How Does Brexit Feel 2 Months Later, Value Investors?

stride-a-look-into-persimmon-plc-featured.jpgWe look back at STRIDE’s CEO response to Brexit as a 3D Value Investor, and how it’s fared for him 2 months on.

In our first blog we addressed the Brexit reaction by investors and STRIDE CEO, Scott Nursten, shed some light on his reaction. Find value and buy! He had some outlining thoughts around it, but that was the general consensus.

He bought into four companies, one of which was Persimmon… and then at the beginning of this week, we read about Persimmon being 33% up and going strong. We had to catch up with him on it.

Brexit is Still a Great Opportunity for Value Investors

A Look Inside Scott Nursten’s Portfolio

As we briefly summarized above, Scott used the Brexit situation to find seriously undervalued UK companies, and devote a slice of his portfolio to them. He ended up buying into 4 new UK companies:

     1. Domino’s Pizza Group PLC: price rose by 20% in the past 2 months.

     2. Persimmon PLC: price rose by 33% in the past 2 months.

     3. Howden Joinery Group PLC: price rose by 20% in the past 2 months.

     4. NEXT PLC: price rose by 14% in the past 2 months. 

Why are we sharing this? Because we’re backing up our position in our last 2 Brexit blogs… it’s presenting the perfect opportunity for value investors. By investing in undervalued UK companies, Scott out performed worldwide markets widely.

The FTSE has risen by ~10% and the S&P 500 by ~5%.

Scott’s picks blows these stats away, which just goes to show that investors had a complete overreaction to Brexit. The panic was an assumption that people wouldn’t eat pizza, buy houses, fit kitchens or clothe themselves. That’s unrealistic, because we all love pizza, and show me the Bri that won’t buy a t-shirt at the “End of Summer Sale”? 

Let’s talk About Persimmon

What made Scott go after Persimmon? Well, Persimmon dropped 25% during the Brexit announcement. It’s true that the market could have softened in this time, but what we’re looking at is mostly an overreaction by Mr Market.

Why can we say this? Because Persimmon is 33% up and are selling more houses than ever before. Those are some good reasons to think that they’re doing okay. STRIDE identified that this was a great entrance opportunity, as they were already trading below STRIDE’s considered buy price before Brexit, which meant that Scott could buy at a massive discount (around £13 versus our target consider buy of £18). Because STRIDE identified that they were undervalued before Brexit, the sudden drop in price presented him with the ideal opportunity to invest.

There really couldn’t be a clearer example of good value investing. Here, the market did something completely irrational, and prices dived from investors trying to avert loss, which is where value investors should live. Like we said before, the panic was an assumption that people wouldn’t buy houses anymore… which is simply unrealistic. Because Scott has a long-term vision with his portfolio, he’s unphased by market fluctuations, but rather focuses on entering an undervalued, well run company at a massive discount and then holding it - possibly forever.

Not only is Persimmon’s price 33% up, but they demonstrated a 26% rise in profits in their latest results. How, you might ask? Well, firstly, the pound took a dive and investing in the UK became cheaper overnight (meaning that internationals had a perfect opportunity to buy houses) and 2) the UK has a fundamentally strong economy (meaning the assumption that it’ll go pear-shaped because they don’t have a EU trade agreement is fundamentally wrong. It may rock the boat, but the UK economy is strong enough to bounce back - they are already signing big trade deals with the rest of the world).

What’s Scott Doing Next?

     1. So, are you holding or selling Persimmon?

Scott: I’ve bought my slice already, and so now I’m holding. My investment strategy is always long-term. So, according to the STRIDE engine, Persimmon’s price would have to rise to about £40 for me to sell.

     2. What’s your take on the future of UK market? 

Scott: I don’t like to talk about the market as a whole. No one can accurately predict the market. But, are the individual components of an index fundamentally over or undervalued? That’s the question! There are still several businesses that are fundamentally undervalued. Find fabulous businesses, buy them cheap, hold them, and only sell them if Mr Market has been completely irrational again, but on the exuberant side. The market may go up, but I’m not trying to forecast it. In fact, Persimmon is still a “BUY” on STRIDE, despite being 33% up in the past 2 months. But I won’t be buying more myself, because that doesn't follow the model I laid out in my Asset Allocation and Effective Portfolio Management eBook. I allocate a single slice to each great business that I find, and don’t sell until it goes above my Consider Sell price.

If you want to read more about the STRIDE approach to running a portfolio, download our Practical Guide to Value Investing below.

STRIDE's practical guide to value investing for beginners: building your portfolio

Topics: Brexit, Valuation, Commentary


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