T30 monthly review

Monthly performance appraisal: Richard Beddard

True to form I’m not reviewing performance, how much money the portfolio is making and whether the shares in it have gone up or down, until the Thrifty 30 experiment has run its course in 2015. I cannot extrapolate meaning from monthly price movements, and guessing would be a waste of time.

The performance target I set at the beginning of the year wasn’t about making money directly, it was about increasing productivity, so that’s what I intend to report on.

I propose the more analysis you do, and the more skilfully you do it, the better your decisions will be, and in an attempt to inject more efficiency and rigour into my investing, I’m writing two minute monologues, which:

1. Force me to think clearly about a company by summarising why I like it, and what could go wrong in words a teenager could understand.
2. Start by considering the business before deciding it’s cheap!

The brevity of the analysis means my opinion cannot be superior to that of all other participants in the market. That sets the bar far too high and reminds me of a discussion I’m having right now with fellow value investors Calum and Lewis on Lewis’ blog.

We’re discussing what gives an investor his or her edge, which comes down to information, and the insights you glean from it. The more productive you can be in generating information and interpreting it, the more successful you will be.

But despite my best efforts I frequently come across research that is more thorough, more detailed, and demonstrates a better understanding of businesses than I have and the situation must be worse for investors in big companies. Books have been written about Marks & Spencer. There are probably more words written about Facebook in a day than I’ll write in my career.

The point I’m rambling slowly towards is that if having a permanent information edge is what it takes to beat the market then 99.9% of us are doomed to mediocrity.

So, in the absence of genius, how do the two minute monologues give me an edge? I’m falling back on those value investing stalwarts: being prepared to hold companies other people don’t like for longer than they would be willing to (i.e. contrarianism and patience).

But to hold on to such companies, to remain confident when other investors are not, you have to know enough. You have to understand enough of the business to be confident it sells something people want, it’s suitably financed, and you can trust management to operate in shareholders’ interests. You have to know enough so when something unexpected happens, you can tell whether it’s significant. Otherwise, at that point you’ll make an instinctive decision instead of an analytical one and it’s more likely to be wrong.

The two minute monologue is my way of checking I know enough, and of making sure I have the facts at hand when I need them.

So, here’s my monthly report: I wrote three two-minute monologues in January:

1. Two minute Titon
2. Vp in two minutes
3. Games Worskhop in two minutes

I’ll try to write more.

And here are some charts and tables that track the other kind of performance: