Friday, January 28, 2005


Sometimes life is not fair. Sometimes we get unfairly snubbed at work. Sometimes we get stricken with bad health. The list is almost endless. But what about the stock market? Is that fair?

It should be. The price of a highly liquid stock like Vodafone represents the price that thousands of traders are willing to pay for it. It must be at its price for good reasons.

But sometimes the price of a stock just does not seem to make sense.

I have owned VOD for almost a year now. The price now is about the same as when I bought it. This is not a good performance.

During the time I have held Vodafone the dividends have doubled, countless millions have been spent on share buy backs and results have been robust. The latest results on Wednesday were strong, with VOD now having over 150 million subscribers on a proportional basis.

The P/E is less than 15 (ignoring amortisation.) The yield is almost 3%. Not bad for a company which still has a lot of growth left in it.

The brokers seem to think that the company looks good. In the past two weeks at least six analysts have rated VOD as a buy.

But still the share price refuses to budge upwards. Why why why? Are the buy backs making any difference? Does the higher dividend mean that people just see VOD as a utility stock? Is some large institution gradually dumping all their position?

I wish I knew. At times like this the quality needed is patience. VOD will rise, it is just a question of when. You cannot predict where the market is going to go but if the stock you own is of the highest quality and was bought at a good price then you have a good chance.

Having said that if this stock is still at 140p in one years time maybe it will be time to give up!

Wednesday, January 26, 2005


People seem to hate taking risks with their money.

When I tell people I like share dealing they often look very unimpressed, as though they are secretly thinking that I am on some get-rich-quick scheme or just plain gambling.

Share dealing is not gambling. When you gamble you are always (or nearly always) going to lose out to the bookmaker in the long run. When you invest you normally make money in the long run as long as you are sensible. By making gains you are sailing with the wind, not against it.

Most books I read that introduce share dealing contain sections about managing risk. Readers are advised to spread their portfolio between bonds and stock, and to make sure that their portfolio is well diversified. They are advised to start off with investment trusts if they do not have enough money to invest in five separate companies.

I think most of this advise - though well meaning - is rubbish.

Shares are proven to be the better investment over long periods of time compared to bonds. (This is an over-simplistic statement I know!) If shares are better than bonds then put 100% of your investment money into shares! If you think that the market is about to crash then that is different but to have part of your portfolio in bonds when you think the stock market is looking rosy is nonsensical.

It is good to diversify your portfolio. I think 5 to 10 companies are enough though. I mean how many companies do you have time to really research and follow? Should the companies all be in separate sectors? Not at all. If you think one sector is going to do well then make your portfolio overweight on it. You can't be an expert on all the sectors anyway. My sectors of choice are: telecoms, internet, and airlines. My riskier choices are normally in these sectors as I understand them better.

What about starting off with investment trusts? Well when I started off I bought shares in just one company. As it happened my selection did OK but the point is even if it hadn't I would have learnt a lot more about share dealing than if my money had been locked away in an investment trust. Surely the first few years of share dealing are as much about learning as making gains?

Share dealing is supposed to be fun. If you are petrified that your stock are going to plummet then you should put your money in an index tracker. On the other hand if you enjoy the uncertainty of not knowing how much you will have made (or lost) by the end of the year then share dealing is for you.

Life is too boring when you know exactly what the future holds!

Tuesday, January 25, 2005

Choices Choices

My method for selecting companies to invest in has been rather random in the past. Too lazy to do a full analysis (it is so tedious when you don't understand all the accounting jargon) I have relied on recommendations, simplistic logic and hunches. While this approach has served me well, I think it would be irresponsible to carry on like this, especially now I understand a bit more of the accounting stuff, and am investing in different companies more regularly.

However defining and following a share filtering process would be too boring. Anyone can do that mechanically using share screening sites. No, what I need is a checklist so that when I decide to invest in a company for the first time I can check that I have at least done the minimum due diligence. So here is a first attempt:

1. Do I understand what the main revenue streams are? For some companies this is obvious. You don't have to be a genius to know that Tescos makes its money be selling groceries. But others are a bit less obvious (to me anyway!) Cable & Wireless? Leasing their network maybe? Arm Holdings? Selling their processor designs? Many companies these days have multiple types of income streams. It is important to know what they are and how important each one is.

2. Do I understand the share price chart for the last 2 years? Having a falling share price is not necessarily a problem. Not understanding why the share price is falling is a big problem. I am not a chartist. I prefer buying shares that have recently fallen to ones that have recently risen. But unless I understand what has made the company fall out of favour I am playing with fire. Think Jarvis.

3. What is the plan for the shares? Obviously the plan is for the share price to rise! But is this a short term recovery play or a long term buy and tuck away investment. I recently bought shares in British Airways as it seemed clear that the shares had been oversold. This was a recovery play. Holding shares in BAY for years at a time seems unnecessarily risky. But making a short term profit as the share price corrects itself is fine with me. On the other hand I bought quite a few Vodafone shares about a year ago. In the year I have had them they have gone nowhere. But I am prepared to wait - VOD is a true "buy and almost forget" stock.

4. Have I read the latest yearly report? This isn't always fascinating reading but as well as all the financial data this can contain valuable nuggets of information about the company which may change the way you view the company.

5. What is special about the company? As a personal investor you have thousands of companies to choose from. What is it about this company that makes it stand out? Are you sure there aren't better companies in the same sector?

Well that is a good start. If I follow this checklist I might feel a bit less irresponsible when my choices blow up in my face!

Saturday, January 22, 2005

The Ebay Ramp

Some of you may have heard of a company called Ebay!

Ebay is a fantastic company. However the greatness of Ebay is very obvious to many and the company frequently trades on P/E multiples of over 100. This means you couldn't really describe the shares as a bargain. Nevertheless the performance of the shares over the last 6 months or so has given me an idea for a (unoriginal I'm sure) investment strategy.

Short Term Profit or Long Term Hold

1. Find a great company that investors are very excited about. Ebay is the example that I will use. Google may be another. Taser is not as it is not a truly great company in the way Ebay or Google are. (Sorry about the lack of UK examples but post dot com bubble UK investors just don't get excited about their shares like our US cousins do.)

2. Follow the share price. When some bad news is issued and the share price plummets, take a deep breath and dive in. Now this is difficult. How can you know when a share price drop is over? You can't. But when you think the share is an obvious bargain then the time may be right. Yesterday Ebay was at $85. Bargain!

3. Wait for people to get excited about the company again and push the price up. When you think everyone has got a bit carried away then sell. Again it is impossible to know when a peak has been reached. But when anything but the best of news will cause the share price to fall the time may have come.

4. Repeat steps 2. and 3. for as long as possible.

5. What about if the share price plummets when you buy it? Well you chose a great company didn't you? So just wait for the price to recover. Obviously the price may never recover, but the greater the company the greater the chance. And Ebay is a truly great company.

An example of the above in action:

Last summer I bought Ebay for $88. This wasn't after a drop in the share price but I couldn't wait any longer. A few months later the shares were down %15. But Ebay is a great company so I wasn't worried. Then the market picked up towards the end of the year, Ebay had some good results and the shares were up to $115.

$115 was a pretty optimistic price so I sold and invested elsewhere. Six weeks later and the shares are at $85. Yipee! I am back in but this time, without injecting any extra cash, I have 18 shares instead of 14.

I plan to ride the Ebay ramp as often as possible!

Here we go

Hello! My name is Phil and I live in Stockport, UK.

I am married with one child and work as a software engineer but this blog isn't about that. No, one of my hobbies is investing and as there is a real dearth of investment blogs from the UK citizen point of view I thought I would start one.

I am a small time investor to say the least but I think I have some useful things to say so...

Here we go!