My Approach to Investing
Summary
I focus my efforts on small and mid-sized companies searching for those where the growth prospects are not reflected in the share price. I am disciplined about the valuation I am prepared to pay; I don’t like to pay over 20x forecast earnings and favour companies that are paying a growing dividend and have a prospective dividend yield of at least 2.0%. I search for companies generating strong cash flow and if not having net cash, then debt levels that is low to moderate. Where possible I like to meet management and understand what makes them tick and if they have a decent stake in the business so much the better; our interests are aligned! I like companies that are beating expectations and earnings forecasts are being upgraded. Ultimately I am looking for the “double whammy” that comes from a re-rating and from faster than expected earnings growth. Having found a potential investment I look at the share price chart as it can help with timing; so often resistance and support levels work. I size a position based on my assessment of the potential Risk and Reward of the stock. I hold between 20 and 30 holdings, making use of investment trusts for overseas or thematic exposure.
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The most important number to me is the return of the Portfolio! I try not to get too emotionally involved with individual companies; if I cut a holding and it immediately bounces, so be it. All that matters is the return of the Portfolio, each month, each year, each decade!
I invest principally in the UK
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I invest mainly in UK stocks as that is where I have gained my experience. There are clearly opportunities to invest in overseas companies, and it is fair to say that it is now much easier to get the information you need. I think that for a private investor, such as myself, with limited time resources, it is better not to spread my net too wide. For me, it makes sense to focus my efforts on a market where I have experience and familiarity.
I focus on mid and small-sized companies
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I focus on mid and small-sized companies but not exclusively.
The FTSE 100 Index comprises the largest 100 companies and by value accounts for around 70% of the UK market, The FTSE 250, (the next 250 companies) accounts for about 25% of the market by value, and the FTSE Small Cap, FTSE Fledgling and FTSE AIM, the remainder.
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The table below shows the percentage returns over 1, 3, 5, and 10 years to 31st December 2020
My Approach to Investing
Summary
I focus my efforts on small and mid-sized companies searching for those where the growth prospects are not reflected in the share price. I am disciplined about the valuation I am prepared to pay; I don’t like to pay over 20x forecast earnings and favour companies that are paying a growing dividend and have a prospective dividend yield of at least 2.0%. I search for companies generating strong cash flow and if not having net cash, then debt levels that is low to moderate. Where possible I like to meet management and understand what makes them tick and if they have a decent stake in the business so much the better; our interests are aligned! I like companies that are beating expectations and earnings forecasts are being upgraded. Ultimately I am looking for the “double whammy” that comes from a re-rating and from faster than expected earnings growth. Having found a potential investment I look at the share price chart as it can help with timing; so often resistance and support levels work. I size a position based on my assessment of the potential Risk and Reward of the stock. I hold between 20 and 30 holdings, making use of investment trusts for overseas or thematic exposure.
​
The most important number to me is the return of the Portfolio! I try not to get too emotionally involved with individual companies; if I cut a holding and it immediately bounces, so be it. All that matters is the return of the Portfolio, each month, each year, each decade!
I invest principally in the UK
​
I invest mainly in UK stocks as that is where I have gained my experience. There are clearly opportunities to invest in overseas companies, and it is fair to say that it is now much easier to get the information you need. I think that for a private investor, such as myself, with limited time resources, it is better not to spread my net too wide. For me, it makes sense to focus my efforts on a market where I have experience and familiarity.
I focus on mid and small-sized companies
​
I focus on mid and small-sized companies but not exclusively.
The FTSE 100 Index comprises the largest 100 companies and by value accounts for around 70% of the UK market, The FTSE 250, (the next 250 companies) accounts for about 25% of the market by value, and the FTSE Small Cap, FTSE Fledgling and FTSE AIM, the remainder.
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The table below shows the percentage returns over 1, 3, 5, and 10 years to 31st December 2020
ABOUT ME
I launched this website in January 2012 so that I could share with other investors how I manage my investment portfolio; the JIC Portfolio.
There is complete transparency with the current portfolio and all transactions shown. I explain all trades through my blog and hope the site provides food for thought to more experienced investors as well as helping those who are new to managing their own portfolios. I believe JohnsInvestmentChronicle is unique: There are plenty of “tipsters” who will remind you of the “good ones” and quietly forget the disasters; I do not have that luxury as the Portfolio is there for all to see, backed with real money; mine! I have to confront my mistakes and deal with them; there is no hiding place! Above all, this is a true expose of the trials and tribulations of a private investor!
Should I sell in May and go away?
Chris Dillow wrote a thought-provoking piece in his Investor’s Chronicle column during the summer of 2021. The bottom line is that “equity returns are seasonal, like it or not.”
He observed that seasonal investing, where one sells on May Day and buys back on Halloween, worked well during the previous year. You would have avoided a 2.5% loss over the May-October period ending October 2020 and got back in for a 26% gain from November to April 2021.
The longer-term figures show that since 1966 the All-Share has delivered an average total return of 7.9% per annum during the winter period v a loss of 0.6% during the summer months.
Chart showing the monthly returns on the All-Share Index since 1966. (Not sure what happened to January, but you get the picture!)
Dillow rightly points out that seasonal investing does not work every time - “in finance nothing is 100% successful – but often enough to make money over the long term.”
He posits several theories for this phenomenon, but I won’t go into that now. The question for me is, what to do about it, if anything?
I guess, if one just held an index tracking ETF, one could try and capture this by selling on 30th April and buying back on 31st October. There’s a certain appeal to spending the summer away from the markets and improving one’s golf swing...
While accepting the summer months might be more difficult, my approach is to a). focus on the longer term and b). continue to try and pick investments that will produce positive returns even if the market background is less than helpful. Dillow talks about the 1st May to 31st October 2020 period producing a 2.5% loss for the FTSE-All Share. The JIC Portfolio returned +14.4% over that period and to boot, I fitted in the Cotswolds Way and The Hebridean Way!
He also points out that the seasonal effect broke down recently. From 31st October 2019 to 30th April 2020, (the emergence of the pandemic) the All-Share lost 17.6%. The JIC Portfolio was up 2.0%, helped by good autumn and a very strong bounce-back in April.
Looking back to the inception of the JIC Portfolio in January 2012, the "seasonal" returns, updated to October 2022, look like this:
The first thing that stands out is that there does appear to be a seasonal effect, with the winter period averaging a return of +9.8% (median 11.5%) and the summer period +4.8% (median 3.9%).
Also, eight of the winter periods are ahead of the succeeding summer periods, with just two behind, 2018 and 2020.
What does this tell us about the immediate future? I think not much, although given the -8.1% drop over the summer to 31st October 2022, if I were a betting man, I would put my money on the current six months being much better.
Jeremy Grantham of GMO gives cause for optimism. The following is from his January 2023 letter to shareholders:
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"Now for timing. Some complicating factors seem quite likely to drag this bear market out. Let’s start with that irritating factor, the Presidential Cycle, which is so simple sounding that no one in the fee-charging business can afford to be associated with it. And that is presumably why it continues to work. The important fact here – see Exhibit 1 – is that for 7 months of the Presidential Cycle, from October 1st of the second year (this cycle, 2022) through April 30th of the third year (2023), the returns, since 1932, equal those of the remaining 41 months of the cycle! This has a less than one-in-a-million probability of occurring by chance, pretty remarkably, and it has been about as powerful in the last 45 years as the previous 45 years. We are now in this sweet spot, which once again is up nicely so far. The logic and nuances are spelt out in Appendix 1. Suffice it to say that this positive influence may help to support the market for a few more months."
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I will continue to focus on holding the right mix of investments and trying to get the market to work for me rather than against me. By that, I mean buy on red days when, often on very low volume, stocks are marked down, and if I want to sell, do it on a blue day. In other words, do not get buffeted around by market gyrations.
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