Back to normal this month, with next to nothing going on other than volcanoes and general elections campaigns. If you’re interested, please check out the Current Holdings, Trade History and Benchmark pages for the most recent updates.
Electronic Data Processing made me happy by paying out a small dividend after I’d sold them, bringing the annualised returns for that company to 20% during my brief period of ownership.
The cash that I had left at the end of March went into Victoria, an existing holding. I increased this holding because I didn’t really want to add another new holding – I like to hold around 10 companies – and it was the cheapest by price to book of those companies where I didn’t already have more than 10% of the portfolio invested. On the downside I don’t really rate Victoria’s chances of being a big gainer as it hasn’t traded much above its current price in the past – i.e. there is technical resistance – and it hasn’t traded at book value for years and years, which doesn’t bode well for my mean reversion theory. However, who am I to say what the future holds? Given that I think most analysts are as good at seeing the future as house bricks I ignored my own fears and upped the holding.
The benchmark figures this month are less ego boosting than last month, but at least they are not depressing. Once I get some 6 month and 1 year figures I think I’ll drop the 1 and 3 month comparisons from the table as I think 1 and 3 month benchmarking is for the short term traders. Eventually I’ll probably just do 1, 3 and 5 year comparisons to the FTSE 100, with 5 years being the important one.
FTSE 100 : 3.7% over my newly adjusted Fair Value
After my attempts to assign a ‘fair value’ to the FTSE 100 last month, the blogger over at Retirement Investing Today pointed out that my assumption that the long run average CAPE is 16.4 (taken straight from Shiller’s S&P data) is a bit too simplistic. It is a fact that the UK markets typically have a lower PE than the US. Since I have earnings data going back to 1993 I can only produce CAPE going back to 2002, which is only 8 years and a bit crummy. By looking at how far the S&P’s CAPE was over the long term average during the 1993 to 2010 period and extrapolating that onto the FTSE 100, gives an expected long therm average FTSE 100 CAPE of 11.2. Once again the decimal point is probably going a bit too far.
In my opinion this is too low as I think the US markets were more over valued in the dot com bubble than in the UK, but of course that’s my opinion and probably has no basis in fact. However, I think it’s not unreasonable to move my expected average FTSE 100 CAPE to 13.8, the midpoint of those two values. On that basis I think the current fair value (i.e. the value that will give a future risk/return profile similar to the long term historic one) is 5,645. Given that it’s 5,445 right now then I’d say it’s only 3.7% overvalued, which in the big scheme of things is virtually nothing.
House Prices : Still a crazy 37% over fair value
Jeremy Grantham thinks the UK housing market is one of only two financial bubbles yet to pop. Well, I think it popped two years ago, but the government has done an amazing job of patching up the hole. That doesn’t change the fact that the air supply is fading and the rubbing is wearing thin. High oil prices may yet prove to be the needle once again.