Back to 2003

Steady losses until end-August, then one on the chin in September, two to the body in October, and now I'm being kicked in November, Losing nearly 50% of my stock market funds in 2008 means that I'm back to where I was in 2003.

I suppose I could say that I got one prediction correct: that resources and commodities would be badly hit - they have been, but then just about everything has been badly hit.

All this carnage has occurred against the background of much insider buying, but this has seemed to be a misleading indicator throughout this year.

Let junk mail be your guide

After many years when my junk mail regularly included invitations to invest in property and become a property millionaire (strange how property millionaires are so willing take time out to give seminar talks to those who've not yet managed it?), these have now ceased, but been replaced by exhortations to invest in various commodity funds. Apparently retail investors have gone heavily into commodities/resources in the winter months of 2007/8. Well, I've reduced my allocations to these sectors because .....

Buying on the dips

In the context of a dire UK stock market - down 15% thus far - I seem to have escaped relatively lightly at minus 6%. This has been despite quite heavy allocation to financials. It's really difficult to understand why, but I've been helped by large rises in Dragon Oil, Kazakhmys (copper), Albidon (nickel and other metals) and a recovery in my largest holding, Character Toys.

Volatility has been incredible, but until today each bounce has been followed by a larger move down. Many comment that instead of "buying the dips" one should "sell the rallies". Despite the waves of experts' worries, I've been adding on the dips and only slightly trimming on rallies. We'll see if it works: certainly, I've got a higher stream of dividends due but who's going to get excited about a 5-6% annual return?

My reasoning for adding is that I've seen so much directors' buying of own company shares over recent months and in companies where I see compelling value: Cattles, Robert Walters (superb results). There were also heavy directors' purchases in HBOS after the dramatic plunge in its shares amid rumours of a liquidity crisis last Wednesday. Hearing the vehement denials from the bank itself and the poo-pooing of the rumours by the Bank of England, I purchased more HBOS immediately.

UK Housebuilders - a serious case of undervaluation?

Although prospects seem rather gloomy for UK housebuilders, with house prices already having suffered 2/3 months of falls, and recently rising costs of mortgages, including steep rises for those whose fixed-rate mortgages are terminating, the fall in share prices of UK housebuilders appeared to me way too steep. For example, Barratt Developments (BDEV) had fallen from a 2007 peak of 1174p to 320p. This lead me around 10 January to examine the latest data on assets, liabilities, and current market capitalisations, but using the tough criteria suggested by Benjamin Graham of comparing only gross current assets (ie ignoring non-current assets) with gross total liabilities. This gave a net current asset value (NCAV) of £1.88bn. The market capitalisation of BDEV at 320p = £1.11bn. That was good enough for me. I bought some BDEV at 325p on 10 Jan. Other housebuilders also had NCAV > market capitalisation - although not as dramatic - and I bought some Taylor Wimpey (TW) at 160p on Jan 15. Tonight BDEV closed at 477p and TW at 204.75p. Not surprising that directors in all the UK housebuilders have been actively buying shares in recent months.

2007: a difficult year

My first year of relative underperformance since 1998, down 8.7% compared to the FTSEAllShare's positive 5.5%. Partly explained by the bad time smaller companies have had on the UK market - the FTSESmallCos being down 9.9% - but much due to a too early rush into financials, including the doomed Northern Rock .... presumably their ex-directors who made heavy mid-summer purchases of shares in the summer must look upon 2007 as a year to forget.

I was also too optimistic about the direction of the market which not only ended the year rather flat, but promptly began to plunge steeply in the first weeks of 2008.