Plus 500 - sold

Only 4 days into 2018 and here's my second post of the year.  Goodness, what a contrast to 2017.

A positive trading update led Plus500's share price to bounce about 30%.  I was already coming to the conclusion that I didn't really want to own this business for the long term, so this seemed like a good time to sell - which I just did, at £11.61.

Why sell?

• Their business seems to rely on pulling in new customers and making money out of them, before they decide that actually gambling on CFDs is a mug's game.  That doesn't seem very nice.
• As a company that basically preys on idiots they seem a ripe target for onerous regulation.
• Given the rapid turnover of customers I'm concerned that their position is vulnerable - I suspect they don't have a core of high-spending customers they can rely on year-in-year-out, they need to keep replenishing their customer base.

Why might this be a mistake?

• They still look cheap, particularly given the recent trading update, with a forecast P/E of only 8-9.  They could easily double or treble from here if they keep growing and shrugging off regulatory attention.
• They have a very high return on equity, so can grow without using lots of cash.
• So they have very strong free cashflow.
• And they use that for lots of dividends and share buybacks, not blowing it on silly acquisitions.

So not an obvious decision by any means.

2017

One blog post in 2017 - my annual review of 2016.  I didn't buy or sell any shares.  I've invested in some funds (KLP Emerging Markets), and perhaps I should treat those the same as shares - after all, I recorded my ETF investments in the past, and there's little functional difference between a unit trust and an ETF - but I've decided not to.  It's my blog, after all: I get to decide.

In sterling terms my shares were up 21% over the course of the year vs ~11% for the FTSE 100.  In USD I was up about 33% vs ~22% for the S&P 500.  In NOK I was up 27% vs ~18% for the Oslo Bors All-Share.  So I outperformed to the tune of 9-11%.

My biggest holding, Berkshire Hathaway, broadly matched the S&P 500 and FTSE 100.  Natwest Preference Shares had a good year, climbing to £1.72 from £1.36 at the start of the year, and paying the usual 9p in dividends, for a total return of 33%.  But the real star of my 3-share portfolio was Plus 500 Ltd, climbing from £3.96 to £9.08, paying 89 cents in dividends, and as a result returning 155% in total.

What will 2018 bring?  I think Plus 500 are looking fairly valued, and they face various regulatory and operational risks, so if I may sell them to lock in my profit.  Natwest Preference Shares are now yielding just over 5%, so no longer obviously cheap, but I have no immediate urge to sell, since I don't have any obvious place to reinvest the proceeds.  I expect to continue holding Berkshire Hathaway unless stockmarkets spiral to yet giddier heights and I opt to switch into cash in anticipation of a crash - shares are already on pretty outrageous valuations, but so are all the alternative asset classes.

At the end of 2017 my portfolio comprises:
- 73% Berkshire Hathaway
- 21% Natwest Preference Shares
- 5% Plus 500 Ltd