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By Bruce Jackson (TMF Googly)
Kilburn London -- "Buy on rumour and sell on fact." It's hard to imagine a Wiser statement, but nevertheless it is often proven so very true. Every market day, and even more so on Sundays, courtesy of newspaper reports and scoops, rumours abound regarding any number of different companies. This Sunday was no exception. Here's just one example, which happens to involve a Qualiport company. Yesterday the Mail On Sunday reported that Misys (LSE: MSY) is casting an eye over AIM listed AFA Systems (LSE: AAT). Shares in the latter company rose 16p to 475p on nothing more that I could see than this rumour.
"Buy on rumour"
By the way, the Misys share price also put in another good performance today. Just to think that when the Qualiport announced a top-up back on October 25th, the Misys share price was 470p. Has the underlying business changed that radically in the past 3 weeks to justify a 43% share price rise? I somehow doubt it, although arguably in these go get 'em technology share days, 470p and a forward price-to-earnings ratio (P/E) of 25 was low for a company aiming to grow underlying earnings by 20% per annum.
In the months since Emap's (LSE: EMA) shares peaked at 1418p earlier this year, there's seemingly been plenty of rumours surrounding the health, or not, of the Qualiport's media company. And then there was also some fact, but it usually came after the rumour. It looked like a classic case of;
"Sell on rumour"
and also
"Sell on fact"
Poor old Emap. They were getting hit from all directions. Three weeks ago the shares almost fell through the 700p barrier, some fall from over 1400p earlier this year. The market was being merciless in its assessment of Emap's prospects.
Forgetting rumour for a moment, here's the facts.
*Emap fell out of the FTSE 100 index after its market capitalisation fell below £3 billion.
*Circulation at some of the company's magazines fell, especially in the teen titles. The break-up of the Spice Girls was a contributory factor to the fall-off in interest.
*Advertising revenues at Emap Petersen, the recently acquired US publisher, showed slightly slower first half growth than anticipated.
*Trading is in line with expectations for the full year.
The latter two came from a pre-interim results trading update released at the end of September, a statement which categorically failed to arrest Emap's share price decline. In fact, the fall from grace, and from 1400p, positively accelerated. Despite putting out what I'm sure Emap saw as a reassuring statement, the market still felt uneasy, selling perhaps on rumours of a poor second half to come were still circulating. Go figure!
I've written before about the psychology of investing, and how it's an often overlooked factor in the success or otherwise of any investor. Too many times in the past, I myself have been cast under its spell, the spell that leads you to believe some clouds have silver linings. Witness the Qualiport's purchase of Unilever (LSE: ULVR), done at a time when consumer product companies were all the rage on the stock market. Was it Warren Buffett who said, "You pay a high price for a cheery consensus"? That was Unilever all over circa May 1998.
Having made that mistake, and a few similar ones with my personal portfolio, I've hopefully by now learnt my lesson. I consider not buying Glaxo Wellcome (LSE: GLXO) at above 2000p to be one of my better investment decisions. Based on the numbers, it was actually not a difficult decision. However, back in January this year, pharmaceutical companies were in vogue - a long-term growth industry if ever there was one, given the ageing of the population and people's general level of affluence. Psychologically, the temptation was there to sod valuation and just buy the growth story.
Don't do it!
Valuation eventually matters. As I've said previously, there's only one Microsoft (Nasdaq: MSFT), a company so good that you could have bought it at any time in its 13 years of public life, and seen some outstanding returns on your investment. The same could well hold true of them now, even at US$88 and a P/E of 60. But, for every Microsoft, there's hundreds of companies which, although have been quite successful, at various times have turned out to be over-valued. If you buy at one of those 'cheery consensus' moments, you'll get sub-normal returns. That's the story of Unilever and me.
Before closing this latest instalment on investing psychology, I'd like to quote from chapter one of a book I've been meaning to read for a long time - Super Stocks, by Kenneth L. Fisher. He is the son of Philip Fisher, author of all-time investment classic Common Stocks and Uncommon Profits.
"What happens to the stock during a normal growth cycle? Its price typically fluctuates even more violently than profits."
Just from chapter one, and from these two sentences, I can see where large parts of the rest of the book are going to take me - to the conclusion that successful investing involves buying good businesses at artificially and temporarily low prices. More on this and Ken Fisher on Wednesday.
After the above ramblings, you'd think I'd forgotten all about Emap, the company which today released its interim results and saw its share price jump 9%. The results were just ahead of market expectations, which itself gave the share price a much needed fillip. However, it also seemed to be a case of;
"Buy on fact"
Suddenly, Emap seems back in favour. In a no doubt carefully worded results statement, partly aimed at the City and therefore the company's lagging share price, Emap apparently said all the right things regarding their future strategy. And, surprise, surprise, it does not involve the word 'Internet'. Nope, the buzz word of today for Emap is 'Digital'.
However, it would be remiss of me not to mention that at Emap, the word digital encompasses digital television, digital radio and INTERNET.
There, I said it. And, in big bold capitals. For quite some time, the City have apparently been disillusioned by Emap's lack of coherent Internet strategy. Courtesy of all their off-line brands, there have been doubts as to how Emap will be able to leverage them onto the on-line world. Never mind that top-selling monthly FHM, an increasingly global brand, already has a thriving web-site attracting upwards of 12m impressions (or hits) per month. Never mind also that Emap already have about 100 web-sites up and running. No, the City wanted more - a strategy for the future.
Well, they got some of it today. It doesn't take Einstein to work out the opportunities for Emap. But, in the often irrational world that is the City, it sometimes takes a while, and a little gentle prodding, for it all to sink in. Patient shareholders of Emap however have for some time been heard muttering "content is king", knowing that even in the on-line world, that popular saying still holds. Is the City getting it?
I'm well out of space here today. Congratulations if you got to the end of this rather elongated epistle. Comments encouraged to the Qualiport or Emap message board.
See you Wednesday for more on Emap and more on Kenneth Fisher.
Due to the Fool's office move on the weekend, the Qualiport numbers are stuck somewhere in cyberspace. We'll locate and update them tomorrow. For a quick snapshot on how the Qualiport 8 performed today, click here.
Company Change Bid DELL(US)-1.60 43.30 EMA +0.80 9.65 IIG -0.05 2.65 MSY +0.32 6.70 PIZ 0.00 8.10 RTO +0.11 2.20 ULVR 0.00 4.55 LLOY +0.09 8.68 Qualiport Stocks Last Rec'd Total # Company Buy Current Change 22/04/99 542 Misys 5.57 6.70 20.2% 29/09/99 356 Lloyds TSB 7.56 8.68 14.9% 04/11/98 245 Pizza Exp 7.93 8.10 2.2% 27/10/98 1133 Indep Ins 2.60 2.65 1.9% 17/04/98 301 Emap 10.20 9.65 (5.4%) 27/01/99 74 Dell (US) 44.63 41.70 (6.6%) 19/12/97 783 Rentokil 2.55 2.20 (13.7%) 17/07/98 266 Unilever 7.53 4.55 (39.5%) Last Rec'd Total # Company In At Value Change 22/04/99 542 Misys 3065.85 3631.40 565.56 29/09/99 356 Lloyds TSB 2723.20 3090.08 366.88 04/11/98 245 Pizza Exp 1966.34 1984.50 18.17 27/10/98 1133 Indep Ins 2990.63 3002.45 11.90 27/01/99 74 Dell (US) 2007.42 1870.18 (137.24) 17/04/98 301 Emap 3139.85 2904.65 (235.20) 19/12/97 783 Rentokil 2046.53 1722.60 (323.93) 17/07/98 266 Unilever 2052.00 1210.30 (841.70) Cash: £ 18.41 Current Total : £19,434.57 Total Invested: £20,184.62 Profit/(Loss) : (£ 750.05) Value Per Share Day Month Year Qualiport 2.12% 8.25% -7.98% FTSE 100 0.34% 4.44% 11.07% FTSE All Share 0.45% 4.81% 13.84%