A quarterly update on the value portfolio.
Here's my quarterly update on the value portfolio (VP). There have been some changes to the portfolio since my last review in January as mentioned on the Value Board at the time of the transactions, which I'll repeat here for anyone who has not seen that.
| ||Cost £||Value £|
|Aviva (LSE: AV)||56,257||48,032|
|BP (LSE: BP)||7,521||6,643|
|Molins (LSE: MLIN)||2,227||2,786|
|RBS (LSE: RBS)||19,279||16,197|
|Current value|| ||73,658|
|Originally invested|| ||60,000|
|Gain/(Loss) since May 2009|| ||13,658 |
Buy big value, sell small value
Persimmon (LSE: PSN) was sold in February for £8,145, delivering a profit of £2,838, which is 53% over its cost price of £5,307 after all expenses plus whatever dividends it paid over the period since purchase in August 2010. Not a bad trade.
My principal reason to dump the share was because it had risen above net tangible book value. Since that was the main value reason to buy it, it follows that it was also my main value reason to sell it, because that it is the way to play value investing. It has nothing to do with cost or how much profit or loss is being made. Instead, the idea is to buy at big value and then sell at small value, whatever has happened to the price. The exact degree of reduction in value that signals a sale will vary due to the circumstances of each share and the opinion of the investor.
But at least one Fool criticised my decision to sell Persimmon on the ludicrous basis that the share shot up a little later when it announced a weird but generous new future dividend policy. As if I could have known in advance that this would happen. Anyway, the market liked it and the share rose strongly after I sold. But I sold when the value was blown, that was the correct view and therefore the trade had to be terminated.
Backing the bank
I used those proceeds plus the bit of cash available to buy immediately a further tranche of RBS, investing £8,268 which bought me 30,999 shares at 26.5p plus expenses. This brings the total holding in RBS to 57,558 shares at a new average price of about 33.5p. That new average is considerably lower than the cost of the first tranche bought in June 2011 when the price was much higher.
The reasoning behind my increasing the RBS holding is the fact that the share price, having fallen a lot since my earlier purchase, remains well under the net tangible book value figure. Banks always have high debt, this one makes losses and there are no dividends, so my value case rests wholly on assets really. But I see nothing wrong with a pure asset value play.
But more than that, the very interesting fact is that the company actually quotes the NTBV per share in the accounts -- and somewhere near the front too, not buried. That is almost unheard of. Those companies that do quote book value per share are normally those in asset-based businesses, like property or housebuilders, and so on -- not banks or normal trading concerns. But those that do this will nearly always show the total net book value per share which therefore includes intangibles.
So for RBS to publicise its NTBV per share is extremely unusual and suggests strongly that they see it as one measure of performance. And that makes it an even more encouraging value feature than it already is, bearing in mind that I see P/TBV as the king of the value ratios.
Overall, the portfolio at £73,658 is down £2,824 from the £76,482 recorded in January. The main culprit is Aviva, worth about £4,300 less than then. BP is little changed, but Molins has risen strongly, though because the holding is small, the gain there was only about £600. Another gain of around £500 has ensued in my most recent tranche of RBS, as mentioned above.
The current bottom line is a gain of £13,658 or 22.8% on the £60,000 original capital. That's not great right now but this isn't the end, just a snapshot at this moment. The portfolio is subject to substantial fluctuation due principally to my decision to overweight it so much in favour of Aviva. A decision that at present doesn't look too good in view of the fall in price, though it does produce handsome amounts of dividend cash. More important than the fall in price, however, is that in my view Aviva continues to offer very good value, whatever the market thinks.
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More from Stephen Bland:
> Stephen owns shares in Aviva, BP and Persimmon.