Each week, this magazine publishes two investment ideas we think readers will find interesting.
Occasionally, these are ‘sell’ ideas, which can be interpreted as an argument for existing investors to exit a holding, or (for the more risk-tolerant) a short thesis. But the complications, costs and potentially unlimited downsides of short-selling mean that, historically, we have been more selective with our bearish calls. And given our leaning towards long-term investing strategies, and the tendency of markets to gradually rise over time, ‘buy’ ideas predominate.
It has been a few years since we referred to these buy and sell ideas as ‘tips’. To some ears (this editor’s among them) the word carries the grubby nod-and-a-wink connotations of the betting shop, or – somewhat more seriously in a country governed by Market Abuse regulations – a City type with their ear to a bit of inside gossip.
That was never our intention, and was part of the reason why we rebranded the section as investment ideas, which we like to think of as prompts for further research.
But their performance still matters. Returns, after all, are the reason why someone invests in the first place. And reviewing our ideas’ performance is always a worthwhile endeavour: by looking back at our reasons for selecting each we can try to use hindsight to pick apart our biases.
Our collective headline performance created a mixed picture in 2022. Between 13 January and 16 December this year, we published 98 ideas, 86 of which were buys. In aggregate, they lost value, falling by an average of 3.9 per cent. Factor in inflation, currently hovering in the double digits, and the real-terms loss is compounded.
Ideas of the week performance 2022
|Ideas||Av. Performance||Index||Av. Out/Underperformance|
|Source: FactSet, accurate to 21/12/22. Simple sterling-based price returns.|
Our buys struggled, declining by an average of 6.3 per cent in simple price terms. Several well-reasoned ideas that tried to anticipate or reflect changing consumer sentiment – baker Greggs (GRG), discounter B&M European Value Retail (BME) and bus operator National Express (NEX) to name three – fell flat. Compared to the indices from which each stock idea was drawn (or used as a benchmark in the case of fund ideas), the buys’ collective performance was a bit worse. The average underperformance, also before dividends, was -0.5 percentage points.
But our investment writers, alert to the unending sell-off in risk assets throughout 2022 (and habitually cynical at the best of times), were full of sell ideas this year. In the event, we published 12, quadruple the number in 2021. Two-thirds were in positive territory by 20 December – which is to say the prices of the shares we wrote about fell, as expected – and the average return was 13.6 per cent, a full 14.9 percentage points ahead of their benchmarks.
This meant our 98 ideas beat their indices by an average of 1.4 percentage points in 2022. Plenty of caveats, including the hidden dealing costs of shorting and the exclusion of dividends in our calculations, of course apply. But given the backdrop (which in case readers need further reminding, was a horrible year for equities) this isn’t a terrible result.
Still, we should be clear on what exactly it is we’re measuring here. Our outperformance represents a hypothetical investor who doggedly deploys an equal amount of capital into two investment ideas each week, for 49 straight weeks. It might be a system, but it’s also a slightly odd way to invest.
Then again, this drip-feed approach would have insulated our share picker from the worst of the market pain. Pity any soul who, flush with cash and looking to finally get into stocks at the end of 2021, threw caution to the wind and put it all into a generic share index fund. Sometimes, timing really does matter; as the tables at the end of this article show, the worst-performing ideas skew towards the start of the year, in large part because that was when markets started tanking.
We can also be broadly happy with our ideas’ relative return distribution. Fifty-seven per cent of our ideas outperformed their benchmarks since their publication, and just one stock – hydrogen hopeful ITM Power (ITM) – lagged its index by more than 40 percentage points.
There were no knock-out performers or multi-baggers during the year, but nor were there many across the entire market, meaning we would have been particularly lucky to find one. More notable, however, is that our three best-performing ideas, in terms of both absolute and relative returns, were sells.
Of these, two – Ocado (OCDO) and Amazon (US:AMZN), which fell 50 and 40 per cent, respectively – were of a piece: much-hyped winners of the previous two years, with the technology and distribution networks to meet our pandemic-charged appetite for online ordering. This year, both companies have suffered as a mixture of waning consumer confidence and rising input costs chipped at or erased already thin margins. Growth stocks may have fallen out of fashion this year, but it is debatable whether investors now view these businesses’ consumer-facing arms as growth engines at all.
Size was also a big factor in determining the relative performance of our ideas. Selections from the FTSE 100 or large-cap overseas names failed to beat their benchmarks on average, whereas ideas drawn from Aim or the FTSE Small index – source of a combined 36 ideas in the year – were well ahead.
Accounting for this is difficult. Anecdotally, there is greater price discovery at the junior end of the stock market, because most investors and analysts focus on the largest and therefore best understood businesses. In theory, this could provide our writers with an edge in their hunt for outperformers. But a lack of coverage doesn’t explain why our small-cap ideas did a lot better than their indices on average, given the stocks in question were subject to the same indiscriminate selling pressure in the junior markets.
My best guess is that a value lens helped. Relatively few of our small-cap ideas this year involved the kind of rollicking ‘sink or swim’ growth stories to which retail investors sometimes flock. When optimism is shot, and corporate newsflow is routinely downbeat, that’s probably a smart stance.
Sticking with a cautious approach – and placing a greater focus on value than growth or recovery narratives – feels like a good place to start for our regular ideas in 2023. With any luck, UK benchmarks will also be less tough to beat, but we shouldn’t count on it. And in any case, what ultimately matters to active stockpickers is outsized positive returns, not index-hugging. Mean reversion – an inevitable product of producing almost 100 ideas each year – makes this a tough ask, but we can but try.
More caution might be needed with our greatest source of idea success, too. While highly leveraged companies with weak growth prospects could become an increasingly important source of sell ideas – as they were in the case of cruise operator Carnival (CCL) this year – we will need to be guarded against sudden improvements in risk sentiment.
The room we give to ideas focused on bargain-basement investment trusts and funds, which brought mixed success in 2022, is likely to increase, mind. That might also be a smart way to cast our ideas net more widely over international markets. While I recognise readers’ ever-growing interest in the investment cases of overseas shares, we have to allocate our resources as smartly as possible. Plus, if there is any edge to our writers’ weekly ideas, it is likely to be found in their knowledge of and contact with the companies they cover day in and day out.
|Serica Energy||SQZ||13/01/22||Aim All-Share||41.3%||11.4%|
|Bloomsbury Publishing||BMY||10/02/22||FTSE Small Cap||35.2%||19.5%|
|Keywords Studios||KWS||20/01/22||Aim All-Share||32.6%||3.7%|
|Alpha Financial Markets Consulting||AFM||03/11/22||Aim All-Share||28.0%||29.5%|
|Games Workshop||GAW||13/04/22||FTSE 250||22.5%||10.9%|
|Central Asia Metals||CAML||31/03/22||Aim All-Share||22.4%||1.3%|
|Foresight||FSG||28/07/22||FTSE Small Cap||20.8%||15.8%|
|International Biotechnology Trust||IBT||17/02/22||FTSE Small Cap||20.0%||6.1%|
|Bank of Ireland||BIRG||24/11/22||FTSE 250||18.1%||13.0%|
|Ricardo||RCDO||22/09/22||FTSE Small Cap||13.6%||13.1%|
|Wincanton||WIN||10/03/22||FTSE Small Cap||13.5%||7.1%|
|Eli Lilly and Company||US:LLY||07/07/22||FTSE World (£)||11.6%||9.7%|
|Kenmare Resources||KMR||17/02/22||FTSE Small Cap||10.4%||-3.5%|
|Aberforth Smaller Companies Trust||ASL||31/05/22||FTSE 250||9.6%||0.5%|
|Ten Entertainment||TEG||29/09/22||FTSE Small Cap||9.4%||15.0%|
|Nvidia||US:NVDA||01/12/22||FTSE World (£)||7.4%||2.9%|
|Novo Nordisk||US:NVO||08/12/22||FTSE World (£)||7.2%||4.8%|
|Mobius Investment Trust||MMIT||28/04/22||FTSE Small Cap||6.9%||-3.3%|
|Biogen||US:BIIB||13/10/22||FTSE World (£)||6.5%||3.8%|
|Paragon Banking||PAG||11/08/22||FTSE 250||6.3%||-2.1%|
|Janus Henderson Absolute Return Fund||GB00B5KKCX12||17/03/22||FTSE 250||6.3%||-5.3%|
|Begbies Traynor||BEG||15/09/22||Aim All-Share||6.0%||0.7%|
|SThree||STEM||20/10/22||FTSE Small Cap||5.0%||11.5%|
|Lindsell Train Global Equity||IE00BJSPMJ28||23/06/22||FTSE World (£)||3.9%||6.7%|
|Liontrust Asset Management||LIO||30/06/22||FTSE 250||3.4%||2.8%|
|Legal & General||LGEN||10/11/22||FTSE 100||3.1%||3.0%|
|Lloyds Banking||LLOY||06/10/22||FTSE 100||3.0%||8.4%|
|International Public Partnerships||INPP||01/12/22||FTSE 250||2.6%||-1.8%|
|Ryanair||IE:RYA||07/04/22||FTSE World (£)||2.2%||-3.5%|
|Tate & Lyle||TATE||24/02/22||FTSE 250||2.1%||-6.3%|
|Watches of Switzerland||WOSG||12/05/22||FTSE 250||2.1%||-2.7%|
|City of London Investment Trust||CTY||03/11/22||FTSE 250||1.2%||3.6%|
|Invesco Physical Gold ETC||SGLP||30/06/22||FTSE World (£)||-1.5%||0.1%|
|Alpha International||ALPH||10/11/22||Aim All-Share||-2.2%||-4.5%|
|AG Barr||BAG||21/07/22||FTSE Small Cap||-2.4%||-6.2%|
|US Solar Fund||USF||08/09/22||FTSE Small Cap||-4.0%||-6.5%|
|Costain||COST||01/09/22||FTSE Small Cap||-4.3%||-6.1%|
|Ecora Resources||ECOR||04/08/22||FTSE Small Cap||-4.3%||-10.2%|
|Smurfit Kappa||SKG||05/05/22||FTSE 100||-5.6%||-7.4%|
|Tritax Big Box Reit||BBOX||17/11/22||FTSE 250||-5.8%||-8.8%|
|JPMorgan Global Growth & Income||JGGI||29/09/22||FTSE Small Cap||-6.3%||-0.7%|
|Nestle||CH:NESN||19/05/22||FTSE World (£)||-6.5%||-5.5%|
|Alphabet||US:GOOGL||06/10/22||FTSE World (£)||-9.1%||-14.5%|
|Cairn Homes||CRN||22/09/22||FTSE 250||-10.4%||-9.3%|
|Empiric Student Property||ESP||18/08/22||FTSE Small Cap||-10.5%||-17.8%|
|Fresenius SE||DE:FRE||24/03/22||FTSE World (£)||-10.6%||-16.2%|
|River and Mercantile UK Micro Caps||RMMC||03/02/22||Aim All-Share||-12.5%||-37.2%|
|First State Japan Focus||GB00BWNGX432||20/01/22||FTSE World (£)||-13.1%||-15.8%|
|Auction Technology||ATG||14/07/22||FTSE 250||-17.5%||-17.1%|
|Melrose Industries||MRO||07/07/22||FTSE 100||-18.9%||-16.4%|
|Supermarket Income Reit||SUPR||14/07/22||FTSE 250||-19.2%||-18.9%|
|Lundbeck||DK:HLUN.A||10/03/22||FTSE World (£)||-19.9%||-20.3%|
|Wickes||WIX||09/06/22||FTSE Small Cap||-20.7%||-29.4%|
|Anglo American||AAL||21/04/22||FTSE 100||-21.3%||-24.7%|
|Industrials Reit||MLI||16/06/22||FTSE Small Cap||-22.4%||-25.7%|
|B&M European Value Retail||BME||17/03/22||FTSE 100||-25.8%||-26.0%|
|UK Commercial Property Reit||UKCM||21/04/22||FTSE 250||-25.9%||-38.3%|
|Keystone Law||KEYS||27/01/22||Aim All-Share||-27.1%||-51.4%|
|National Express||NEX||24/03/22||FTSE 250||-30.0%||-41.3%|
|Adidas||DE:ADS||16/06/22||FTSE World (£)||-33.2%||-28.4%|
|Embracer||SE:EMBRAC.B||03/03/22||FTSE World (£)||-38.9%||-40.1%|
|ITM Power||ITM||28/04/22||Aim All-Share||-52.7%||-71.7%|
|Source: FactSet, accurate to 21/12/22. Simple sterling-based price returns.|
|Amazon.com||US:AMZN||10/02/22||FTSE World (£)||43.1%||39.9%|
|Motorpoint||MOTR||04/08/22||FTSE Small Cap||30.2%||24.4%|
|Just Eat Takeaway.com||JET||08/12/22||FTSE 250||10.0%||8.5%|
|JD Wetherspoon||JDW||13/10/22||FTSE 250||6.4%||16.0%|
|Fevertree Drinks||FEVR||01/09/22||Aim All-Share||-9.9%||-14.6%|
|Hochschild Mining||HOC||20/10/22||FTSE Small Cap||-12.9%||-6.4%|
|Balfour Beatty||BBY||27/10/22||FTSE 250||-18.2%||-15.6%|
|Source: FactSet, accurate to 21/12/22. Simple sterling-based price returns (positive performance represents price fall).|