Sexy is as sexy does!!

Who on earth would be interested in buying shares in a boring old shipping services company when there are so many other sexy options to choose from?

Well in 2002 that's exactly what I did, purchasing shares in Clarkson for around £2 a piece.

It was really my first serious foray into the stock market. I had dabbled between 1999 and 2002, but not seriously and with little background reading to guide me. In retrospect this was an invaluable lesson since the subsequent unwinding of the dotcom bubble and general market collapse made me realise that some serious research was necessary before gambling hard earned cash on the markets. Thank goodness I did some research and started to learn about p/e ratios, dividend yields, balance sheets, net asset values etc. Most of all thank goodness for Ben Graham and his principles of value investing.

Whilst I can't claim to have strictly adhered to Graham's principles over the last decade or more, I do try to look for at least some margin of safety.

In 2002, feeling pretty confident about Graham's ideas, I decided that one company that appeared to generally fit his value based criteria was a company called Clarkson. Whilst the markets were still somewhat volatile I decided to take the plunge and buy shares for about £2 a piece. The p/e ratio was low single digits, the dividend yield just over 7% and the company had no debt. What could possibly go wrong?

You can only imagine my dismay and despondency when the share price subsequently fell further to around £1.50.

I tried not to panic and held on, consoling myself with the fact that at least I would get some money back through dividend payments, but I did question myself, wondering if I had totally misunderstood the principles of value investing and margin of safety.

Luckily as markets began to pick up so did Clarkson's share price, and initially just getting back to break even  was a huge relief, but I continued to hold. I received my 7.2% dividend and eventually sold my holding for a profit of 67%. What a result I thought at the time, and let's face it where else are you going to invest and get that sort of return in the space of a year or so? Other successes followed, notably Ashtead and Hunting, both bought for 15p and 114p respectively and sold for double digit percentage profits after a relatively modest holding period (I know, I know.......but nothing teaches like experience) and from that point on I was totally hooked on stock market investment and still am.

But who really wants to hold on to these boring companies, particularly when you've made a great profit in no time at all? I mean what's happened to Clarkson for instance since 2002?

Well firstly the share price is now £19.75. It's nearly ten-bagged in 11 years. That's a compounded rate of 23% per annum just in capital appreciation. £100,000 invested would now be worth £987,500.
Pretty impressive, but let's now consider the dividends paid out during that period.

Firstly, Clarkson have clearly operated a progressive dividend policy. When I bought the shares the dividend was 15p per share, but the dividend has increased year-on-year and currently it stands at 51p. Sticking with the assumed £100,000 invested, dividend payments amount to nearly £200,000 (£199,250), twice the original investment.

Whilst I wouldn't be tempted to buy shares in Clarkson now (it looks expensive on first glance to me), it does illustrate three things. Firstly, value investing can be extremely rewarding, secondly, with prudent stock selection, buy and hold can work very well and thirdly boring companies can be very sexy indeed!!