Share Sleuth: Why I trimmed one share and was bowled over by another

Richard Beddard does some pruning and gets the ball rolling with another new holding for the Share Sleuth portfolio.

This month, I’ve made two trades. The first was perhaps the easiest I have ever made; and the second – well, it should have been easy but a virus intervened.

I mentioned that Share Sleuth’s Games Workshop holding was first in line for a trim last month. It owns the Warhammer fantasy modelling and wargaming franchise. Warhammer is enjoying an explosion of popularity and profitability because the company has revamped just about everything about the business: the models, games, stores and online marketing presence, for example. The shares have not just been one of the portfolio’s top performers – they are among the market’s top performers.

Too much of a good thing

You can have too much of a good thing, though, and immediately before I reduced the portfolio’s holding, Games Workshop scored 6.4 according to my Decision Engine – about average for Share Sleuth. It is a very good business but was weighed down by a hefty valuation. Because of the vertiginous trajectory of its share price and despite a previous reduction in the size of the holding in February 2018, Games Workshop had grown to be the portfolio’s biggest holding, worth about 9% of its total value.

I was already primed to shed some shares when the company announced that its chief executive, finance director and chairman had sold substantial proportions of their holdings. A few days later on 13 February, I reduced the portfolio’s holding by about 43%. The trade, at a price quoted by my broker of just over £71.40, raised £6,064.

While I don’t usually read anything into other people’s trades, I wouldn’t blame them for thinking about diversifying, as I was.

The second trade was a new addition to the portfolio, Hollywood Bowl. This is another very strong business, which you can read about in this month's Share Watch. My misgivings about adding the shares had nothing to do with the business and everything to do with the way an attractive valuation had come about.

I added the shares at the end of a week of falls in share prices, the like of which we have not seen since 2008. By the time you read this, you may know whether the Covid-19 epidemic is a global pandemic, but as I write, an epidemic here in the UK is just one scenario, admittedly an increasingly likely one. Needless to say, the worst-case scenario would be bad for tenpin bowling.

So why was I crazy enough to add the shares? Pandemics aside, I believe in the business, and like the other shares in the portfolio I intend to hold on to Hollywood Bowl for 10 years or more. Over that timeframe, a serious market dislocation is highly likely, but the possibility we are entering a thin period shouldn’t deter me from adding them. Indeed, it’s that possibility, and the falling share price, that lifted the company to a score of 7.5 according to my Decision Engine.

On 28 February, I added 1,615 shares in Hollywood Bowl at a price of £2.23 per share, also the actual price quoted by a broker. After fees, the transaction cost £3,626, which is very close to the minimum I will trade at one time (2.5% of the portfolio’s total value). Unbeknown to me I added the shares on the same day that Laurence Keen, Hollywood Bowl’s chief financial officer, bought considerably more.

I am not going to make a habit of synchronising my trades with those of company directors, but let’s hope it works out on this occasion!

Still comfortably ahead of the FTSE

Graph for Share Sleuth portfolio March 2020

 

Games Workshop had a 9% weighting

Portfolio     Cost (£) Value (£) Return (%)
Cash       4,632  
Shares       136,610  
Since 9 September 2009     30,000 141,243 371
           
Companies   Shares Cost (£) Value (£) Return (%)
ALU Alumasc 938 999 1,018 2
ANP Anpario 937 3,168 3,280 4
AVON Avon Rubber 192 2,510 5,021 100
BMY Bloomsbury 1,256 3,274 3,077 -6
BOWL Hollywood Bowl 1,615 3,628 4,038 11
CGS Castings 1,109 3,110 4,181 34
CHH Churchill China 341 3,751 5,712 52
CHRT Cohort 1,600 3,747 9,680 158
DTG Dart 456 250 5,098 1,939
DWHT Dewhurst 735 2,244 7,644 241
GAW Games Workshop 113 324 7,085 2,086
GDWN Goodwin 266 6,646 7,182 8
HWDN Howden Joinery 748 3,228 4,804 49
JDG Judges Scientific 159 3,825 7,696 101
NXT Next 45 2,199 2,712 23
PMP Portmeirion 349 3,212 2,007 -38
PZC PZ Cussons 1,870 3,878 3,460 -11
QTX Quartix 1,085 2,798 4,015 43
RM. RM 1,275 3,038 3,290 8
RSW Renishaw 92 1,739 3,128 80
SOLI Solid State 1,546 4,523 7,962 76
TET Treatt 1,222 1,734 5,670 227
TFW Thorpe (F W) 2,000 2,207 5,880 166
TRI Trifast 2,261 3,357 2,905 -13
TSTL Tristel 750 268 3,233 1,105
VCT Victrex 323 6,254 6,667 7
XPP XP Power 339 6,287 10,170 62

Notes: Reduced holding in Games Workshop, added Hollywood Bowl. 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 £141,454 today. £30,000 invested in FTSE All-Share index tracker accumulation units would be worth £61,369 today. Objective: To beat the index tracker handsomely over five-year periods. Source: SharePad, 2 March 2019.

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