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wheeliebin / wheeliewatchlist |
This Page contains the following wonderful treats - please scroll through:
- The WheelieBin
- The WheelieWatchlist
'Remember - in the WheelieBin no one can hear you SCREAM'
The WheelieBin
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My plan is to create a live list here of both individual stocks that I wish to steer clear of and also a list of general features of potential investments which also smell a bit in my view. I will update on a regular basis as I discover new stinkers and as some drop off the list (probably go bust).
Please note this is just my opinion. You may disagree with me and actually even hold a particular Share I name or Shares which fall within the general categories. I am not trying to offend anyone and please look at this list as a possible Red Flag Warning Sign - if something is on this list I take the view that it is extremely high risk and you could possibly lose all your money. If this list makes you think harder about any new investment then it has been very worthwhile. Make sure you really understand what you are getting in to and it might be worth considering a 20% stoploss or similar to control your risk. Consider Keeping investments in these items to a small position size - maybe 1% to 2% of your Total Portfolio as a maximum. I will be wrong on many of my things on this list - plenty could shoot up in value - especially things that could fall foul of the General categories. However, as per my Flying a Plane analogy, Successful and Safe investing is about avoiding the expensive mistakes - this Checklist should help us all do that. |
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Funnily enough I have had most of this stuff in my head for ages and use it as part of my normal filtering criteria when looking for stocks. I am very pleased that I have now drawn up this list and in future I will use it as a Final Checklist for anything I am thinking of buying - if it is on this list specifically or falls into a General category, then I probably should not be buying it.
Another use of this list could be for finding stocks to Short - as ever, be careful and use a Stoploss.
The observant among you will notice that I hold several stocks which fall foul of this list - key examples are small miners like JLP, AYM. These were investments I made several years ago and it is from these sort of errors that I have learnt my lesson - do not make the same Mistakes as I have done.
Here’s what’s in the WheelieBin - try not to fall in with your little legs dangling out the top !!
General Categories of Investments to Avoid:
Another use of this list could be for finding stocks to Short - as ever, be careful and use a Stoploss.
The observant among you will notice that I hold several stocks which fall foul of this list - key examples are small miners like JLP, AYM. These were investments I made several years ago and it is from these sort of errors that I have learnt my lesson - do not make the same Mistakes as I have done.
Here’s what’s in the WheelieBin - try not to fall in with your little legs dangling out the top !!
General Categories of Investments to Avoid:
- Small AIM Mining and Oil stocks (and some that are fully listed) - especially explorers or companies which are many years from actual production.
- Any Biotech or early stage drug company - I only invest in big Pharma companies like GSK, AZN which pay divvys and are proper businesses. I have Framlington Health Unit Trust to play this theme.
- Palm Oil companies and small Agriculture Plays in general.
- Microcap companies - i.e. tiny Market Capitalisation - below £20m a good limit.
- Penny Shares - anything below about 20p a share. Even at 20p or just above you must be extremely careful and keep stake small.
- Anything you do not understand - if you cannot see how it makes money, then keep away.
- Anything which describes itself differently from what it is - QPP a great example - pretends to be some sort of Business Process Outsourcing company but is really an ambulance chasing Injury Claims company.
- Businesses where Cash Flow generated is much lower than the Profit figure.
- Forward P/E ratio over 20.
- Debt over 3 times reported After Tax Profits - even if within this parameter, you must be very careful and keep stake small - debt is the biggest cause of Bankruptcy in my view and experience. In practice, I tend to avoid small stocks with debt - there are many with Net Cash and I like these a lot.
- Companies with a small number of big customers - so they are over dependent on each one - if one drops them as a supplier, they will Warn on Profits.
- Businesses reliant on big, one-off, custom products - I got caught out by this on Lamprell LAM - they make Oil Rigs and of course these are very ‘lumpy’ orders - lose a couple and big problems. I still hold as there is a new Management Team and they seem to be getting a grip.
- Companies with just one product - not always a total woofer but be careful.
- Stocks that have issued a Profit Warning - some people hunt for stocks after Warnings but I don't like doing this. The adage is that "Profit Warnings come in 3s" - you would be surprised how often this is true.
- Businesses which have very little power over their end price - i.e. they are unable to determine the price for what they sell - commodities businesses obviously are in this category.
- Any companies with Corporate Governance issues are best avoided. E.g. over dominant director / shareholders, Egomaniacs at the helm, Boardroom battles with Activist Investors etc. THAL a great example - recently leased a property from the Chairman at a meaty Interest Rate.
- Stocks where the Company has an obscure, unheard of, Auditor - but bear in mind even the Big Names are useless at spotting duff companies - I reckon it's because the laborious work of Auditing is seen as unpleasant so only the New Trainee Accountants have to suffer it. And Company FDs can pull the wool over their eyes easily.
- Any situation where there is an ongoing Legal Case. This is always a drag and can take ages to resolve - obvious example is BP. And the Macondo Oil Spill - seems like it’s been going on for 5 years…….
- Any company operating in China, Russia, Africa, Malaysia, War Zones, Most of Middle East etc. Stick to stable Western style democracies with low likelihood of Geopolitical Problems.
- Industries undergoing a major technological structural shift - e.g. Newspapers faced with declining sales of Printed Copies - best avoided.
- The Latest Thing - Bandwagon stocks. Recent examples are Nanotechnology, Big Data and Graphene.
- Serial Disappointers - some companies just seem to limp along for year after year and never really get anywhere. Paul Scott refers to them as ‘Lifestyle’ companies - they are just there to provide the Directors with an income !!!
- Any stock which is being heavily promoted - especially small miners or biotech. The way it works is that the Corporate Brokers and Analysts ramp the thing up massively so that all us gullible Retail Punters buy the stock and drive the share price up. Then they do a huge Rights Issue of new shares via a Placing just to the Institutions….
- Any stock with a Share Overhang - e.g. where there is a government stake which is likely to be sold onto the market - this will dilute your shares and keep the price down. If you still must have the stock, then wait until the stake has been dumped, then buy.
- Stocks where there has been a lot of big Director sells by several Directors - one off sells are not a big concern but concerted selling after a good move up in price worries me a lot.
- Stocks which have a huge Bulletin Board following on ADVFN etc. Nearly always there is a direct correlation between bad performing shares and the number of comments on a Bulletin Board - keep well away.
- Value Traps - situations which look extremely good value, low p/e below 10, divvy 5% or more etc. What is it the market knows that you are missing? Just be careful. I got caught on RSM Tenon (TNO) by this - the damned thing went bust but when I bought it looked like the best bargain ever - again, a fair chunk of debt was key problem, once trading fell off, the debt became a killer.
- Any stock where the Infamous Bear Raider Evil Knieval is short - he has a huge number of followers (I do sometimes !!) and any such stock will struggle even if he is ultimately wrong and it is actually a good business. No point fighting people of his Power. I got caught by this on Plus500 (PLUS) but I am holding on to them because I have investigated thoroughly and I think he is wrong - very risky thing for me to do but luckily not a huge position.
- Linked to the above, look out for Stocks that are Heavily Shorted in general - the way to track this is via www.shorttracker.co.uk
- A stock that appears on Paul Scott’s Bargepole List.
- Government Bonds at the moment - silly little coupon payments and I just cannot see the point. If you want safety, stick with cash.
- Structured Products - again, anything you do not understand is best avoided.
- Linked to the above, any Fund which you see heavily marketed.
- Funds of Funds - what a con !! Charges on top of charges.
- Crowd funding - this smells to me, I think this will be the next scandal to break. Steer clear.
- Bitcoin - Clearly in a Speculative Bubble - fine to 'Trade' properly with Risk Management (Stoploss etc.) but not an Investment.
Individual Companies in the WheelieBin (new additions in Bold)
Remember - these are not necessarily going to be disasters - experienced Traders will make money from these at the expense of less worldly people - just be aware they are what I consider to be Very High Risk and a Stoploss might be a good idea. As a minimum, smaller Position Sizes will help reduce Risk.
Remember - these are not necessarily going to be disasters - experienced Traders will make money from these at the expense of less worldly people - just be aware they are what I consider to be Very High Risk and a Stoploss might be a good idea. As a minimum, smaller Position Sizes will help reduce Risk.
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The WheelieWatchlist
This is a list of truly great stocks where I love the business and see them as potentially something I could invest in - in many cases I have held and sold previously and now kicking myself !! There are a number of reasons why I do not hold at the moment:
This is not an exhaustive list and it will grow in due course. I also have a Notebook that I use everyday to scribble down a few lines on why I have been attracted to a particular stock - often that I have read about in the Company Results section at the back of Investors Chronicle. This is a starting point when I am looking to buy new stocks - if I fancy it, I will dig deeper.
Here’s the current list of beauties - these smell of Perfume unlike the WheelieBin which has an indescribable stench !
- Expensive in the short term on a p/e basis.
- Fallen on hard times but I am looking for the right time to buy in.
- I have forgotten all about them and they have dropped off my short term radar - amazing how powerful this ‘negative’ psychological force is - we are pre-programmed to react to events and we easily get distracted. I will be revisiting this psychological concept many times in future I suspect as I find it impacting me all the time.
- Got no cash or available ‘slots’ in my Portfolio.
- I like to invest with a spread of stocks across many Industry Sectors - sometimes I have several stocks in a given sector and do not want to add another at that point in time. For instance, I have loads of retailers at the moment and this means I cannot buy great stocks like Dunelm, DNLM.
- I also consider the ‘type’ of stock - Cyclical, Growth, Value, Income, Defensive etc. - I like to have a spread.
- In a similar way, I like to have a spread of FTSE100, FTSE250, Small Cap, AIM, Funds, etc. This might hold me back from buying a particular great stock.
This is not an exhaustive list and it will grow in due course. I also have a Notebook that I use everyday to scribble down a few lines on why I have been attracted to a particular stock - often that I have read about in the Company Results section at the back of Investors Chronicle. This is a starting point when I am looking to buy new stocks - if I fancy it, I will dig deeper.
Here’s the current list of beauties - these smell of Perfume unlike the WheelieBin which has an indescribable stench !
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