6 New Buys For The Family Firms Portfolio

Published in Investing on 31 October 2011

How a young investor made the most of the market slump.

My teenage son, Sim, has continued to build his Family Firms Portfolio, using The Motley Fool's ShareBuilder service.

After suffering the emotional turmoil of a bear market virgin when the markets plummeted in early August, he gathered his wits about him, and was brave enough -- with a little encouragement from Dad! -- to make two investments a month during the period of the sell-off, instead of his usual one.

Sim added to two of his existing holdings, invested in two new companies, and bought shares in an investment trust on two occasions.

More oil and milk

Oil services company Hunting (LSE: HTG) was Sim's very first investment, back in July 2010, when its share price had been dragged down for no good reason in the wake of BP's (LSE: BP) oil spill.

Hunting's shares took a knock in August this year when it did a placing to fund an acquisition, providing Sim with an opportunity to add to his holding at under 600p. The shares have since recovered strongly, boosted by a new broker initiating coverage with a target price of 1,020p.

Milk distributor Robert Wiseman Dairies (LSE: RWD) is the other existing holding to which Sim has added. He first bought into this firm a year ago, following a profit warning. The company pays a good dividend, which has enabled him to buy additional shares while the price is depressed.

The shares slipped to under 300p this month. With the passing of the anniversary of the profit warning, I suspect some itchy-fingered shareholders have got fed up of waiting for a recovery. It has taken Wiseman time to recover from previous profit setbacks, and Sim was happy to add to his holding at this stage.

Brand new buys

In July, when Sim looked ahead to the future, he wrote about several companies with strong brands that he was very keen on. He had resisted buying them, because we felt their valuations were a little rich at the time.

Patience was rewarded. These companies weren't the hardest hit by the market meltdown, but Sim invested in two of them: Nichols (LSE: NICL), the maker of Vimto and other soft drinks, and Reckitt Benckiser (LSE: RB), the household goods group.

The investments in Nichols and Reckitt Benckiser -- below our target prices of 550p and 3,250p, respectively -- brought the number of companies in Sim's portfolio to 13.

Deep discounts

Finally, Sim bought shares in an investment trust, Caledonia Investments (LSE: CLDN), on two occasions during the period. He averaged down on a first buy he'd made before the market dropped, then averaged down again.

Caledonia, which has been trading at around a 20% discount to its net asset value (NAV), is family-controlled, and has stakes in a number of other family firms, including a long-standing investment in Irn Bru-maker AG Barr (LSE: BAG).

Caledonia also has a sizeable holding in another investment trust, British Empire Securities & General Trust (LSE: BTEM), which has investments in many international family holding companies. British Empire has been trading at around a 5% discount to NAV, while the manager estimates that the average discount to NAV on the underlying holdings is over 30%.

Happy returns

Some opportunities came and went without Sim being able to take advantage of them. James Halstead (LSE: JHD), an existing holding, dropped only briefly below our add-to target price of 400p, and was one of the 'ones that got away'.

Nevertheless, I think Sim's made six good buys during the period, and -- just as important for a young investor -- has continued to learn about companies and gain experience of the stock market.

When he reviewed his portfolio at the end of the first year, in early July, the unit value was +58% compared to +26% returned by the HSBC FTSE All-Share Index tracker. At the end of last week the values were +49% and +19%, respectively.

Also at the end of last week, Sim celebrated his sixteenth birthday. From tomorrow, he'll be able to manage his own Junior ISA. We've been too busy investing to look into this yet, but will be doing so just as soon as we find a bit of spare time.

More from G A Chester:

> G A Chester owns shares in British Empire Securities, Caledonia Investments, Hunting, James Halstead, Nichols, Reckitt Benckiser, and Robert Wiseman. The Motley Fool owns shares in Reckitt Benckiser and Robert Wiseman.

> Don't miss our latest free report -- 3 Shares The Motley Fool Owns, And You Should Too

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

mardukkorn 02 Nov 2011 , 10:11am

Good thinking, but suffers form home bias.

Plenty of cheaper family firms in Asia, take a look on the HK/SG markets.

Jardine Strategic which I hold is listed on multiple markets and usually trades at a discount to NAV.


BFil 02 Nov 2011 , 3:58pm

I also like the family firms concept, but I think madukkorn's suggestion to go with Asia is fraught with problems.
In much of Asia the concept of good corporate governance as it applies to non-family members is, to put it generously, untested. The cohesion of family against outsiders is extremely strong and I believe it will take another decade or so to find out which companies will treat the minority shareholders with transparency and honesty.

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