The Importance of Market Cap

A intrigued Friend asked me today what is the first thing I looked at when it comes to researching and understanding a stock. Without doubt I look at Market Capitalisation. Many will question why so here are my answers:

The size of the company is a bloody big factor in determining whether the shares suit me. Typically, if the stock is a large cap, it tends to have more stable revenue streams and less volatility in the market place. 

Mid and Small cap companies meanwhile have more fluctuations in their stock price and earnings typically down to only serving single areas of the market. 

Why is that important to me? 

I quite like a little volatility. Reason being, I invest in both short and long term. I have stocks in my portfolio I plan on keeping for decades (I hope) and there are certain stocks I am keeping my eye on, potentially looking to sell and take my earnings within the next 6 months to 2 years.

If the stock in question is a small to medium cap company £150 million to £1 billion I would look at the fluctuations and trends to purchase it on the cheap or on a drop for that week/month, and not invest as much as I would with Large Cap Stocks with an intention to take earnings and walk.

Whereas with the larger caps, I would look at the fluctuations and troughs with more caution and get to the root cause as to why. The large caps I would want to keep for a longer amount of time than the mid to small typically. 

Thats really a side point. The golden gem in the market cap is when you compare it to full year profit. 

Let’s look at Beazley PLC vs Hiscox: 

Beazley

£1822.8m market cap.

Full Year PBIT £184.1m.

Thus Market Cap is 9.9x PBIT

Hiscox

£2762.9m market cap.

Full Year PBIT £231.1m.

Thus Market Cap is 12x PBIT

This ratio determines how cheap to stock is comparatively to another. In this case, Beazleys profit against size of the company shows more value for money compared to Hiscox. This is just the first factor I look at when analysing stocks against each other. Not a be all and end all. 

And that is why Market Capitalisation is the first analysis I look at when interested in stock comparisons. 

The Young Investor 

 

 

 

 

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Free Customised Portfolio: Friday is the Deadline

Hi All,

Thank you for your update in providing me with information on yourselves for me to customise a portfolio for you. So far I have had a few to do so has kept me busy.

I didn’t actually give a deadline to you, so without wanting to give fake promises I have decided that Friday will be the deadline. If you want a specific individual portfolio to be created for you hypothetically, just read the Page “What about you? Tell me what you want”

All you need to do is answer a few questions in an email to me and Ill create a virtual portfolio for you free of charge.

Ciao!

The Young Investor 

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The Tesco Turnaround – A Milestone

Interesting find this morning, as I checked the share price of Tesco again, and have seen the latest rise of around 0.5% this morning. Meaning, so far, YTD Tesco’s stock price has increased by 25%. If you took my advice on Running with the Bulls a mere 24 days ago, you would of benefited from  a 15% return on that stock in 24 days. If you dont believe me…

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What makes this such an incredible turn around is that the markets are in a bearish state still. In the same period the FTSE is down 4.5%. Meaning a 30% difference in returns from Tesco against the markets. Pretty good indication that the belief in Tescos is coming back. 

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I have a slight regret, and that was not being bullish during the early January stages and buying more shares. But with a 25% return, I am happy my due diligence and my research was spot on for me not to sell Tesco in January when the markets started to drop. 

My prediction of March before it hits 160 again was way off! I’ll keep that to myself next time!  

Happy Friday

The Young (and cheerful) Investor

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Save First & Spend What’s Left!

Let me set the scene, I was at a bar with a few friends on a Sunday afternoon after a cracking 4-0 victory in the weekly football win, and being a gent, I bought the first round of the celebratory drinks when a comment came over my shoulder about the number of cards I have (whether it was debit or credit cards)

I have 2 credit cards, and 3 debit accounts, 2 ISA’s and a stock broking account with another bank  (There are plausible reasons as to why Credit Cards and Loans work wonders for certain people, and again why they should be avoided but thats another story)

This is the point I make about wealth management. It is not just how much money you have in your stocks and shares ISA. Its the combination of all your wealth and the cumulation of all your debts. 

I look month on month at my personal wealth, totalling the savings, the ISA’s, the credit debt, the bank loans, etc and see it from a holistic point of view. Its really the best way to look at whether you are growing or reaching your wealth. Even during the drop in the markets, my wealth has grown month on month. That is because my exposure in the market means even on a bad month ill still grow my savings, or reduce my debt rather than invest.

This can bring up some surprising results. I looked at my December wealth, and again in January (after a very expensive month for me!) and was surprised to see my wealth grow. I thought about this in a holistic way, my wealth grew because I paid off my credit card, made an over payment on a loan, and had some ad-hoc costs. Yes the ad-hoc costs did not do anything for my wealth, but the other two did. I thought it was a terrible month when it came to saving but in reality, the credit payment and the overpayment on a loan worked wonders for my overall Wealth Management. 

Paying off debt should be seen as a very good thing, even though it does not feel like it when you see the money come out our account. In reality its easy to forget that you owe X amount. Each payment you make reduces that and shouldn’t be seen as a waste. In reality you are improving your overall wealth. 

In many cases it is best to pay debt rather than take invest, yes its not making you money, but in reality, its improving your wealth…especially during volatile times. 

A simple concept but it is easily missed if you do not see the bigger picture. 

This should be your end goal, increase your wealth month on month.

Save first and spend whats left!

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The Perfectly Balanced Stock Portfolio

Neil Woodford is the man of the decade when it comes to hedge funds

The CF Woodford Equity Income Fund is one of the most impressive funds year on year for growth and stability, and has released the full list of companies he has invested in and the weight of each investment in the fund. His fund is very very popular, and often considered as the best Hedge Fund Manager of the past 10 years.

Lets Take a look at his Income fund top 10 holdings:

Imperial Tobacco 

AstraZenca

GlaxoSmithKline

British American Tobacco

BT

Roche

Legal & General

Reynolds American

Provident Financial

BAE Systems

In Summary:

  • 48.4% Of Total Portfolio in 10 Holdings
  • 3 Consumer Goods
  • 3 Healthcare
  • 2 Financials 
  • 1 Industrial
  • 1 Telecommunications

So If you are unsure what a balanced Stock portfolio is, or are looking at owning stocks in a balanced portfolio, look no further. Only 48% of the whole hedgefund is in 10 holdings. In those holdings, only 3 in Consumer Goods, and 3 in Healthcare. People make mistakes of investing in multiple businesses in the same sector, and only holding a few holdings. Diversification is the key!

The Young Investor

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Self Analysis is the best analysis

Analyse and understand yourself before you try understand the markets

A keen blogger who I follow and listen to religiously, gave me advice late on Saturday night about my blog. My advice could be valuable to certain people, but completely wrong for others. My intention for this blog is to give an insight into what choices I make when it comes investing my money, and improving my wealth. I have jumped past a vital part of my blog, and embarrassingly it has taken someone else to point out how little you know about me  (so thank you a certain blogger who pointed this out! – not naming any names but he has a bloody good blog to read). These are the questions I asked myself. Literally, wrote them down and answered them. 

  • What is my position in the investing world? 
  • Why Am I investing?
  • What is my goal?

Simple, 3 things:

  1. Grow my money and wealth above what I could get in a savings account in the UK
  2. Have a portfolio that I do not have to check religiously day in day out and monitor actively
  3. Have enough diversification to ensure any volatile market movements will not impact my portfolio enough to make me change my strategy

With my portfolio I believe I will outperform the FTSE when market growth is slow, but also when markets are in decline solely because of my diversification and the type of shares I have bought

My Advice: 

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Fill in something like this (click here for the questionnaire)

It will take you 10-20 minutes, and you’ll get a score, and relate that score to the following chart.

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Your portfolio should match your level of risk. My risk analysis on this questionnaire sits at balanced, which links to MY 7-8.5% target and their 7% target.

In a nutshell. Find your tolerance to risk and take it from there.

Happy Tuesday

The Young Investor

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Running with the bulls – Tesco Turnaround!

Why I am considering Tescos to be a Bullish Stock

Heck if Crispin Odey buys it, it must be doing something right!

For all who do not know the difference between a bullish and a bearish move,  A bullish stock is one that will rise and fall periodically, but every time the value peaks, it will be higher than the previous peak. 

“investors who do best in bull markets get in early when there are plenty of growth opportunities”

Why I am considering Tescos to be a Bullish Stock

That is what I believe Tescos to be. A growth opportunity. Lets look at Tesco’s against the FTSE since the turn on the year 

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15.5% Difference- Yes FTSE has endured a tough start to the year, every stock has felt the blunt reality of a poor market, yet Tescos has picked itself off the ground, dusted itself off and thrown a spanner into the works again in the supermarket sector. People wrote them off for 5 years- If you don’t believe me enjoy ( Article 1, Article 2)

Is the sky the limit with Tescos?

No its not. Honestly speaking, its still very very very early in the turn around in Tescos, but its still going in the right direction. Im not predicting a price of 300 anytime soon, but breaking into the 200’s is a very plausible happening by Q2. 

My advice, throw some money into the pot with Tescos and run with the bulls…

The Young Investor

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