1/n For those who missed out on #Mello2018 - have decided to compile some thoughts from the talks and the cos. Some very successful investors in attendance; investing is about stacking the odds in your favour (like poker) and repeatedly playing to leverage your edge.
2/n If you don’t have an edge then you’re liquidity for someone else who has one. Investing and trading require patience and to wait for the opportunity. Losses reduce both physical and mental capital. You need to play to win but if you lose all your capital you can’t play.
3/n Gervais Williams - lack of wage growth changing political and investing landscape. Tailwinds will become headwinds as rates potentially rise and productivity stagnates. Risk comes from real world. Imo we are drunk on cheap credit; previous tax shields will become burdens.
4/n #AEO - Co has massive opportunity in experiential market to act like a plc by growing and acquiring. Previous two directors ran it as a lifestyle co, did not invest cash and paid themselves dividends. They retired last year, shares were placed with new board and PIs.
6/n Mike Hale believes they can grow the business revenue almost five-fold to £20m turnover on the same margins. No capex spend needed. Don’t need to raise. Cash was £1m in interims and profitable track record (exceptional fees for director resignation and share placing). #AEO
7/n Cash flow excellent as revenue is paid one third up front, the next third the day they start, and the last third once complete. Client takes risk if budget overruns so no risk of over spending. Synergy to buy a co, get the clients, but strip out unnecessary costs. #AEO
8/n @paulypilot - Opportunities: expansion into new markets or products, high organic growth, closure of loss-making subs, strong balance sheets (tangibles). Threats: Liquidity, artificial pricing, secondary placings, permanent overhangs, being too cynical and missing the opp.
9/n @paulypilot - Look for innovative product that meets unmet need with rec rev, high margins, a moat, and operational gearing. Entrepreneurial management, scalability with organic growth, good assets, and profitable (or close to it). Rising earnings estimates provide catalyst.
10/n #PTY - Swinstead original founder. Not a forced seller as he sends his butler on holiday two days before he goes to sort everything out. Overhang appears just a myth - directors not explored possibility of placing Swinstead’s stock as no reason to believe he wants to sell.
11/n Ability to scale up and down easily through Parity Professionals which is growing though tax rules caused a blip in contractors. Working capital at a record low as debtor days now 20 from 29. Debt down, revenues up, higher margin consultancy business growing quick. #PTY
12/n @GrahamNeary Lots of waiting involved for asset/ value plays. If no foreseeable catalyst to close discount to NAV then perhaps worth keeping it on watchlist. Gave example of a co which had its assets sold without its knowledge, then promptly delisted and disappeared.
13/n @Boros10 Gave great talk on embracing unsystematic risk. Idea to mix cos that will perform better and worse in rate rises which would diversify systematic factor. Imo risk can’t be quantified and it comes from 1) not knowing what you are doing, and/or 2) having no edge.
14/n @Boros10's portfolio is heavily skewed towards top ten holdings as he wants to diversify risk but concentrate gains in best ideas. Holding twenty plus shares spreads this risk further but gains are diluted with each additional holding. Worth backing your best ideas bigger.
15/n @PhilJOakley Look at capex intensive cos - is it ongoing or expansionary capex? #FEVR doesn’t need to spend cash on capex or assets etc. Don’t look at headline numbers but adjustments to see where debt is hidden on the balance sheet. Disposal of assets is bad free cash flow.
16/n Be careful of EPS mgmt share schemes. EPS is not the same as free cash flow which is the amount left after all business activities are taken care of. A good example is Sainsbury’s which increases EPS but struggles to consistently turn that profit into actual free cash flow.
17/n Good companies convert post tax profit into free cash flow. Bad ones do not. Poor operating cash flow can be a sign of aggressive accounting and poor quality profit. Selling too much on credit and buying too much inventory (write downs) are common reasons for poor OCF.
18/n Examine free cash flow on its own merit. FCF is not the best metric to use on growth stories as post tax profit is re-invested back into the business as expansionary capex. This is very different to a business that spends a lot on capex just to survive.
19/n High PEs can be justified and momentum investing has been a profitable strategy in last few years but be careful of a crowded exit when catalyst ceases. When earnings upgrades stop, who is buying? It’s not momentum investors any more. It’s certainly not value investors.
20/n Be careful of stock screeners. @markminervini has found that the biggest multibaggers consistently trade on lofty earnings. Screening for below a PE of 20 would mean that you are automatically screening out the market’s biggest winners without even a consideration.
21/n Be careful of hedging. Imo selling is the perfect hedge as cash is 100% correlated to the instrument you trade. Unless you wake up and find out that you’ve become Miton overnight and struggle to liquefy positions without moving price then you can always buy back in easily.
23/n Investing no longer a solitary hobby. Very much a team game where we can all help and learn from each other. Ultimately, shareholders get the companies they deserve. Mr Market the fairest employer of them all and does not discriminate against age or gender, sex or religion.
24/24 Finally, well done to @wheeliedealer who won the award for Most Influential UK Twitter Account. This man has arguably done the most for new investors with his website which he does not charge a penny for: wheeliedealer.weebly.com and so it was well deserved.
