Share Sleuth: TV’s Dexter Morgan lends a hand and new firms for Decision Engine

Richard Beddard pulls more companies into the stock selection funnel.

When I was reaching for a pithy way to sum up the latest month in the life of the Share Sleuth portfolio, the phrase “There’s nothing like a crisis” came to mind, but none of the endings that followed really fitted. I was thinking of “to focus the mind”, but it didn’t hit the mark so I typed the first half of the phrase into Google. The search returned a quote from Dexter Morgan, a fictional anti-hero. It was perfect.

Morgan said: “There is nothing like a crisis to define who you are.” I don’t know what his fictional circumstances were, but the pandemic feels like a crisis, and investing-wise I responded with denial, then acceptance, and subsequently by defining who I am.

However, I didn’t deliberately choose this path when I set out to revamp my Decision Engine, the spreadsheets that wrangle all the information I use to score and rank shares. I wanted to release a bottleneck in my investing process.

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Comparison process

For me, investing is a process of comparison. I want to own the best companies as long as they are reasonably priced, and this means comparing the shares I own with the shares I might prefer to own. It takes time to know a business well, and to make the system work I need to compare lots of businesses. Balancing these two imperatives, knowing each company well and knowing lots of shares, is perhaps my biggest challenge.

For some time, I have felt that there needs to be more competition for places in the Share Sleuth portfolio, which means scoring and ranking more shares. The bottleneck was the many years of financial data I collect from annual reports, which use up a lot of time.

So, while I still need to collect some of the more esoteric numbers myself to make adjustments, I have restructured my Decision Engine spreadsheets to incorporate many of the financial numbers I require from a third party, SharePad, the software service I already use to track the portfolio’s performance.

Only one of the five criteria I use to score a share is calculated directly using these numbers (the Value score). The other four criteria are judgements about the business, which I have defined more clearly as follows:

1) Profitability: Has the business made good money? Judges whether the company has been profitable in cash and accounting terms.

2) Risks: What could stop the company growing profitably? Examines debt, the variability of earnings, and competition.

3) Strategy: How will the company make more money? Considers whether the company’s strategy addresses the risks.

4) Fairness: Will shareholders, staff and customers benefit? Assesses executive pay and share ownership, company policies and reputation

Having sucked in the numbers and judgements and made calculations, the Decision Engine ranks the shares and recommends trades to me. The higher the score, and the smaller any existing holding, the more it will suggest I invest. I do not, though, have to take its advice.

Today ,the Decision Engine is offering me five shares to buy: They are RM (ranked 4), Dart (5), Anpario (7), Next (9) and Howden Joinery (10). These are quite contrarian recommendations. Dart and RM’s high rankings are, in part, because their share prices have fallen quite a way. Anpario (see Share Watch) is a more comforting prospect; I have yet to pull the trigger, but may have done by the time you read this.

More recommendations in the pipeline 

Portfolio     Cost (£) Value (£) Return (%)
Cash       4,892  
Shares       124,202  
Since 9 September 2009     30,000 129,094 330
           
Companies   Shares Cost (£) Value (£) Return (%)
ANP Anpario 937 3,168 3,467 9
ALU Alumasc 938 999 732 -27
AVON Avon Rubber 192 2,510 5,069 102
BMY Bloomsbury 1,256 3,274 2,531 -23
BOWL Hollywood Bowl 1,615 3,628 2,641 -27
CGS Castings 1,109 3,110 3,660 18
CHH Churchill China 341 3,751 4,945 32
CHRT Cohort 1,600 3,747 9,120 143
DTG Dart 456 250 2,779 1,012
DWHT Dewhurst 735 2,244 6,064 170
GAW Games Workshop 113 324 6,746 1,981
GDWN Goodwin 266 6,646 5,958 -10
HWDN Howden Joinery 748 3,228 3,964 23
JDG Judges Scientific 159 3,825 7,632 100
NXT Next 45 2,199 2,143 -3
PMP Portmeirion 349 3,212 1,557 -52
PZC PZ Cussons 1,870 3,878 3,478 -10
QTX Quartix 1,085 2,798 3,157 13
RM. RM 1,275 3,038 2,652 -13
RSW Renishaw 92 1,739 3,176 83
SOLI Solid State 1,546 4,523 7,266 61
TET Treatt 1,222 1,734 5,737 231
TFW Thorpe (F W) 2,000 2,207 6,400 190
TRI Trifast 2,261 3,357 2,691 -20
TSTL Tristel 750 268 3,900 1,354
VCT Victrex 323 6,254 6,331 1
XPP XP Power 339 6,287 10,407 66

Notes: No transactions. Transaction costs include £10 broker fee, and 0.5% stamp duty where appropriate. Cash earns no interest. Dividends and sale proceeds are credited to the cash balance. £30,000 invested on 9 September 2009 would be worth £129,094 today. £30,000 invested in FTSE All-Share index tracker accumulation units would be worth £55,869 today. Objective: To beat the index tracker handsomely over five-year periods. Source: SharePad, 1 May 2020

Bouncing back from the bottom

Share Sleuth graph June 2020

 

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