Tag Archives: Dart Group

Behavioural bias: “Averaging down” vs. “averaging up”

Sometimes it makes sense to reflect why one has done something and why not.

Following my “boss Score harvest” project, I invested in two new UK stocks this year, Dart Group beginning of June and Cranswick in Mid June.

In September I increased the Cranswick position to a full position, for Dart however I was hesitant and could not decide to increase .

One doesn’t need to be a genius in order to find out that increasing the Dart position would have been better:

Since mid of September, Dart made 50%, against more or less flat performance for Cranswick. If I look back to September, I think one of the “true” reasons why I didn’t increase Dart was that I would have to “average” up on Dart, as the stock was already 20% up against my purchase price.

For some reason I am much more hesitant to buy at higher prices. So for Cranswick, it was easier to increase the position because I could slightly decrease my average purchase price. Somehow I seem to prefer lowering the percentage loss on a loss position (“averaging down” than to lower the percentage profit of a gain position (“averaging up”).

I am not sure if this fits into the standard behavioural biases, maybe it is a special form of “anchoring”.

This behavioural bias, not increasing the Dart stake cost me around 1% of portfolio performance so far and now I am even more hesitant to buy. It is also in direct contradiction to the fact that “momentum” combined with Value seems to generate strong results in the long run as demonstrated by O’Shaugnessey’s “what works on Wall Street”.

Lessons (hopefully) learned:

In the future I need to have a better formulated plan for scaling into a position in order to avoid this “behavioural bias”. Either a clear timeline or some clear fundamental triggers where I then execute regardless if the position has already increased to a certain extent or not.

Some half year updates – Poujoulat, Total Produce, Dart Group, Installux


Quite surprisingly, Poujoulat announced a stock split 1:4,, this is the release from Poujoulat:

En date du 21 juin 2012, l’Assemblée Générale de la société POUJOULAT a décidé la division par 4 de la valeur nominale de l’action POUJOULAT négociée sur le marché ALTERNEXT Paris. Cette mesure permettra de fluidifier les échanges et de rendre le titre POUJOULAT plus accessible (son cours étant actuellement supérieur à 130€) En pratique, l’opération de division par 4 sera réalisée sur les soldes EUROCLEAR du vendredi 7 septembre prochain et sera effective le lundi 10 septembre à l’ouverture du marché. Les détenteurs d’actions POUJOULAT se verront attribuer automatiquement 4 actions nouvelles pour une ancienne.
Les droits antérieurs rattachés aux actions ne seront pas modifiés, notamment le bénéficie du droit de vote double pour toute action gérée au nominatif pur depuis plus de 24 mois. Le nombre d’actions POUJOULAT en circulation sur ALTERNEXT Paris sera ainsi porté de 489 750 à 1 959 000.

Let’s wait and see if this somehow helps the stock or not.

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Why comprehensive income matters – Dart Group Plc

I have mentioned a couple of times that in my opinion, the so-called “comprehensive income” is a much better indicator for shareholder wealth created than net income or earnings per share.

In my experience, almost no one cares to look at what happens after the net income line. Usually, comprehensive income is stated on a separate page anyway.

A good example to turn this into an interesting practical exercise is the most recent preliminary annual report from Dart Group, one of my Portfolio holdings

The first thought is of course “Yippie yeah”, a really significant earnings increase, P&E of 4 etc etc.

Richard Beddard at the excellent Interactive Investor blog even says the following:

The highest earnings yield ever calculated by the Human Screen is 35%. It’s so high, he’s wondering if air line and road-haulier Dart has bust his value yard-stick.


Adjusted operating profit up 9%
Adjusted return on tangible assets: 4%
Net profit of £23m compared to net cash flow of £95m (£48m after net capital expenditure)
Net cash after approximate capitalised lease obligations of £125m is £34m, 5% of tangible assets
Per-share dividend up 7%

Not so fast. I guess that Richard stopped at page 9 of the interim report and didn’t bother to read that strange stuff at page 10 which looks as follows:

So we have additional items which significantly decreased shareholders equity but didn’t need to be recorded in normal earnings but comprehensive income. In this case we are looking at fuel hedges.

Items which can be recorded in comprehensive income are:

– Unrealized holding gains and losses on available for sale securities ( a trick often used by banks and other financials)

– Effective portion of gain or loss on derivative instruments (cash-flow hedge);

– Foreign currency translation adjustments (i.e. change in value of a foreign subsidiaries net asset value)

– Minimum pension liability adjustments.

Normally people would argue that those items are “non operating” and therefore not or less relevant. However, as it affects shareholder value, in my opinion it is very important to look at those item to determine real value creation for the shareholder.

Coming back to Dart Group: The fuel hedging is an essential part of the business model. Fuel costs are around 20% of sales and cannot be passed directly too customers, especially for the prepaid part. I will have a separate post on how to interpret the fuel hedges but for now the important point is:

The result of the fuel hedges should be treated as part of the normal business of Dart Group.

Therefore real 2011/2012 earnings for Dart are rather around 9 pence per share and not the 16 pence recorded in the income statement. Still cheap (PE of 9) but not “busting any value yardstick”.


Any value investor interested in the total value creation of a company for shareholders should include all items of the comprehensive income statement into his valuation. Many companies are very good in shifting all unpleasant stuff into this section. Especially for financial companies, recorded earnings are more or less meaningless without the items in comprehensive income. Also fuel hedges for airlines or other fuel cost eexposed companies should be viewed as relevant.