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By Bruce Jackson (TMF Googly)
Baker Street, London -- Last Friday, another £2,000 cash was added to the Qualiport's coffers. This is a real-money portfolio, and like all investors, we like to invest cash into the market on a regular basis. Whilst on that point, check out this recent excellent and educational piece by Alan Oscroft (TMF Alan) on pound-cost averaging. Following that theme, in my personal portfolio I own an index tracking ISA, contributing a set amount each and every month. My ISA provider kindly invests that cash into the market, and Bob's your uncle.
When running a managed portfolio, like the Qualiport, I like to have a little bit of extra cash sitting on the sidelines, available for immediate investment in the market. That last sentence somewhat contradicts our Foolish general message of being fully invested in the market at all times, regardless of market conditions. Check out the table in this excellent Fool's Eye View by Stuart Watson (TMF Tiger) for verification. Over the long-term, the stock-market has repeatedly proven to be the best wealth creation vehicle, so in theory you should be fully invested at all times.
Despite saying that, I think having a small percentage of cash sitting on the sidelines is actually quite Foolish. You can have it sitting in instant access high-interest savings accounts, earning you a decent return, so it's not entirely dead money. Sure, you're not going to make your fortune having too much cash sitting in the bank for too long, but it's better that throwing it into an individual company on nothing more than a hunch or a whim, or even worse a tip in a Sunday newspaper.
What I object to, however, is switching money in and out of the market. This is a very Wise pastime, specifically designed to encourage people to trade more frequently. And, surprise, surprise, Wise brokers make more money the more you trade. A typical Wise statement may read something like "We recommend investors (sic) switch 50% of their portfolio into cash, as we see a long and pronounced bear market just around the corner. Now that the key 6000 FTSE 100 market level has been breached, coupled with anticipated future interest rate rises, we suggest investors (sic) lock in profits, looking to re-invest in safer times."
Fools know that it is impossible to time the market's peaks and troughs. Today the FTSE 100 index hovers around the 6000 level. I ask you -- how does anyone know where it will stand this time next week, month or year. It is pure speculation. (As an example of the futility of this exercise, I'll guess that the FTSE 100 will close next Monday at 6105. Like anyone else attempting this death-defying feat of speculation, this is based on nothing more than pure guess-work. Next Monday, we'll see how far I'm wrong.)
Having said all that, it seems some people are still intent on trying to time the market. Some of these speculators may currently be thinking the market is due for a fall, as they fret about future interest rate rises. Others may be waxing lyrical about the benign state of the economy, thinking the market is surely headed higher. Who's right? When it comes to market timing, nothing's guaranteed, except that over the very long term, the stock market will be materially higher than it now currently stands. And besides, if you are going to invest in individual companies, you should do so regardless of the level of the overall market.
Another reason why I like to have some money sat on the sidelines waiting for that potentially rainy day is that I don't like to be forced to sell an existing holding in order to make a new investment. As with Marks & Spencer (LSE: MKS), the decision to sell (and buy, for that matter) should be made in isolation, based on current facts and projections. It's the same way a company should think when making its investment decisions.
For example, if a company knows it will need cash for future expansionary opportunities, but hasn't necessarily identified them yet, it should nevertheless consider raising it when it is cheapest. A share placing when your company is trading at a price to earnings ratio (P/E) of 100, a la London Bridge Software (LSE: LNB), looks a smart move. Likewise, raising debt finance at a fixed rate of 4.5% interest for the next 5 years also looks like a smart move. The chances are that an investment made in the ensuing 5 years will easily cover that cost of capital.
Following this thread of thought through, a question I often ask myself is: "Of the Qualiport's current holdings, would you feel comfortable in selling any of them today?" To me, none of them jump out as screaming sells, although a couple are under double secret probation. As to which they are and why, tune in on Wednesday.
I caught the back end of an interview by Sir Richard Sykes, executive chairman of Glaxo Wellcome (LSE: GLXO), on BBC Radio 5 Live this morning. He was complaining about the government's National Institute for Clinical Excellence decision not to recommend new flu drug Relenza for use by the National Health Service. I'm no expert in this field, but I can point you in the right direction for some very informed debate.
I'm sure Relenza is an important drug for Glaxo, however I'm also sure it remains just one small part of the potential revenue jigsaw for a company with 1998 sales of £8 billion. I just get the feeling that Glaxo are corporately getting a little bit desperate, and this is spilling over into Sir Richard Sykes' current reactions. Having recently warned that they'll miss their double digit sales and earnings growth this calendar year, they are under pressure from the City to visibly show that the new drug pipeline is in place to drive growth in 2000 and beyond. The Qualiport's target buy price for Glaxo remains at 1300p.
Tomorrow Rob and I have been invited to an analyst presentation by Misys (LSE: MSY), which will attempt to enlighten us about what the company actually does. There's various strings to their bow, and I for one will be keen to learn more about them. I sort of look at Misys as an IT conglomerate, growing mainly by acquisition. The management team essentially accumulates cash, and then allocates it across the subsidiaries or acquisitions with the best future cash generating prospects. A bit like Warren Buffett does at Berkshire Hathaway (LSE: BRK.A) and Martin Sorrell does at WPP Group (LSE: WPP). I'll report our findings on Wednesday. In the meantime, the Qualiport message board awaits your postings.
Company Change Bid DELL(US)+0.30 42.30 EMA +0.09 8.93 IIG 0.00 2.78 MSY -0.04 5.55 PIZ +0.07 8.12 RTO 0.00 2.14 ULVR +0.01 5.62 LLOY +0.14 7.73 Qualiport Stocks Last Rec'd Total # Company Buy Current Change 27/10/98 755 Indep Ins 2.58 2.78 7.8% 04/11/98 245 Pizza Exp 7.93 8.12 2.5% 29/09/99 356 Lloyds TSB 7.56 7.73 2.3% 22/04/99 347 Misys 5.76 5.55 (3.6%) 27/01/99 74 Dell (US) 44.63 42.30 (5.2%) 19/12/97 783 Rentokil 2.55 2.14 (16.1%) 17/04/98 169 EMAP 11.34 8.93 (21.3%) 17/07/98 266 Unilever 7.53 5.62 (25.3%) Last Rec'd Total # Company In At Value Change 27/10/98 755 Indep Ins 1972.64 2098.90 126.26 29/09/99 356 Lloyds TSB 2723.20 2751.88 28.68 04/11/98 245 Pizza Exp 1966.34 1989.40 23.06 22/04/99 347 Misys 2028.71 1925.85 (102.86) 27/01/99 74 Dell (US) 2007.42 1897.09 (110.33) 19/12/97 783 Rentokil 2046.53 1675.62 (370.91) 17/04/98 169 EMAP 2341.32 1803.86 (537.46) 17/07/98 266 Unilever 2052.00 1494.92 (557.08) Cash: £2,710.26 Current Total : £18,347.78 Total Invested: £18,184.62 Profit/(Loss) : (£ 1,836.84) Value Per Share Day Month Year Qualiport 0.48% 0.48% -13.12% FTSE 100 1.40% 0.40% 2.91% FTSE All Share 1.19% 0.33% 6.04%