Interesting times

Many of the Covid restrictions have been lifted now but the world still seems far from returning to normal. The information war continues apace, with different groups of people further entrenching themselves in their various bubbles of reality. While fascinating from a sociological perspective, these are not the easiest times to be living through. From an investing perspective, predicting the fallout from the restrictions continues to create its own controversies and unwanted distraction.

Inflation is still the primary concern, though right now this has abated as doubts have crept in about how sustained the economic recovery will be. Treasury yields have fallen back a long way over the past few months. This is good news for growth stocks, which look buoyant at the moment, but the narrative seems liable to switch back to worrying about inflation again at some point. It seems far from certain that the current inflationary pressures will be transitory and concerns about the Delta variant dampening the economic recovery seem unlikely to last.

When set against a backdrop of relatively high valuations for many shares, it feels like we may be sitting on a ticking time bomb. But then again we always are. Second guessing when it will go off seems more trouble than it’s worth. I don’t think I’m likely to go too far wrong by just sticking with a momentum strategy, keeping an eye on portfolio diversification and responding (or not) to possible crashes as they happen, rather than trying to predict trouble ahead in advance. Less fretting would probably have done better for me so far.

My portfolio hasn’t been up to a great deal overall since my last portfolio review, though there’s been a bit of turbulence below the surface with some of the constituents.

Boohoo’s share price has taken a bit of a nosedive, potentially for a variety of reasons. Some of these are specific Boohoo-related controversies (which has a good claim to being an entire genre of investing controversy in its own right). There have been some fresh reports of workers at Boohoo’s suppliers being paid less than the minimum wage. Boohoo has responded that it is doing what it can to address these issues, in my opinion fairly convincingly. There have also been some reports of a consumer protection case in the US relating to false reference pricing ie when a company advertises a discounted price without actually selling the product without the discount. I don’t have a good sense of how much merit this case has but it seems pretty small beer in the wider scheme of things anyhow.

There are also some sector-wide concerns. These appear to be a more significant factor behind the recent share price performance given ASOS has suffered to a similar extent, though I note that US-listed rival Revolve has been going great guns and is far more expensive. Boohoo flagged margin pressures from pandemic-related supply chain disruption in its last results, as did ASOS more recently. I’ve also come across quite a bit of discussion about increasing competition in the fast fashion sector from the likes of Shein, a Chinese company that has grown very rapidly so far. Shein is quite similar to Boohoo but makes cheaper and lower quality clothes (and in all likelihood is even less ethical). Increasing competition does seem more of a salient concern over the long term, but at the moment I see it more as something to keep an eye on rather than materially undermining the investment case. It is a competitive market but there seems room for several players to scale successfully and Boohoo has a strong track record of success so far. The bottom line for me is still that Boohoo seems far too cheap given its potential.

I did reduce my holding in Boohoo by about a third when the chart started to look ugly. It had been one of my largest positions and I wanted to leave some room to buy more if the price fell further, as seemed fairly likely in the short term. I’ve then started to add again as the price hit £2.50. So far so good as the price seems to be stabilising a little but I am feeling a bit wary of nasty surprises in the short term.

Activision Blizzard has also attracted controversy recently. It is facing a lawsuit from the California Department of Fair Employment and Housing about its workplace culture – there have been several allegations of sexual harassment and abuse over the years. This didn’t sit very well with the stock market, particularly when much of its current workforce were incensed by Activision’s angry media response to the lawsuit. Activision has since issued some decent results but acknowledged that there may be some disruption arising out of this. This seems like a short term issue and the shares look cheap given the underlying business is performing well. I am happy to keep holding, especially as my position is quite small. However, I do seem to be catching a few crabs with these more controversial investments and wonder whether it is something to which I be should paying greater attention. The short term impact of these corporate scandals can be quite significant even if the business isn’t materially affected over the long term. Something to ponder…

I reduced my holding in Games Workshop by about a third after its last results. By and large they were positive and reinforced my optimistic view of Games Workshop’s long term future. However, there was one comment that spooked me a little: ‘…historically the launch year of a new Warhammer 40,000 edition is normally the financial high point… until the next edition of Warhammer 40,000’. I have had concerns about Games Workshop’s product cycle previously but these proved to be ill-founded. It has come a long way in the last few years in building a broader set of products and more consistent growth. That said, I do think there is some risk that growth underwhelms from here after the launch of the new Warhammer 40,000 this year as expectations have become more optimistic over the past few years. This is not a huge risk but enough to make me uncertain about having this as my largest position. I’ve taken a bit off the table to reflect my moderating conviction but the remaining position is still one of my larger ones.


I’ve made three trades since I last updated.

Starting with the most recent, for my August trade I sold out of LSEG for around breakeven and bought SCS, a retailer of carpets and sofas etc. I’ve gone off-piste with this purchase – I don’t regard SCS as an especially high quality business and it doesn’t have a place on my watchlist. I’ve just noticed several other private investors raving about the buy case recently and thought it looked too good to ignore. It has excellent momentum, both in the share price and underlying trading, as it recovers from lockdowns and simply looks far too cheap, especially when you account for all the cash on the balance sheet. I also find it attractive for the diversification it brings to my portfolio. I’m going to play this as a short term trade and will sell if the momentum fades or once I’ve made a decent return and the valuation no longer looks so cheap. LSEG went as the least promising looking constituent in my portfolio at the time and to avoid holding through its results on Friday which I was apprehensive about. In the end the results have actually been pretty well received.

I also sold out of Flatex Degiro, following an apparently overly negative share price reaction to some decent looking results – it seemed that I might be missing something. There were some negatives. Growth in new customers decelerated considerably since the previous quarter and there was news of some hefty incentive payments that put a big dent in profits. Now the dust has settled I’m not sure either of these points seriously undermine the investment case but I think some more detailed due diligence is warranted before investing again. I replaced Flatex with Adyen, which I have held and written about recently.

For my July trade I sold out of Bioventix and replaced it with Diploma. I flagged in my last review that I was starting to feel ambivalent about Bioventix. I’m still a big fan of the business but the share price has been stagnating and I think there is a fairly high chance of disappointment over the next couple of years. Hopefully I’ll get a chance to buy back at a better price. Diploma is a business I have held before but some time ago so I think it warrants a write-up.


Diploma owns a group of businesses supplying specialist equipment for healthcare, seals for controls for industrial equipment. It has a ‘buy and build’ strategy and aims to buy businesses that supply essential consumable products that aren’t subject to the capital investment cycle and so have defensive demand.


  • Business economics: Diploma is a profitable business, not hugely so, but very consistent. It is capital-light and has excellent cash generation. Margins have been consistently in the mid to high teens and ROCE consistently above 20%.
  • Track record: the track record is excellent. Diploma was founded 90 years ago and embarked on its strategy of acquiring industrial businesses in the 70s. After some early mishaps it found a decent strategy which it has been successfully executing for many years. It hasn’t really put a foot wrong in the last 20 years and the long term share price chart is a thing of beauty with compound returns comfortably over 20% in line with its ROCE – a classic ‘compounder’. It wasn’t totally immune to pandemic effects but was pretty resilient and has recovered quickly.
  • Competitive advantage: there are various businesses in the Diploma group and I haven’t sought to assess their competitive advantages in much detail. Diploma’s stated strategy is to acquire businesses whose products are market-leading brands in specific niches and as far as I can tell it seems to be successful in achieving this.
  • Growth prospects: defensive organic growth supplemented by serial disciplined acquisitions great is an attractive growth strategy that delivers steady compound returns. As the business grows larger it can get more difficult to find reasonably valued acquisition targets that will move the dial. However, I don’t think this is an issue for the time being.


Momentum is excellent. Diploma has recovered very quickly following the pandemic and is currently integrating a substantial acquisition (of Windy Wire City). The price is consolidating near its highs. The valuation is relatively high at the moment but it still seems reasonable enough to offer the prospect of very decent long term returns. I’d say it has tended to be too cheap in the past, given the quality.

Finally, just to say that I’m going to be having rather a lot going on over the next year or so which unfortunately likely means little time for the blog. I will continue to review the portfolio from time to time but will probably be posting relatively infrequently.

4 thoughts on “Interesting times

  1. Thank you for the write up. I hope you can find the time to write up the portfolio as often as you can as I always enjoy reading what you have to say.



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