Qualiport

Are Misys Qualiport material?

By Bruce Jackson (TMF Googly)

Melbourne, Australia -- As you can see, we've updated the numbers to reflect our purchase of Dell Computer Corporation (Nasdaq: DELL). This is our first ever purchase of a foreign listed company, so it throws up a few currency, timing and comparison issues. Before I go into that, it is worth reminding older Fools and telling the newer Fools about our Value Per Share accounting.

At the beginning of 1999, the Qualiport had a total value of £16,809.60. That was made up of a cash balance of £3984.36 and an equity (share) value of £12825.24. For portfolio valuation purposes only, we divided our total value of £16,809.60 into 3361.92 imaginary shares with a value of 500p each. In other words, 3361.92 * 500p = £16,809.60. Remember, this is an imaginary number of shares and an imaginary share price. I could have split the Qualiport into 16809.6 imaginary shares at 100p each and the result would have been the same.

On the day before the Dell purchase, the portfolio cash balance had increased to £4007.60 courtesy of dividends from EMAP (EMA) and Marks & Spencer (MKS). The market value of the equity portion of the Qualiport was £12179.60, giving a total value of £16,187.30. We have 3361.92 imaginary shares in issue, and a value of each imaginary share of 481.5p. Put another way, 3361.92 * 481.5p = £16,187.30. From a starting point for 1999 of £16,809.60, that is a loss of 3.7%.

It is a loss of 3.7% whether it is calculated on the actual portfolio value (£16,809.60 vs £16,187.30) or on the imaginary value per share (500p vs 481.5p). The Dell purchase simply reduces our cash balance and increases our equity value. The number of imaginary shares stays exactly the same, as does the value per imaginary share. At this stage we are ignoring any commission and stamp duty expenses -- these get picked up when we update the numbers after the Dell purchase.

At this point in the year, because we are not adding any new money to the Qualiport, the accounting for the returns is relatively straightforward. However, this won't always be the case. As this is a real money portfolio, using our own money, we want it to be as realistic as possible. Unlike tip sheets, investment magazines and newspapers, we are fully accountable (to ourselves) for our portfolio. This is exactly the same situation all individual investors find themselves in when building a portfolio. Wherever we get our stock ideas from -- and I happen to think the source is largely irrelevant -- if we decide to invest in a company, then we as individuals are responsible and accountable for that investment.

In case you haven't worked it out by now, we are firm believers in the long-term wealth creation opportunities investing in the stock market can bring an individual. As far as this portfolio is concerned, we want to keep adding new money, stoking the fire so that it may keep growing over the years. We have been diligently saving money so that we can keep purchasing part ownership in great companies. On April 1st (very appropriate) and October 1st each year, we will be adding another £2000 to the portfolio. That money will either be used to add to our existing positions or to purchase a part ownership in a different company. I don't propose to own shares in any more than 12 companies. Anything more than that, and the diversification actually increases the risks -- and that's not to mention the dealing costs involved.

The value per share accounting gets a little trickier to follow when we add new cash to the portfolio, but we'll cover it when that happens. Adding new cash doesn't change the historical returns of the portfolio.

As I said earlier, the Dell purchase throws up a few portfolio tracking conundrums. The biggest of these is the currency difference between US dollars and Great British Pounds. The total purchase price of our 37 Dell shares plus commission was US$3,312.24. At a rate of approximately £1 = US$1.65, that gives a sterling purchase price of £2,007.42. That is fixed forever.

The current share price of Dell is listed in US dollars, and the total value of the holding is translated into sterling at that same rate. For example, if the current price of Dell was US$100, we'd do the following calculation.

37 shares @ US$100 = US$3700. £1 = US$1.65. Total value £2,242.42.

The dollar to pound exchange rate changes on a hourly basis. Over the last 18 months, one pound has bought anything from about US$1.58 to US$1.72. For consistency, we will translate the current Dell value at a fixed rate of US$1.65 until such time as there is a change in the rate to either US$1.60 or US$1.70. We hope that over time, any exchange rate gains or losses will be dwarfed by the capital appreciation of our US dollars. Our investment in Dell has certainly got off to a good start, but we're not getting too excited yet. After all, just about everyone, from Rupert Murdoch to Alan Greenspan to Bill Gates and Kerry Packer, is telling us that Internet shares are overvalued. Dell generates revenues of well over US$5 million per day from the Internet.

The Dell share price quoted on these pages will be as at close of play the previous day. The US market will still be open when we file this report, so it makes sense to take the closing price from the previous day. Over time, this one day lag will hopefully make little or no difference to the daily valuation of the portfolio.

Finally, you will see we track the Qualiport's performance against both the FTSE 100 and FTSE All Share indices. Dell is traded on the all conquering Nasdaq. However, at the moment, Dell makes up a smallish part of the portfolio, so we will continue tracking the overall portfolio returns against the London indices. Our aim, over the long term, is to achieve compounded annual returns of 15% per annum. If we achieve that aim, we should also beat the market.

Qualiwatch

That gut feeling I had about Misys (MSY) -- it looks like last week's interim results confirmed that they are progressing well. I haven't looked too closely at them yet, but the market obviously liked what it saw. Misys could be a future Qualiwatch candidate -- watch this space.

I've run out of space for the promised first look at Glaxo Wellcome's (GLXO) valuation. That will definitely happen on Friday. See you on the Qualiport message board.

                    02/02/99 Close

                    Company   Change    Bid
                      DELL    +$7.50  $107.50 
                      EMA      -0.17    12.25
                      IIG      -0.04     2.35 
                      MKS      -0.05     3.53
                      PIZ      +0.05     7.70 
                      RTO      -0.02     4.48
                      ULVR     -0.17     5.90

Qualiport Stocks

Last Rec'd Total # Company  In At  Current  Change
 19/12/97   783      RTO     2.55     4.48   75.7%
 27/01/99    37      DELL  $89.25  $107.50   20.1%
 17/04/98   169      EMA    11.85    12.25    0.9%
 04/11/98   245      PIZ     7.93     7.70   (4.1%)
 27/10/98   755      IIG     2.58     2.35  (10.1%)
 17/07/98   298      ULVR    6.72     5.90  (14.3%)
 11/05/98   368      MKS     5.54     3.53  (36.8%)

Last Rec'd Total # Company  In At    Value   Change
 19/12/97   783      RTO   2046.53  3507.84  1461.31
 27/01/99    37      DELL  2007.42  2410.61   403.19
 17/04/98   169      EMA   2052.57  2070.25    17.68
 04/11/98   245      PIZ   1966.34  1886.50   (79.84)
 27/10/98   755      IIG   1972.64  1758.20  (198.39)
 17/07/98   298      ULVR  2052.54  1808.86  (294.34)
 11/05/98   368      MKS   2054.11  1291.68  (755.07)

Cash:                             £2,000.18
Current Total :                  £16,706.87

Total Invested:                  £16,184.62
Profit/(Loss) :                    £ 522.25


Value Per Share

                    Day      Month      Year      
Qualiport          0.22%     1.28%     -0.61%
FTSE 100           0.01%     1.98%      2.22%
FTSE All Share     0.31%     2.25%      3.09%

Click here for the latest Qualiport share price quotes.

For an explanation of Value Per Share accounting, please click here.