Good start to 2018

I had a very good year in 2017, with my portfolio up around 50%, including dividends. From the looks of things this was largely due to my strategy focusing on quality and momentum factors. Others who did this seem to have done very well as well. My strategy developed significantly over 2017, so while I think the markets are unlikely to be quite as favourable this year, I am optimistic. I’m feeling more decisive and confident that I can run a portfolio more heavily concentrated into my best ideas, while also being more agile in selling on signs of danger.

2018 has started fairly positively for the markets, most notably with a sizeable rally in US tech (‘FAANG’) stocks on the first day of trading. I see this as a positive omen. My portfolio has also started fairly buoyantly and I am keeping more or less fully invested for now.

I am becoming more conscious of the currency headwinds faced by my US stocks. The Pound has been appreciating significantly against the Dollar since I bought them and looking back the exchange rate has been in a strong uptrend for about a year. With not much sign of this abating and the Pound possibly still undervalued in the long term, I’m cautious about adding further US exposure.

Following my post last week on Games Workshop, I came across a YouTube video (posted on ADVFN) explaining how Games Workshop has drastically changed its approach to social media and marketing for the better. I updated the post with a link to the video. This made me marginally more optimistic about Games Workshop’s prospects, but not sufficiently to stop me halving my position which was getting uncomfortably large. It is still the second largest position in my portfolio.

I also sold out of Avon Rubber for a tiny profit, as it was looking a bit weak and I wanted to raise cash for other opportunities.

With the proceeds, as well as topping up a few holdings, I bought one new position, On the Beach. This is a share I’ve held before, making quite a bit of profit on it last year, and is a long term favourite.


On the Beach

On The Beach is an online platform for booking holidays that allows customer some flexibility around the component parts. It is a fairly early-stage business, having recently listed and currently growing at a fair pace. The vast majority of its business is UK-centric, though it has recently also started expanding into Nordic markets.


  • Business economics: like other online platforms, On the Beach has a capital light business model, though it has recently been investing in expanding its business overseas. It is highly profitable. ROCE has been increasing and is currently decent at 20%. I think it is likely to continue to increase considerably from here. Operating margins are high and free cash flow generation is excellent.
  • Track record: the track record is short but shows rapid and consistent progress in sales and profits. The business appears to benefit significantly from operational gearing (little incremental cost from increasing sales).
  • Competitive advantage: On the Beach’s online platform is differentiated from its more traditional rivals in providing better functionality and an ability for customers to customise their booking. It also tries to create a competitive advantage through negotiating supply agreements with hotels. Its strategy appears to be working and it is rapidly taking market share from its rivals. It is early to say how durable its competitive advantage may be, though it appears to have an edge at the moment.
  • Growth prospects: the growth prospects look excellent. The business appears to have good scaleability and scope to continue to take market share and to expand to different countries. Its market should be growing long term – there is a likely shift away from more traditional travel agents to online. However, I believe the market is likely to be fairly cyclical.


Momentum is good, with the share price breaking out to new highs. Its interim results in November suggested steady progress against expectations. It looks cheap given the growth prospects.

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