Roy Mitchell outlines his personal investment style.
I am not a very good cook. My custards are always lumpy, my curries are not quite right and my souffles never rise. I suspect the problem is that I cannot follow a recipe. I like to be innovative and end up doing it my way.
A couple of years ago I resolved to devote more time to the stock market and rather than continue with the somewhat haphazard approach I had adopted to date, I decided to follow an investment style.
Style does not come easily to a short fat bald chartered accountant so I undertook some reading to see what style other investors followed. I read numerous investment books and looked at investment sites, such as The Motley Fool. I learnt about the Zulu system, Pegs, Long term buy and hold, value shares, high yield portfolios and many others.
All these methods were very interesting but as with my cooking, I had to do it my way and the BAD ITS PAPS investment style was born. This unheard of acronym stands for:
Buy After Directors If Trading Statement Positive And Price Slips.
One of my motives in adopting this style was to bring excitement into my investment life. I tend to specialise in small unloved shares and many is the day when my screen shows neither blue nor red, weeks can pass without my shares moving. I wanted some action.
A common mover of a share price is news. A director buy is usually good news, as is a positive trading statement. But what if neither of these events moved the price? Surely when the actual results came out confirming the upbeat trading statement, this would, in the absence of any bad news, move the price and unlike my souffles, the share price would rise?
My initial success was with Porvair
(LSE: PRV)
. On 19 November 2004, Porvair issued a positive trading statement and on the same day two directors purchased shares at 104p. By the time of the results announcement on 25 January 2005, the price had fallen to 94p and it was time to buy. Shortly after the results, the price had risen to over 120p.
Other successes followed, the most recent being Sinclair Pharma
(LSE: SPH)
. On 25 July 2006 an announcement was made of two purchases by a director at 120p and 123p. On 27 July a positive trading statement was made. By the time of the results announcement on 26 September, the share price had fallen to under 100p and I made a purchase. The shares quickly rose to just under 120p.
The BAD ITS PAPS style of investment does not replace analysing the fundamentals of the company but is complementary and can be used to identify shares where a re-rating of the share price may be imminent.
An essential feature of BAD ITS PAPS is to always top slice and bank a portion of the gain This profit should of course be spent at a top class restaurant, thus avoiding another badly cooked home meal!
Royowns shares in Porvair and Sinclair Pharma
