Back from honeymoon as of Saturday morning, I was straight back on it with regards looking at where to invest next.
Having thought a lot about conviction over my holiday, I have been considering the merits of continuing to buy shares in companies I already hold - rather than always seeking "new" companies to buy into. After all, I bought the companies I did with good reason - and unless there has been a fundamental change I should stick with them.
On this logic, the next thing to do is consider which "end of the scale" to consider. Should I go for shares where the price has dropped since my first purchase - so they are "even better value" assuming they are a fundamentally good investment - or should I go for those performing exceptionally well, indicating that there is good momentum behind the share price?
Using this filter, I was looking at IG Group - the financial spread betting company - and Dee Valley Water, the UK's smallest listed water company - or Games Workshop Group, providers of wargaming hobby toys to young men in the UK and Europe - or CareTech Holdings, the specialist care home provider in the UK.
Thinking about the big picture, the FTSE All Share Index is up nearly 8% in the last three months. I, however, am still hugely pessimistic. China is slowing down, Australia exports are dropping off hugely, nothing good is happening in the Eurozone - how on earth can companies be worth 8% more over three months?! So, with this in mind, I wanted my next investment to be in an unloved sector (sectors, rather than stocks, is how you should invest - look for unloved sectors, like iron ore mining in about six months!!).
There's something called "beta" which is about the correlation between share price changes and index changes. A beta of 1 means the share price moves in line with the index, -1 means it does totally the opposite, and 0 means it has nothing to do with the index movements at all. If you think that the market is going to pile in, buy shares with a beta between 0 and -1.
Looking over the options about, Games Workshop and CareTech both fitted the bill. Initially I was going for Games Workshop, with the intention of making a "standard" investment (the market has been pretty flat over the last couple of weeks) - and even queued up the order overnight.
Having slept on it though, I started getting worried about a value trap - Games Workshop is paying out lots of dividends recently (its on a 6.57% yield), and its dividend cover isn't great at just over 1. That means that if profits drop, then the dividend is definitely going (which is not what I want as a long term investor focussed on dividends!). So I got scared and switched to CareTech.
So this has positives and negatives. I was kicking myself when I saw the share price changes this last week gone for Games Workshop (its up 6.5% in a week!!). But then, looking at the CareTech dividend cover, I feel better - its massive. That means on top of a good yield, there's lots of profit going into the savings account or into new business - which for me in the long term is great news! And talk about unloved - CareTech's share price crashed a few months after Southern Cross when wrong - it's definitely not tarred with the same brush, but certainly unloved!
Having written it all down, I feel better already about changing my mind. My next investment will be near the end of September unless the market tanks by a good 5-10% before hand, and then it'll be time for another portfolio review to see how this project's actually working out.
