Fractal finance and the dull thing about buses
Posted on July 3, 2008 by Richard Beddard
Filed Under Companies, Investing, Markets | 1 Comment
Looking back on my notes on Darwen (DHP), here are some quotes from the 2006 accounts of Optare*1, the bus company Darwen is buying on July 14 may be buying (*see below), that reveal a slightly more downbeat view of the bus biz. My notes follow them:
The market for new passenger vehicles is relatively static and dominated by a small number of large operators…
Darwen expects demand for hybrid buses, which will be cheaper to fuel and less polluting, to pep up the market along with the need to replace aging fleets. That seems particularly plausible right now as operators report increasing revenues as people switch from cars to public transport. But…
Competition from products entering the market from lower-cost economies in Eastern Europe and elsewhere has grown. To enhance its business performance the Group acquires components from such lower cost economies whilst ensuring its excellent reputation for build quality and vehicle aftercare is maintained.
Darwen’s buying in most of the components bar the bus chassis. Maybe there’s an opportunity to reduce costs once it owns Optare too. It would be difficult for Darwen to make inroads into the market share of Alexander Dennis and Wrightbus, the UK market leaders, if it were unable to manufacture better buses more cheaply.
As I’ve said before (at the end of this interview with ceo Andrew Brian, and in this blog) the ‘plug and play‘ manufacturing story is as important as the technology/environmental story. Perhaps more important. That said, growth companies in no-growth markets are often the ones that go unnoticed.
Part of Darwen’s appeal - despite the hype around climate change and fuel prices - is the fact that it’s in a pretty dull business.
*Darwen’s share price has recently halved to 22p, possibly in the wake of Tanfield’s catastrophic profit warning on Tuesday. The businesses have similarities and in Roy Stanley they share a chairman and major shareholder. I don’t know how this affects the 40p placing that shareholders were to vote on at the Extraordinary General Meeting in two weeks time, but presumably the deal could be in jeopardy.
Spotted: Johnson Service
It’s still going then. I spotted this delivery van for Stalbridge Linen, part of Johnson Service, One of my Ten boring companies in deep trouble. Judging by the share prices they’re all still in pretty deep trouble. But I keep watching, where others maybe wouldn’t.
Ironically it was the botched implementation of Johnson’s IT system, subsequently written-off, that hid problems at Stalbridge and then compounded them by delaying the payment of invoices.
Memories of Mandelbrot
Fellow blogger, and the entrepreneur behind the highly informative Moneyterms site has reviewed The (Mis)behaviour of Markets by Benoit Mandelbrot. I reviewed it in our bookshop (you can buy it there too!) This is book is right up there on my shelf of investment books never to enter the jaws of the Oxfam collection in the car park of our local Waitrose. Mandelbrot is the inventor of fractal mathematics.
I’m particularly interested in Graeme’s view for two reasons:
- As a former analyst he knows more about the theories that guide the professional investors and bankers who dominate the markets, and…
- We’ve often sparred on efficient market theory, one of the cornerstones of financial theory, and one that Mandelbrot attacks.
Though Graeme criticises Mandelbrot (and me, if I might be so outrageous as to put our names in the same sentence) for oversimplifying modern finance theory and then criticising it, he concludes:
My impression is that fractal models probably hold the key to much better approaches to risk, to portfolio theory, to options valuation, and to valuation in general. At any rate, I am going to have to learn something about this.
Which is good reason to revisit the book, I think*2.
Footnotes:
- It is a private company, you can buy the reports from Companies House for £1 each.
- Here’s a bit of ancient history for you: I interviewed Mr Mandelbrot in 2004.
Extremely distressing diligence
Posted on July 1, 2008 by Richard Beddard
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Arrghhh! Words can’t describe the frustration I feel at Education Development International (EDI). It starts with stockmarket ticker code, which is EDD - not EDI, and continues with every syllable of its annual report. Words are in fact, part of the problem.
It ought to be so simple. The company has a turnover of little more than £20m, it appears to be growing, it’s not in debt, it’s in a business - qualifications and assessment - that, I think, is genuinely beneficial (but not flash and prone to hype), and the share price values the company at less than eight times earnings, which is not very much at all. It should be an interesting small company. All that’s left is a bit of due diligence - checking that I understand how it makes money.
I’ve read the recent regulatory news, and the latest annual and interim reports. I’ve even flicked through earlier ones. It’s been tough. Fifteen years ago, I was a secondary school teacher, so I approached EDI with optimism. I didn’t expect to stumble through the chairman’s report in a daze, as though the document was a long-forgotten exposition of Finnegan’s Wake.
The words aren’t incomprehensible, just ambiguous. What is a support service, for example? Fortunately, I have a friend in the biz, and one evening last week I bought him a shandy and got some answers. Support services are syllabuses, past papers, marking schemes, training (for teachers), and schemes of work, lesson plans - we used to call them.
More seriously, for a little business EDI’s fiendishly complicated. It sells vocational qualifications but tests school children. It owns a bewildering array of even smaller companies - including its own Internet Service Provider. It’s an exam board, and it designs and administers bespoke qualifications too. It seems to be trying to make money from every corner of the examination industry and many corners of the world, which makes me wonder what it’s ‘core’ business is, and whether it’s any good.
The story (so far):
- EDI was once Goal and its main product was an online assessment programme tied to the national curriculum for secondary schools. The idea is computerised testing and marking is more efficient than good plain old pencil and paper, but it caught on much more slowly than the company and its early dot.com investors thought. EDI still sells it to over 600 schools, which is less I think than in 2002 when 927 schools had access. You can try Goal here.
- Since then it’s bought exam boards, principally the LCCIEB (London Chamber of Commerce International Examination Board) and entered the qualification business in 2002: charging schools, training companies and businesses a fee for candidates they field in its exams and designing and accrediting qualifications for organisations that want to run exams themselves.
- Its qualifications are mostly vocational, under the EDI brand in the UK and the LCCI (London Chamber of Commerce International) brand abroad. Eighty-five per cent of its UK sales are vocational qualifications, so I think I’ve found the core business. Most of its international qualifications are vocational too.
- EDI has just completed a multi-year ‘organisational development’ program in which it has physically moved from to Coventry and redeveloped its IT systems, and now its going to go out and sell. Alan Sugar would be proud.
Since vocational education, in particular a new diploma qualification to be introduced in September, is Governments answer to NEETs (young people Not in Education Employment or Training), who otherwise have poor prospects and generally muck up the employment statistics, and since British education has a strong reputation abroad, there are grounds for optimism. Doubly so, if EDI’s moving from a period of consolidation to a selling.
So good news, today EDI revealed its new corporate image to:
…bring together into a common ‘house style’ the disparate corporate and product presentations which are the result of acquisitions made by the Company over the past three years.
It’s mailing 5,000 customers, and it’s updated the website, which was utterly shambolic, alternating the new brand EDI, with the old one, Goal (that’s a page from the old site, which still appears to be available).
But it’s been a good decade for exam boards. The government’s obsessed with assessment and league tables so one concern is why, for most of the decade, EDI has struggled? And why’s it sticking with Goal? I’ll be asking the directors when I call to check the story I’ve concocted because the positive thing about a company that doesn’t present itself well is it turns off investors1, which may in part explain the share price. They’ll wait until the profits speak for themselves, which may give the hard-working investor an edge.
Dairy Crest on iBall
Talking of examinations, Dairy Crest has graduated from blog to iBall. Watch it, if only for the Benny Hill intro.
Footnotes:
- Though the new website is a big improvement, so perhaps that edge is about to vanish.
Darwen dares, madness at Meldex
Posted on June 26, 2008 by Richard Beddard
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Last month Andrew Brian, Darwen (DHP) chief executive, explained how he planned to shake up bus manufacturing and create a range of hybrid diesel-electric buses, but there are a couple of surprises in the detail now he’s putting the acquisition of rival bus manufacturer Optare to shareholders. The new name is Optare, not Darwen, and Darwen’s paying £5m in cash and £1.75m in shares as well as assuming £9.2m debt.
The reverse takeover is hard enough to comprehend. I find the next bit difficult even to put into words. Roy Stanley, Darwen’s chairman, owns 51% of Darwen and 100% of Optare. He bought Optare earlier in the year through an investment vehicle called Jamesstan. So, Darwen is buying Optare from its own chairman and majority shareholder.
Yesterday I asked Mr Brian why Darwen didn’t buy Optare in the first place and save us the misery of trying to work out this convoluted deal, and Mr Stanley from the suspicion of ‘flipping’ Optare for a quick profit.
He said the previous owners of Optare wanted to sell the company by the end of March while they could still benefit from taper relief on the capital gains tax they’d incur. Darwen had its hands full, listing in February so Mr Stanley stepped in. The £5m returns him the cash he put up to buy Optare. The extra £1.75m in shares covers his costs (fees, interest, and tax for example) and rewards him for the risk. Although Mr Stanley could wave the takeover through at the EGM on July 14, he’s elected not to vote.
And the name change? Although Optare might be a new one to investors, it carries more weight in the bus industry than new boy Darwen.
A couple of minutes on the ‘phone with the chief exec., and it all seems eminently sensible. So, is Darwen a small company that might one day make it big? The potential’s there (for more on that see the interview).
While it’s easy to get carried away with hybrid buses - climate change, fuel prices and renewed interest in public transport are quite a tailwind - other companies are developing them too. Darwen’s success also depends on its aspirations to be:
- A low-cost manufacturer
- A ‘one-stop’ shop for bus operating companies.
Optare completes Darwen’s range of buses, and gives it a national parts and servicing capability, so it’s a big step towards the second aspiration.
At the placing price of 40p, Darwen/Optare’s market value is less than £40m. To justify a growth share valuation of, say, 20 times earnings it has to make £2m shareholders’ profit. Four million, if the company’s only worth ten times earnings. Although the Optare half of Darwen only made £600,000 in shareholders’ profit last year, and Darwen bought its heavy buses out of administration, those figures don’t look scary to me.
Investors’ impatience is as much a risk as Darwen’s ambition, I think. There’s no sign of it now, but investors get antsy if profits don’t arrive on cue and Darwen has plenty to do in integrating Optare with its other acquisitions, engineering new buses with hybrid engines, and expanding production at new sites. It’s even mooting international expansion but Mr Brian says that won’t happen before the ‘back end’ of 2009.
Here’s a picture*1 of Andrew Brian and Michael Dunn (the incoming chief financial officer) with a Darwen double decker, and an Optare single decker.
Handsome - the buses 
Madness at MDX
Shareholders in Meldex (MDX) know all about waiting. They’ve been waiting for a decade and now the company appears to be tapping on the door of profitability some have lost patience with the its strategy and agitated for change on bulletin boards, in meetings with the company, and apparently in abusive emails and telephone calls.
It’s culminating in the resignation of the senior non-executive director and the company’s AGM today, which promises to be a much less congenial affair than Darwen’s forthcoming meeting. I’ve tried to contact chief executive, Richard Trevillion, who I’ve interviewed before but he seems to be busy.
Edmond Jackson is at the meeting, though, and his report will be on the Interactive Investor mothership tomorrow. These were his thoughts a couple of weeks ago.
Update! Here’s Edmond’s report on the AGM.
Footnotes:
- I didn’t take this one
Finance books to mend your soul
Posted on June 24, 2008 by Richard Beddard
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Sometimes I find it helpful to take a step back from the day-to-day work of evaluating companies and markets and think about what I’m looking for and why. Regular readers know I find the reports of James Montier*1 at Societe Generale and his book Behavioural Investing (review) particularly useful.
Last week he sent around brief reviews of recent books he considers “required reading” for analysts. The list begins with books on finance and then strays into the realm of psychology, which is fitting as Mr Montier is a behavioural investing guru:
Fooling Some of the People, all of the Time by David Einhorn
Einhorn went short Allied Capital, and then gave a… speech on the subject… This book should serve as a wake up call to investors and analysts alike over the fact that corporates lie and cheat (when it suits them)… The book is inspiring in terms of the portrait of fundamental analysis that it provides. Einhorn and his team went to great lengths to research their investment case. They provide a shining example of the way in which research should be done (and note not a single earnings forecast in sight!).
The fundamental Index by Robert J Arnott et. al.
Rob and his colleagues have been attacked by the fans of passive and active investment alike. In the interests of full disclosure I am a fan of the fundamental indexing approach. Regardless of my personal views on the idea, anything that upsets quite so many people must surely be of interest… Rob and his colleagues have developed an alternative to CAPM inspired cap weighting. An index weighted by fundamentals such as earnings, dividends and cash flows… It is effectively a way of contrarian indexing. By its very construction it will trade against whatever is doing particularly well in the market be it value, growth, large or small.
The Investor’s Dilemma by Louis Lowenstein
Louis Lowenstein’s The Investors Dilemma takes a long hard look at the mutual fund industry and finds that it has betrayed its fiduciary responsibility in favour of short-term profits. The good news is that not all fund managers have fallen into this trap. Lowenstein details the select group of those managers who have the discipline and the integrity to do things differently. Strangely enough they are long-term orientated value investors.
Financial Shenanigans by Howard Schilit
This useful book sets out to explore seven common areas of what might be described as ‘earnings management with dubious intentions’.
Creative Cash Flow Reporting by Charles Mulford and Eugene Comiskey
Creative Cash Flow Reporting picks up where Schilit’s book leaves off. It concerns the manipulation of cash flows rather than earnings, and the use and abuse of free cash flow.
Predictably Irrational by Dan Ariely
I often judge a book by how many of the corners of the pages I have turned down to remind me of something, Predictably Irrational is one of the few books that has almost every page marked… For anyone wanting an introduction to how being human affects our behaviour, this is the book for you. I simply can’t recommend this book highly enough.
Mistakes Were Made (But Not by Me) by Carol Tavris and Elliot Aronson
Tavris and Aronson take the reader on a whirlwind tour from the Crusades to Holocaust, from recovered memories and the fallacies of clinical judgment to false confessions, and wrongful convictions. The range of topic covered show the universal nature of the biases of which I so often write.
Mindset by Carol Dweck
This book is the closest thing to a self-help book that has ever appeared on my lists, but it is carefully grounded in empirical research that Dweck and her colleagues have undertaken over the last two decades.
Better: A surgeon’s notes on performance by Atul Gawande
Gawande believes that success in medicine requires three core elements. Firstly, diligence… Secondly, to do right… Thirdly, ingenuity… I would suggest that those who are most successful in finance possess all three of these traits in abundance.
Why Smart Executives Fail by Sydney Finkelstein
Finkelstein uncovers the ’seven habits of spectacularly unsuccessful people’
Footnotes:
- One slight concern is that fellow analysts have voted Mr Montier and Albert Edwards the top team in a Thomson Extel survey of European analysts. If his contrarian views are becoming more fashionable it will make them less profitable so here’s hoping they like the ideas, but can’t implement them in practice. Or else they’ll forget about them when markets take off.
A company and a book to cheer you up
Posted on June 19, 2008 by Richard Beddard
Filed Under Companies, Investing, Markets, Reading list | 2 Comments
If you thought my last post on Dairy Crest was a reluctant vote of confidence, you’re right.
Posting links to news stories like the ones in the right sidebar of this blog it’s hard not to let gloom seep into my stockpicking brain. Sadly hysteria is an occupational hazard, which explains why journalists don’t make good investors*1.
Headlines like RBS issues global stock and credit crash alert are driving me to listen to techno music as I write, just to ward off all the negativity.
Editing articles like Peter Temple’s latest Growth Portfolio update doesn’t help. Over the long-term his portfolios have done very well, but the growth portfolio is in retreat. He’s sticking by Claimar Care (CCGP), a company profiting from our aging population. You might think it’s the mother of all growth markets but the shares are down 60% since he bought it, and he’s not usually one for overpaying. He’s cutting Zirax (ZRX) just because it’s a smaller company.
They say “elephant’s don’t gallop” but when the prices of smaller companies are galloping in the wrong direction and just about every company looks like a burnt-out cyclical, an ex-growth stock, or a fantastically overpriced hole in the ground, you know the psychological bunker’s caving in and the Jerries are coming to get you.
Education Development International
But surrender is not an option and panic definitely isn’t, so I keep looking for opportunities. The good news is I’ve discovered a promising share, Education Development International (EDD). It markets qualifications, tests, and examinations and the textbooks and crib sheets that go with them. It’s quadrupled in price over a year or so, it’s on a price earnings ratio of less than ten and there are as many letters in ‘education development’ as there are millions of pounds in its market capitalisation. Too good to be true? We’ll see. I’ve much research to do, but I got the idea from the best possible kind of tip. Not the:
Psssst! This one’s gonna make us rich
…kind. I learned about EDI from an admirer of the company, who works for a rival.
That’s the first glimmer of hope, that there are still stocks worth buying. The second comes in the form of therapy, a book to help us see through the fog.
Turtle Trading
I asked our bookshop to send me a review copy of The Complete Turtle Trader by Michael Covel because:
- Fellow blogger, Todd Sullivan liked it.
- It’s going to teach me about the dark side, momentum investing.
It’s also a good reminder of the importance of shutting out noise, and sticking to your system. Richard Dennis, the Chicago trader at the centre of the tale, was a reader of ‘Psychology Today’, not the Wall Street journal.
The book documents a unique episode in investing history when, to settle a dispute in the early ’80s, Richard Dennis and his partner trained a diverse band of recruits in a simple momentum trading system. They wanted to prove whether great traders are born great, or whether trading is a skill that you can learn. Their results give us hope. According to the jacket blurb, Mr Dennis made £100m from his Turtles.
Momentum traders buy assets that are going up in price, and sell assets going down in price, regardless of the fundamentals (i.e. what those assets might actually be worth or how much they might earn). It’s the antithesis of value investing. I should hate it, but I’m about 60 pages in, and I love it so far.
But I think momentum traders have more in common with value investors than either side cares to admit. Both seek to exploit behavioural anomalies. That’s to say markets tend to extremes or exuberance and disgust. Momentum investors seek to ride the exuberance. Value investors seek to plunder cheap shares, when other investors won’t even consider them.
Just as the existence of anti-gravity might validate the physics of gravity, an analogy I’ll not push any further because I don’t actually know it’s true, if momentum investing works then value investing should too.
At its most extreme, the efficient market hypothesis, which I’m guilty of bashing at every possible opportunity, says that knowledge and experience cannot help an investor beat the market. The lesson of the Turtles is, apparently, it can. Interesting, I think, even if you don’t subscribe to Dennis’ system. And comforting too, if you’re on the wrong end of a lesson in humility from the stock market.
More books to mend the soul next week.
Footnotes:
- Just a supposition. It’s why I tell the ed-in-chief I’m an investor first and a journalist second. You really can’t let all the bullshit get in the way.
Giving Dairy Crest the benefit of the doubt
Posted on June 17, 2008 by Richard Beddard
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With a suite of strongly growing brands like Country Life, Clover, Utterly Butterly, Frijj drinks and Cathedral Cheddar and its less profitable but nevertheless essential milk distribution business you might expect Dairy Crest (DCG) to be immune to a faltering economy, for no better reason than the old ‘you’ve got to eat’ argument.
In fact, Dairy Crest investors have the jitters just like the rest of us. Were it not indebted, and were its growth not based on buying up brands and dairies, I think it might be facing a period of tighter credit and rising commodity prices with more alacrity.
But profit growth is going to be hard to come by if raw material prices - milk, energy, packaging, vegetable oil - continue rising, and if Dairy Crest can’t finance new acquisitions. I’m surprised the analysts who attended when Dairy Crest presented its results in May didn’t push the company harder on debt and growth. Skip right to the end of the audiocast and you’ll find the Q&A. Skip on a bit more and you’ll find a hesitant question on whether Dairy Crest can sustain its debt-fuelled expansion.
Mark Allen, chief executive:
We’ve got a very strong portfolio of brands… So we think there is quite a significant opportunity for organic growth within the business… That’s not to say we don’t look at acquisitions, because we do from time to time…”
Alistair Murray, financial director:
We have in the past always been ambitious to grow the group by acquisition and in principle that remains the case. But you’ve got to recognise the fact that we did a big acquisition eighteen months ago [Express Dairies] which has affected our gearing and I think you”ve also got to recognise the credit markets and the financial markets have changed hugely in the last twelve to eighteen months.
Another business plan knobbled by the credit crunch then, leaving the investment case resting on the dividend, which is yielding nearly 7%.
Now Dairy Crest’s share price is almost half what it was last year, it merits consideration as an income investment. We collect the dividend for a year or two, say, until the debt market and raw material costs stabilise and then we watch the share price rise as the company’s prospects improve.
When Dairy Crest’s dividend yield last rose above 6% about eight years ago it was a good time to buy. Sadly, history need not repeat itself, but we can gain confidence, or lose it, by comparing the size of the dividend to the shareholders’ profit. This is where the story gets a little muddy, because the calculation depends on which earnings figure you use.
In May, Dairy Crest reported adjusted earnings per share of about 57p for 2008, and basic earnings per share of just over 40p. The total divided for the year was 24.4p per share. So profits were either 2.4 times the dividend, or 1.6 times. If the former figure is right, profits could even fall somewhat, and the company could still afford the dividend. If profits only cover the dividend 1.6 times, there’s less breathing room.
Long-term, I’m inclined to give Dairy Crest the benefit of the doubt. Some of the exceptional costs excluded from the adjusted earnings figure look like genuine one-offs, though some are debateable, it has a good dividend record, and its cash flow, and therefore its ability to pay the dividend, generally exceeds its accounting profit.
But it’s difficult to foresee much enthusiasm for the shares while the twin Rottweilers of economic doom - commodity prices and debt - are gnawing away at investors’ confidence.
It’s the times we live in.
SCS (and me) crunched
Posted on June 12, 2008 by Richard Beddard
Filed Under Companies | 8 Comments
However, the cosy scenario I presented, that SCS might comfortably survive a period of low sales and margins due to its cash cushion, is no longer credible. It might survive, but it doesn’t look comfortable to me. I didn’t plan on the stock falling another 75% (or more) before it started to recover, and that recovery is less likely as the cash burns away.
Here’s the news-flow since March:
- 26 March: SCS reported an £8.8m trading loss in the first half of its financial year, net cash was £15m
- 14 May: It warned of lower sales, and lower expectations for profit in the second half. Net cash was £4.8m
- 11 June (yesterday): It announced a credit insurance company has refused insurance for SCS.
The FT explains how some of SCS’ suppliers rely on bank loans raised on invoices from SCS for funding. It’s not terminal. Not all SCS suppliers use credit insurance to borrow money, and there is more than one insurer. But the withdrawal of the insurer is surely a serious vote of no confidence in SCS, heaps more doubt on the beleaguered furniture supply industry, and SCS and the suppliers who use insurance must sort out how they trade.
In the FT, David Knight, the chief executive says, “The indications are that we will have net cash at the year end in July” and the fall in SCS’ cash balance isn’t as precipitous as it looks in my mini chronology because in May, when it only had £4.8m, it had just paid its suppliers. In March, when it had £15m, it was just about to pay them.
Essentially the story is the same as it was in March. People are spending less and sofas are one of the easiest purchases to put off. SCS has to conserve cash until it can sell sofas at a profit again. But it’s more extreme: I didn’t anticipate full year losses, which now seem almost certain, or that the levels of cash the company reports in its year-end and half-year statements would be so far above levels at other times of the year.
It’s uncomfortable being wrong when you champion an out-of-favour stock, especially if you subsequently buy them, as I did (I’m still a shareholder). As Peter Lynch, the fund manager famous for being right more often than he was wrong, wrote in One up on Wall Street:
If IBM goes bad and you bought it, the clients and bosses will ask: “What’s wrong with that damn IBM lately?” But if La Quinta Motor Inns goes bad, they’ll ask: “What’s wrong with you?”
When he wrote the book in late 80’s IBM was in every fund manager’s portfolio. Replace La Quinta Motor Inns with SCS Upholstery and you’ll know why I’m beating myself up now. As a private investor, I’m the client, the boss, and the fund manager, but that just makes it worse - I can’t get away from myself
Anyway, here’s another recovery play, Johnson Service (JSG), and this time it’s not me that bought the shares, but interim chief executive and restructuring expert John Talbot, who bought £135,000 worth in April. We’ve given it the iBall treatment.
And here’s a picture of me in SCS, in happier days:
I didn’t buy the sofa, but I was tempted by the offer (four years, interest free…)
Blogging resumed
Posted on June 10, 2008 by Richard Beddard
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Haynes, which publishes the famous motor manuals, is very cheap but sales are slipping away and even the company isn’t sure to what extent that’s because of the deteriorating economy and to what extent it’s because we don’t bother fixing our own cars any more.
It’s not taking any chances, though. In February Haynes bought Vivid, a supplier of technical information to professional European motor mechanics, and it plans to bring Vivid to its English speaking markets. That way, whoever fixes your car, Haynes can supply the blueprints.
Judging by Haynes’ share price, the market isn’t impressed, which could be an opportunity for investors who can see beyond the next set or results.
My big worry about Haynes is that it seems to be the share that killed the Rogue Analyst, until recently one of a very select group of UK financial bloggers. Haynes was the last share he wrote about, before shutting the lid on his laptop and closing the blog.
The Haynes article will be the first in a monthly column: ‘Share sleuth‘. My brief is to analyse companies that are flying below the City’s radar. Because analysts aren’t analysing them and journalists aren’t investigating them I’ll rely on the time-honoured investment skills of reading the annual report, calling the financial director, and ‘kicking the tyres’ by checking the company’s products.
As you can see, I went to the dingiest Halfords in the country (Cambridge, where admittedly the bike department is probably busier) to satisfy myself it still stocked Haynes manuals.
There’s a particular buzz when you ‘discover’ a company for yourself - as opposed to reading about it in a Sunday paper. Not quite like being the first man on the moon, perhaps, but the closest you can get in investing terms. In the new column I will be encouraging other investors inclined to do their own research and, I hope, learn from them.
Dairy Crest, may well be my next iBall. We’ve already given Haynes the iBall treatment and I commend the opening skit to you even though I didn’t write that bit. That’s ed-in-chief (a.k.a. he who does not blog) Steve McDowell bumping his head on the bonnet of his Merc. Couldn’t happen to a nicer bloke.
I fear I shan’t be posting as many finished articles in this blog, as I’m writing an increasing number for publication elsewhere. However, ever the optimist, I’m planning to increase the number of blogs I write. They’ll be more rough ‘n ready I’m afraid, like this one. Bits of research I’ve done, ideas, opinions, observations and links to things that have impressed me on the Internet.
That leads me back to George Soros. You’ve got to watch this Q&A with Sir Howard Davies, former City regulator, now chairman of the London School of Economics. Mr Soros has a new book out, which melds an explanation of the credit crunch with his theory of reflexivity (markets aren’t rational but boom and bust) and leads him to the conclusion that we’re witnessing the end of a credit supercycle that can only end in recession.
Reflexivity reminds me of Benoit Mandelbrot’s fractal theory, which he applied to markets - how they are ‘wild’ not ‘mild’. Both men are critics of financial maths, a familiar theme to regular readers of this blog.
A bank holiday in the life of an investor
Posted on May 27, 2008 by Richard Beddard
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Six years after moving into our home, and six years after we started replacing the carpets with wooden flooring, I tackled the last remaining bastion of carpet yesterday - my daughter’s bedroom. But just to prove that this investor never completely downs tools, it was One up on Wall Street I was reading in my breaks, not Collins Complete DIY Manual, or the The Sun. The evidence is in the photo, resting against some of the remaining planks
Formative experiences of baby investors
Posted on May 24, 2008 by Richard Beddard
Filed Under Investing | 1 Comment
I’m re-reading Peter Lynch’s ‘One up on Wall Street‘. For me, it’s like a conversation with an old friend. I don’t usually re-read books but I’ve read this one many times. It seems like there’s an observation on every page I can relate my own investing experience to.
On page 50 he talks about his first trade as a college student. It was Flying Tiger, an air-freight company, and when the US went to war in Vietnam it went up five-fold.
If your first stock is as important to your future in finance as your first love is to your future in romance, then the Flying Tiger pick was a very lucky thing. It proved to me that the big-baggers existed, and I was sure there were more of them from where this one had come.
My first trade was Inchcape (INCH), which has done even better. I still own some of my original holding. It taught me that there is money in bombed out shares, and it probably explains why I’m most comfortable with recovery situations. Soon after I bought Dialog which burned many a dot.com investor, myself included. That probably explains why I’ve shunned speculative stocks since.
I wonder how many other investor’s attitudes were formulated by their first trades.
Also, I wonder whether the first book you read about investing is just as influential. If so, I have a lot to thank Peter Lynch for. The first book I can remember reading about investment was One up on Wall Street. It explained how the gains from an Inchcape or a Flying Tiger can wipe out the losses from many Dialogs, and that you can’t hope to distinguish one from the other unless you understand the businesses they’re in.
