The $20,000 Stock Market Challenge
A log of my journey to see what I can turn $20,000 into in one year on the stock market
Sunday 27 November 2016
Tuesday 22 November 2016
Thursday 17 November 2016
Mobile Embrace Drops a Bomb
Thursday 10 November 2016
The Trump Effect
The Trump election result was a great example of what can happen if your focus is on the short term. At one point in the afternoon US stock futures were down 5% and the NZ/Aussie markets followed suit and closed down more than 3%. Overnight the US markets actually ended up closing up 1%! Following this the local markets regained the previous days losses at the opening bell. That is seat of your pants stuff!
If you weren't well prepared you could quite easily have found yourself selling during the carnage only to watch the market rise again while you are sitting on the sidelines.
There are many reasons why I am a long term investor rather than a trader. The above is one very good example that backs this up.
Most commentators predicted negative sentiment in the markets if there was a Trump victory. Initially that was the case, but a day later if you saw the stock indexes you would have assumed Clinton won. It shows just how difficult it is to anticipate market movements.
Now I'm not saying the market won't suffer due to the Trump victory. I am simply using the last day or so as an example to discuss my investment philosophy.
In the long term volatility (by itself) does not matter. It only matters if you want to buy or sell stocks at certain times. Volatility to the downside offers good buying, and vice versa. If you take the opposite approach of selling when the markets get scared then you crystallise losses and risk missing out on the upside. Most volatility in the market is unrelated to company fundamentals, therefore it does not make sense to act on it.
Saturday 5 November 2016
Grit your teeth and close your eyes
The SP of PRO has been struggling ever since they lowered guidance earlier in the year. The market punished PRO for this and it has been sitting around the $1 mark ever since. Last week they announced their Q1FY17 revenue and provided a general update. Revenue came in at $3.1m (PCP $4.5m, but that included a large one-off sale of $1m). They also reaffirmed that Q2 and Q4 are their best periods, so this is a good result.
Once again, the market showed it wasn’t happy. I have dug a little deeper into the numbers to try and understand where things are at.
I have assumed the following growth rates for each division: 15% SNARE, 40% eMite and -30% Legacy. I am forecasting the following:
H1FY17
I am not suggesting for a moment that the above figures are particularly scientific. PRO have already proved their earnings are lumpy and therefore relatively difficult to predict.However, they do give insight into whether or not PRO is a good investment at this point. I have only looked at FY17, but I am satisfied their products will remain in demand going forward. I expect FY17 onwards to potentially be significantly better. Using the above figures we can apply the following valuation methods at the current SP of 82.5c:
P/E (TTM) = 22
Summary going forward
Wednesday 26 October 2016
Portfolio as at 26/10/2016
Tuesday 25 October 2016
Update/FRM
The 20K portfolio is currently fully allocated. It is possible I will transfer funds between companies, but until any significant rerates occur I don’t anticipate making any changes. This doesn’t mean I’ve just been twiddling my thumbs though. I have still been doing research in the background, so I thought I would use this as a forum to provide some thoughts on other companies I own or am considering.
As I think I mentioned right at the beginning of this blog – I am a long term investor. Short term positions are not my strong suit. However, I attempted to use fundamental analysis to choose the companies most likely to appreciate in the short term. Some of these have gone well, while others have hit some bumps along the way. I still hold these because I have confidence in their long term potential. That means I can easily see the timeframe of this challenge rolling over to be more indefinite. I will still attempt to actively manage the portfolio to ensure the funds are put to use as best they can be. That way companies like PRO will have the time to reach it’s potential.
Anyway, back to the companies.
Farm Pride Foods (ASX:FRM) is a company I have held for a few months. This perfectly demonstrates my inability to time the market as it swiftly proceeded to correct. It did allow me to average down and I am now fully loaded. The current SP is $1.75 and I've now added it to this portfolio. The company sells eggs and egg related products. This is very boring. However, they are exposed to the market-shift to free-range products and they are continuing to increase their exposure by building new facilities. They have recently paid off essentially all of their debt and are making lots of cash.
Financial Highlights for FY16:
Revenue - $93.6m (up 3%)
NPAT - $8.2m (up 58%)
OCF - $13.7m (up 49%) (25cps)
EPS - 14.7cps
Trailing PE – 12
Price/OCF – 7
Catalysts for FY17
· New free-range facilities coming online, will increase revenue by 15% once operational – NPAT by more
· Cash building up in bank – possible dividend or acquisition
· Growing population, growing egg consumption, market-shift towards free-range
· Valuation is very reasonable – multiple expansion likely
Today marks the day of the AGM. There will hopefully be a good update on operations. I decided to put my thoughts on the line and post this before the AGM. I will update anything following the AGM if required…
PS - full disclosure - I have read a broker report on FRM in the past, but I wrote the above based on my own thoughts using only the FY16 report