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By Rob Davies (TMFEssex)
Back in the saddle now having moved house. I hesitate to say successfully until everything is sorted, which might take a little while. Until that happens I suppose we are condemned to rummaging around in cardboard boxes to find the essential items, like corkscrews.
Having been more or less absent from the boards for about 10 days I have been furiously surfing in the last few days trying to catch up with all the news and views. Now that we have so many Fools, boards and posts I realise that it is an impossible task. But I have tried to cover as much as possible and I have learnt a lot in the process.
One thing I have discovered is that the Qualiport message board has been overtaken by the Rule Shaker message board. What an outrage, we must fight back. Nevertheless, much of the discussion on the new board centred on stocks that have figured prominently on this board, namely the telephone stocks of British Telecom (LSE: BT.A) and Vodafone AirTouch (LSE: VOD).
Bruce has analysed both these companies in the past as potential Qualiport stocks, though neither has yet made the grade. However, elsewhere on the boards I saw some posts that made the point that both the Qualiport and the BTF portfolios have underperformed the FTSE All Share index in recent years. This makes choosing the next stock even more crucial.
I know from my own portfolio just how hard it is to make money, let alone outperform the index. According to the MF portfolios I am up 14% on my fund, but virtually all that is due to one stock I only bought last year. That share, Antofagasta Holdings (LSE: ANTO) if you must know, has more than doubled in less than twelve months. Yet when I bought it, it seemed very unlikely that it would do anything at all in the short term, despite trading at a quarter of its previous high.
This is a long-winded way of saying that purchase price is crucial in buying into a share and Bruce is 100% correct to watch and analyse stocks before buying. Just because companies are great businesses, and both BT and Vodafone certainly are, does not mean that shareholders will be well rewarded.
The Qualiport's holding in Unilever (LSE: ULVR) is classic example of a great company that became too expensive and has not provided a good return in the short term. This is the crux of investing. We all know of good companies but, as investors, you don't get a great return by buying into them when everyone else agrees with you. The trick is to buy great companies when they are not obviously great investments.
Some investors can do that. Buffett's recent purchase of a small shareholding in Allied Domecq (LSE: ALLD) may turn out to be a classic example of that. Sure Allied is, or was, demonstrably cheap and I suppose he is hoping that it won't stay that way. But some of Buffett's best investments have got that way by becoming not just expensive, but outrageously expensive. Did Buffett expect Coca-Cola (NYSE: KO) to trade at a P/E of 45 when he bought it so many years ago? Did anyone really expect Internet stocks to achieve the valuations they have done when they were floated several years ago? They might have. But who would have believed an investor in Microsoft (NASDAQ: MSFT) in 1986 saying that he was going to buy the share because it would trade at 60 times annual earnings of $5b by the end of the millennium. Not many, I think.
The reason the Qualiport, the BTF and my portfolio have underperformed the indices is that no one predicted the massive rush into the leading blue chip shares. That applies as much in the UK as it does in the US. So, while it is clear that the like of Microsoft and Vodafone are obviously great companies, it is not clear that they are obviously great investments at today's prices.
The rate of change in the industries that are experiencing the most rapid growth is such that it is very hard to predict which technologies, let alone which stocks, will be the winners in two years or five years time.
One of the threads on the Rule Shaker message board concerned the threats to BT. Some say it is from mobile phone companies, others say it will be from cable companies. With this sort of uncertainty it is very hard to decide which is the right stock, let alone have the bottle to pay a premium price for something that might get discarded on the way. The recent experience of Iridium (NASDAQ: IRID), the satellite phone company, is a lesson to us all.
In theory this ought to have been a knock out business. The ability to make a phone call from anywhere in the world, albeit at a price, was surely going to be a winner in today's global village. But it failed. And it failed for the reasons so many new businesses fail. It cost too much and the competition was stronger then expected. Mobile phones have become cheap enough for many third world countries to install large networks, and this has removed one of the big target markets for satellite phones. On top of that it cost a small fortune to make a call, and even big businesses balk at paying exorbitant phone bills.
When I as travelling a lot in China last year and the year before the mobile phone network outside the cities was already very extensive. So why bother with an expensive satellite phone when an ordinary mobile will do 90% of what you want for a fraction of the price. In other words the competition got a lot better while Iridium were getting their business started. And price always wins.
As a result, investors who paid $60 a share for this company 18 months have now got zip. When it floated the business had all the promise of every other communications business. You just had to have faith in the business concept. Sometimes it works, sometimes it doesn't. By the time it is clear it has worked, like Microsoft, or not, like Iridium, it is too late.
None of this has got anything to do with any of the stocks currently held in the Qualiport. But by next week I might have learnt a bit more about what has happened to them in the last few weeks. And don't forget we have results from PizzaExpress (LSE: PIZ) on Monday.
Comments and questions to the Qualiport message board, please.
Company Change Bid DELL(US)+1.20 48.70 EMA -0.21 10.22 IIG +0.03 2.88 MSY +0.16 6.15 PIZ -0.10 7.40 RTO -0.07 2.45 ULVR -0.10 5.88 Qualiport Stocks Last Rec'd Total # Company Buy Current Change 27/10/98 755 Indep Ins 2.58 2.88 11.6% 27/01/99 74 Dell (US) 44.63 48.70 9.1% 22/04/99 347 Misys 5.76 6.15 6.8% 19/12/97 783 Rentokil 2.55 2.45 (3.9%) 04/11/98 245 Pizza Exp 7.93 7.40 (6.6%) 17/04/98 169 EMAP 11.34 10.22 (9.9%) 17/07/98 266 Unilever 7.53 5.88 (21.9%) Last Rec'd Total # Company In At Value Change 27/10/98 755 Indep Ins 1972.64 2174.40 201.76 27/01/99 74 Dell (US) 2007.42 2184.12 176.70 22/04/99 347 Misys 2028.71 2134.05 105.34 19/12/97 783 Rentokil 2046.53 1918.35 (128.18) 04/11/98 245 Pizza Exp 1966.34 1813.00 (153.34) 17/04/98 169 EMAP 2341.32 2064.44 (276.88) 17/07/98 266 Unilever 2052.00 1564.08 (487.92) Cash: £3,433.46 Current Total : £17,285.90 Total Invested: £18,184.62 Profit/(Loss) : (£ 898.72) Value Per Share Day Month Year Qualiport -0.09% 2.74% -8.08% FTSE 100 -1.11% -0.89% 5.24% FTSE All Share -0.92% -0.45% 9.42%