Autumn trades

A modicum of normality has been restored in the UK since Rishi Sunak has been brought in to replace Truss after her chaotic but short-lived reign. Well, at least the markets have been placated a bit, with gilt yields coming back down and the Pound recovering a little. Stock markets had been doing fairly well over the past few weeks, until the Fed poured another load of cold water on any optimism that had started to re-kindle with its latest pronouncements on interest rate hikes.

Unsurprisingly, the same old question about whether and when we see a pivot from the current interest rate raising cycle has been dictating recent stock market moves. My guess is still that we are likely to be somewhere near the bottom for the stock market, with a pivot not too far round the corner. However, there is a good chance that this is wrong and we face another leg down. Either way I’m now committed to being more or less fully invested.

We are currently partway through earnings season. It has been a bit of a mixed bag so far with plenty of signs that various parts of the economy are slowing down but quite a few bright spots too. Several of the stocks in my watchlist have made sizeable moves in either direction. So far most of my portfolio businesses have been reporting strong trading. Microsoft is one notable exception. In common with the other big tech companies, it posted some results which disappointed the market and the shares took a tumble.

I made three trades in October. I lost patience with Games Workshop and replaced it with Fope early in the month. Games Workshop’s last results in September were a bit disappointing and, while I have little doubt about the quality of the business and the valuation looks cheap, the risk of further disappointment in the near term seems high. By holding on further I felt I was in danger of becoming too committed to a poorly performing share, so I decided to sell for a small loss. I am ready to buy back in once the near-term prospects look a bit better.

I also replaced Gamma Communications with Shopify near the beginning of the month, after Shopify fell to a very compelling valuation. This was a case of replacing one low momentum stock for another. In general I am still avoiding low momentum in my stock picks. However, at the moment I want to be exposed to at least some stocks that have fallen a lot as these are likely to do considerably better when the market does eventually rebound. I felt the case for Shopify rebounding strongly in these circumstances was more compelling than Gamma Communications. The fact that sentiment towards e-commerce is so negative at the moment is also attractive for this sort of rebound trade.

Finally I sold Microsoft after its disappointing results and replaced it with O’Reilly Automotive. As for Games Workshop, I think Microsoft is reasonably valued given its quality and would be happy to hold for the long term, but I’m not sure it warrants a space in my portfolio right now.


Fope is an Italian luxury jewellery designer worth around £150m. Its brand’s core speciality are stretchable chain mesh gold bracelets.

Luxury is a good business generally speaking. Fope is small and its quality is still somewhat unproven but it is on a good trajectory and looks well placed to be develop into an enduring quality business. It stood out as one of very few stocks appearing on my screens that showed strong momentum and looked cheap.


  • Business economics: as you would expect for a luxury jewellery business, Fope is very profitable with high margins (20%) and returns on capital (30%).
  • Track record: Fope’s heritage as a traditional family-owned Italian jeweller is part of its brand. It has been around since 1929 but has remained a fairly small business with the vast majority of the shares are still held by the Cazzola family. In recent years it has made very good progress in steadily growing revenues and profits.
  • Competitive advantage: Fope’s competitive advantage comes from the brand. In common with other luxury brands that sell to price-insensitive customers, it is evident that Fope has a lot of pricing power. I like that its bracelets etc. have a fairly distinctive style that is dependent on complex technical skills and know-how and could not be copied so easily. Of course demand for Fope’s products may be subject to the vagaries of fashion. Inevitably there are likely to be some up and downs but overall it seems like the kind of niche that could endure well in the long run.
  • Growth prospects: Fope seems to be on a very good trajectory at the moment. Relative to larger rivals one attraction is that its small size allows plenty of runway for growth through further investment in marketing and distribution.


Momentum is excellent, both for the share price and the underlying business. I bought as price was breaking out to new highs and am already up over 40% on my purchase price. The valuation at the time of purchase seemed strikingly cheap, given the quality and growth prospects.

O’Reilly Automotive

O’Reilly is a US-based automotive aftermarket supplier, worth about £45bn. It has a network of just shy of 6,000 stores across the US and a handful in Mexico.


  • Business economics: O’Reilly has a cash-generative and capital-light business model. Setting up new stores is not particularly costly and inventory can be managed efficiently across the distribution network. It is very profitable with operating margins over 20% and returns on capital over 40%.
  • Track record: O’Reilly has an excellent track record. It has a consistent formula for opening new stores and has grown revenues and profits very steadily over time. Long run shareholder returns have been excellent.
  • Competitive advantage: the markets for auto parts are local and in general the competition is fragmented. In any given area O’Reilly may face competition from local suppliers as well as a handful of other national chains, such as Autozone. The national chains benefit from economies of scale and scope in management, the distribution network and advertising and the trend is for local markets to consolidate. Over the longer term the main strategic variable is where O’Reilly chooses to locate its stores. There are several considerations to be balanced, such as optimising the distribution network, predicting demand and minimising advertising costs and avoiding competition. O’Reilly seems to have figured out a good approach.
  • Growth prospects: while most of the rapid growth is probably now in the past, there still seems to be plenty of potential grow by opening new stores and taking share from smaller competitors. One of the main attractions is the defensiveness of the business, which should be fairly inflation and recession resilient.


Momentum is excellent. O’Reilly has traded consistently well through the pandemic and has continued to do so. I bought as the share price broke out to new highs. The valuation seems reasonable given the quality of the business.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s