Investing on a low income.

Category: Investing Mistakes

“Investing is just like gambling” No. It really isn’t.

The first thing I often hear when people learn that I’m an investor is that’ “Isn’t that just glorified gambling?” Fed up of constantly explaining why it isn’t, I decided…

The first thing I often hear when people learn that I’m an investor is that’

“Isn’t that just glorified gambling?”

Fed up of constantly explaining why it isn’t, I decided a blog post was necessary.

The main reason why many think that investing is a form of gambling is because they don’t know the difference between trading and investing.

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Undervalued stock? Don’t wait for a correction BUY NOW!

Perceived ‘discounts’ obtained by waiting for a stock’s price to drop are often less than anticipated due to missed dividends Is the discount obtained from waiting for a stock to…

  • Perceived ‘discounts’ obtained by waiting for a stock’s price to drop are often less than anticipated due to missed dividends
  • Is the discount obtained from waiting for a stock to drop worth the risk of not owning it at all?
  • This article will show how waiting just 3 quarters for a 5.5% discount erodes the real discount by 2.2%
  • Investors waiting for a price to drop are fighting against time and the market.


“The market is overvalued”

“A correction is looming”

“We’re going into recession”

These are some phrases I’ve become used to reading, especially over the past few months.

Some ‘investors’ it would seem, are putting of buying shares due to their perceived valuation of the market.

But investors should always remember that;

Time in the market beats timing the market”

Why you shouldn’t try time that market

When I first started investing, I went at it – trying to time the market and shares.

I would insist, for example, that I would only buy a stock, let’s say ‘stock x’ if it dropped from £1 to 90p (a 10% discount).

But what I soon realised is that most shares wouldn’t drop, and the market correction that I was predicting along with many analysts just wasn’t happening.

In fact, market corrections have been predicted for over two years now.

We’re still waiting.

If it’s undervalued buy it – even ‘if it has further to drop’.

Let’s take a real life example.

A friend of mine really wanted to buy some shares in Kraft Heinz in January last year. The shares, having just come back from a price below $70 looked attractive, but he told me that he’d wait until the shares dipped below $70 again before buying in.

That never happened and now the shares sit at close to $90.

A great company with an attractive yield missed, simply for a few $.

A current example is Flower Foods which currently sits at just above $15. At this price, the stock has a dividend yield of 4.2% and is trading at low p/e multiples compared to its history.

Yes, the company currently has a few issues but I was amazed to see investors saying they are “waiting for the price to drop further”.

Some speculators have noted a current legal issue facing the company and the way it employs its drivers as a factor for further price reductions.

This is a dangerous strategy which ignores the fact that the shares are currently overvalued. There’s a very simple message for these investors;

Let’s take a look at how much is saved by waiting for a mear 5% drop in the price of a stock.



Flower foods at $15.71 vs Flower foods at $14.85


Let’s say an investor will only buy Flower Foods below $15. I bought in at $15.71, therefore if the investor manages to predict the market (against the odds it would seem) and buy in at $14.85 then he/she has achieved a 5.5% right?


Here’s why that number is in fact only 3.3%




Point one shows the shares at $23.50. At this price, I would not have considered purchasing the shares, deeming them to be too expensive.

At $15.71 on February 12th , the share’s are looking undervalued and I decide to pull the trigger and buy. (Let’s say 100 share to keep the maths simple).

Scenario 1 Buying in February ($15.71 a share)

In March I receive a dividend of $0.145 per share.

March income = $0.145 x 100 = $14.50

I reinvest the dividends on the 18th of March (payment date) to purchase 0.77 share’s of Flower foods.

In June I receive a dividend of $0.16 per share.

June income = 0.16 x 100.77 = $16.12

I reinvest the dividends on the 23rd of June to purchase 0.9 shares of Flower foods.

In September I received a dividend of $0.16 per share.

September income = 0.16 x 101.67 = $16.27

I reinvest the dividends on the 8th of September (for illustrative purposes as dividend is paid on the 9th) to purchase 1.07 shares of Flower Foods.

I now have 102.74 share’s of flower foods for my initial $1,571 investment.

Scenario 2 – Buying in August ($14.95 a share)

On August 11th share’s drop below $14.95 so investors who waited for the shares to drop below $15 buy.

They buy 100 shares for $1,495.

The investor receives the September dividend of $0.16

September income = $0.16 x 100 = $16

The investor reinvests the dividends to purchase 1.05 shares of flower foods.

The investor now has 101.05 shares of flower foods for their $1,495 investment.


Cost per share;

Me: 1,571/102.74 = $15.29 a share
Investor 1: 1495/101.05 = $14.79 a share

% Difference

3.3% saving in favour of ‘investor 1’

So, it appears that taking the risk of the share price increasing has saved investor one a mere 3.3%,

But, extend this over a few more quarters and the margin of discount decreases.

Here was an example of three quarters of dividends, what if the wait was over 6 quarters.

The lesson is simple, the longer the time period, the more the cost of not investing is.

I like to be sure, so why not lock in that undervalued dividend paying stock and get your money to work!

This time investor 1 got lucky. But will Flower foods drop below $13.50 or $10. Who knows? Frankly, I don’t want to wait to find out.


The longer one waits before buying a dividend stock, the more the cost of not investing becomes.

The above example begs the question, Is waiting for the price to drop really worth risking a guaranteed purchase of an undervalued company?

Isn’t it better to lock in a deal and put my capital to work with a 4.2% yield as opposed to the close to 0% I’d get in the bank at current interest rates?


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Why BHS collapsed + what will rise from the ashes?

After reading countless articles jeering the demise of the ‘iconic’ BHS, I can’t help but think that the company had it coming for a long time. Not to sound too…

After reading countless articles jeering the demise of the ‘iconic’ BHS, I can’t help but think that the company had it coming for a long time.

Not to sound too harsh, I deplore the loss of 11,000 jobs, in which staff worked as hard as they could, going the extra mile to save the ailing business.

Let me be clear, it’s the company’s top brass that got it terribly wrong and I can only hope that most staff can find jobs in the companies that come to replace now vacant BHS stores.

Failure to invest

Sir Phillip Green knew what he was doing when he sold the company for £1 to a group of inexperienced ‘entrepreneurs’. He was abandoning a sinking ship, unwilling  to go down with it or to invest some of his £5.8Bn fortune to revive the BHS brand and offering.

The firm ultimately collapsed after its new owners failed to secure £70m for a turnaround. £70m I’m sure that would have been easily found from Sir Green’s fortune.

In the end, potential investors and lenders knew that BHS was dead in the water and refused to back an ailing brand that lost its significance with customers a long time ago.

What was BHS’s brand in the end?

The artificial changes that the purchasing group made in its final days simply weren’t enough.

Whilst the new branding (1) was a nice touch it was already too late, a cosmetic measure for a company critically burdened by high overheads and an astonishing pensions deficit.

It does raise the question as to the company’s identity in its final few months. The new BHS(1), Bhs (2) or British homestores (3)?

BHS1 BHS2bhs3


The failure to establish a consolidated brand that customers could identify with was symptomatic of a complete failure by management to make the retailer relevant again.

As confused as they company’s branding was its in-store offering. Instead of focusing on its core offering the company expanded its offering in a desperate attempt to gain market share. BHS moved into Perfume and food, further confusing consumers and moving into already occupied territory!

Its venture into food was somewhat bizarre as rival M&S already dominated this space. Their confused venture was defined by their stocking of discount Happy Shopper products alongside ‘premium’ brands. A perfect symbolism of the company’s failure to settle on its offering and identify its target market.

Its perfume offering also ventured into a space already dominated by Debenhams and Boots. I’m shocked at what value management thought they could add by stocking perfume alongside homewear.

In the end, instead of focusing resource into branding and customer initiatives the company expanded and was left severely outgunned by rivals Debenhams, M&S and John Lewis.

Just take a look at advertising spend;


Screen Shot 2016-08-27 at 16.52.41



Not surprisingly the underinvestment in the company’s brand and offering lead to an abysmal YouGov Brand Quality Metric with the company achieving a score of 12.3, way behind rival Debenhams (38.8) and M&S (59.5).

What next for BHS stores?

In the end, BHS ended up like Woolworths, a tired brand that failed to move with the times. The attempts to offer everything ultimately lead to delivering on nothing and now customers can look forward to useful and significant offerings on the highstreet.

As, of the ashes of the old Woolworths, companies such as Poundland, B&M bargains, Iceland and Wilko came to occupy the derelict stores the same will happen again.

With countless online polls showing shops such as H&M, Zara and GAP as prefered occupiers for BHS stores I expect the reality to be harshly in contrast.

It will be retailers such as SportsDirect, Poundland, B&M bargains, Home Bargains and Primark that will rise from the ashes. These are the growing brands of today’s impoverished demographic still scared by 2008.

As we can see from the below table from Satisa which outlines acquisition of stores out of bankruptcy by company between 2009 and 2014, the preferred pics of the public are nowhere to be seen.

Screen Shot 2016-08-27 at 17.22.19


The demise of BHS gives us no more detailed insight into the state of the UK’s retail sector as Woolworths did.

Being an ‘Iconic british brand’ just doesn’t cut it.

Stores must offer an appealing core offering and value for money.

When faced with troubles, the answer is consolidation of core offering as opposed to expansion into various offerings.

As bitter a pill as it may be to swallow for those with disposable income, Poundland is the future of the empty BHS stores as they were with Woolworths.




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Easyjet shares – avoid this investing mistake

Regular readers will know that I’m always skeptical of forward projections whilst buying shares. This is due to a very important lesson I learnt from a previous investing mistake. Whilst it’s…

Regular readers will know that I’m always skeptical of forward projections whilst buying shares. This is due to a very important lesson I learnt from a previous investing mistake.

Whilst it’s important that you view a company’s market going forward, and take clues as to future performance one should never focus too heavily on forward projections.

Let’s take a case study as to why: My purchase of EasyJet shares.

I bought EasyJet shares at around £16 a share in May 2015. My stake today is worth 35% less. Although, I always say that “my shares could drop 50% for all I care”, EasyJet is different because I didn’t do my homework.

This investment turned sour due to an investing mistake on my part.

The peril of forward projections

It’s important to understand the range of projections that exist for a share, and just taking the consensus recommendation isn’t good enough.

As you can see from the graph below, some analysts give a price target of £20 to EasyJet whilst others place it closer to £5. Who know’s who’s right?

The problem with many investors (and myself in May 2015) is that people buy shares expecting analysts to be correct about future earnings. At Least by taking the consensus estimates one could feel fairly comfortable right?

WRONG – these are estimates. Estimates change depending on continually evolving circumstances. Just look at the target price consensus revisions for Easyjet shares.



It’s so easy to feel secure because the price you’re paying is below the consensus price target.

It’s easy to feel secure because even the lowest target is not far off the price you’re paying.

But, like any projection. Things are subject to change, and Easyjet is a perfect example.

In July this year Easyjet shares tanked after the company issued a profit warning. Nobody, even the mystical analysts and their abundance of tools and resources saw it coming.

With any other share I’d be delighted at a drop in price but with Easyjet I wasn’t. I wasn’t comfortable in owning the shares at that price. Why? Because I was banking on projected earnings to pay lofted projected dividends. Big mistake.

Blinded by dividend.

When I stumbled across dividend growth investing, I got so obsessed with my own skewed version of the theory that I was blinded by dividend.

When buying EasyJet shares, I didn’t do my homework and betrayed most dividend investing principles.

The rationale for buying EasyJet shares pretty much lied solely on the dividend.

I saw this graph, took the forward dividends and EPS as gospel and plunged in head first. Look at that juicy 66p dividend in 2018. I thought, that would give me a yield of 24%. GENIUS…..More like idiot!



Screen Shot 2016-08-23 at 16.55.29

Projections de-railed

Another problem with projections and estimates, aside from the range of differing estimates is that projections can only be made with information available at the time.

As things change, so do projections.

But one thing that can’t be changed is the fundamentals of the company for the previous year or latest set of quarterly results.

This is why investors should never base their investments on the factual results at hand.

Management blames the following for Easyjet’s journey off course;

  • Terrorism
  • EgyptAir tragedy
  • Increasing market capacity (i.e more supply)
  • An expensive euro due to brexit
  • A very high level of cancellations during 3rd quarter 2016 with 1,221 compared to 726 in the third quarter 2015”


What I should’ve looked at – avoid this mistake! 

What I should have looked at before buying EasyJet shares were the company’s fundamentals, and the environment in which it operates.

Doing so would have clearly shown me that an airline stock is not the steady growing, reliable dividend payer that dividend growth investors should buy.

Indeed, any intelligent investor, not blinded by yield and greed would have seen that the airline industry is;

  • fiercely competitive – Increased capacity mean lower fares for all operators
  • Extremely sensitive to external factors – Think terrorism and weather
  • Very unpredictable – Think delayed flights + compensation claims

How on earth could such a stock be a steady, predictable dividend payer?

Just knowing these facts about the airline industry would have been enough to keep a conservative investor (as I now consider myself) far away.

Warren Buffett has notably said the following on airline shares;

“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers”

— Warren Buffett, annual letter to Berkshire Hathaway shareholders, February 2008


Who would doubt the oracle of Omaha?

The future

As for the future of Easyjet, who knows.

My interest in the stock has declined rapidly since I awakened as to the perils of the airline industry and continually revised revisions.

One thing EasyJet did teach me was

  1. Never trust forward projections for any metric. Be it dividend, earnings, revenue e.t.c
  2. Always thoroughly check the industry in which a stock operates (duh!), you may have some serious misconceptions
  3. Don’t be greedy. Predictability is far more important than projections of dividend growth.

Warren Buffet famously made a $353mn investing mistake in the airline sector. Thankfully my investing mistake only cost me £500.

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A dangerous mistake that even experienced investors make.

No-one is perfect and even the most experienced of investors make mistakes, and one mistake that I see time and time again is buying into hype and forward valuations.  …

No-one is perfect and even the most experienced of investors make mistakes, and one mistake that I see time and time again is buying into hype and forward valuations.


I’m not going to name names – but I have seen countless articles and countless analysts deem stocks ‘obvious’ and ‘stunning’ buys based purely on projection.

Only today I saw an analyst call Cineworld Group plc a stock that “fully merits a slightly-elevated forward P/E rating of 18.1 times”.


But how do we know that in one year Cineworld will indeed achieve its forecast earnings? Maybe it’ll be higher, maybe it’ll be lower, who knows? But we must remember that tens of analysts that evaluate stocks. Some place Cineworld’s estimated EPS for 2016 at 34.2p a share giving you a forward p/e of 17.5. Some place Cineworld’s estimated EPS for 2016 at 30.68 giving you a forward p/e of 19.5. Who knows which analyst is correct?


One thing we do know and that is that the stock currently trades at a s p/e of 19.62. Definitely overvalued for a cinema chain!


But Analysts are professionals, surely they get things right?


You would think so but this couldn’t be further from the truth. Analysts use a range of different methods and take a range of different views on stocks in order to estimate anything from price targets to earnings. If analysts really had the market figured out, why do their valuations vary and why did many close due to wrong predictions during the 2008 market crash?


If we take an extreme example of how wrong analysts, predictions and hype can be we don’t  need to travel further back than 1999 and the dotcom bubble for some perfect examples.


During this period the US stock market’s p/e rose to 32 and many tech stocks with negative EPS were trading at p/e of over 100 simply because they sounded cool. We’re only now seeing tech companies like Microsoft and Verizon return to their 1999 levels – 17 years later, after trading hands at ridiculous valuations at the bubble’s peak.


In 1999, Wall street was buying with both hands and analysts predicted never-ending EPS growth of 100’s% yearly until the bubble burst in early 2000. But, those looking at the facts during this period could see that such valuations were ludicrous and the EPS projections farcical and were spared the losses that bankrupted many investors.

How about an example of these valuations?

Let’s take Yahoo – on January 3rd 2000, Yahoo shares closed at an all time high of $118.75 per share, doubling in price since December 1999. Their earnings per share for that year came out at $0.05 putting the company’s valuation at 162x earnings. On September 26 2001 their shares were worth just $8.11.


Current examples of irrationality

I often get criticized by friends and colleges for not buying in to ‘stocks of the future’ a few names that instantly come to mind are – Amazon, Netflix and Tesla.

Well let’s look at the facts,

Amazon trades at a p/e of 192 (ttm). It’s EPS were negative for 2012 and 2014. Even if I took the highest analyst estimates for EPS in 2017 of $15.55, purchasing the stock today for $770 would give me a p/e of 50. There’s absolutely no value in the stock at this level.

Tesla hasn’t recorded a year of positive EPS figures yet, has a net loss of $886m worldwide yet astoundingly trades at a valuation of $226 per share!

Netflix on the other hand has a p/e ratio of near 300 (ttm). But I’m sure it’ll all be ok because the company is expected to earn 0.89c a share in 2017 up from the 0.25c per share the company recorded in 2015. Even if we took the highest estimate for EPS in 2017 which is $1.38 this would give us a p/e of 69 in 1.5 years time.

Conversely, I could buy Walmart today, for 16.33 times earnings and receive a 2.71% yield and annual dividend increases for the foreseeable future. There’s no mystic ball needed here. These are facts.



 When you’re buying a stock, you’re buying a part of a company. You can sell your part of that company to Mr Market whenever you like – for the price he offers. But, one thing you should learn is that Mr Market is sometimes (often) irrational and can offer you ridiculous valuations for your part of a company be it to little or too large a valuation.

For example, If you went to a car dealership and bought a car you knew was worth £1,000 for £1,000 and parked it outside your drive, you would be content in knowing you have a £1,000 asset sitting outside your house. So, what would you do if Mr Market knocked on your door and offered you £500? You wouldn’t sell it of course, knowing full well your car is worth £1,000.

But, what if when you went to the car dealership and the salesperson said to you;

“I know this car is only worth £1,000 today, BUT our dealership, and other dealerships estimate that this car will be worth £5,000  in three years. I tell you what, I’ll give it to you today for just £2,500.”

If you bought that car and parked it outside your drive, how do you know that Mr Market will knock on your door in three years and pay you £5,000 for it? How do you know that that car will indeed appreciate in value at all?

The mistake would be to buy the car for £2,500. The mistake investors often make is to buy a stock for well over the market/sector’s average p/e in the hope that the analysts were correct when they projected forward earnings.

I must admit that I have indeed done this and it didn’t end well. I’ll be writing an article on my mistake this Monday. Have you ever made this investing mistake? Comment below.

Disclosure: I have no positions in any of the stocks mentioned and no intention on initiating a position within the next 72hours.

All figures taken from

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Top three investing mistakes.

During my series – investing mistakes, I will cover a range of mistakes that anyone from a beginner to seasoned investor may make. Where I can, I will provide real…

During my series – investing mistakes, I will cover a range of mistakes that anyone from a beginner to seasoned investor may make. Where I can, I will provide real life examples of such mistakes (often at my own expense) so you can avoid them.

I’ll begin with the top three mistakes for beginners.

1. Buying because it’s busy.

One of the worst investing stories I ever heard was from a work colleague.
He told me that he had recently bought shares in HMV group. Why? – Because he went to buy a few things from their Swansea store and it was really busy.  It’s really important to remember that busy stores don’t equal profits and they certainly don’t equal financial stability.

Companies with busy stores could have poor margins due to pricing pressures, high levels of debt or even be on the verge of bankruptcy, as was HMV. Whilst in 2011 HMV stores may well have been busy it has massive debt and had to close 60 stores in order to reduce its debt pile. It later sold Waterstones for £53mn to try and further manage its debt pile. By 2013 administrators had been called in to try and save the ailing busnes.

ALWAYS check a company’s fundamentals before buying and don’t get sucked into hype.

This seems obvious to many but unfortunately this rationale for buying stocks is often quoted by many of my colleagues and friends.

2. Buying based on future earnings projections.

I have to admit, this is one mistake that I myself have made. If you take the time to look at my portfolio page you will see that I have a position in Whitbread. My rationale for initiating this position was, in reflection, considerably flawed.

Why did I buy Whitbread? I had just received a tax rebate and had some cash I seriously wanted to invest. Having scoured my watchlist I took a closer look at Whitbread and got suckered in by the future earning projections that analysts were making for the company. I saw consensus EPS of 3.06 for 2018 and then calculated the forward p/e ratio to 16 based on the £50 per share price tag.

I plunged into the shares recklessly happy with the ‘value’ I was getting for these notoriously expensive shares in full confidence that EPS would indeed grow. In fact I was buying in at an expensive p/e ratio of over 21 and was essentially ‘betting’ that the company would perform,

Needless to say, projections don’t equate to earnings – something clearly pointed out by Benjamin Graham in his book, The intelligent investor. A few downwards revisions later and my shares are worth closer to £40 each. Although the dividend investor inside me is quick to emphasise that a stock’s price doesn’t affect the income stream I get from it the value investor inside me is quick to point out that I significantly overpaid for the stock.

Although I’m still confident owning the shares, it is abundantly clear that I paid over the odds for my stake. I paid around 21 p/e which was a much more expensive multiple than its historic average of around 16.

3. Buying because ‘you think’.

Another mistake that’s often made is purchasing a stock because you own a crystal ball. I have too many friends who have bought shares in companies such as Tesla and countless green energy shares because ‘that’s the future’.. right?

Although it may be true that green energy will eventually replace fossil fuels that doesn’t mean that the shares on offer in that sector are worth the high p/e multiples that some sport. Always be careful before buying a share in any sector and don’t just buy a share because it’s in a sector/niche that you think will be successful – there may be better peers.

Make sure your rationale is secure before purchasing a stock and don’t rush in because of your preconceptions. Always do your homework and don’t think you ‘know’ anything because of a few headlines you read in a newspaper or from conversations with your friends.

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