I Was Convinced The Share Was An Absolute No-Brainer

I like a share winner as much as anyone.

And although my portfolio has chugged along nicely this year – not too hot, but not too cold – I’ve felt like a loser during these past few weeks.

I think it all started with Royal Mail.

You’ll remember I scoured the 447-page prospectus, showcased the group’s £1bn-plus ‘hidden’ property assets…

…and declared the flotation as “quite possibly the best large-cap buying opportunity of the year”.

Yet my ‘greedy’ application was turned down by the government, while more than 690,000 other spivs speculators investors made out like bandits with the shares now up 80%.

I’m still miffed about missing that bargain.

Dashed any plans for donning party hats

My mood has not been helped by the total lack of any Christmas rally.

Far from fizzing to a festive FTSE 7,000, the market has stalled around 6,500 and dashed any plans for donning party hats and leading office congas.

In fact, bullish optimists such as me are now left pinning our hopes on the ‘January effect’…

…the old market tale that says shares generally rise in January to dictate the outcome for the year as a whole.

(It worked in 2013.)

What I was convinced was an absolute no-brainer small-cap resources investment

Then I’ve taken a knock in my own portfolio.

You may recall me surveying some Bombed-Out Shares Selling Below Cash Value back in September.

Well, I did some more digging and unearthed what I was convinced was an absolute no-brainer small-cap resources investment.

Now I do not use the term absolute no-brainer lightly. After all, there is always some risk in the stock market.

But I was essentially looking at buying 31p of cash for just 26p.

Here’s a quick rundown of the absolute no-brainer small-cap resources stock in question:

  • It’s called 3Legs Resources
  • It was (and still is) drilling for gas in Poland;
  • It last reported net cash of 42p per share;
  • The directors were promising net cash of 31p per share at the middle of 2014;
  • The shares could be bought in the market for 26p, and;
  • Activists on the shareholder register had already attempted to force the company to stop drilling and return the cash to investors.

Trading below cash value with dissident investors helping the cause for ordinary punters like me…surely this was a case of all upside and no downside?

In fact, I couldn’t see anything that could possibly go wrong.

Apart from the directors breaking their promise of 31p net cash…

…which of course they did.

Long story short… the drilling’s been ramped up, a lot more cash will be burned, the shares have dived and I am sitting on a 25% loss :-(

I never bought ASOS at 3p, Next at 9p nor followed David Gardner into Amazon at $3

But I know I mustn’t grumble.

You see, I have been in the markets long enough to realise:

  • you cannot bag every bargain;
  • you cannot always rely on a rising market, and;
  • you pick a dud every so often.

I mean, I never bought ASOS at 3p (now £60), Next at 9p (now £55) nor followed David Gardner into Amazon at $3 (now $387) …and my portfolio has still prospered.

Nor did I capitulate when the market tanked in 1998, collapsed in 2001/2 and crashed in 2008… and my portfolio has still prospered.

And I have suffered (now distant) share disasters such as Filofax, PizzaExpress and MMT Computing

(and will no doubt survive 3Legs Resources mentioned above)

…and my portfolio has still prospered.

Heck, I did say my portfolio has chugged along nicely this year – so really I should be counting my good fortune.

And perhaps I should be singing the praises of my unsung winners rather than moaning about the odd loser.

The shares produced a respectable 19% return without me even really noticing

This year I have enjoyed quite a few unsung winners – shares that plod along, without much fuss, but have a remarkable knack of delivering decent returns while I’m too busy celebrating/mourning other holdings.

Take for example mid-cap oil share Soco International.

Now I bought Soco shares in 2012 and the price for 2013 has been mostly marooned around the 390p mark, with a few pennies gained here and a few pennies lost there.

The chart for 2013 is hardly exciting.


Source: Capital IQ

I can’t recall why the price dropped in July, but I do know news of a 40p per share special dividend pushed the price higher soon after.

Anyway, to my surprise (and including that 40p dividend), the shares have actually produced a respectable 19% return this year without me even really noticing.

I reckon the City may not have noticed Soco much this year as well

I mean, although Soco boasts:

  • A sizeable £1.3bn market cap;
  • Substantial current production and profits ($200m-plus);
  • A significant net cash position ($200m), as well as;
  • The prospect of an annual payout that I reckon could be about 25p per share…

…the share price still supports a potential yield of 6%-plus.

Why might some investors be missing this juicy income? Maybe because Soco…

  • Is part of the currently depressed oil and gas sector;
  • Has never paid a regular dividend before;
  • Might distribute the annual payout as a ‘return of capital’ rather than through a straightforward dividend, and;
  • Has a lack of yield forecasts on popular stock screeners.

Still, I will be happy to hold on to Soco, collect a possible 6% income, strike another market-beating gain without me really noticing…

…and have one thing less to grumble about in 2014!

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> Maynard owns shares in 3Legs Resources and Soco International.