Magic Hat Portfolio: TMMG in, CCT out

CCT leaves the portfolio by rotation, having lost 0.4% during its tenure. It has been in the portfolio for 3 years. The FTSE350 has risen 15.8% during that period, so the performance of CCT has been disappointing.

TMMG enters the portfolio, having a Stockopedia StockRank of 97. Let’s hope this proves to be a greater success.

Looking at Stockopedia, the FTSE350 has a trailing PE of 14.7, the FT250 is on 14.3, the FT100 is on 15.0, the Small Caps ex ITs is on 13.8, the Techmark All Share is on 19.7, and the AIM All Share is on 18.4.

Broadly speaking, then, the UK markets look in completely safe territory to me, and I am not concerned with valuation levels.

Russia is on a CAPE of 6.8 and a PE of 7.0, so it’s looks like great value to me.

The US looks to be in bubble territory, with a CAPE of 31.9 and a PE of 21.7.

There can, of course, be no guarantees as to how the UK market will move. Some random event may tip the market lower. The UK markets have been rather lack-lustre over the year, and I get the impression that many have had unspectacular portfolio performances.

Like I say, I’m sanguine about the state of the market. Who knows, if we get this Brexit thing sorted out, the market might actually go up on account of the UK being “derisked.” I am talking about market perceptions here, not what I actually believe. I think that the pros, in particular, are overly-concerned about “riskiness” and “uncertainty” of the markets. The problem with that way of thinking is, in my view, that you never really know what’s going to happen, and that market valuation is a factor in determining “riskiness”.

What may look risky may be safe, and what looks safe becomes risky. There are two examples I can readily think of: the euphoria of 1999, and the collapse in 2008/9. In 1999, particularly the US, we had a “Goldilocks” economy, and everything was perceived as safe, in which books like “Dow 36,000” was published. Needless to say, everything subsequently went tits up. Then, in 2008, when everything was going wrong, stocks were trading at levels that proved to be an absolute bargain.

So you just cannot rely on general opinion to determine what is going to happen next. If anything, general consensus is a contrarian indicator. As one commentator noted: the market will do whatever it takes to prove the majority wrong.

Stockopedia reports that there are 1578 shares below their 200dMA, as opposed to 1054 above it. So shares have been struggling, and we’re not yet seeing signs of any kind of recovery. The market is one of malaise rather than dramatic movements at the moment. At the end of March 2018, the FT100 was on 6921, below its 1999 peak. There was a quick recovery, but the market seems to have come off the boil from May 2018. It does look suspiciously like it wants to test the March lows.

You can see, from the above, that the mid-caps are on a similar valuation to the large-caps, despite the fact that the mid-caps have done rather well over extended periods of time. It does seem a good general rule that, valuation levels being the same, you’ll likely do much better in the mid-caps, and possibly small-caps, than you will in the large-caps. Despite portfolio managers concentrating their efforts on the big guns, it is not, in general, a particularly good area to invest in. My own theory is that the large caps are quite often over-indebted, have poor returns on capital, and are perhaps at the peak of their form, from which the only place to go is down.

I can’t be bothered to proofread this post. I’d rather watch my DVD of Better Call Saul, series 3. Gotta pace myself, as it’s too easy to binge-watch.

So anyhoo, stay safe out there.

About mcturra2000

Computer programmer living in Scotland.
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