Folio Management | Boon's Fund - Did These Three Factors Drive My Returns In 2021-2022?

30th Dec '22 by Boon

3 comments 849 reads

Introduction

I have decided to do a bit of a retrospective over my decision making (buys and sells) over the past two years, to see if I can gleam any learnings to take into 2023. So I have looked at three factors that could have influenced my gains or losses: my position sizing, my average holding period, and my sell timing.

I try to answer the following three questions, in order to see if I need to change my buy & sell decision process going into 2023, to drive better returns.

Q: Has my sizing decisions been a positive driver for returns?
Q: How do I optimise my holding time, and decide when to crystallise or ride?
Q: Do I have good sell timing?

Vital Stats

17 shares in total, that I have bought since 1^st Jan 2021, and completely sold out by now. I have not included any shares that I bought prior to 1^st Jan 2021, otherwise I’d be up all night compiling the data! Nor have I included any share purchases that I still have a holding in currently. I have included any dividend distributions received during the time.

The shares are detailed as below.

Share	Holding Duration (months)	Gain / Loss	Post-sale SP Gain / Loss
Ethernity Networks (LON:ENET)	6.7	56%	-78%
Empiric Student Property (LON:ESP)	5.8	39%	-15%
Innovaderma (LON:IDP^F22)	1.8	4%	-35%
Rio Tinto (LON:RIO)	16.9	19%	19%
French Connection (LON:FCCN^K21)	5.8	46%	2%
Saga (LON:SAGA)	15.5	-55%	-24%
System1 (LON:SYS1)	7.1	55%	-66%
Sosandar (LON:SOS)	6.5	39%	-35%
National Express (LON:NEX)	1.2	14%	-52%
Revolution Bars (LON:RBG)	4.9	-4%	-64%
Ishares Physical Metals (LON:SGLN)	9.7	12%	0%
Fulcrum Utility Services (LON:FCRM)	12.6	-88%	-44%
Intercede (LON:IGP)	11.7	-29%	0%
THG (LON:THG)	2.9	-8%	-55%
Spaceandpeople (LON:SAL)	10.4	-1%	0%
Zytronic (LON:ZYT)	6.3	-7%	-1%
Yu (LON:YU.)	3.9	-6%	183%

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Becky C

30th Dec '22

Thanks for sharing Boon and well done for minimising your losses! ! I would love to know more about your exit strategy. What makes you sell a share?

abtan

Fascinating, thank you for sharing!

Boon

31st Dec '22

Thanks for reading!

There are three reasons why I sell a share:

It reaches what I think is the maximum valuation it can achieve. Whenever I buy a share, I calculate what at what price I consider it to be fully valued. This usually is P/E; I figure out at what P/E I would sell at. Every share, given the fundamentals, trade at a range of P/Es over the course of time. It is why on Stockopedia, there is the Historical P/E chart shown at the bottom right, and you can see that most shares have a wide range of P/E throughout a year, on what is the same company! Where there are no profits, I take a stab using other valuation metrics; maybe P/S, or maybe look out three years, estimate their revenues, and assume a long-term operating margin, and use that for a P/E valuation calculation. Many others would use comps in the same industry, something I really should do as well, but don't have the time to go that deep into my analysis.

An example would be Ethernity Networks (LON:ENET). It got to my sell price, and on further analysis refresh, I concluded that a higher valuation wasn't justifiable, and the current one was already tenuous, given it was future contract values that weren't certain. Sure enough, some of those contracts turned out to have delays, lower margins, cancelled, etc.

When my hypothesis changes. Usually, I'm investing in a share because I think it is undervalued, compared to what the market thinks its value is. This is usually based on the future profitability of the company, the top-line growth prospects, or the balance sheet strength. However, my hypothesis is just a hypothesis; I am frequently wrong. I refresh my analysis of my holdings every 3-4 weeks at a minimum. When the story changes, either through RNS updates, or macro-economic changes, or new risks / threats emerge. I am constantly challenging myself; does my initial investment thesis still hold true? Should my sell price be lower or higher?

An example would be Revolution Bars (LON:RBG). I got worried about the macro-economic drag of inflation on disposable incomes, and decided that the current valuation was baking in too much future growth already. Growth that I thought could happen in a normal economic environment, but not one where incomes were being squeezed massively.

When the horizon to realise +40% gains gets too long. This relates to my buy decisions - I only buy shares where I can see at least a 40% gain potential in the next 12 months. Why 40%? Because you will inevitably have losers, so you need your winners to be decent-sized. And setting the threshold at 40% means I'm only investing in the companies I have the most conviction on; no lukewarm convictions that this might be 10%, 20% undervalued. No, it has to be sizeable. And the other criteria, is that I must see the 40% potential, within 12 months. Why 12 months? Because seeing into the future is already tough enough for the next few months, let alone the next few years. Anyone who is investing in a company based on a hypothesis being realised on a timescale of years, is a fool, in my opinion. Because I am investing in shares that I think is undervalued, if other investors don't catch on to its undervaluation in the next 12 months, why would they at months 24, 36, 48, etc? I have held onto shares longer than 12 months; but this is because my refreshed analysis still shows a +40% potential in the next 12 months, based on new information. So during my constant analysis refreshes, if I can only see an upside potential of like +10%, +20%, this is usually when I know my conviction is waning, and it is time to sell. After all, holding shares is a risk to capital; despite all the analysis you do, there are always black swan events, bad luck, fraud, macro-shocks, etc that you can never foresee. So you're always taking on some known-unknown and unknown-unknown risks by holding shares, compared to holding cash. So why take those risks when the potential gains are only +10%, +20% in my mind?

An example would be Zytronic (LON:ZYT). I had invested because of two hypothesis; that they would see a post-covid jump in revenues again, from the gaming sector. And their new R&D into new sectors could provide a growth engine, and therefore drive EPS growth as well as P/E multiple growth. However, as inflation bit, I knew that it was only a matter of time before gaming activity got hit. Also, they started going quiet on their new R&D and new sectors, which meant that they were not seeing good traction (yet). Maybe both will come through once inflation moderates and they gain traction in new sectors, but for me that meant that +40% horizon went out further, and I didn't see their share price making much headway in the next 12 months.

---------------

Hope this gives a bit of insight into when I sell! What I don't look at is technical indicators, to decide when to sell. For smaller holdings (<5% of my portfolio) I tend to sell all at once, unless low liquidity forces me to drip my sells over time. But for anything larger than 5%, I tend to sell down in steps, over a period of a week or two, to average out any volatility in the share price.

Boon's Fund - did these three factors drive my returns in 2021-2022?

Introduction

Vital Stats

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About the Author

Boon

3 comments

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Boon's Fund - did these three factors drive my returns in 2021-2022?

Introduction

Vital Stats

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Unlock the rest of this article with a 14 day trial

About the Author

Boon

3 comments

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