Thursday, 27 October 2016

Buying And Selling

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Source

The rapid devaluation of the Pound, following the Brexit vote, boosted the value (in Pounds) of the DIY Income Investor portfolio. That seemed like a market over-reaction to me: and it seems like the currency market is now reappraising Sterling following statements by the Bank of England.

The Pound goes back up and the London Stock Exchange goes back down.Do these fluctuations in currency value offer an opportunity to take quick profits?

I have to admit that the DIY Income Investor approach, for all its buying and selling rules, is basically an opportunist approach. It is ultimately based on the idea that the market over-reacts and - with a bit of luck and application - small investors can take advantage of this to make some money.

The Buy

Having some cash to invest, the currency situation seemed to indicate the need to buy something UK-based. As always, I'm looking for an attractive yield (indicating that the market has doubts) but also some evidence that the income stream I am buying (from dividends or bond interest) is reasonably secure. 

Interserve (IRV) - new to me - looked like just the job: a forward yield of around 7% and dividend cover of 2.5 plus a diversified business. The yield is high because the share price fell significantly earlier in the year (I missed getting in on the ground floor).

According to its website, Interserve is 'one of the world’s foremost support services and construction companies', headquartered in the UK and trading in 40 countries worldwide, with 'gross revenues of £3.6 billion and a workforce of circa 80,000 people'. Despite this international appearance, the bulk of income and profit is generated in the UK.

The 2016 Half-Year Results document outlines the problem that caused the recent price fall: 'We are taking action to exit the Energy from Waste sector. Our assessment of the aggregate impact of exiting this sector is in line with the £70 million exceptional charge we announced in May.' 

But also these encouraging words (particularly for an Income Investor - my emphasis): 'Despite the increased political and macro-economic uncertainty following the UK’s EU referendum, our outlook for the current year remains unchanged. This, together with our significantly improved cash flow and healthy future workload, underpins the Board’s confidence in our prospects and a further increase in the interim dividend.'

Cash flow and debt were good; however there was a negative eps in the half-year, hopefully a temporary aberration.We'll see.

[Buy price: £3.40]

The Sell

Following the recent spurt in the share price of Asia Pacific (APF), the market seems to be trading sideways. I decided to lock in some profits by selling some more. This sale is possibly premature - but I was concerned about holding so much of this single security in an uncertain and confused market; I still have a sizeable chunk.

[Sell price: £1.2235]


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.

6 comments:

  1. I thought you were an income investor. Are you not veering to the dark side (speculative trading)? (ha, ha) :)

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    1. :-) Speculation while earning income!

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  2. I would be interested in your thoughts on hedging the £ currency risks for a portfolio. Now the £ is at historic lows I am concerned the current £ currency gains could reverse over the next 5 years wiping out any gains frown overseas equity prices.

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    1. Exactly. At the moment I'm taking profits in non-Sterling income and investing in Sterling income.

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  3. AH! I see an example of the law of Sod in action this morning. Selling price for APF has gone to 126 - could it be that this is the spike you were waiting for in recent times? Who knows!

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