Interactive Investor

Shares for the future: everything you need to know

30th April 2021 14:00

Richard Beddard from interactive investor

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Our columnist ranks 39 shares and answers questions about his Share Sleuth portfolio and Decision Engine.

Since the early days of the web “frequently asked questions” pages have been a regular feature on websites, so regular they are a bit of a cliché. I sometimes wonder whether the questions have ever been asked and often suspect the page is there just in case.

Whenever I write about the Decision Engine and the Share Sleuth portfolio though, I am greeted with a flurry of emails from readers, many of whom have stumbled upon them for the first time.

What follows is a Share Sleuth and Decision Engine FAQ. You can rest assured the questions have been asked frequently and I have replied to all of them by email (my email address is at the bottom of the page, should you have any more questions).

We are starting with Share Sleuth because it came into being before the Decision Engine, and because the Decision Engine is a servant of the Share Sleuth portfolio.

What is Share Sleuth?

Share Sleuth is a model portfolio run by me, Richard Beddard, a private investor and freelance financial writer. No money is invested in it, although I account for stamp duty, fees and dividends so its performance is as accurate as I can make it.

The portfolio grew out of a column I used to write for Money Observer magazine and it made its debut in the October edition of 2009. I added the first four shares to the portfolio on 9 September 2009. When Money Observer ceased publication in 2020, Share Sleuth moved to interactive investor where I continue to write a monthly update.

From the beginning, the aim of the portfolio has been to invest in UK businesses at reasonable prices that can sustain profitability and grow indefinitely. Somewhere along the line I decided my indefinite aspiration meant 10 years or more.

What is the Decision Engine?

The Decision Engine is the list of shares I am currently following. It includes all the shares in the Share Sleuth portfolio and shares that might join it, a menu from which I can select stocks for portfolios.

The list is ranked using scores assigned to each share so the most desirable long-term investments, the ones with the highest scores, are at the top of the list. If my analysis is right, it shows us which shares are the best candidates for investment now.

The Decision Engine guides my trades in the Share Sleuth portfolio. The goal is to weight the portfolio so holdings in shares at the top of the list are bigger than holdings in the shares lower down.

As a rough rule of thumb, I think of shares that score seven or more out of 9 as good value, and shares that score 5 to 7 as fairly priced. Shares that score less than 5 are more likely to be pricey.

We publish the full list of shares once a month.

How do you score shares?

In addition to the monthly Share Sleuth and Decision Engine updates, there is a third article I write most weeks in which I score one or two shares.

The shares are scored according to five criteria:

  1. Profitability: Does the business make good money?
  2. Risks: What could stop it growing profitably?
  3. Strategy: How does its strategy address the risks?
  4. Fairness: Will we all benefit?
  5. Price: Is the share price low relative to profit?

The first four criteria are scored from 0 to 2. The fifth is scored from -2 to 1. Cheap looking shares get a little boost of up to 1 point, but expensive looking shares are penalised by up to 2 points. The maximum score for any share is 9.

The first four criteria are judgements I typically make only once a year. I read the company’s annual report, watch presentations, ask questions of management, attend AGMs, and award the scores. You can see the result in company write ups like this one. They all finish with a summary showing my score for each criterion, and three significant reasons for each score.

The fifth criterion, price, depends on a souped-up version of the price earnings ratio, which I have written up in detail. It is updated every time we publish the Decision Engine.

Where can I find the latest company write-ups, Share Sleuth updates and Decision Engine tables?

All my articles are collected on my interactive investor author page. Share Sleuth is published in the week of the first Tuesday of the month and the headline usually contains the prefix “Share Sleuth”. The Decision Engine is published on the Friday before Share Sleuth, around the turn of the month and it is usually headlined “Shares for the future”.

My articles are also included in interactive investor’s daily newsletter.

Can I copy your trades/portfolio?

Since we publish the constituents of the portfolio and report trades every month, technically it is possible to copy Share Sleuth. You will not trade at the same prices as I do because I may have traded at any point in the preceding month, but short-term movements in share prices are unlikely to contribute much to the returns that will be generated from the portfolio over the long-term.

However, as per the disclaimer at the bottom of my articles, they are for information only. We do not recommend you copy Share Sleuth or buy or sell the shares I rank in the Decision Engine, without first making sure they are suitable investments for you.

A substantial proportion of my mailbag is from investors considering buying the Share Sleuth portfolio or the top 10 or 20 shares listed in the Decision Engine indiscriminately.

If this seems like a good idea, I need to tell you a little about Share Sleuth’s history and how I invest my own money. In aggregate the Share Sleuth portfolio has done well but the aggregate hides many sins. It includes one share (Metalrax) that went bust while I held it. Others have lost the portfolio money.

Occasionally, the Share Sleuth portfolio has performed badly. During the crash in March 2020 in the early days of the coronavirus pandemic, its value fell slightly more than the stock market average. History, so far,  shows that giving up on it then would have been a big mistake, but you may not have felt that at the time. I certainly felt a bit wobbly.

The Decision Engine urges me to be rigorous and transparent but I do not always add shares that are ranked favourably to the Share Sleuth portfolio, or when I am investing my own money. That may be because I already own similar shares, or it may be because of a nagging feeling that my verdict is wrong.

At the time of writing I own all of the shares in the Share Sleuth portfolio, but I also put my faith in fund managers. I have two main reasons for diversifying this way: To invest in foreign companies, and in case my approach turns out less well than I expect.

In other words, I think about my fallibility and, if you take what I write seriously, so should you.

Decision Engine update

Here is the Decision Engine table for May 2021*. Click on the company names to see how I scored them.

Name

Description

Score

Goodwin

Casts and machines steel. Processes minerals for casting jewellery, tyres

8

Dewhurst

Manufactures pushbuttons and other components for lifts and ATMs

8

Victrex

Manufactures PEEK, a tough, light and easy to manipulate polymer

8

XP Power

Manufactures power adapters for industrial and healthcare equipment

7

Cohort

Manufactures military tech. Does research and consultancy

7

Porvair

Manufactures filters and filtration systems for fluids and molten metals

7

Judges Scientific

Acquires and operates small scientific instrument manufacturers

7

Next

Retails clothes and homewares

7

Howden Joinery

Supplies kitchens to small builders

7

Bunzl

Distributes essential everyday items consumed by organisations

7

James Latham

Imports and distributes timber and timber products

7

PZ Cussons

Manufactures personal care and beauty brands

6

Quartix

Supplies vehicle tracking systems to small fleets and insurers

6

Games Workshop

Manufactures/retails Warhammer models, licenses stories/characters

6

FW Thorpe

Makes light fittings for commercial and public buildings, roads, and tunnels

6

D4t4

Develops and integrates Customer Data Platforms

6

Anpario

Manufactures natural animal feed additives

6

Solid State

Manufactures rugged computers, battery packs, radios. Distributes electronics

6

RM

Supplies schools with equipment and IT, and exam boards with e-marking

6

James Halstead

Manufactures vinyl flooring for commercial and public spaces

6

4Imprint

Sells promotional materials like branded mugs and tee shirts direct

6

Trifast

Manufactures and distributes nuts and bolts, screws, and rivets

6

Tracsis

Supplies software and services to the transport industry

6

Churchill China

Manufactures tableware for restaurants and eateries

6

RWS

Translates documents and localises software and content for businesses

5

Renishaw

Whiz bang manufacturer of automated machine tools and robots

5

Softcat

Sells hardware and software to businesses and the public sector

5

Jet2

Flies holidaymakers to Europe, sells package holidays

5

Tristel

Manufactures disinfectants for simple medical instruments and surfaces

5

DotDigital

Develops marketing automation software

5

Treatt

Sources, processes and develops flavours esp. for soft drinks

5

Focusrite

Designs recording equipment, loudspeakers, and instruments for musicians

5

Volex

Manufactures connectivity components and power cord

5

James Cropper

Manufactures specialist paper, packaging and high-tech materials

5

Castings

Casts and machines parts for vans and trucks, primarily

5

Portmeirion

Designs and manufactures tableware, candles and reed diffusers

5

Bloomsbury Publishing

Publishes books and online resources for academics and professionals

5

Hollywood Bowl

Operates tenpin bowling centres

5

Avon Rubber

Manufactures respiratory protection equipment and body armour

4

A Share Sleuth update will follow next week.

*If you are reading this article after May 2021, there will be more recent updates. You can find them on my author page.

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

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.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.

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