The Tide is Coming In…. For Now
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The Tide is Coming In…. For Now
I have bought some shares this week and yet I still believe we’re in for a major bear market. I admit this seems nonsensical. This is my thinking, in an analogous form.
Imagine you are a surfer on a beach where the tide is coming in. Slowly, over several hours the waves gently roll higher and higher up the beach.
This is where we are at the moment.
We’ve just experienced the 4th hour of approximately 12 hours of incoming tide. In other words, the momentum is with the tide coming in, there’s little point fighting it, trend is your friend.
Oddly just before the tide started coming in, it went was out a very long way, a lot further than is the norm. So when it started coming back in, you soon realised it was going to be a good long surf. In fact it will probably be a lot better than you realise.
In fact it will be so good you won’t want to get out of the water but you know the tide is going to turn. Also based on the size of the previous tidal retreat it may be bigger than normal, so there will be little point staying in the water.
If we approximate hours with weeks then I believe we have around 8 weeks left before we start to see the tide going out and this time the sea will go out a lot further than we thought was possible.
On this week’s podcast I spoke to Russell Napier, author of, “Anatomy of the Bear – Lessons from Wall Street’s four great bottoms”
He began his career in investment at Baillie Gifford in Edinburgh, before joining CLSA as an Asian equity strategist in Hong Kong. He was ranked No.1 for Asian strategy in both the Asiamoney and Institutional Investor polls from 1997 to 1999.
If there was ever an expert on bear markets, he’s one and he believes we’re in for a biggie!
How to Profit from a Falling Market
Having said that there is a way to profit from a falling market or to hedge against it. I’ve done it once and I used an ETF (exchange traded fund) call the ETFS FTSE 100® Super Short Strategy (Daily 2x) – ticker code SUK2.
It’s times two, which means if the FTSE falls 1 point you’re 2 up.
It’s quite popular at the moment as you can see below. In fact it’s the 2nd most popular ETF as of Week ending 19/02/2016 via Barclays Stockbrokers.
(click to enlarge)
You can find an ETF that covers pretty much anything, from indices, to commodities, to market segments, to countries. In the past I’ve bought ETF’s on the Russian and Japanese markets (and did quite well).
Even though EFT’s are traded exactly like shares, you should do a little bit of research on them before you jump in. This video is worth looking at.
Here’s My Portfolio as of 4th March 2016
Andalas Energy (ADL) formerly CEB Resources – HOLD
At present this company is suspended from trading whilst they acquire assets. I will decide what to do with this stock once they finalise this process and the shares start trading again.
Advanced Oncotherapy (AVO) – Hold. Currently 21% down.
This company is at the cutting edge of cancer treatment in the field of proton beam therapy. The Company remains on schedule in its technology development to have its LIGHT proton therapy system ready for patient treatment in London’s renowned Harley Street in 2017.
Asiament Resources (ARS) – Hold. Currently 13% down
This is a play on the recovery of copper and it’s headed up by a management team who have multi-bagged before. To read a blog post about Asiament click here
Ascent Resources (AST) – Hold. Currently up 5%.
Ascent Resources have a gas field at Petišovci in Slovenia that has 456 bcf of gas. They will be start gas production in Q4 of this year but are expected to be awarded a IPPC certificate from the Slovenian government, which will all them to sell this gas, in March. They are expected to produce between €1-2m worth of gas a month up to an expected €200m.
The only cloud on the horizon is their debt which stands at €12m but this will be paid down as soon as gas production starts and at a market cap of just £1.5m, I see a bit of upside.
AudioBoom (BOOM) – Hold. Currently up 33%.
I believe audio digital listening will be a new trend and audioBoom are well placed to profit from this. Having said that they need to start proving that this year via their revenue generation.
Glenwick (GWIK) – Hold. Currently up 8%.
In November 2015, Glenwick plc emerged following the restructuring and change of name from Treveria Plc, formerly an AIM quoted property investment company. Fresh funding was sourced to enable Glenwick plc to continue as an AIM company.
The Company will seek to acquire companies within the natural resources sector. Initially the geographical focus will be Australasia and North America but may also consider other regions to the extent that the Board considers that valuable opportunities exist and positive returns can be achieved.
Non Executive Chairman is Cameron Pearce who has extensive professional experience in the financial services industry in both Australia and the United Kingdom. He is also the person who brought Andalas Energy (formerly CEB) to market.
Hague and London Oil (HNL) – HOLD but will Sell. Currently 30% down
I understand the assets are excellent and the management experienced but I hold enough energy stocks already and so one has to go. HNL haven’t revealed any news for a while and the lack of communication has de-motivated me. I’m sitting on around a 50% loss so I’ll await a rally to sell into it.
ImmuPharma (IMM) – HOLD. Currently 9% up.
ImmuPharma is a pharmaceutical development company. ImmuPharma has five drug candidates in development, two platform technologies and approximately 70 patents. Lupuzor ™ is the company’s most advanced drug candidate and is a treatment for lupus, and life threatening auto-immune disease.
They have full rights to Lupuzor and with £8m in cash are fully funded to take Lupuzor on to become a blockbuster drug ie it has potential to generate sales of $1bn per year (mcap £21m) in 2017. At the moment it’s in Phase III of clinical studies, the most advanced phase before commercialization.
To hear an interview with the Chairman Tim McCarthy click here and scroll into 11 minutes 20 seconds.
Koovs (KOOV) – Hold. Currently 5% down.
They have to raise a lot of money to achieve their goal but their management is first class and their market cap is equivalent to their last quarter’s revenue.
To read my blog post about Koovs click here
Metal Tiger (MTR) – Hold. Currently 28% up.
Metal Tiger are an excellent play on the recovery of the resources sector. They have numerous interests in many assets and resource based investments across numerous continents.
Motif Bio (MTFB) – Hold. Currently up 3%.
Motif is a clinical stage biopharmaceutical company which specializes in developing novel antibiotics.
This is a serious situation as antibiotics are becoming less effective against bacteria. Antibiotic-resistant infections, such as MRSA, sicken at least 2 million Americans each year and kill 23,000. Compounding the crisis is that drugmakers are spending less time and money creating new antibiotics even as more bacteria are becoming resistant to the older drugs.
MTFB raised £22 million at 50 pence per share last July. The share price is 43.5p and at a market cap of £48m are way undervalued compared to their American counterparts.
U.S. company Paratek Pharma is at the similar stage in the clinical process. Yet Paratek, is valued at five times more than Motif at US$290mln. This is why MTFB are currently looking into a NASDAQ listing.
PCG Entertainment (PCGE) – Hold. Currently 7% down.
Global stock markets have largely sold off on the threat of the Chinese economy slowing down. However a sector of the Chinese economy that isn’t slowing down is gaming and gambling. PCGE are involved in this explosive sector and their current quarterly profits doubled the previous quarters. Add to this the fact that the management have proven experience in growing small companies and the results is quite an exciting prospect.
To listen to a podcast with the Executive Chairman, Richard Poulden click here
Paragon Entertainment (PEL) – HOLD. Currently 23% down.
This year will probably be one of their best.
• Underlying profit before tax increased by 34% to £637.8m (2014: £475.0m)
• Full year revenue up 13% to £2.9bn (2014: £2.6bn)
• Operating margin increased to 21.9% (2014: 18.4%); with second half improvement to 23.0%
• 24% increase in cash generation pre capital returns to £483m (2014: £388m)
• Return on average capital employed* increased by 30% to 32.1% (2014: 24.6%)
• Net cash of £570.4m at 31 December 2015 (2014: £378.4m)
• Forward sales ahead at £1.68bn (2015: £1.49bn), an increase of 12%
Royal Dutch Shell (RDSB) – HOLD. Currently 5% down.
This is by far my biggest holding. In fact, I normally wouldn’t expose myself to this extent but I see this downturn in the oil price as an abnormal situation worth taking advantage of. I’m around 10% down on this purchase but they also pay around an 8% dividend, which I re-invest.
Senterra Energy (SEN) – Hold. Currently up 10%.
This is a cash shell listed on the main market. The market cap is £1.1m and the company has cash of around £1m. The last placing was at 5p, I bought at 3.99p. The management initial intention was to undertake a single Acquisition of a target company or business in the oil and gas sector. Having said that a recent update suggested the maybe looking at other sectors.
“The Board believes that there are some potentially attractive businesses and technologies amongst these proposals and it will seek to apply similar principles and disciplines of corporate governance to the assessment of these opportunities as it is doing so for its discussions for any potential acquisitions in the energy sector”.
I talk about Senterra Energy on the podcast. You can listen to that by clicking here.
Upland Resources (UPL) – Hold. Currently 13% up.
I recently interviewed the CEO of Upland resources, Dr Stephen Staley and was impressed with his rigorous process in finding financially viable projects. Add to this, the fact that he’s been instrumental in taking Cove Energy from £2m to £1.2bn and also in finding the Alaskan assets for current stock of the day 88 Energy and I think it creates an exciting project.
To listen to the podcast featuring Dr Steven Staley click here
Vast Resources – Hold. Currently up 4%.
Vast Resources has operations in Romania and Zimbabwe. Manaila Polymetallic Mine in Romania commissioned on 14 August 2015 and the Pickstone-Peerless Gold Mine in Zimbabwe was commissioned on 20 August 2015. They achieved break-even status at both mines within first production quarter. Production ramping up at both mines – target of 20,000 tonnes at each site by end of H1 2016
There has been a big sell off in Vast this week, overly so and so I’ve decided to buy some on hope of a rebound.
I understand I still have one too many stocks in the small cap sector so a few will have to go. This decision will be dependent on their performance in the forthcoming months.
The Punt Stocks
I think it’s important to have fun whilst investing and sometimes I’ll just go with a bit of research and instinct if I think I can see potential upside. I will not let exposure to this sector go above 5% of my portfolio. I currently have two punt stocks.
Atlas Development and Support Services (ADSS) – Currently down 56%
This is company is undergoing a major change in focus from a Kenyan oil and gas support service company to creating a bottling plant in Ethiopia. It’s the second stock in My One Million Pound Penny Stock Punt Experiment.
Independent Resources (IRG) – SOLD
I originally held this company and sold for a little profit as I wanted to reduce the number of resources stocks I held. Luckily and it was pure luck I sold out before they issued a revenue and capital warning which saw the stock drop by around 80%!
They need to raise funds otherwise it’s lights off. For some reason I jumped back in at 0.1p. thinking they maybe on the verge of announcing a lifeline had been secured. I’m still waiting but should they secure funding this will rally a break neck speed.
I sold this company in the week for a 15% profit.
I currently hold around 50% in cash.
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