Record keeping

Record keeping

A necessity, if you want to keep track of the performance of your investments and as an aid to making sure your tax affairs are in order for stocks outside of an ISA or SIPP.

1. A simple spreadsheet detailing investments that you hold is the first requirement: 

Investment	Purchase Date	Holding	Unit cost P	Cost £	Unit price P
ABC plc (AB)	19 Sept 2012	1000	750	7500	850

 

 The “unit cost” would be the formula (“Cost £”/”holding”)x100.  The next columns will be:

Price £	Gain/Loss £	Gain/Loss %	Portfolio %	Stop Loss	Action
8487.50	987.50	12.5%	8.5%	720	Hold

 

The Price column would be (“Unit price”/100 x “Holding”) - £12.50; the £12.50 would be, for example, dealing cost if you sold.  The others should be self explanatory, the “Portfolio %” has assumed that the total of all your investments are say £100,000.  The “Stop Loss” is set initially at 80% of the cost and is moved up as the price moves up (it never moves down), so ABC plc had been at 900p at some time.  I do not use automatic stop losses, where my broker will sell if my investment hits a particular price, but as an aid to review. 

2. In addition to this individual record keeping, you will want to know how you are performing in total over the years, allowing for additions and withdrawals of cash.  Here we use the unit based method:

Date	Portfolio value £	Units	Unit price	Monthly inc/dec %	Annual inc/dec %
31.05.12	90,000.00	80,000.00	1.125	2.5%	12.5%
30.06.12	95,000.00	80,000.00	1.1875	5.56%	15.00%
10.07.12	5,000.00	84,210.53	1.1875
31.07.12	102,000.00	84,210.53	1.2112	2.00%	16.5%

This spreadsheet will show in the second column the total of the “price £” column from the previous spreadsheet.  The third column starts with the amount that was first allocated to your portfolio, in this case £80,000, but it is shown as units.  The “Unit price” is just the formula “Portfolio value £” / “Units”, so each of the 80,000 units were worth 1.000 on day 1, but now have a higher value of 1.1875 on 30.06.12 as the portfolio has increased. 

On 10.07.12 we add £5,000.00 in cash to the portfolio, the number of units added is £5000.00/1.1875 = 4,210.53 units.  On the 31.07.12 the value of the portfolio increases to £102,000 and the unit price is 1.2112 being 102,000/84,210.53. 

The monthly and annual inc/dec columns are calculated by dividing the unit price for the current month by the unit price for the previous month or year respectively. For example the monthly gain of 2.00% on 31.07.12 is (1.2112/1.1875) – 1.

This unit method of calculation allows for funds to be added or withdrawn from the portfolio while still keeping a check on the performance, obviously if the £5,000.00 was being withdrawn above then 4,210.53 units would be deducted to give 75789.47 units.  If dividends are reinvested, then on the payment dates they need to be treated in the same way as the £5,000.00 cash that was added above.  If dividends are not reinvested, then there is no need to account for them within this record.

The unit price will tell you what the all time gain or loss is.  In the example above, the all time gain is 21.12%.  The nth root, where n is the number of years invested in total, will give you the compound annual growth rate (CAGR) of your portfolio.  So in the case above if the portfolio had been running since 1.08.10, then the 2 year CAGR of the portfolio is (2√1.2112)-1 = 10.05%.

You can also benchmark your results above against a relevant index, such as the FTSE All-share, to provide a relative as well as an absolute performance.

3. You may also want to individually or/and collectively calculate the internal rate of return (IRR) you are achieving on your investments, including the dividend element.

XYZ plc
05-Feb-07	(149,067.06)	75000
13-Jun-07	1,950.00
23-Jan-08	2,175.00
19-Jun-08	2,100.00	7.7%
29-Jan-09	2,250.00	3.4%
18-Jun-09	2,100.00	0.0%
28-Jan-10	2,400.00	6.7%
01-Jul-10	2,400.00	14.3%
27-Jan-11	2,850.00	18.8%
16-Jun-11	2,850.00	18.8%
03-Jan-12	54,262.05	25000
27-Jan-12	3,900.00	36.8%
27-Mar-12	32,987.18	12500
18-Jun-12	1,650.00	15.8%
25-Jan-13	2,662.50	36.5%
08-May-13	172,233.08
IRR	12.8%

   

The above spreadsheet shows a company XYZ plc where a purchase was made on 5 February 2007 of 75000 shares for £149,067.06.  The smaller amounts in January and June each year are the dividends received and the amounts in green the percentage increase over the previous year.  The two large amounts in January 12 and March 12 signify sales of those shares.  So on 8 May 2013 37500 shares were held at a value of £172,233.08 representing an internal rate of return of 12.8% pa.  The IRR is calculated using excel’s XIRR function. 

This is an example where dividends are not reinvested, if you reinvest any of the dividends, show them on the date of reinvestment as a negative and the number of shares purchased.  In the same way, if you buy additional shares show the purchase as a negative on the date they are purchased along with the number of shares bought.

You can obviously do this for each share, but also for your portfolio in total, by showing the cash flows in and out of your portfolio in the same way.

4. Finally you should keep a record of major announcements made – prelims, interims, IMS, acquisitions, disposals, major contracts etc.

Here the objective is to précis within 4-10 lines the main points of the announcement. Especially identify the information that is price sensitive, being potentially value accretive or destructive (I tend to colour the negative points in red, making it easy to identify).  This process will ensure that you read the key announcements and assimilate the important points.  Add any personal comments, but do identify it by colour or italics, so that later you know they are yours not the company’s comments.

So you will then have a chronological list in short form, of all of your investments’ major announcements that take a very short time to review, rather than ploughing through the official data. After a time the colour coding of negative statements will also give you a good visual of the trends in the business.

Once a quarter you should review all your holdings, comparing their current state to the filters that you used to select the investments. This will identify whether the holding is still a value enhancing investment. You should seriously reconsider the status of a holding that no longer meets two or more of your filters.  Make a note in this record of the results of the review and your decision – hold, accumulate, partial sale, full sale.   

IMI IMS

IMI is a global engineering group focused on the precise control and movement of fluids in critical applications and comprises five platform businesses - Severe Service, Fluid Power, Indoor Climate, Beverage Dispense & Merchandising. I have a holding in my income portfolio (epic code: IMI)

IMI issued an interim management statement informing the market that trading in the first four months of the year has been in line with management expectations conveyed at the time of their preliminary results. Group revenues though in the first four months to April were down 1% on a reported basis and 3% on an organic basis. A contributor to this decline was commercial vehicle revenues in their Fluid Power division which were down 11% year to date, with European and North American markets weak as customers adjusted stock levels down in the first quarter.

 

They reconfirmed their intention to divest the majority of the Merchandising division and have started the process. This part of the group represents about 8% in terms of turnover, although some beverage activities have been transferred to the Beverage Dispensing division.  I would expect that any sale might generate around £250m; at the December year end they had net debt of £117m and have embarked on a £175m share buy-back programme (not attractive with a P/BV above 6). So I would expect either a special dividend from the proceeds or an increase in the share buy-back programme.

 

Finally, based on current market conditions, the board remains confident that they will deliver progress over the full year in 2013.

 

 

 

Anite is a global provider of hardware and software solutions, systems integration and managed services within its core markets of Wireless and Travel. I have a holding in my growth portfolio (epic code: AIE).

 

Anite issued an interim management statement that probably surprised the market, stating that trading in the final quarter was strong, this was slightly ahead of that predicted at the time of their 3rd quarter IMS.

As a result of this stong performance they expect adjusted profit before tax for the full year will be towards the top end of market expectations. Although revenue will be slightly below market expectations, this is compensated by margins in the final quarter being strong across all their businesses, continuing the positive trends seen in the first half of the year. 

So the third quarter, with weak order intake, was a short-term issue and has not ,as some expected, affected the full year results.

Anite's Wireless businesses operate in the high margin niche sectors of handset and network testing, with strong growth potential. They appear to have technological and market leadership in markets with high barriers to entry. I feel less convinced by the travel systems business which with sales of £20.1m last year represented 16.4% of the group.

Anite clear all the hurdles for my growth screen with the exception of the 1 year relative strength, caused by the cautionary 3rd qtr IMS. Following this statement in March the SP fell by about 25% over the next few weeks. A good example of why one should still keep a watch on companies that fail on the 1 year relative strength filter, for any uplift or reversal in fortunes, or if indeed there is no fundamental reason for the underperformance relative to the market. Markets do tend to over react to both potentially good and bad news.  

 

 

 

 

Shell investment

Royal Dutch Shell a global group of energy and petrochemical companies. I have a holding in my income portfolio (epic code: RDSB)

Shell has announced that it plans to proceed with an investment in the Stones ultra-deepwater oil and natural gas project in the Gulf of Mexico.

The development is expected to host the deepest production facility in the world. This first phase of development is expected to have annual peak production of 50,000 boe/d from more than 250m boe of recoverable resources. The Stones field, of which Shell is the sole owner, has significant upside potential and is estimated to contain over 2bn boe of oil in place.  Put into context Shell have about 13.6bn boe proved reserves. 

Melrose, BAE, Dechra IMS

Melrose Industries, an engineering company that seeks to acquire businesses it understands, improve them by a mixture of investment and changed management focus, realise the value created and then return it to shareholders. I have a holding in my income portfolio (epic code: MRO)

MRO issued an interim management statement declaring that trading for the Group in the Period is in line with expectations. Revenue was 1% lower than last year, at constant currency, but operating margin was higher. Trading in the Period within Elster, their recent (June 2012) £1.5bn acquisition, has been strong and there are clear signs that continuing improvements are being delivered in each of the three businesses, namely Gas, Electricity and Water. Management also mentioned that a sale process is underway for Marelli Motori, their Italian generator business.  This follows on from their recent disposal of Truth Hardware mentioned in my post of 1st May.

A global defence, aerospace and security company. BAE Systems delivers a range of products and services for air, land and naval forces, as well as advanced electronics, security, information technology solutions and support services.  I have a holding in my income portfolio (epic code: BA.)

 

BAE issued an interim management statement commenting that trading for the period has been consistent with management expectations at the time of their 2012 results announcement and their outlook remains unchanged. They expect to produce modest growth in underlying EPS for this year, which is subject to the continued uncertainties relating to US defence budgets and the effect of Sequestration on US defence spending.

 

This expectation for the year excludes the benefit from the share repurchase programme, which is a three year plan to re-purchase £1bn of its own shares.  They have to date repurchased 17m at an average price of 382p.  These repurchases are being undertaken at a price to book value that is not value enhancing for long term investors (P/BV of over 3).  The value of what I own - the equity per share (BV per share) declines by the amount of the repurchase and, the increase in dividend per share is insufficient to offset this.  The only way I can benefit is by selling my shares, thereby enjoying any SP improvement due to there being fewer shares in issue. 

 

Finally they mention that if there is a satisfactory conclusion to discussions with Saudi Arabia relating to the formalisation of price escalation on the Salam Typhoon programme, there would be a further increase of around 3 pence in underlying EPS for this year.

 

An international veterinary pharmaceutical company that develops, manufactures, distributes,  products exclusively for veterinarians worldwide.  I have a holding in my growth portfolio (epic code: DPH)

Dechra in their interim management statement stated that revenue for the three months ended 31 March 2013 was 14.6% (13.7% at constant currency) ahead of last year. For the nine months ended 31 March 2013, Group revenue increased by 18.4% (19.8% at constant currency) over the corresponding period in the prior year.  The strong performance reported in the first half of the financial year has been partly offset by a weaker than expected third quarter which was affected by poor weather in Northern Europe and third party supply problems within the US. Following good trading in April the Board does not anticipate that the third quarter's performance will materially impact its expectations for the full year.  They did mention at the time of their interims that there was pressure on European veterinarians to self-regulate a reduction in antibiotic usage and this continues.

 

Dechra has been an interesting growth story, but it does of late appear to have stumbled over a number of problems.  I was rather concerned when back in October the CFO left "...with immediate effect...", this followed on from a non-executive director who was a member of the Audit Committee leaving, also immediately, back in July.  Nothing negative has transpired from this, but with the few stumbles I mentioned and the price looking a little high at 750p, I sold 90% of my holding back in April. It is now probably time to dispose of the other 10%.  My internal rate of return will equate to  an annualised 41% pa (dividends not reinvested) after an 18 month holding and a 3 for 10 rights issue in May last year.