Stephen Bland explains some of the colourful terms used by value investors.
Following overwhelming demand, okay I admit that only one person suggested it, I thought it a useful idea to present a glossary of the expressions I invented and use when writing about value investing. It may be that there a number of newer Fool readers out there who are not familiar with the style that I developed and used during my previous incarnation here.
Directorspeak
Comments made by company directors in accounts etc. regarding the state of the business, an informative snippet of which I sometimes quote when reviewing a share. But Directorspeak (DS) is more than that, it is actually a whole language related only distantly to English. In DS, the euphemism and the weaselism are employed out of sheer funk in an attempt to make things look better than they are. What is quite surprising is how almost all companies seem to use DS, almost as if company law mandated it.
One popular example in the current recessionary economy is the word "challenging", as in the "the company faces a challenging year ahead". You will see it used repeatedly by companies in their reports, often several times in the same one. The English translation is lousy, terrible, awful. But for some reason they can't bring themselves to say just that. "Challenging" makes things sound not quite that bad, even if conditions really are desperate.
Another common example of DS arising from the recession is when dividends are "rebased". Dividends are never cut, lowered or reduced, they are "rebased" even though nobody would normally use that word. DS uses it to make the event seem less disturbing to shareholders though it is hard to see that anyone could fall for it.
Bongo Bongo Land
Anywhere vaguely outside of the M25. Usually shortened to just Bongo, it arose from my belief that greater risk is present in a share where it expands into, or has a major presence in, a foreign country.
This is a generality so I'm not saying this happens in every case but I think a lot of the time it does. It has been fairly common for over ambitious British businesses to think that they can repeat what may be success at home into success abroad. History shows though that failure is too often the result.
Note that Bongo Bongo Land does not necessarily mean some politically unstable dictatorship. The USA for example, long a graveyard for British companies, is a member of this club.
Fundies
Short for fundamentals which are the quantitative elements of investment analysis. Stuff like earnings per share, assets per share, dividends, debt and so on and the various ratios derived from these such as Price/Earnings, Yield, Gearing and many others which enable shares to be filtered and compared.
Those using fundamental analysis to find shares are distinguished from those using technical analysis. The latter, also known as chartists, work by studying share price movement patterns and ignoring the underlying fundamentals of the business. I use purely a fundamental approach whilst other investors use purely a technical approach and some use a mixture of the two.
Nomenology
One of my inventions, being the study of the characteristics associated with names and in particular company names. In general with value investing, the sillier the name the less appealing the shares. Value shares with solid names tend to be more reliable than those with frivolous handles.
Examples of solid names include the original founders, the original location of the business or perhaps a description of its products or activities. Frivolous titles would include a preponderance of Xs, a pun or lower case initial letters or anything that tries to hard to be trendy.
Outer
The factor which causes the market to change its perception of a share and move the price upwards thus removing some of the value thus outing it. An example could be a share rated on a low P/E where some event has occurred within the company which will drive up eps sharply. This will drive down the already low P/E, but this event has not yet been recognised in the share price. This event is the outer, the reason why the share price should rise and not merely stagnate.
There doesn't have to be a specific event though, the outer in some cases could be simply that the share is far too cheap compared with its peers, provided there is no obvious reason for that relative cheapness.
The existence of an outer doesn't mean that the market will for certain reappraise the share because this is a risk game, but it increases the value player's chance of winning. Value is all about trying to tilt the unavoidable risks with shares in your favour by first minimising the downside and then maximising the upside.
Never Look Back
What I mean here is that what happened in the past to a value play should be of little or no relevance to your current consideration of it and in particular all emotion should be stripped out, not necessarily that easy to do. Once you have bought a value share to trade, then what you paid for it is virtually irrelevant.
All that matters is when to sell, which in this strategy is when you feel that sufficient value has been removed either by a rising price or, as happens on occasion, by something going wrong in the business and the price may have fallen. The sell decision is based on your current appraisal of the share, not what looking back you paid for it.
Similarly if you once traded a share successfully in the past and it catches your eye again, don't look back and permit nostalgia to cloud your judgement because that is no indication at all of its current status. Treat it as though it is a newcomer that has to pass your filters along with other shares and has no advantages just because you traded it before.
And these are the expressions I believe I have invented over the years regarding value investing and I hope it is exhaustive though it's possible I may have forgotten something. Some of them are meant to be a little jokey because that's my style though I don't intend that this should detract from the underlying meaning.
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