This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
The Qualiwatch series continues
I'd firstly like to reiterate what we are currently attempting to do here at the Qualiport. We are trying to build a portfolio for the next 10 years. We don't aim to buy the most exciting companies in the world, but we usually like to buy solid, well managed companies. For those of you unfamiliar with the criteria for the ideal Qualiport company, please click here.
The aims of this portfolio are relatively simple.
* We aim to beat the market. Whether we are beating it at the moment is a moot point, as we are losing money. Every month we throw up a table that I believe gives a reasonably good indication as to whether we are achieving this aim. With the market having gone berserk over the past couple of weeks, and the Qualiport shares not going up nearly as much as the market, at this current point in time we may be struggling. If only we had shares in Amazon.com or Colt Telecom (CTM)... we can but dream.
* We aim to make money. Lots of it. In fact, we aim to achieve a compound annual growth rate of 15% per annum, measured over a long period of time. This is much easier said than done. We are not going to achieve this feat in year 1, and that's hardly a good start to proceedings. We will look into this in future articles, but picking between 8 to 12 shares that on average will appreciate in value by 15% per year is actually quite difficult.
The FTSE 100 average price to earnings ratio (P/E) is currently about 23. This is significantly above its historical level. I don't know whether that means the market is overvalued as a whole, because never before in history have companies been so efficient and profitable. The huge advances in technology over the past 20 years means that each and every company should be more profitable than it would have been many years ago. The banking sector is a classic example -- much of their recent above average profitability has been driven by aggressive cost cutting as information technology and communication devices have replaced manual non-networked and archaic systems. Also, it should be remembered that the Qualiport is not aiming to buy the market, so to us it doesn't matter that it is at 10,000 or 2,000. If an individual company is a quality one and is trading at a reasonable valuation, we would buy it.
We currently have a portfolio of 6 shares. The constituents are listed on this page, along with the current performance of the Qualiport. These numbers are updated each Wednesday and Friday along with this recap. (Nice day today for Rentokil Initial (RTO) and EMAP (EMA).) We also have almost £4,000 sitting in the bank, waiting to be reinvested in the market. Enter Qualiwatch.
The Qualiwatch theme, started way before we actually purchased our holding in Marks & Spencer (MKS), aims to first identify Qualiport standard companies, then buy them -- but only if the price is right.
As described last week, one of the mistakes we made in our early purchases was that when we valued the companies, they didn't jump our 15% compounding growth rate hurdle. In hindsight, we should never have bought Marks & Spencer, Unilever (ULVR) and EMAP at the prices we did. Instead, we should have identified them as quality companies, set a buying price at which they could possibly earn us our coveted 15% growth rate, and then sat back and waited for the market to throw those prices at us. Of course, using this technique, there is a chance we will never be able to jump on and buy the shares, as they may never reach our buy point. Rather than getting upset and emotional about this, we should shrug our shoulders and move on. Sure I would have liked to own shares in Colt Telecom. I'm jealous of all those Colt Telecom shareholders but don't begrudge their skill and good fortune. If any investor were to successfully pick the top 5 big winners in any year, it would be a pure miracle.
The Qualiwatch is currently on the hunt for 6 of the best companies in the world. Once we've found them, we will not necessarily buy them. We will run some valuation techniques over them and decide whether they offer any value. For example, if any of the US Internet shares were to make it into the top 6, at the current valuations I can't see us buying any of them. We may never get a chance to buy them, as the shares may just keep on going up and up. But if the market plays its funny tricks again and gets all depressive, there may come a time somewhere in the future when Internet shares, or any other company we identify, offer good value. Without first going through the stock selection process, though, we will never know which companies to buy and at what price. We are basically doing a little bit of forward planning.
Think back to October 5th, when the Footsie was languishing at 4649 and the bears were gloating. In hindsight, many investors wish they had the conviction and confidence to buy when everyone else was selling. Sure it would have been a complete fluke if you bought shares when the market was at is absolute low point, but even if you bought when the Footsie was 5000 and watched it fall below 4700, right now you'd be patting yourself on the back.
When the market was tanking, the individual share prices of some companies would have passed our 15% growth valuation criteria. This would not have been at the market's low point, or the low point of the shares, but that is irrelevant over the long term as long as the underlying performance of the company meets or exceeds your expectations.
The share selection process of the Qualiport is not changing. In a nutshell, we are looking for a quality company available at an attractive price. This is not the only way to run a portfolio. For example, Beating The Footsie is purely a mechanical investment approach with a proven past record. Some people like to use mechanical sieves when choosing their portfolio. Others ignore valuation completely and just buy the best companies going. Each and every one of us has a different investment approach, and that's why no two portfolios are alike.
The Qualiwatch series (accessible from the archives, as is everything we write here at the Motley Fool) is putting together a long shortlist of the potentially best companies in the world. Last Friday we looked at the mobile phone companies. Today we are scheduled to look at the fixed line telecommunication companies. I'm going to take a rain check on this one, as Redessa has very kindly done much of the work for me in this excellent post on the Qualiport web message board. I certainly learnt a lot from it, and I'm sure anyone who is interested in this sector will do so too.
As ever here at the Motley Fool, we encourage you to make your own investment decisions. Just because the Qualiport buys shares in a company doesn't mean you should do. Likewise, just because someone is keen on a company in their message board post doesn't mean you should rush out and buy it.
Of the fixed line operators, here's my shortlist:
British Telecommunications (BT.A) -- a hugely profitable company, with some monopoly qualities. Is expanding aggressively abroad and sees the Internet as key part of its future business plan.
Cable & Wireless (CW.) -- similar type of company to BT. Through its purchase of the Internet backbone from MCI, has firmly nailed its flag to that medium's post. Already has a significant overseas operation.
I do, however, have reservations with both these companies. BT is losing market share in its domestic business to cut price start ups and new operators. Cable & Wireless doesn't have the greatest reputation in the world for customer service, and owns 53% of Cable & Wireless Communications (CWZ), a capital intensive road digging cable company.
Colt Telecom (CTM) -- targeting high volume business customers, and judging by their sales growth doing a good job of it so far. Their short-term aim is to build an infrastructure in each of the business centres in Europe. Have an excellent reputation for customer service.
Energis (EGS) -- spun off from National Grid (NGG). Similarly to Colt, is installing data communications lines and selling to business customers. Freeserve, the hugely successful free Internet Service Provider, use the Energis lines.
Remember that at this stage we're deliberately not worrying about the valuation of any of these companies. We're aiming to pick the best. No easy task, is it?
What do you think? Would any of these companies be worthy members of the Qualiport? Are any of them in the top 6 best companies in the world? Let us know what you think on the Qualiport message board.
See you Friday.
Bruce Jackson (TMF Googly)
25/11/98 Close
Company Change Bid
EMA 0.50 11.60
IIG 0.03 2.15
MKS -0.03 4.43
PIZ 0.07 8.10
RTO 0.15 3.80
ULVR -0.15 6.28
Qualiport Stocks
Last Rec'd Total # Company In At Current Change
19/12/97 783 RTO 2.55 3.80 49.0%
04/11/98 245 PIZ 7.93 8.10 2.2%
17/04/98 169 EMA 11.85 11.60 (2.1%)
17/07/98 298 ULVR 6.72 6.28 (6.5%)
11/05/98 368 MKS 5.54 4.43 (20.0%)
27/10/98 755 IIG 2.58 2.15 (16.7%)
Last Rec'd Total # Company In At Value Change
19/12/97 783 RTO 2046.53 2975.40 928.87
04/11/98 245 PIZ 1966.34 1984.50 18.17
17/04/98 169 EMA 2052.57 1960.40 (92.17)
17/07/98 298 ULVR 2052.54 1871.44 (181.10)
11/05/98 368 MKS 2054.11 1630.24 (423.87)
27/10/98 755 IIG 1972.64 1623.25 (349.39)
Cash: £3,975.57
Current Total : £16,020.80
Total Invested: £16,184.62
Profit/(Loss) : (£ 163.82)
Value Per Share
Day Month Year History
Qualiport 1.56% 0.99% 32.70% 35.69%
FTSE 100 -0.74% 5.83% 12.07% 14.64%
FTSE All Share -0.59% 5.11% 9.20% 11.50%
For an explanation of Value Per Share accounting, please click here.