Tuesday, 12 March 2013

Portfolio Sale: Intermediate Capital Group (LSE:ICP)


It must rank as one of the more confusing stock market tickers: ICP - which you might assume was associated with the company ICAP (no relation, of course -  their ticker is instead IAP), while this company itself is marketed as ICG (or icg, if you want to be artistic). But maybe that's just me.

I bought this share just in August 2012 as a route into the financial world of the rich and famous...

Well I'm still neither of those yet - and as I have sold out I don't think I'll be rubbing shoulders with any of the Monte-Carlo-yacht-owning investors.

ICG is all about managing money and has two main parts:
  • An Investment Company, which invests the company's own funds (and borrowed money), structuring and providing mezzanine finance, leveraged credit and minority equity
  • A Funds Management Company, which manages three types of funds for 'over 200' third-party investors

And if you thought the mezzanine was the floor that the lift doesn't stop at, you are not alone. But I digress.

I'm not particularly proud about this sale. This was my second-largest dividend-share holding (after Persimmon). OK, I've made a near-40% profit in around eight months, as well as picking up 6.3p-worth of dividends (although that is not nearly enough for even a down payment on that Monte Carlo yacht). But why am I not holding on for longer? After all the yield is still just under 5%.

Why indeed? This is an interesting company that will probably continue to do well this year. The problem - as always - is with the investor.

The share price triggered my home-grown 'sell' indicator a few weeks ago: the capital gain exceeded 5 years' income (based on the current dividend). But because the yield was still respectable and the price trend seemed still positive, I tried to sit on my hands a bit longer.

However, having seen this kind of capital gain evaporate quickly before, I had taken to watching the share price trends daily. This is not a good approach to income investing - but I found it difficult to stop!

In the end it was an emotional decision as I couldn't stand the tension any more. 'Sell, and have done with it!', my inner investor cried out. But in the end, this says more about me than the company. You might call it: 'bird in the hand' syndrome.

So I'm not going to look at the price any more. Please don't tell me that it's gone up again.


[Sale price: £4.078]


I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

7 comments:

  1. I've recently done the same thing with some of my shares and built up the cash.
    The markets are running high and the capital gains by far outweighed the future dividends, I just could not help it!
    I have a smile on my face over the gains but Im still thinking have I done right!

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  2. Hi there, just interested but are you saying that once the capital gain has exceeded five years worth of equivalent dividend income, then you take this as a trigger to sell.

    thanks
    Matt

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    1. Hi Anon,

      More or less - we all have a tendency to grab a profit, so the '5-year's-income' rule slows me down a little. But I also look at the current yield and the price trend. Normally, high-yield shares do not leap up in price much, but capital gains can sometimes be banked like this.

      However, I don't usually sell on the reverse situation (i.e. a price fall), as I am usually content to wait for a recovery. This is called behavioural bias!

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    2. -- "the capital gain exceeded 5 years' income (based on the current dividend)." --

      I do the same sort of thing, though I almost never sell everything. Halifax has one day a month when you can buy/sell for 3.95. Provided the holding has increased a lot, I use these days to realize the profit, thus freeing up funds for other purchases and helping to keep the portfolio balanced.

      Didn't you make the same comments about bonds and pref shares a few years ago? e.g. if a bond has only 4 years to go till redemption, and the capital gain is worth 3 years coupons etc?

      Steve

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  3. I am still trying to get my head around the “when to sell an dividend share”

    http://www.the-diy-income-investor.com/2011/03/when-to-sell-dividend-share.html

    On face value I can see where you are coming from and I have revisited your blog several times to get a better understanding (and to see what else you can inspire to do) especially as we have some common holdings.

    I have updated my excel sheets to include this criteria and have noticed several shares now have a red sell signal and a few others are “amber” meaning they are close to achieving the sell status. Although currently I have not sold as I am still trying to buy more income shares but struggling to identify suitable candidates. This is partly due to the fact that the market has also risen generally so maybe I’m just lucky with my timing rather than a good stock picker.

    You did mention that generally speaking you are a buy and hold investor of shares and having done the hard work and found an “undervalued” share I would have thought that this would give you an increased margin of safety should the market in general fall and take all shares with it. Sometimes these kick in any stop losses only to rise back up again.

    I also note you mention that if the yield falls below your target around 3.5% that this is a factor in your sell decision. This yield would be at the current increased share price and that “your” yield would be based on the lower buy price that you paid. Hopefully the increase in share price might spur an increase in divi at some later date.

    Do you monitor how well your “trades” do ie if you had not swapped? If so how many times have you wished you stayed put?

    What if the price falls and the market doesn’t ie if you loose 5 years worth of income. You mention holding and collecting the divi even if its 30% down.

    I agree that if you can find a better value prospect it could prove beneficial to jump ship but that comes with, in my view an increase in risk. Your good share might slow down in the future but you would still be in positive territory and psychologically won’t be thinking you have to sell on a fall.

    Whereas a new holding that falls into negative territory might be more of a worry. Plus on some longer them holdings the “effective” divi yield can be much higher with the increases in the divi amount over time. (plus the saving on dealing costs.)

    Maybe you are better at finding better value alternatives and it’s nice to see you share your thoughts on your site when you do change.

    Gerry

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  4. Gerry - thanks for your comments.

    The problem we are all facing is *psycho*logical rather than purely logical. I use the 5-year-income rule to: a) hold off from selling too early (we all want to grab a profit) and b) my experience is that, with dividend shares, the price seems to turn around this price mark (but that might be me seeing something that isn't really there). There are many examples of *solid* dividend shares that go bad with little warning.

    I seem to have less problem with holding on to losers (as do most people) which is illogical but I can report that many of them do eventually 'come good'.

    I generally hold on if the security is yielding more than my portfolio average (5.7%)

    I haven't back-checked systematically - but I did look at Persimmon yesterday, which was touching the price I sold out at.

    My current focus is NG which touched 6.1 time income yesterday and has fallen today to 5.8 with a yield under 5%. Who thought it would drop?

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  5. I have now sold my ICP and intend to try and follow your advice. Now what to invest in? Base on your recent activity, ABG is still falling but unsure if they will maintain the divi but it must be approaching bargain territory unless they are doing a Northern Rock. BBY is rising (well done!) but Clln looks like it has fallen back and is a contender for a top up. I almost re-bought ICP as I "felt guilty" and they had dropped back. Maybe I'm becoming a day trader rather than an investor.

    I also have my 5 years "income" to spend!

    Now lets see how this pans out!

    Gerry

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