Share Sleuth: the double trade that cleared my cash pile

This month’s trading day happened uncharacteristically early in the month on Thursday 13 June. It was prompted by greed, which is rarely a good thing!

On the day, the portfolio had a virtual cash balance of just over £10,000, enough to fund two trades of at least 2.5% of the portfolio’s total value - a lower limit I call the Minimum Trade Size (MTS). The MTS was a shade under £5,000.

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Additions

The decision to schedule my day of deliberation so early was prompted by scoring Churchill China (LSE:CHH), which I sent for publication the same day.

Due to a decline in its share price, Churchill China had been sitting at the top of the Decision Engine table for months. For much of that time I had been contemplating buying more shares even though this would breach one of my guidelines.

Source: SharePad. A ‘b’ indicates an addition to the portfolio’s holding.

The guideline requires me to avoid trading shares if I have traded them in the previous year or so. I last added Churchill China shares in November 2023, little more than six months ago.

The guideline protects me from overconfidence. But I had just re-evaluated Churchill China and it retained its high score. I felt the re-evaluation was my safeguard against overconfidence.

A better formulation of the guideline, the one I will use from now on, is that I should not trade a share that I have already traded since I last scored it (I score each share once a year).

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I had a second reason for wanting to add to the holding in Churchill China. The Share Sleuth portfolio is underweight most of the highly ranked shares and I feel a strong urge to redeploy money into them.

That is the logic of the Decision Engine. Shares at the top of the table are undervalued. Shares near the bottom are fairly valued and occasionally overvalued. Money needs to gradually flow from the bottom of the list to the top of the list to earn the best returns.

But I get ahead of myself. This was top of the table on Thursday:

Notes: Max trade = the trade required to make the value of the holding equal the ideal holding size, ihs = ideal holding size (see the link at the bottom of the article for how it is calculated), # shares = number of shares held in Share Sleuth, Value = value of holding, % = Value of holding as a percentage of the total value of the portfolio

To follow my chain of thought, we need to start with the Max trade column, which shows how much I would have to add to a holding or remove from it so that its size is equal to its ideal holding size. The ideal holding size is determined by the share’s score. The higher the score, the larger the holding up to a maximum of 10% of the total value of the portfolio.

To get top-ranked Churchill China to its ideal holding size, I would have to buy £7,517 worth of shares, which is more than the minimum trade size, and why the trade is lit up in green.

The next highest share that would not break my reformulated trading guideline was Dewhurst Group (LSE:DWHT), which predominantly makes and distributes lift components.

The Decision Engine would have us add up to £7,636 worth of Dewhurst shares.

I did not overthink the decision. The portfolio had enough cash to make two trades of £5,000 so I decided to add to both holdings.

Source: SharePad. A ‘b’ indicates an addition to the portfolio’s holding. An “s” indicates a reduction. Share Sleuth has held shares in Dewhurst continuously since the portfolio came into being in 2009.

The double trade would empty Share Sleuth’s treasury.

Reductions

Next month, my focus will turn to liberating cash from the bottom of the table to redeploy into table-topping shares. There is plenty of liberating to be done.

These were the holdings the Decision Engine wanted me to reduce in size, or liquidate (highlighted in red in the Max trade column):

Notes: Max trade = the trade required to make the value of the holding equal the ideal holding size, ihs = ideal holding size (see the link at the bottom of the article for how it is calculated), # shares = number of shares held in Share Sleuth, Value = value of holding, % = Value of holding as a percentage of the total value of the portfolio

With the exception of Goodwin (LSE:GDWN), which is a mini-manufacturing conglomerate, the scores of the shares are so low the ideal holding size is less than 2.5% of the value of the portfolio.

Such small holdings are not meaningful, and the Decision Engine is putting me in the agonising position of liquidating some of its hardest-working shares. They score low scores because of their high share prices, not because they are poor businesses.

I find it hard to imagine a portfolio without Bloomsbury Publishing (LSE:BMY), Garmin Ltd (NYSE:GRMN), Cohort (LSE:CHRT), or Solid State (LSE:SOLI).

That will be what I think about next month. It will be painful.

Double trade

Of course, I slept on my decisions. Then on Friday 14 June I added 437 shares in Churchill China.

The actual price, quoted by a broker, was 11.43p, which cost £5,005 after deducting £10 in lieu of fees.

I also added 406 shares in Dewhurst. There are two classes of Dewhurst share, the ordinary shares (DWHT) and the non-voting ‘A’ shares (DWHA). I added DWHT, but it is worth pointing out that the A shares generally trade at a discount and earn the same dividend, so the yield on the A’s will be higher.

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The actual price, quoted by a broker, was 12.29p, which cost £5,001 after deducting £10 in lieu of fees.

Both shares are illiquid, which means I experienced the pain of registering an immediate paper loss of 2% for the Churchill China trade and over 3% for Dewhurst.

I think in the distant future when I sell the shares, it will have been worth it.

Share Sleuth performance

At the close on Friday 28 June, Share Sleuth was worth £202,703, 576% more than the £30,000 of pretend money we started with in September 2009.

The same amount invested in accumulation units of a FTSE All-Share index tracking fund would be worth 85,968, an increase of 187%.

Past performance is not a guide to future performance.

After dividends paid during the month from Advanced Medical Solutions Group (LSE:AMS), Churchill China, Garmin, and Victrex (LSE:VCT), Share Sleuth has £416 in cash.

The minimum trade size, 2.5% of the portfolio’s value, is £5,068.

Notes
17 June: Added to Churchill China and Dewhurst
Costs include £10 broker fee, and 0.5% stamp duty where appropriate
Cash earns no interest
Dividends and sale proceeds are credited to the cash balance
£30,000 invested on 9 September 2009 would be worth £202,703 today
£30,000 invested in FTSE All-Share index tracker accumulation units would be worth £85,968 today
Objective: To beat the index tracker handsomely over five-year periods
Source: SharePad, close on Friday 28 June 2024.

Richard Beddard is a freelance contributor and not a direct employee of interactive investor.  

Richard owns shares in Churchill China and Dewhurst

See our guide to the Decision Engine and the Share Sleuth Portfolio for more information.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard