Run Your Portfolio Like a Drugs Cartel

Happy Monday! Long time no speak. it’s been a few months since my last post and I apologise for that, I do not want to write for the sake of writing and updating, I prefer to write in order to provide information and insight. 

If you follow me on Instagram you would have seen me post this picture 

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I was strolling through duty-free at the airport with an hour or so to kill before my flight and wanting some brain food I decided to head to WHSmith and search for a few books to take with me. One of the books that I bought was ‘How to Run a drugs cartel’ – A unusual book to say the least; very gripping and a real insight into how to successfully run a business.  Although this is an ambitious link; how the drugs cartels are ran, shouldn’t be too far away from how a successful portfolio develops and is born. An ambitious and divergent thought process but there is meat on the bones. Hear me out. 

The first thing i realised whilst reading this, is that a cartel stats small and focus on running one area very well before they diversify. That is a great approach when looking at market sectors in your stock investments. Why ‘shoot from the hip’ and spray across the FTSE 250 trying to find one stock to add to your portfolio, or to invest in. The biggest gains I have made is when I have done my research on a certain sector and know it extremely well. In the first scenario I chose the large consumer beverage sector, I had my eye on Coca-Cola and instead after a period of analysis into the sector of the drinks market, I went for Starbucks- quite the opposite of my original plan however here are some of the reasons for the switch

  1. Really high cash flow enabled them to grow organically at and break into new markets
  2. Great vision of growth in Asia and Far east – very untapped market
  3. Strong Balance Sheet
  4. Brand Reputation and the demise of other coffee retailers Coffietopia
  5. addictive and cult=like consumer followers –

Over the period of a year the stock price rose from $41 dollars a share (Jan 2015)) and I sold just shy of $60 dollars later in the year. With commission and FX fluctuations, I had made around 35% in that move. This is one example of knowing your sector in detail. One important thought I have when I have found a company I really like is:

“On paper a company may look undervalued, but how does it look vs. it’s competitors in the market’

A company may be making a contribution of 20% and a profit in the millions, it has a solid balance sheet and a strong reputation etc. But if the other companies in the marketplace are doing 30% and making a profit in the tens of millions, ultimately the first company is not anywhere near as strong as one would believe on first sight.

This brings me nicely onto my next point. Cartels are ruthless in their decisions they make. They will commit to a decision and win or loss they move on.You may see this as bad advise, however what is interesting is  at the time they are 100% committed to the decision and believe it is the right choice, and in investing, that mindset will lead to less emotional taxation. Knowing you have done your research and when you sit on the page of your broker and you are thinking “hell yeah” this is the right move, you feel 100% behind the investment, there is no emotional burden when that trade is processed. I have found that when I am 80% sure in the past, that is when I am looking at the noise daily and anxious about that stock it’s not a good position to be in. When you are committed fully, you will find they are your best investments. If they are not, either there’s a fundamental you have skipped in your research or something unexpected has happened. Either way you will learn from the first directly and the second will make you more aware of the macro environment. Fully commit and be confident enough to say No if you are not 100% happy. It is taxing and can play on your mind for a long time- this should be viewed as investing, not gambling. 

On loosing money and how to do it properly: Recently £50million of cocaine was washed up onto the shores of Norfolk beach in the UK. For cartels, a £50 million loss of course is going to be trouble for the people who lost that, however that is only a small amount of the product they own. Losing money in one stock pick is frustrating, however it shouldn’t put you in a position of worrying. The art of diversification in a portfolio means that if one goes duff (everyone will inevitable learn from one poorer choice) you should be able cover the loss with your other investments over that time period. Exactly the same with the cocaine on the beach. Yes £50 million is a big loss for the cartel who lost it, but how big is it in the bigger picture? Their industry is worth £80 billion a year. Yes it is worth £50 million street price and that is revenue to the cartels, however the cost price of creating that would be little under a million. Not much of a loss of the major cartels. Diversify means losses in one stock or one sector shouldn’t knock a portfolio off track

I hope this has been useful for you, If you would like to get in touch please send me an email – andrepartridge@googlemail.com – I would love to hear from you

On a final note, if you want to read the book, I would thoroughly recommend it! Find: How to run a drug cartel- Tom Wrainwright here

Happy Mondays

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Investing rules of thumb- Dividend yields and Doubling

Ryan Goh: Life through these eyes

So, on my last post, Dividend Knight left me a nice comment. The part I found really interesting is that he mentioned that he’s on track to collecting $1,600 per month in dividends. Using my handy back-of-the-envelope calculation, I figured that his portfolio might be in the $300K region.

A day later, I happened to click on the link to his latest blog post and lo and behold, his current portfolio value is $316,000.

This brings me to the point of some useful rule of thumbs that I often use:

  1. The 4-5% dividend yield
  2. Rule of 72

4-5% Dividend Rule

While this is in the Singapore context, the same rule can be modified to suit your local market conditions. The way it works is that, in Singapore, while the dividend yield* can range from as low as 0% to as high as 7-8% for REITs, I find that the yield on…

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Why knowing economics is important for fundamental investors

A really good article about Market Structure. Its worth a read!

Ryan Goh: Life through these eyes

If you like this post on economics, please like our Facebook page and follow us for more fundamental posts on economics. Really Good Economics also provides small-group tuition for economics. Please visit our website for more details.

As Warren Buffett once said:

When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

In my experience, many fundamental investors focus on the financials without knowing much about the economics of the business. It’s true that the economics of the business affects its profitability and hence, just looking at the financials can give us an insight into the economics of the business. However, just looking at the financials means that we may not appreciate the true nature of the business. Appreciating the true nature of the business can help us foresee how the business will…

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Was I right about Brexit Stocks at risk?

If you do not remember my article about the potential impact of Brexit please click here. I stated that Small to Mid Sized Stocks will take the hit and FTSE 100 companies won’t be impacted as much!

Was I right?

Considering the FTSE 100 is up 20% against the lows in February and hit an 11 month high I was right with my prediction that the FTSE 100 would not be as impacted as much as the rest of the FTSE

The FTSE 250 is still around 2% lower than the pre Brexit levels, and has recovered nicely over the last week. 

I also mentioned that there will be some bargains, one of which is Virgin Money. Its worth a look! I picked it up after a 40% drop in the share price, and with my due diligence and analysis I believe it was oversold. I am really happy with the price I bought it at and its future growth potential

I hope you all decided to be smart and look to invest when prices of basically everything dropped. There were  a lot of bargains out there and some really cheap stocks that were panic sold. This was not a way for me to show off about my knowledge, this was to show you that once you learn enough you can judge how safe you are against turmoil events. If you knew the sectors or companies or incomes of groups of companies you would of been able to re-shift your portfolio to not be as badly impacted. 

The Young Investor

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Which stocks are most at risk if Britain vote out!

Ultimately, if Britain votes to stay in the EU, it will be Business As Usual for the economy and the Stock Markets, with a notable positive swing. The Brexit debate a very strong influencer in the last few months and has caused investors to be wary of investing – Hence the market having no trend the last few months. 

Below are my thoughts about what will be impacted and how!

If Britain do leave the EU, it will be the Small and Mid Sized Stocks will take the hit (under £100mil market cap), and the FTSE 100 companies will be less impacted.

Let me explain:

Smaller companies tend to be focused domestically rather than internationally due to the increased costs and complications associated with moving products/services abroad, it means when they do try move internationally, there will be increased costs and complications of this, ultimately putting them off doing so. This dilemma has caused (in most cases) a drop in the Stock Price of the majority this year as investors pull out of companies that will lack growth moving forward. 

It will also impact sectors.

Auto manufacturers, agricultural sectors, clothing and fashion sectors will be impacted as increases in taxes, levy’s and a decrease in EU funding will impact the bottom line and slash profit.

I know this is grim reading, but dont panic, there is always smart choices in austerity. Let me flip the coin:

  1. the small to medium cap companies have already decreased in value due to the air of uncertainty. Theres bargains out there. Some companies have a cheap price on the stock exchange, so find one you like (if you need help with where to look, click here on my previous post which will assist I hope) and watch it fluctuate during the weeks before, and pick it up at a steal. 
  2. On the plus side, FTSE 100 companies won’t be impacted as much as you think. Aim your search with them. Around 70% of the revenue for the FTSE 100 comes from overseas, so ultimately it is not a measure of the UK economy, its a measure of the global economy. 

I hope this has helped you understand your options with Brexit approaching fast

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How can you beat the Market?

This should one of your aims as an investor. Beat what the market is doing and beat what the banks can offer you. Doing this as an entity and not via ETF’s and other funds is quite tricky. However, 3 simple decisions to increase your return.

If you have less than £500 to invest at once, I would not recommend buying shares. With commissions from £10 to £20 to buy and the same to tell you need to return over 4% to just cover that cost alone at £10 per trade. I would recommend a fund to invest in.

 Do not buy two stocks within the same sector until you have diversified. If that sector is hit with changes in legislation, tax, consumer demand, or more importantly, changes in confidence, it will have a detrimental impact in your portfolio

Do not panic buy or sell a stock on tips or articles you read. Do your research, understand the company. I received a tip off about a company called 88 Energy in an email from a friend who invests. It had risen from to 0.3 to 3.87, from February to the start of the week. That is a return of 1200%. He bought them at the start of the week and its dropped by 30% since then. I chose not to buy as my research showed me something different to his and I was not comfortable with the investment. If I had chosen to buy on a tip I received, my investment profit would have gone from a strong positive position to a negative one within 3 days.

 

The Young Investor 

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The Most Useful Stock Websites!!

Your one stop shop for portfolio management! This is a simple post but hopefully you find this useful. Please comment if you have any others you would like to discuss!

 

Google Finance

The first page I open each morning to look at my portfolio. You can set yours up very easily, just sign in to your google account and add each transaction. Gives your portfolio news, market news, great for stock screening, risers, fallers, volume movers etc. Take the news releases with a pinch of salt as these will be biased/sales techniques. Im a huge fan of the stock screeners. 

 Your Stock Buying Interface

Use the investment tools on it, and understand the costs involved in the website. I have both a Barclays Stockbrokers account and also an AJ Bell You-Invest as I really like the user-friendly format and the interfaces. 

ADVFN

I signed up to ADVFN Newsdesk and receive a report each morning and evening about each days movements and the reasons why. I fully recommend you look into this to understand movements, and reasons behind the movements.  Yes this is a day traders website, but at the same time, everything you need to know when it comes to analysing a stocks performance is either on this, or in the financial statements released quarterly. Takes a lot of time to get used to how backward it looks, but the information is valuable! It is worth plugging through a few hours of spare time to understand the website as it will save hours in the future!

Retuers

I browse this daily, concentrating on market trends, any news about my portfolio holdings and potential new stocks I am looking at. I find it really useful, straightforward and less biased than others.

Hargreaves Lansdown

Really easy interface for a proportion of research i need. Useful to see Director purchases as that is a good indication of the strength/weakness 

MSN finance

That is the app I use to monitor when I am out and about. Im a huge fan of this. Very useful, with nuggets of information which are straight to the point and perceivingly very neutral . Although the adverts are annoying, its worth plugging through and trying this website out.

Ex-Dividend-Date

Obvious what it is used for. Link with what you see on your google account and you could gain some insight into which stocks have dividend payment growths, and when the expected dividends are. I really like it!

 

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