Is it all a guess?

Working my way through the post and comments on the Motley Fool article "The Most Exciting Share You Own" on 28-Mar-2012. sketch notes below.

Interesting is the discussion about David "Carmensfella". He himself writes:

In fairness when I recommended LOQ about six years ago in the Pub here on TMF for others to research it was not a ‘multi-bagger or bust’ share. They had net cash and good contracts albeit mainly with one customer.

There’s also a thread on TMF about David’s picks.

What’s even more interesting is a portfolio of his Jan 2009 (?) picks over at Interactive Investor. Commendably, the portfolio is up 125%, compared with the FTSE All-Share of up 40.8%, assuming that Jan 2009 is the correct comparison date. It’s difficult for me to ascertain if this is a genuine outperformance, though, as on the thread it states:

only 2 out of the 12, LOQ and MUBL, are in significantly positive territory. DAV has dropped by 92% and MPS by 73%, and anyone following these two tips would have suffered serious losses.

The portfolio has only 6 shares in them, and DAV and MPS aren’t in there. A quick scan of Investegate reveals that in June 2010 MPS suspended trading in the following RNS:

The Board of Minorplanet announces that it has requested a suspension of trading in its shares with immediate effect pending clarification of its financial position. This follows the receipt of a demand notice for the repayment of a loan from DigiCore International Holdings BV to MPS 2010 Limited ("MPS 2010"), a subsidiary of the Company, details which were set out in an announcement dated 14 May 2010 and the subsequent enforcement of terms and conditions of the related financial agreements including the exercise of its security over MPS 2010 shares.

In Nov 2011, DAV announced the appointment of administrators:

Further to its previous announcements, the Company confirms that all members of the Group have now entered into administration.

I’m assuming, therefore, that 6 out of the 12 picks have been total wipeouts. So I expect that the return to date of the portfolio is less, by far, of that 125%. Presumably, that figure should be chopped in half.

What has worked out well for him is LOQ (Lo-Q), up 803%. This is a well-know share for TMF’s Pub followers. His QDG (Quadnetics) is up 111%. These are the only two shares that have beaten the index.

The fact that 6 of the 12 shares (presumably) went bust is highly discouraging. In amongst the survivors is RCG (RCG Holdings) – a share I talk about from time-to-time – down 90% since the portfolio inception. I also see MUBL (MBL Group) – down 93% – which has also been much discussed here and elsewhere.

I’m probably going to pick up a lot of heat over this, but … these are terrible, terrible picks. It’s true that I don’t know if he would have sold some of the holdings in the interim; but the quality of the companies is very shocking. When I see a share like RCG, I have to question if the person really knew what they doing, or whether it was just the wildest of luck. It seems that LOQ is the only company really bailing the portfolio out. You have to remember, too, that around about jan 2009 was a fairly good time to dash to trash. If you had tried a similar strategy at any other time, you could well have had your head handed to you on a plate. I can’t imagine Warren Buffett having invested in any of these companies. I think most value investors could have put together a portfolio that would have beaten the index, and they wouldn’t have had to take nearly so much risk.

Tricky.

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About mcturra2000

Computer programmer living in Scotland.
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One Response to Is it all a guess?

  1. >I’m assuming, therefore, that 6 out of the 12 picks have been total wipeouts…

    Not so fast! The thread shows ten tips and three have been take private: Gladstone, FDM Group and OPD Group. I can’t see how Management Consulting (MMC) got in the iii portfolio.

    Still 3 wipeouts is pretty poor. RCG and MBL are disasters. At least three of these five had very ‘unsatisfactory’ management IMO which would have been known to some and helps explain the low ratings at the time.

    I invest in a lot of shares that look cheap, Quite a few go bust or have 90% loss for me. It’s fair enough when the risk is apparent at the time eg high debt, sales fall, that’s standard recovery play investing. It’s the crooked management that’s hard to swallow and I’ve taken a much harder like on suspect behaviour or words recently.
    Maybe a good filter would be to only buy lowly rated shares where the reason is fully apparent?

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