This is the first of a series of blogs in which I will put the spotlight on one of the shares within the CCM Intelligent Wealth Fund that has either performed very well or has excellent prospects to do so in the future.
We only bought Games Workshop shares a couple of months ago in the midst of the recent stock market crash. The company’s shares had been on our watch list for some time and have passed our rigorous 21 points checklist for 21st-century companies and our subsequent investment committee analysis. We really like the company. It has both an online and retail presence, it has been growing strongly for years with annually increasing turnover and profits. Its target market is the growing online games market and it is very well managed.
The only reason for not buying the shares earlier was because the price was too high. We do not believe in investing in over-valued companies because the upside potential is limited but the downside risk is far greater. When you invest in undervalued companies there is a far greater margin of safety.
When global stock markets started to crash on 20 February a tide of events was to make Games Workshop shares fall so much that a great buying opportunity presented itself. A little over a month later Games Workshop shares had fallen a lot on the back of lockdown and the temporary closure of all their retail stores.
We decided it was time to act and bought the shares at a price of £44.45 each on 25 March 2020. The share price subsequently soared. We decided to sell the shares on 1 June 2020 pocketing a capital gain in excess of 70%. The PE ratio of the shares had risen from the low twenties to 39.
We still like the company and we intend to re-buy the shares once its price has fallen significantly again and it has become more fairly valued.
So why adopt such an approach? Why not just let it run and run?
Well, we believe that the current rally in shares prices has been for too long and prices have risen too high. Whilst there has been a series of huge stimulus packages worldwide, markets have become over-optimistic assuming there will be no further resurgences of coronavirus, there will soon be a vaccine and that the recession will shortly be over. In our opinion markets aren’t factoring in any further bad news so prices have defied gravity. A further large fall in stock markets is a strong likelihood.
We prefer to keep a significant amount of money invested in cash and gold ETFs awaiting the next large market fall. That’s when we intend to buy a lot of shares very cheaply and re-buy Games Workshop shares.
So if you would like to benefit from the CCM Intelligent Wealth Fund’s investment strategy why not contact us with a view to investing in our fund?* You know it makes sense.
*The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change.
