ‘Don’t buy Stocks which are dependent on the Price of something beyond their Control - in others words No Pricing Power’ (this would have ruled out GPM and of course I would always reserve the right to over-ride any Rule on the Checklist but only after proper consideration.)

Anyway, that Buying Checklist is just a thought that is going round my Bonce at the moment and if I do go down that route, then I promise to produce a Blog on it !!!

This concept of holding Stocks in my Portfolio which are of the utmost Quality is very much along the Warren Buffett lines and it chimes with what he and Charlie Munger have said many a time about it being “better to Buy a Great Company at a Fair Price than a Fair Company at a Great Price” - that bit really chimes with my current thinking and what this means for me in Practical Terms is that I should pay less attention to Valuation (I think in the Past I have been far too swayed by Stocks that appear ‘Cheap’ when it fact they often turn out very expensive !!!) and I should be more relaxed about buying Stocks on higher P/E Ratings if they are of extremely High Quality and there is a strong likelihood that they will perhaps beat Earnings Expectations anyway or at least they will continue to command High P/E Ratings because they are so good. My thinking and some recent Stock Buys have in fact gone this way but I perhaps should make it more formal and having a Buying Checklist might help enforce such discipline.

Above all, any new Stocks to my Portfolio should not be rushed Decisions and I must take my time and do extremely thorough Research and Analysis before pressing the ‘Buy Button’ - there really is no need to rush and it is better to take time and make extremely Good Decisions rather than to rush thigns and screw up.

No doubt this thinking will evolve (hey, I have not much else to do as my Car’s Paintwork is nearly finished now and I should have more time on my Hands as we head towards Autumn and it is not like I am doing much on my Stocks !!!), and I will update Readers over time as my thoughts develop.

Last Week
Yet another infuriating Week for me - after a decent start with some steady but small Gains in the first few Days, on Friday my Portfolio got spanked and I ended up being Down 0.4% on my UK stuff and Spreadbets but thankfully when I factored in my Overseas Unit Trusts, the damage was reduced to just 0.2% Down overall. Annoying but not too big a hit.

My Unit Trusts benefited from the Pound tanking and this has turned out to be useful Diversification, however, at some point I do feel that the Pound will drop too far and it would be time to perhaps TopChop part of my US Tech and US Health Funds - I am mulling this over but I suspect with all the Government incompetence around Brexit we could see more falls for the Pound - so I don’t want to be TopSlicing too soon.

One of my concerns around Brexit is the possibility of a General Election - the fiasco over Boris’s Burka comments has deeply angered his Supporters in the Tory Party and I suspect this could hasten the demise of Theresa May - her handling of the situation has been absurd and it was clearly an attempt to head off a Challenge from Boris which could have backfired. We could easily see a move to oust T May in the Autumn and that could cause yet more turmoil in the Markets and particularly weakness in the Pound.

Up until now it has been the case that Equities have perhaps drifted lower as the worries over Brexit have manifested and this has certainly been true of Stocks that source Products or Services Overseas, as the Pound has taken the brunt of the hit. However, I am not convinced that we will see this continue to play out in this manner and I suspect that once we get into the traditionally iffy time of Autumn (September is historically the Worst Month and October has a reputation for Huge Falls in the past), if the Political Chaos increases then we could easily see the Pound falling and Stocks falling with it - that is not impossible and it is something I am trying to prepare for by Lowering my Exposure and Increasing my Cash. I will of course be looking to Hedge if I can as well by Shorting an Index.

If you go to the Homepage and scroll down quite a lot you should find a Section entitled ‘Weekly Performance’ - I updated this on Friday with the Performance of my Portolio for July and I have added a load on Strategy there as well which reiterates a lot of what I have just written !!

Blog Slate
Last Week I published the Second Part of the excellent Guest Blogs donated so kindly by Michael @vilage_idoit and again this has been received with a flurry of positive responses on Twitter and it really is a ‘Must Read’ - whatever your Investing Timeframe and especially if you muck around with those Dodgy AIM ‘WheelieBin’ Miners and Oilers (yuk !!).

This Week I should be able to get Part 3 Published and that will then complete the Set. I also have a load of Blog Drafts written so there should be no issues about keeping the ‘Flow’ going - and if I decide to do a ‘Buy Checklist’ one then that should appear in coming Weeks as well !!

The WheelieBash
I won’t comment too much on this, but just to let Readers know that I should be visiting The White Hart Pub at Winkfield this Wednesday and I will have a chat with the Landlord and see if he is OK to host the Bash on Saturday 15th September - if it is cool then I will Tweet that out no doubt. If he cannot do it, then I have a couple of Backup locations so I will have to put in some effort to get one of those lined up. I am quite confident that The White Hart will be fine.

The Bash is Free to Attend and everyone is invited - Places are filling up fast and if you go to the Homepage you can find more details - with the Quality of People already on ‘The List’ it is shaping up to be a belter.

Stepping into the Time Tunnel (how many People remember that TV Series?)
In the light of what I said earlier about selecting Quality Stocks, this Blog from 2015 is sort of relevant and I am sure Readers will find some useful Pointers in here:

http://wheeliedealer.weebly.com/blog/wheelies-triage-process

Enough blurb, let’s Chart People !!

Pound vs. Dollar
I was just droning on about this so it makes sense to shove a Chart in as there are 2 really Key features to this Chart. As always, the Pictures here are from the brilliant ShareScope Software that I subscribe to and if you click on them they should get bigger on your Screen so you have a chance of seeing more detail.

The Chart below has the £/$ going back a few Years to just before the Brexit Vote and my Black Line at the bottom is marking Support around 1.19 that comes from the immediate plunge of the Quid just after the Result of the Vote came out. It is highly likely that this Support holds as it is very powerful but it is possible that it gets tested and then we bounce, but if things go terribly wrong with Brexit, then that Support might fail. I doubt any Politicians, on the UK or EU side, are stupid enough to engineer such a situation. Remember, Politicians only care about being Re-Elected and keeping their Jobs - the idea they are ‘there for the People’ or have any kind of Principles is a total fantasy and I expect some sort of ‘Deal‘ will be done at the last minute and no doubt it will be a ridiculous Fudge.

My Big Yellow Circle is highlighting a big Zone of Support - we are currently around 1.277 and the Circle is illuminating Support from 1.28 down to 1.20 - so we might see the Falls arrested soon. In fact, I won’t show this on a Chart, but the Pound looks very over-extended to the Downside in the Short Term so we could easily get a bounce.

Next look at my Parallel-ish Red Lines which are marking a Downtrend Channel which has corralled the £/$ for several Months now - and note also that the 50 Day Moving Average (which is the Darker Blue Wiggly Line) has also capped any attempts by the Pound to move up. Look at my Blue Arrow which is marking a 50/200 Day Moving Average ‘Death Cross’ - as it should do, this predicted more Falls.

I have also shoved 2 Green Arrows onto the Chart - these are pointing out ‘Batman Ears’ which are one of my favourite Chart Patterns - although this is only because I love the name !! (for Technical Analysis Purists, this is really a ‘Double Top’ Pattern which is a predictor of Falls ahead as it proved this time.)

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I said I wouldn’t show this but it is relevant and it won’t take many Seconds to shove it in. Here is a very good indication of how the Pound/Dollar is looking a bit over-extended to the Downside and due a Bounce soon - on a Reading of RSI 30 on the Relative Strength Index it is clearly very low and in such circumstances a Bounce often comes (even if it soon fizzles out as I suspect it will).

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S&P500
The DOW and the Nasdaq Comp are fairly similar to the S&P500 so I will just show the latter this Week (the Clock is ticking !!). On the Chart below my Yellow Circle is capturing a Candle from Friday and note how it ‘Gapped Down’ from Thursday (which shows some force to the move, although we need to bear in mind that it was a Friday which means low volumes and often spurious Technical Moves) and note how it has a bit of a ‘Tail’ or ‘Wick’ pointing down and this shows the Market managed to recover a bit by the Close on Friday. I won’t show it here but note the Nasdaq Composite Index did a Narrow Body Doji and this shows the Bears were unable to just smash it down on Friday and there are still Bulls kicking around.

Note we are very near the All Time High at 2873 - obviously if the S&P500 can get above this then that would be very Bullish behaviour and I would not rule it out. Clearly 2863 is immediate Resistance which needs to be taken out if we are to tackle the ATH. To the Downside, there is good Support at 2800 in particular.

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FTSE100
If the Pound does manage a bit of a bounce, which I think could happen soon, then that could have a negative impact on the FTSE100 - although the Correlation is by no means perfect.

On the Chart below, look at my Triangle between the Black and Green Lines from a few Weeks back and my Yellow Circle is showing where the FTSE100 fell below the Green Line but it has since come back inside the Triangle - it is possible that the move in my Yellow Circle is an ‘Outlier’ and a bit of a false move - we shall see.

Anyhow, my Red Arrow is marking a Big Red Down Candle from Friday which in itself is Bearish - but with the Markets being quite choppy at the moment and the US recovering Intraday a bit after the UK Markets had closed, it is very possible that we get a move up now from the Green Line. To the Downside, 7549 and then 7500 are pretty good Support Levels. Note also that the Down Candle from Friday is sat right on the 50 Day Moving Average Line which I have pointed at with my Blue Arrow.

To the Upside, there is Resistance now at 7790 and 7800 and then we get on to the All Time High at 7902 ish - my hunch is that we will see 8000 this year but that is based on nothing really and Brexit could cause all sorts of crazy moves.

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FTSE250
I need to finish soon but I want to just point something out on the FTSE250. On my Chart below, look how the 50 Day Moving Average (pointed at with my Blue Arrow) is capping any moves up on the FTSE250 - this is to some extent the opposite of the FTSE100 where the 50 Day MA is acting more as Support rather than Resistance as seems to be the case on the FTSE250.

In addition, look how my Black Downtrend Line (Black Arrow) is holding the FTSE250 back and if we are to see a proper move up, then the FTSE250 must crack this Line.

I’ll finish there - Good Luck for the coming Week and I hope the Rain doesn’t become a ‘Thing’ where you are !!

Cheers, WD.

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