The Great Investors

Has anything been happening whilst I’ve been away?

Actually my family and I have just returned from a wonderful holiday in sunnier climes, and I’m currently suffering from post holiday blues. Normally I feel ready to return a few days before our holiday is due to end. Not this time though, fabulous hotel with first class facilities and service and the whole family felt that we would have liked to have stayed longer. Not cheap admittedly, but excellent value for money.

During the holiday I did occasionally switch on the TV to catch the BBC world news only to witness our feckless, indolent, and dysfunctional members of society rioting and looting. I haven’t felt quite so ashamed to be British since we regularly had to endure scenes of our football hooligans causing havoc with their moronic drunken behaviour and mindless violence.

However, I did raise a wry smile when the riots appeared to fizzle out due to rain!!!! Probably didn’t want to get their newly acquired designer trainers wet.

I was also acutely aware of the global stock market gyrations. Whilst I am happy with all my current holdings (incidentally, I don’t check their prices or look for news whilst on holiday), I’d be surprised if Mr Market hasn’t thrown up a few bargains during his current negative state of mind. I shall be scouring the market avidly over the weeks and months ahead. Already one or two interesting candidates have made it on to my monitor.

Whilst I was on holiday, I did take a couple of books to read which included “Investing against the tide” by Anthony Bolton and “The Great Investors” by Glen Arnold. Both books provided a fascinating read. Whilst I am very familiar with the ideas of Ben Graham and Warren Buffett (“The intelligent investor” by Ben Graham is a must read), I was less familiar with the likes of Bolton, Soros, Neff, Templeton, Fisher and Lynch. Not surprisingly, although they have all adopted their own particular styles; you can easily pick out a great deal of commonality in their strategies. Although I am a huge fan of Graham and Buffett, it was the chapter about Peter Lynch that may me sit up. I’ve never read anything about Lynch before, but from the relatively brief details in the book I can see more parallels in my investment strategy with Lynch’s than any of the others.

The book “One up on Wall Street” by Peter Lynch has been mentioned before on the ADVFN bulletin boards (possibly by the poster called “Cockney Rebel”?) and it is certainly the next book on my reading list.

When we did return home, I did naturally check the share prices in my portfolio, and although each had suffered a minor retrace there was no new company news either good or bad. Some short term traders may find the thought of not checking share prices and company news for over two weeks unthinkable, but for long/medium term investors like me, I would be questioning my judgment about a share purchase that I was nervous about leaving alone for several days. In fact, before buying into a company I always ask myself: - “Would I be happy to invest and only look at the share price again in two years time?” If the answer is no then I wouldn’t buy it.

One company that did release some news not long before I went away was DCD Media. (Incidentally, my investment here has taught me some invaluable lessons in identifying companies to avoid in future). DCD Media released a trading statement which was quite unique in that the statement didn’t refer to current trading once. In fact it merely stated that the Finance Director had stepped down (not a great sign!), they were looking to recruit further members to the board of directors (for goodness sake please recruit somebody at least half-competent!!) and they are still exploring funding (£1m for working capital).

As mentioned before, DCD is priced to go bust. Whilst I am sure that they have some very talented employees on the creative side, it appears that their management/business skills are somewhat lacking and to be frank I suspect that they couldn’t run a p*ss up in a brewery. The main hope for investors is that TAYA provide the capital and install a team that can provide the necessary business acumen. It is just possible that this could then be a ten bagger or more from here, but I won’t hold my breath waiting.

There was a trading update from Indigovision (a company I no longer hold shares in). This followed on from their recent profit warning and added a bit more meat to the bones. It pretty much confirmed what I suspected, that the company appears to be encountering a difficult period in its evolution from a small scale operation to a far larger concern. As a consequence the SP has now fallen well below the price I sold my remaining holding for after the initial profit warning. Profits should come in at around £1.2m which on a diluted EPS basis gives a current P/E around 14 (share price 205p).

On a p/e basis alone it doesn’t look cheap, and given that margins, operating profit and cash balances have all fallen since the interim period the shares may have further to fall? The balance sheet is strong, but as I mentioned here and on the ADVFN bulletin board, the market may allocate a single digit P/E ratio to this one. Even at 10 times earnings (15p EPS) this gives a share price around 150p. Given the balance sheet I would say that the shares would be extremely cheap again at these levels, but market valuations are often wrong otherwise we’d never be able to find bargains. Indigovision will remain on my monitor, but I’m not in a hurry to repurchase.

Finally, returning to my recent holiday (now that would be nice!) it was interesting to note that the hotel was fully booked and that there were a very high percentage of Russian, Eastern European and Asian guests who were staying at this 5 star hotel. Despite all of the concern about the current state of the global economy, looking further ahead I strongly suspect that any hiccup in global growth will be temporary and that the full scale of growth in Eastern European and Asia is still yet to emerge. Anyway, as an ordinary “Joe Soap”, perhaps I should just leave it to the army of economic experts to get it wrong for me!