About the Thrifty 30

An experiment in value investing

The Thrifty 30 is a model portfolio inspired by the great value investor Benjamin Graham.

It’s thrifty because the shares are all cheap, usually in comparison to the profits we can reasonably expect the companies that issued them to earn.

The companies are thrifty too. By picking profitable companies with relatively strong finances, I expect to reduce the chances of any company going bust and losing the portfolio a large chunk of money.

And since, despite all precautions, the unexpected still happens, I’ve limited the damage that could be caused by investing in a dodgy company by committing only 1/30th of the value of the portfolio to any single share.

The idea is, companies with high share prices and poor finances make poor investments (especially when they occur together).

Good companies, at cheap prices, make profitable investments.

For an introduction to value investing, see the Beginning investing series.

Here’s the current portfolio:

Usually I find these companies by screening the London Stock Exchange, and investigating those promising investors a return of more than 10% with little financial risk. The F_Score is a nine point measure of financial strength, and I look for companies with a score at least five, and preferably seven.

The third part of the equation, whether a company has a profitable future, is the bit I’m least confident about since the future is unpredictable. By reading a company’s annual reports I form an opinion on the challenges facing it, and whether they are temporary or permanent.

I re-evaluate companies when they publish their annual reports.

Each transaction goes in the blog, so we can learn from my successes and failures, and judge how the experiment is going.

A brief note on performance: I expect a positive real return (i.e. taking inflation into account) over any five year period, and also to do better than the stockmarket average. Over five years or more, I hope to achieve an average annual return of 15%. Benjamin Graham thought this a reasonable target and Warren Buffet still does.

Since that’s a long-run rate of return, I won’t be able to say anything serious about performance until oooh, 2015.

A brief note about my trading: These are my best ideas so I own many of them. But I don’t buy or sell shares within a week of publishing an article about them and I inform Interactive Investor’s editor when I profile a company I already own, in line with the Press Complaints Commission’s code of practice.

In short, I won’t profit from short-term price movements that might result from something I’ve written.