Vodafone Yawn

Vodafone reported full year results last Tuesday for the year ending March 31 2005. Reports of this nature are full of information that is not important. I think the secret is to focus on the few nuggets which are.

For me the important bits are the forward looking statements:

- Revenue growth in the range 6 - 9%
- Margins static or 1% lower
- Dividends to grow in line with earnings
- Buy backs to continue
- Japan still a problem
- Market is very competitive - more competition all the time from MVNOs
- Further aquisitions in Eastern Europe will be actively sought.

The first two points are the most important in my opinion. Growth next year could be as low as 5%. This makes the p/e of 14 look quite high.

I think share price growth in the next 12 months will be very limited. Any growth will probably be caused by the buy backs rather than earnings growth.

So does Vodafone have a place in my aggressive portfolio? It may have a small place as a means of safely investing small amounts in the stock market on a monthly basis. But I won't be repeating the mistake I made last year of having over half my portfolio invested in this giant, thereby severely limiting growth.

I love Vodafone as I company but I hate the share price performance.

Mistakes I have made

It is always good to look back at decisions I have made over the few months and determine what mistakes I have made and how I can avoid them in future. Here are a few:

1) Assuming that if a great company falls 20% in one day then it is oversold and under-valued.

When eBay's Q4 results came out in January it share price plummetted over 20%. This took the price below the level I had bought in 6 months previously, when making a nice profit last year.

My logic must have gone something like: eBay is now cheaper than 6 months ago; the earnings are higher and the business is just as great: BUY!

So I did buy. Unfortunately the market kept selling and at one point recently I was down over 20%. Ooops. I guess I didn't fully comprehend the implications of the slower growth rate the Q4 results revealed.

The Lesson: Always examine closely why the share price has fallen so much. Do not be in a rush to buy in but let the dust settle first.

2) Always rushing to invest cash from selling transactions.

Whenever I sell some stock and have cash available to invest I just cannot bear to have the cash un-invested. This means that I often buy stocks at a higher price than if I had waited a bit. It also means that when opportunities arise I rarely have any cash available as I am nearly always 100% invested.

A case in point is the recent purchase of Frontline Ltd shares. The cash arose from the sale of my Ask Jeeves holding, and the FRO shares were bought less than a week after the ASKJ sale. If I had waited a bit longer for a better FRO price or a different bargain to come along I would not have the big loss on FRO that my portfolio is currently displaying.

This brings my nicely to point 3:

3) Laziness at performing due diligence before share purchase.

I enjoy reading about share-dealing and specific stocks. I enjoy watching my portfolio fluctuate. I don't always enjoy reading detailed yearly and quarterly reports. This means I don't always do the research that I should before buying into a new company.

When I discovered Frontline Ltd I did read their latest yearly report. I also read their message board on Yahoo and did a bit more general digging. However I did not compare them with other oil tanker companies. This was a mistake. For example there are other oil tanker companies with most of their ship on a fixed long-term charter. This makes their earnings much more predictable and I should at least have considered this type of company.

At the moment FRO is the worst performer in my portfolio percentage wise, down almost 20%. It may yet prove to be a good investment but it is not looking good at the moment.

So there are 3 mistakes that I will try not to make again. I haven't done too badly in my investing career, only once selling at a loss out of the ten times I have sold. But there is still much room for improvement I feel.

The future is yellow

UK self storage company Big Yellow Group PLC reported full year results yesterday. Results were strong (revenue up 31%, profit up 240%) but the outlook is cautious. A large chunk of Big Yellow's business comes during house buying transactions so if the housing market slows down they will be affected.

However I was more than happy with what I saw. Big Yellow have room for years and years of growth in the UK as the self storage market is relatively new. Their properties are worth 186p per share which gives the share price a safety net. Growth is organic and most of England (North and Midlands) has not been covered yet. The profit margin is an astounding 66%.

This is one company I have liked since I first looked at its website. The business model is simple and effective, the brand is consistent, the financials are strong and the management look good. There are competitors around but I think Big Yellow are well placed to generate cash for shareholders for many years to come.

Big Yellow are the only real estate and the only small cap holding in my portfolio. As such they provide diversification and a bit of education as I have never owned a small cap before.

This is one to hold on to for a long time.