@Rick Yes, I have been nibbling away at times of price weakness. Throughout this bear market, I have been continually reviewing my portfolio, taking advantage of the mini-rallies to offload or reduce lower conviction holdings, and the troughs to accumulate high conviction holdings or add selected new stocks. Personally, I am not trying to time the market, preferring to stay 80-85% fully invested and continually high-grading with the view of choosing firms I can hold for the long term. I also know that when I am buying on down trends, the technical analysts would disagree and say I need to wait. However, with 25+ stocks in my portfolio and many more on my watchlist, there is a lot of work involved and I don't have the personal capacity to wait until the macro risk has cleared. Market volatility provides investors with option value, and buying on price weakness in good quality, long term holdings boosts long term returns.

In summary, I'm not backing up the truck, but I am continually adding to a modest shopping basket.

To a specific idea: having recently reluctantly exited $AD8 (see straws and valuation), at an average price of c. $9, based on valuation cases of $4.50 - $8.50 - $11.00, we've seen the SP come back to $6.88 today. I said at the time that I would consider buying again if prices came off (as I like the company, but just have a few concerns around the bull case). So my hand is hovering over that one, and certainly if general market movement pulls it down to $6.50, I will take a modest position again just on the balance of risk and reward. I'll likely wait until the AGM to hear how the business is tracking and how they are seeing their business environment. Certainly $6-7 is in my buy zone.

I recently initiated $ABB and am looking forward to the forthcoming investor day. I am considering doubling my RL holding of this. Having entered at $2.34, I will wait for the next bite until the current price weakness plays out. I also want to do a proper valuation of it before taking a bigger bite. I'm not in a hurry.

Over the course of the year I have strengthened positions in a number of bigger companies I don't hold on SM ($ANN, $ALU, $WTC, $RMD, $FPH, $TNE, $CSL, $BRG) during periods of price weakness. And of course, I have topped up on $PNV earlier in the year, and my basket is full on that one.

Psychologically, its not nice seeing a bunch of red in your portfolio report. But in future years we'll look back on this period as the time when portfolio-making opportunities were on offer.

I would be backing up the truck on a few ideas if the truck had enough diesel to get me there!

Agree Rick & Mikebrisy, CDA is the baby heading out the window with the bathwater. Unfairly so, obviously, for this is a company with #1 world status with its detectors and a very promising new division emerging. Yes, I am buying as well, but on the understanding it could be a two years+ to regain its past high ground. In the meantime, the dividends will keep the wolf from the door.

Given the companies strong Balance Sheet (net debt/equity of just 8%) and ability to generate ROCE of around 30% why doesn't he company implement a share buy back? I mean where will you get a return of 30% east of Griffith and the Calabrian connection.Apologies Don Vito.

I don't buy that 'bulsh' that the company are hellbent on running the company than worrying about the share price. There's a 30% ROI available by buying from those with shaky hands and it will stabilize the market somewhat.

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@PortfolioPlus and @mikebrisy, A Codan share buy back would make sense to me, but perhaps they are keeping their gun powder dry for further acquisitions in a weakening market. At least they won’t need to raise equity to do it. Although, I hope management keeps a strict policy on minimum ROIC with future acquisitions and don’t buy earnings growth for the sake of it.

How many other businesses on the ASX do you know of that have a ROCE of 30%, Gross Margin of 57%, Net Profit Margin of 20%, Net debt to equity of 8%, 50% earnings reinvested, Fully franked dividend yield over 5%, with a PE ratio of less than 10. Is the market expecting Codan to fall off a cliff?

If you know of another business on the ASX that can match those fundamentals on a PE of less than 10, pleas let me know.

You can always do your own buy back!

@Rick @PortfolioPlus @mikebrisy

Similar thoughts here re: Codan. It is pretty easy to think 'am I wrong?' when the current share price is what it is, but I still maintain the view that Codan is a) attractively priced and b) a cracking business. I wouldn't say I have backed up the truck, but like @mikebrisy I am nibbling away.

And like @mikebrisy, I also topped up my ABB holdings recently.

Here are my top 10 profitable businesses for expected annual returns (ie. my expectations of 14 - 20% total returns) based on both dividends and capital growth (franking included). Valuations are based on Stockval using analyst forecasts. All businesses have ROE between 15.5 - 50% and dividends are forecast to be between 5 - 16% (KSL and NIC are unfranked, ACF 60% franked)

Disc: All held IRL, On Strawman DDH, ADH, NIC, DSK, ACF, KSL (19%), CDA.

@Rick my 2c on the above list. I own a couple but have small holdings in them. why? as @Greenblatt states below growth is MROE*retention, so returns on marginal (extra) capital employed drives returns. ceteris paribus assumptions. the list above is quite profitable but i dont see, as a vast generalisation, much opportunity for these companies to reinvest at their historically good returns. or the opportunity set is much smaller etc. so stunted grwoth mixed with some above average volatility and risk. just my opinion, could be very wrong!

I used up my cash reserve for shares on Monday and it got even lower after that, so Im hanging on for the prices to stay low until Friday when I get paid.

there are so many bargains at the moment

Ive flipped my feelings on the red and look forward to it now. Red is the colour of opportunity! (If you are convinced its general market pessimism and not the equity itself has major problems)

Thanks @Greenblatt I agree, the future incremental returns and dividends are the only thing that matters. I can’t predict with any degree of confidence what the future holds for any business, however the past gives me some confidence in how the business and the management might perform in the future, unless there is a drastic change to the business or outlook for the business. Codan has an excellent track record of incremental returns (ie. consistent increasing ROE for over the past 8 years of which 50% of the earnings has been reinvested into growth. However, I am working on ROE to be lower in coming years c. 23% due to lower ROE in the growing communications business. This is still a great business and I don’t think it justifies the current share price.

I have a graph of Codan’s 8 year track record of incremental returns up until FY22 which looks reasonable to me.

I don’t have any reason to believe that Codan won’t continue to deliver very good incremental annual growth on share holder equity into the future given the current projections and performance of the business components. In addition, I expect a grossed up dividend yield of over 7.5% (including the franking credits which are exactly the same for ELIGIBLE Australian residents regardless of your tax bracket).

My future estimate for Codan's ROE is 23% of which 50% will be reinvested into growth. Current shareholder equity is $2.03 cps and next year it should increase by 12.5%, or 25cps. to $2.25. In addition 50% of the returns will be paid out as a 7.5% grossed up dividend yield.

Between the shareholder equity growth and the grossed up dividend yield, that gives me a total shareholder return of 20%. I don’t have a crystal ball to predict the future, but this is a far cry from 10%.

I’ve turned off DRIP so i can selectively pick opportunities to push dividend money toward, maybe a bad idea? Time will tell

@Rick of your list I only hold PPT which coincidently has only been a recent addition and one I'll continue to add to. Although I've looked at a few in your list since the market has been trending down I've only been buying (initial positions only) PPT, PSI, GUD, ABB, KLS, KAR, HSN, DMP, SEK, DGL and NWL.

Others I'm also looking to add to include: MQG, OBL, AD8, TYR, TPW, ELD and contrarian buys BVS and HAV.

Agree with the summary by @Rick. His reasoning about past performance being an indicator of probable future performance is a good reference point, assuming no one has the mythical crystal ball - and particularly so when the company is conservatively managed by an experienced team - and that is Codan. Of course, reversion to the mean will occur - mathematically it must over time.

What is missing from this argument is the 'compared to what' scenario and I would put forward that apart from good, but not brilliant growth prospects, Codan is a solid 'all round' investment where the investor should get rewarded by a price re-rating as well as a good dividend flow. It suits my investment style.

Besides, look at the way it has grown FCF over the past five years (FCF per share) 14.3c 20.3c 45.0c 59.8c and a well discussed/publicized measly 9.7c in FY22 - on the back of a huge $70m addition to working capital. Adjusted for this WC increase, the FCF per share for FY22 would have been 48.3c

Final comment: In looking at an uncertain future where the war drums may beat and the fire storms may be stoked, the Codan communications division is ideally placed. Gold will undoubtedly shine again as it always does in times of uncertainty. Perhaps the racing form guide would summarize Codan as 'an honest stayer, will go the distance and a strong challenger in the run home - a good each way bet'

Hi @Greenblatt thanks for your feedback. I understand what you are saying about deteriorating future business performance in regards to declining ROE. They are great examples you have provided in your straw and there are valuable lessons to be learnt from these businesses.You could probably add IRI to that list also.

The ROE I use for my valuations is my estimate of future ROE, not historical values. This is why I am using a ROE of 23% to value Codan, and not 30%. My apologies if the table was confusing.

I don’t think my list of businesses would suit everyone. I think you might find better growth opportunities in businesses with consistently high ROE that can reinvest most or all their earnings into growth for a very long time. Then you need to be reasonably confident that they won’t turn into an Appen.

Similar to @PortfolioPlus I am looking for high ROE businesses with a balance of dividends and shareholder equity growth. These may not be the best performers in the long run.

Greenblatt, I think we might have to agree to disagree on franking credits. I treat franking credits as if it were income that is withheld by the ATO until tax time when it is taxed at my marginal rate. I don’t see how it is any different to any other taxable income I receive, and not dissimilar to an unfranked dividend withheld until tax time. As good as cash to me. Is that a fair assumption?

in the market? Thats a paddlin.

my watchlist looks like christmas at the moment, they seem to switch who is green and who is red daily.

Im not scared to invest but i am getting choice paralysis

That can’t be right…there is still room in the truck! :(

Enjoy Finfest everyone. My wife and I thought about flying down to Sydney for the weekend to meet up with a few Strawpeople, but we spent all our money on shares instead. Enjoy, the program. It looks great! :)