Interactive Investor

Share Sleuth: three winners to trim, here’s how I decided which one to pick

Richard Beddard is looking to build the portfolio’s cash pile back up so he can use it when he finds opportunities. With three companies over-represented in the portfolio, he explains how he decided which one to trim.

7th March 2024 10:14

Richard Beddard from interactive investor

On what, under normal circumstances, would have been the last day of February, Wednesday 28, I sat down to decide a trade.

The decision to add more Focusrite shares last time, had left the coffers bare.

Dividends of £687 paid into the portfolio had only lifted the value of its molehill of cash from £44 to £731, which is insufficient to fund additions to the portfolio. That is because Share Sleuth’s minimum trade size was about £4,650.

The minimum trade size is set at 2.5% of the portfolio’s total value. Its purpose is to stop me from making trivial trades, which costs money and, more importantly in these days of low broker fees, takes time.

The Decision Engine gives me a precise ideal holding size for each share, but I will not trade shares unless the actual holding size deviates from the ideal by more than 2.5%. Neither will I add more shares if there is insufficient cash.

The decision would reduce or eliminate a holding, unless I decided to do nothing at all.

What I would have added

These were my thoughts on the shares I might have added, if Share Sleuth had had the money.

Had I not added more shares in Churchill China (LSE:CHH) as recently as November last year, I would almost surely have added more. It is the top-ranked share in the Decision Engine, with a near perfect score of 9.8/10.

In an update in January, the company reported that revenue for the year to December would be slightly lower than the record level it established in 2022, but Churchill China might still eke out a modest increase in profit.

Weak demand for tableware means it is unlikely to blow the lights out in 2024, but this is a high-quality business trading at, to my mind, a bargain valuation.

Among other highly ranked shares, Quartix Technologies (LSE:QTX) is excluded because I am unsure about the recent boardroom shenanigans, and I will be scoring its annual report next. Boardroom changes at the vehicle tracking firm that make me wonder about its strategic direction.

Elsewhere, Howden Joinery Group (LSE:HWDN) is already at its ideal holding size, and I added more Focusrite (LSE:TUNE) last month.

Macfarlane Group (LSE:MACF) and Oxford Instruments (LSE:OXIG)s would have been new additions. I am due to reappraise Macfarlane soon, and I want a chance to read the first annual report under the leadership of Oxford Instruments’ new chief executive before I make a move on that company.

I would probably have bought more Shares in Dewhurst Group (LSE:DWHT), the manufacturer of lift components. I scored it highly in January and the company seems to agree the shares are undervalued because it has started buying them back.

Although the buyback has lifted the shares somewhat, they remain far below perhaps my most fortuitously timed reduction in a holding ever:

Dewhurst has two classes of shares; DWHT (unbroken line) are ordinary shares, DWHA (broken line) are ‘A’ shares. The ‘A’ shares have all the same rights as the ordinaries except the right to vote at company meetings. Share Sleuth holds the ordinary shares. A ‘b’ on the chart indicates an addition to the portfolio, and an ‘s’ indicates a reduction in the portfolio’s holding. Past performance is not a guide to future performance.

What I reduced

The Decision Engine is telling me to reduce or eliminate three holdings. This is not because they are bad businesses, in fact they are all rather special. It is because advances in their share prices mean they are over-represented in the portfolio.

Tristel (LSE:TSTL) is in the frame because it is the portfolio’s lowest-ranked share, with a score of 5.5/10. Almost all of its low score (3.5 out of 4.5 marks deducted) is down to the fact that the market values the shares at 42 times normalised profit.

Because I have already reduced it twice, Share Sleuth’s Tristel holding is only 1.9% of the portfolio’s total value, which means the next reduction would eliminate it (because the minimum trade size is 2.5%).

The portfolio’s holdings in Bloomsbury Publishing (LSE:BMY) (score 5.8) and 4imprint Group (LSE:FOUR) (score 6.3) are both just over 5% of the portfolio's total value. That means I could reduce them and still be left with holdings worth more than 2.5% of the portfolio’s total value.

To my shame, I chose to reduce the Bloomsbury holding. It is slightly bigger than the 4Imprint holding, and sentiment prevents me from saying goodbye to Tristel even though I want to reduce the number of holdings in the portfolio!

Bloomsbury shares have risen strongly after the company reported that House of Flame and Shadow, the latest fantasy novel from Sarah J. Maas, was number one pretty much across the English language-speaking world.

The author is even eclipsing the company’s other licences to print money, Harry Potter and Bloomsbury Digital Resources (digitised multimedia collections for schools and universities).

It is a very impressive performance, and although I have never read Sarah J. Maas, I have enjoyed lots of books published by Bloomsbury.

Reducing holdings in winners is really hard, but I am compelled to keep investing in the highest-scoring shares. To do that, I must liberate money from the lowest scorers.

“b” indicates an addition to the portfolio and “s” a reduction in the holding. Past performance is not a guide to future performance.

This month’s trade

As usual, I slept on the decision. Then on Thursday 29 February (it’s a leap year!) I reduced the portfolio’s holding in Bloomsbury Publishing by 836 shares.

The actual price, quoted by a broker, was a shade over 557p, which raised £4,649 after deducting £10 in lieu of fees.

Share Sleuth performance

At the close on Friday 1 March, Share Sleuth was worth £185,486, 518% 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 £79,144, an increase of 164%.

Past performance is not a guide to future performance.

After the reduction in the Bloomsbury holding and dividends paid during the month from Cohort (LSE:CHRT), Dewhurst, Games Workshop Group (LSE:GAW), RWS Holdings (LSE:RWS), Solid State (LSE:SOLI) and Victrex (LSE:VCT), Share Sleuth’s cash pile is £5,380.

The minimum trade size, 2.5% of the portfolio’s value, is £4,675.

Share Sleuth

Cost (£)

Value (£)

Return (%)

Cash

5,380

Shares

180,098

Since 9 September 2009

30,000

185,478

518

Companies

Shares

Cost (£)

Value (£)

Return (%)

ANP

Anpario

1,124

4,057

2,585

-36

BMY

Bloomsbury

845

3,203

4,479

40

AMS

Advanced Medical Solutions

1,965

4,503

4,077

-9

BNZL

Bunzl

201

4,714

6,239

32

CHH

Churchill China

1,058

12,223

10,845

-11

CHRT

Cohort

1,600

3,747

8,480

126

CLBS

Celebrus

1,528

3,509

3,171

-10

DWHT

Dewhurst

532

1,754

4,988

184

FOUR

4Imprint

190

3,688

11,058

200

GAW

Games Workshop

100

4,571

9,500

108

GDWN

Goodwin

266

6,646

14,896

124

GRMN

Garmin

53

4,413

5,747

30

HWDN

Howden Joinery

2,020

12,718

17,093

34

JET2

Jet2

456

250

6,503

2,501

LTHM

James Latham

750

9,235

8,400

-9

PRV

Porvair

906

4,999

5,961

19

PZC

PZ Cussons

1,870

3,878

1,904

-51

QTX

Quartix

3,285

7,296

5,256

-28

RSW

Renishaw

234

6,227

10,174

63

RWS

RWS

2,790

9,199

5,781

-37

SOLI

Solid State

356

1,028

4,432

331

TET

Treatt

763

1,082

3,083

185

TFW

Thorpe (F W)

2,000

2,207

7,220

227

TSTL

Tristel

750

268

3,600

1,242

TUNE

Focusrite

2,020

14,128

8,282

-41

VCT

Victrex

292

6,432

3,787

-41

XPP

XP Power

240

4,589

2,558

-44

Notes
29 Feb 2024: Reduced Bloomsbury Publishing
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 £185,486 today
£30,000 invested in FTSE All-Share index tracker accumulation units would be worth £79,144 today
Objective: To beat the index tracker handsomely over five-year periods
Source: SharePad, close on Friday 1 March 2024.

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

Richard owns shares in all the shares in the Share Sleuth portfolio.

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

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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