Watch out for the competition

Have you ever entered one of those investment competitions that they run in the newspapers or on internet bulletin boards? They can be quite fun, but I rarely get around to entering for a whole host of reasons. Even when I do, if it requires you to actively manage your fantasy portfolio then I just don’t have the time. However, about a year ago I did enter one of the newspaper competitions that required you to pick a choice of funds, and there were monthly prizes and an overall prize for the best performer(s). I certainly hadn’t the time or inclination to look at the funds in detail, and decided that on the information given I would select the funds that had underperformed over the previous year. It took about 10 minutes, and then I just left it alone, although it could have been actively managed for those who wished.

Guess what, I won first prize. Actually that’s not true. In fact I didn’t win anything at all (as you might expect with such little research). However, what is remarkable is that overall I did manage to finish reasonably high up the table, and was quite close to winning a monthly prize; during the final week of that particular month I briefly shared the top spot. Given that the competition attracted 25,000+ entrants, surely that’s not bad for 10 minutes effort.

So what’s my point? Well it’s really that this simple selection process probably works quite well because the stocks in the funds that have underperformed the previous year have, in some instances, become undervalued and hence perform better the next year.

This brings me on to Vodafone. Whilst I don’t invest in large cap. companies, I read in one of today’s newspapers that over the past 10 years Vodafone shares are down more than 17% whilst the FTSE 100 is up nearly 7%.  This is quite an underperformance. Cursory research shows that Vodafone pay a near 5% dividend, it has a modest p/e ratio (from ADVFN data) and a Chief Executive who appears to have a sensible approach to creating shareholder value.

It will be interesting to see if Vodafone moves from being the under-performer to the out-performer over the next few years.

I see that the Director buying at Avanti continues. HMV released a less than inspiring trading update, and 600 group have had to raise some cash with a placing (at 30.5p) (“My only concern would be that there appears to be less than £0.5m cash” on the balance sheet. See weekend blog). These are all companies I have mentioned in previous blogs.