With the impending dividend payout from MJ Gleeson, I’ve been thinking about what to do with it. I mentioned at some point in the past that I wanted to hold more cash and bonds, using the CAPE10 based function I’ve posted about before. That function calculates my cash or bond holdings using the value of the FTSE 100 and is therefore suitable for portfolios where the stock holding is an index tracker following the FTSE 100. In fact that’s exactly what I’ve used it for so far when annually re-balancing my wife’s pension and currently the bond allocation is about 30%.
However, the value investing portfolio which is the focus of this blog is most definitely not a FTSE 100 tracker. The shares in my portfolio live in a dark little corner of the size and value grid where academia says out-performance is most easily had. On that basis I don’t think I should hold cash or bonds based on the value of the FTSE 100. What I’ve decided to do instead is to be as fully invested as is sensible (i.e. if I have £100 cash there’s no point investing it since the trade commission will be about £10).
Once I get my hands on the MJ Gleeson dividend and sell my bond holdings I’ll have about £3,000 cash to invest; and Luminar is looking like a high risk high reward place to put it. This big nightclub operator is very cheap, both tangibly and intangibly. It doesn’t have quite the low debt levels I typically like, but it doesn’t seem to be drowning in debt. On the downside, they’ve just lost the founder and chief executive; and one of their major investments has just gone into administration probably wiping its ~£17 million value from the balance sheet. Further to the downside the company has lost over 50% of its tangible assets over the last 5 years which, although bad, pales next to the 90+% paper losses of shareholders.
This is as good an example of why value investors are a rare breed as you are likely to find. Only the maddest or hardiest of souls would give money to a company with such a poor record. Will I become one of them?
For those of you who are interested in this sort of thing, I’ve added a Checklist page to list the (semi) mechanical steps I take when investing. The whole area of checklists and why we need them is very interesting in itself and I’d recommend both The Checklist Manifesto and Work the System as an introduction.