Exchange Market Size in Stockopedia and BHP plus RIO

I noticed that the share prices of BHP Group (BHP) and Rio Tinto (RIO) jumped this morning – at least for these behemoths of the FTSE-100 they moved substantially at 2.8% and 3.4% respectively. I only noticed because I recently purchased some of the shares in each company.

These are of course very large mining companies so they are dependent on the price of metals and metal ore, particularly iron ore. The last time I looked at these companies was two or three years ago when they were laden down with debt and had poor returns on capital. But they have certainly had a change of heart since then and seem to be more focused on generating real profits and cash flow rather than building ever bigger holes in the ground. Debt has been cut substantially in both companies.

With the profits mainly coming from overseas, they are a good hedge against any form of Brexit, and yields are high for those who like dividends. I am not a great fan of commodity-based businesses where predicting future prices of the products is not easy and they typically go through boom and bust cycles as such companies all invest in new production capacity at the same time as prices go up. Soon after when all the new capacity comes on stream there is a bust of course. But I made a small exception in this case.

But why the share price jump this morning? Are investors moving from growth to value as other commentators have suggested? Have value shares such as BHP and RIO suddenly started to look attractive, as they did to me? Or has Nigel Farage’s impossible demands for a deal with the Conservatives to ensure Brexit over the weekend suddenly encouraged investors to look for Brexit hedges?

Stockopedia have released an updated version of their “New” software. It now includes the Exchange Market Size (EMS) which is a useful parameter to look at when trading in company shares, particularly smaller ones. Note that Exchange Market Size was previously called Normal Market Size.  It is the maximum size in terms of share trade volume at which a market maker is obligated to adhere to their quoted share prices. It is a very good indicator of the liquidity in the shares and how easy they will be to trade. When trading electronically on most retail platforms, this is a useful number to know as it will affect whether you can trade automatically, have to set a limit order or get a dealer to trade for you. In addition, any trade bigger than the EMS might be done at prices higher or lower than you expect.

This number can be very small for some AIM stocks. For example on Bango (BGO) which I hold it is currently only 3,000 shares (less than £4,000 in value) when the EMS for BHP and RIO is more equivalent to £20,000 in value.

The new Stockopedia software version has other improvements although I still seem to be having problems with the Stock Alerts feature that I use every day. Perhaps there are still some issues that have yet to be fixed but you can still revert to the old version.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

You can “follow” this blog by clicking on the bottom right.

© Copyright. Disclaimer: Read the About page before relying on any information in this post.

Company Refs Acquired

Slater Investments and Stockopedia have issued a press release saying they have acquired the Company Refs financial analysis service. Company Refs was devised by Jim Slater, the father of the current Slater Investments Chairman and was originally published in paper form as a summary of all the key financial information on public companies on one page. It was later digitised but active marketing of the service has not taken place in recent years. But it was a truly innovative solution to help both professional and private investors when first devised.

Stockopedia provides a very similar service and the press release suggests that current REFS subscribers will be integrated into the Stockopedia service while Slater will use the financial database and intellectual property for internal research purposes.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

You can “follow” this blog by clicking on the bottom right.

© Copyright. Disclaimer: Read the About page before relying on any information in this post.

New Stockopedia Version and Abcam Trading Update

Like many private investors, I use the Stockopedia software to provide me with a summary of key financial information on a company. I also use it to provide “alerts” on price changes and for occasional stock screening. It’s one of the key elements in my share portfolio management. It has always been quick and easy to use, without too much complexity. They have just released a new version of the software that now supports mobile devices much better – that was certainly an issue with trying to use it previously on my mobile phone.

I have spent a few minutes trying the new version and reported quite a number of issues with it to Stockopedia support. Here’s a few of the key ones:

  • Portfolio holdings and alerts only show 40 stocks when my portfolio has many more than that, so cannot easily scroll up and down the whole portfolio.
  • Not supported on Internet Explorer which is still my default web browser.
  • Printing a stock page uses more pages – for example printing a report on Abcam now uses 5 sides in Chrome, i.e. 3 pages on a duplex printer instead of one page on Explorer with the old version. Print format screwed up also at top left. As with many new software versions, testing of print functions seems to have been limited.
  • Cost of holdings sometimes shows nil.

In general the testing of the new version seems to have been too little, even if I am very experienced at picking up bugs in software. As a result I won’t be switching to the new version just yet until they sort out some of these problems. However it is very easy to switch back and forwards between the versions. Let us hope they do not abandon the old version until all the problems are resolved.

On the subject of Abcam (ABC) yesterday the company issued a trading update for the year ending June. It looked fairly innocuous to me but the share price promptly fell sharply and finished the day down 13.3%. The only possible issue mentioned was the announcement that CFO Gavin Wood was stepping down “over the next year in order to continue his career closer to his family home”. He has been with the company for 3 years.

Did that justify the investor panic? Surely not. The FT commented that the company’s expansion plans had unsettled investors, but the announcement really only suggested a continuation of the growth strategy and formulation of plans to achieve that. Perhaps it was simply that investors had realised that a prospective p/e of 40 for the current year after a strong recent share price run was a bit too high. Or perhaps it’s that summer season problem where liquidity is low and hence share prices tend to be volatile. Anyway the share price is recovering today at the time of writing and my portfolio loss on Abcam yesterday was mostly offset by the rise in Learning Tecnologies (LTG) which issued a very positive trading update. It’s share price rose about 20% on the day.

Abcam is of course a producer and distributor of antibodies. On a personal note, last week I was injected with monoclonal antibody named Prolia from Amgen to control osteopenia. If I had looked at the side effects and user reports on the internet beforehand I might have chosen not to have it, but no concerns so far. Only costs about £1,000 per shot apparently for six months. No wonder the NHS needs more money.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

You can “follow” this blog by clicking on the bottom right.

© Copyright. Disclaimer: Read the About page before relying on any information in this post.

A Cautionary Tale from Paul Scott

City AM published an educational story last week which is worth repeating. It covered the investment record of Paul Scott who is very well known in the small cap investment world. He writes very perceptive, and quick, analyses of announcements by smaller companies for Stockopedia with a strong emphasis on the financial accounts. He trained as an accountant and worked for a retailing company as finance director for some years. He then became a professional investor – one might say living off his wits – and reportedly turned £50,000 into more than £5m in a few years. Then the financial crisis hit in 2008/9.

This is what he said in the City AM interview: ““I lost the lot and had to start all over again in the financial crisis. It was horrendous, it ruined my life at the time. I had to sell my house, I lost all my savings, I ended up £2m in debt. It was a catastrophe.”

The article suggests Scott made two mistakes: “One was investing in stocks with low liquidity. The other was gearing up on them through spread-betting. When the crisis hit, he couldn’t get out.”

Now with speculative small-cap stocks again riding high, with valuations not based on current fundamentals such as profits and cash flow, but on their future prospects and for their ability to dominate their markets, it is surely again a time to be wary.

Markets are driven by emotions and once a panic sets in then small cap stocks in particular could become very illiquid. Having a major proportion of your portfolio in such stocks may have done wonders for your investment performance in the last couple of years but it is high risk. That is particularly so if you also gear up, and have an undiversified group of holdings – a portfolio of less than a dozen holdings of such companies is positively dangerous.

So the moral is surely never to hold a company on the premise that you can get out if the market turns sour for shares in that company, or in general. Unless you are sure you want to hold a company for the long term, and can afford to do so (i.e. you have not borrowed money to buy it), you should not buy it in the first place.

In addition never let a few holdings dominate your portfolio. And in particular be very wary of companies where there is little trading (i.e. low liquidity). If your own holding is a multiple of the daily trading volume, you’ll never be able to get out at a fair price if there is a crash.

This is what Paul had to say recently in an interview for Stockopedia: “I’ve learnt all my investing decisions the hard way. 2008 taught me that you need to keep an eye on the exit and you need to consider what will happen to liquidity if there is some sort of awful event. Not necessarily a minor event, but if the financial system starts to cave in again – which it might well do. So for that reason, this time my risk management is much better. I’m keeping the gearing lower than it was and I have a general rule that I want to be able to exit every position I hold within a maximum of two days in a bear market. So I position size accordingly. If something is very small and illiquid, I wouldn’t have more than £30,000 – 40,000 worth of it. If it’s nice and liquid then I’ll have £500,000 of it. I think liquidity is so important.”

I would only comment that when everyone wants to exit, shifting even a relatively small amount of stock in small caps can be damn difficult. Having solely small cap stocks in your portfolio can be a risky strategy when mid to large cap stocks will be much more liquid and less volatile. For example, private investors could easily sell their holdings in HBOS, RBS, Northern Rock and Bradford & Bingley even when they were in dire difficulties.

Diversity in individual holdings, and in company size, are both prudent.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

You can “follow” this blog by clicking on the bottom right.

© Copyright. Disclaimer: Read the About page before relying on any information in this post.