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Two issues have come up which I think are worthy of further cogitation. The first one is management and the second one is timing sales.
In one post Bruce said that he liked the management of one particular company. I forget which one it was now, but I suspect it was Independent Insurance (LSE: IIG). He went on to say that he felt comfortable holding the stock because of that. In a reply a Fool asked why that made any difference. Implicit in that statement is the assumption that it doesn't matter if these are nice guys are not. As long as they are running the business efficiently then nothing else really matters.
To an extent that it true. In my time as a Wise equity analyst I have made some terrible judgement calls on the basis of management personality. I was always very taken with Richard Budge of RJB Mining (LSE: RJB). He clearly had a good grasp of the coal mining industry, and knew it would be a tough task. But I always felt that he spoke plainly about the problems and that I was getting, as much as is ever possible, the whole story.
Of course in the event the shares have been a disaster because the strength of sterling encouraged imports and the rigged electricity market has worked against the company. Should I have seen that coming? Who knows, but feeling confident in management is very important for investors. It is only through their words that the owners of the business, that's us, can get a feel for the future. If we don't feel confident that they are telling us the truth, or are incompetent, then how are we to know what the company is worth?
A classic illustration of that was Marks & Spencer (LSE: MKS). For years the company was a byword for management efficiency. Sure, it was a bit autocratic but people didn't really care if it delivered good returns. But this time last year Sir Richard Greenbury started to insult analysts and journalists; I remember a letter he wrote to The Investors Chronicle berating them for their negative comments. But it was clear that the company's business environment was deteriorating and it was not reacting fast enough to cope with it.
Shortly after that Sir Richard was retired but the problems have continued and now the shares are trading at 250p, that is about 130p under the price that Bruce sold the shares at. Smart move. At the time he published his estimate of the value of the shares at 216p after doing some very detailed financial modelling. That approach has attracted criticism on the boards in this thread, but this little fable does demonstrate its merits.
However, the thread goes on to talk about the pros and cons of selling. Certainly, the sale of M & S was a good one, but Bruce laments not selling Rentokil (LSE: RTO) at 350p when it was clear that sales growth was drying up. With hindsight that was a mistake. The question now is: should they be sold at current levels of 230p, and the money reinvested in something else, or should the Qualiport hang on and wait for a recovery in Rentokil? After all the Qualiport is now back in the black after some great performance by stocks like Emap (LSE: EMA), Misys (LSE: MSY) and Lloyds TSB (LSE: LLOY). Won't the same happen to Rentokil?
Well, it might. But in my view every stock in a portfolio has to be assessed on its own merits. The entry price is irrelevant. The only thing that matters is this. Are the future growth prospects for this chunk of capital better in Rentokil or in some other share? I know none of us want to book a loss on a trade but if we can successfully reinvest it in something else then that must make sense.
That is not to say I don't think Rentokil will go up. What I am saying is that the money currently tied up in those shares might grow faster if it was reinvested in other stocks.
Markets in the last few weeks seem to be behaving in strange ways. The whole retailing sector has shrunk to £44b, about half the size of BT (LSE: BT.A) alone, while the high tech stocks just seem to go from strength to strength. While this has left Bruce gnashing his teeth at times it has provided food for thought and some interesting posts on the message boards.
It does appear that the introduction of the new Techmark index has been a major factor in the strength of these tech shares and the rise and rise of NASDAQ has undoubtedly been a contributing factor as well. The problem is that to invest in these newfangled tech shares institutions have to withdraw funds from other stocks and that has most likely contributed to the continuing decline in value shares. But will these value shares bounce back or are they fundamentally out of favour because they have no growth? That debate has been aired on the Unilever (LSE: ULVR) and the Qualiport message boards with, as yet, no firm conclusion. If you have some thoughts on that issue why not have a look and make a contribution.
Being lucky enough to own a few tech shares in my own portfolio the arguments for selling out after some steep rises in the last few weeks has become more powerful. Just as some value shares have "Buy me" written all over them, some tech shares have "Sell me" firmly printed on the share price. Yet it seems that these days investors are so desperate for growth stories that they will go to almost any lengths to buy into it.
Looking at the US, and the tech shares there, there is no indication yet that valuation concerns are playing any role at all in the price setting mechanism. Indeed Warren Buffett, arguably the world's best investor, is still sitting on a big heap of Coca-Cola (NYSE: KO) shares even though they are trading on high multiples and sales growth has slowed to a crawl. Nevertheless, I do share his concerns about future returns from the market. Rising interest rates in the US and Europe suggest that the markets are living on borrowed time. The worry is that when the music stops everyone will rush to get out the door at once; and we won't all fit. But, hey, the music is still playing, let's keep dancing.
Post your thoughts on when the music will stop, or anything else to do with the Qualiport on its very own message board.
Company Change Bid DELL(US)+1.10 40.80 EMA +0.28 11.25 IIG 0.00 2.65 MSY -0.11 6.95 PIZ 0.00 7.95 RTO 0.00 2.39 ULVR 0.00 4.35 LLOY -0.28 8.25 Qualiport Stocks Last Rec'd Total # Company Buy Current Change 22/04/99 542 Misys 5.57 6.95 24.7% 17/04/98 301 Emap 10.20 11.25 10.3% 29/09/99 356 Lloyds TSB 7.56 8.25 9.2% 27/10/98 1133 Indep Ins 2.60 2.65 1.9% 04/11/98 245 Pizza Exp 7.93 7.95 0.3% 19/12/97 783 Rentokil 2.55 2.39 (6.3%) 27/01/99 74 Dell (US) 44.63 40.80 (8.6%) 17/07/98 266 Unilever 7.53 4.35 (42.2%) Last Rec'd Total # Company In At Value Change 22/04/99 542 Misys 3065.85 3766.90 701.06 17/04/98 301 Emap 3139.85 3386.25 246.41 29/09/99 356 Lloyds TSB 2723.20 2937.00 213.80 27/10/98 1133 Indep Ins 2990.63 3002.45 11.90 04/11/98 245 Pizza Exp 1966.34 1947.75 (18.59) 19/12/97 783 Rentokil 2046.53 1871.37 (175.16) 27/01/99 74 Dell (US) 2007.42 1829.82 (177.60) 17/07/98 266 Unilever 2052.00 1157.10 (894.90) Cash: £ 18.41 Current Total : £19,917.05 Total Invested: £20,184.62 Profit/(Loss) : (£ 267.57) Value Per Share Day Month Year Qualiport -0.13% 10.94% -5.69% FTSE 100 -1.05% 3.62% 10.19% FTSE All Share -0.83% 4.46% 13.46%