Chris and Clem Meet Up #17
"Chris a young engineer and Clem an "old" hand meet up regularly (every two/three weeks) for a few beers and a chat - mostly about Chris' retirement savings.
Chris' late Dad was a good friend of Clem's - that's how the two came to know each other.
These regular meetings started purely by chance. Chris just happened to mention that he was living beyond his means and his financial prospects did not look good.
Clem knew exactly what the solution was for Chris and set about giving Chris some sound advice. Clem was not a financial advisor but had spent a lot of time amongst people that were financial experts. He wanted to share his knowledge with Chris.
This is the 17th. article in that series.
The story continues ...
"I'm totally fed up with this stay-at-home malarky" said Chris
"But with the massive success of the vaccine programme - the end is in sight."
"Yes, and as of Monday next week, we will be able to meet up - albeit outdoors" replied Clem.
"As for the markets, they seem to be taking everything in their stride. Maybe, just maybe, we are in for a year or so of a Bull Market. But I remain cautious. I'm always looking for a sign of weakness. Hopefully, we'll see a substantial rise before we see any fall.
"How has your portfolio performed since we last spoke?"
"Surprisingly," said Chris, "quite well. I have topped up my holding in GSK with a further 200 shares. My holding is now a nice, round, 1,000 shares. GSK has always been a favourite with me.
"They are, however, in unknown territory right now.
"Chris' Own Share Selections"
"They recently hit my "buy" point of 1280p, and dipped slightly below 1200p on going xd, they have recovered somewhat and I bought my 200 shares for 1290p
"Next year they are splitting the manufacturing part of the business with the research and development part. I haven't been able to find out too much - but I suspect I will be the proud owner of two 'companies' instead of one.
"Maybe I'm too much of an amateur, but I'm of the opinion that the shares are too cheap. If I had the collateral, I would buy more!"
"Yes" agreed Clem, "I like the look of them too. First rate company."
"D'you know, I'm thrilled with my selections. I can see me holding most of these for a long time to come." Chris replied.
"That's what Retirement Investing is all about. The long term.
"I'm especially pleased with BT - up 49%. ITV - up 111%. Aviva and Taylor Wimpey - both up more than 47%
"My portfolio overall is up 34%. And that's for a period of 8 months. I consider that fantastic. And it could have been more. But I'll take it. That represents a more than £10K profit.
"That's just terrific" said Clem over-joyed. "You have certainly got to grips with all what I have told you, but the credit is all yours. You picked your own shares.
"What's on your watchlist right now?"
"In fact" Clem asked, "just go over your criteria for selecting companies. Seeing as you appear to have a knack of picking good ones - albeit in a rising market."
"Sure" answered Chris, "but my method is nothing of a revelation. I just follow what Warren Buffett recommends - but grossly simplified. Simplified because I cannot fully understand what he means sometimes.
"I'm not a number cruncher. I'm just an average family guy that works as an engineer. But here's my take on what I've gleaned from reading about, and still do read about, the great man - Mr. Buffett."
"Firstly, he just about eliminates half of all companies in his analysis. He splits up companies into two types:
1. Commodity type businesses
2. Consumer Monopoly type businesses
"He is not one bit interested in Commodity type businesses. They follow too much the cycle of the economy. That is, they make good profits in the good times, but suffer in the down times.
"Consumer Monopoly type businesses make profits in good times and the not so good times. Think of supermarkets - maybe not the best example - but they sell their goods whatever the market conditions. People have got to eat.
"So that's the first criteria for selecting a company. Has it got a 'consumer' monopoly? I'm just giving you the overview here, I can't go into detail about how to choose between one and the other - I have mentioned that in previous meetings.
"The second criteria that I have copied is to look as far back as possible at company accounts. 5 years minimum. 10 years is better. Has a company's turnover consistently increased in each of the last 5-10 years?
"Have the company's profits increased? Have the company's earnings increased? I'm sure you get the idea. You could extend this kind of thinking to dividends, cash in the bank, Shareholder funds, etc, etc.
"The next thing I look at is the company's Price to Earnings ratio. Generally speaking, you do not want to be buying a company for top dollar. You want to buy it cheap.
"Being honest, that's how my portfolio has performed so well. I bought a lot of them as the market was coming out of the first pandemic. They were dirt cheap.
"Most shares are not cheap now. My watch list has some cracking companies that I would love to see in my portfolio, but I am not prepared to pay silly P/E ratios to get them. I'll be patient and wait. Even if I have to wait for the next Bear Market to raise its ugly head.
"I keep bleating on about GSK. They are one of the few companies that are a bargain - in my opinion - right now. Why are they a 'bargain?' I think because of all the uncertainty surrounding the company about its split next year.
"But what other companies are on your watchlist right now?" Clem butted in.
"OK, OK" said Chris "heres a small sample of some of them. In fact, you've already seen most of them, but I have unearthed some new ones. Whether they will remain on my watchlist after I scrutinise them - is another story. I'll let you know the next time we meet up.
"Here's part of my list:
Company Price P/E
Hargreaves Lansown 1523 22
IG Group 867 9
Tate and Lyle 767 15
Telecom Plus 1270 27
Legal and General 277 11
Imperial Brands 1497 9
BATS 2775 10
Bunzl 2303 18
Volex 332 24
Hilton Foods 1090 24
SSE 1446 16
Hikma Pharmaceuticals 2222 12
Plus 500 1399 3
CMC Markets 466 8
Avon Rubber 3125 7
Puretech Health 405 2.5
National Grid 860 21
Luceco 280 16
Premier Foods 95 11
Alliance Pharma 94 61
Henry Boot 274 30
"I haven't listed everything.
"Another criteria that I have is: I do not mess about with tiddlers. I want companies with a market capitalisation of £1 Billion or more. There might be a few exceptions to this rule - but never market caps less than £500 Million.
"The above watchlist may contain companies that don't 'fit the bill.' In which case, they will be erased from the list.
"My watchlist is much bigger than that shown but I couldn't list them all. You will, however, notice that some of the companies are on quite lofty P/Es.
"My criteria is very thorough. VERY few exceptions. And even if a company meets all the exacting criteria, if its P/E is too large it's a question of waiting. Maybe the P/E will never come down - in that case - regrettably, I won't buy. I do not want to pay over the odds. I want to pick up companies at bargain prices.
"My game - as taught to me by Warren Buffett - is to 'buy a dollar for 50 cents' and hold forever (well, almost).
"If you think about it. If your chosen share meets ALL of the criteria, AND you buy it for the right price, you can't help but make money over the long term. The shares are virtually guaranteed to give you a profit.
"Plus, any dividend you receive, will be a bonus. Never buy a share purely because of its dividend. Warren Buffett prefers it if a company pays no dividend at all. He likes to see all profit retained within the company.
"In conclusion, it would be remiss of me not to state the one thing I use that Mr Buffett does not agree with - Technical Analysis. But I think that he must have a mental picture inside his head.
"I like to revert to a graph of my chosen company share price.
"I always like to say that I use Fundamental Analysis to tell me WHAT to buy, but I like to use Technical Analysis to tell me WHEN to buy.
"When we meet again Clem, I will whittle down my watchlist by applying all the criteria that I use. I can be fairly sure that the list will be a lot smaller than it is right now. Just wait and see.
"I'll see you next time old-timer"
"Cheeky little brat" snarled Clem.
"Let's meet up in two weeks" said Clem rather more seriously.
"OK" replied Chris, "but on second thoughts, let's make it three weeks.
"It won't be long now before we can meet like we used to in the 'old' days. Pre-lockdown that is"
"Yeah" agreed Clem, "at least next time we can meet out doors if not in the pub. I too don't like this over the internet palava."
"That's it then - 15th. April - see you then. Venue to be decided" Chuckle.
Disclaimer: Any individual shares discussed on this website are NOT recommendations. They may, however, be the actual portfolio of the writer.
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