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But the Qualiport investment technique could be coming of age. The two most recent purchases, Misys (LSE: MSY) and Emap (LSE: EMA), are showing a distinct turnaround in Qualiport investment performance. Both decisions were made using a similar philosophy. The two companies had seen their valuations severely marked down during 1999. The Misys share price deteriorated over Y2K-related delays for its services, and Emap shares languished on falling circulation figures for a few of its magazines.
But moving on to changing the Qualiport goalposts, and these special situations. Are they valid companions for our long-term Qualiport holdings? Although I was initially quite positive to the idea when Bruce bandied the suggestion around the office, on reflection, I'm not wholly convinced. Well not yet, anyway.
With £1,900 burning a hole in the Qualiport pocket, a quick run-through of my current thoughts on the Qualiport seven is in order. Is there a possibility of a top-up? Certainly, I favour concentrating our investment firepower into the already familiar holdings, rather than any further diversification.
Hughpat responded very robustly to Bruce's suggestion of perhaps considering short term investments, to maximise returns, for the Qualiport.
To be honest, I can empathise with the points Hughpat makes. He states that the "TMFTypes" could be under pressure from the poor performance of the Qualiport to date. He also implies that we are moving the long-term buy and hold goalposts. Under pressure? Changing the rules? Well, perhaps.
Make no mistake, the Qualiport has under performed over its life. In hindsight, the portfolio paid too high a price for just about all its initial investment purchases. High expectations of historic rates of profit growth continuing for some time were all factored into the buying decisions. Basically, paying a high price for a cheery consensus, and all that. We've learnt the lessons on that score.
But I'm not sure we're under pressure, though. Certainly, if this was a "professional" fund, the situation would be different. We'd always be buying and selling at the drop of a hat, attempting to maintain our quarterly performance figures. Switching into and out of companies that show short-term "momentum", to try and keep ahead of the pack, doesn't interest us.
But as Hughpat suggests, "patience and time will win in the end". I agree. Patience, especially, is key for successful long-term focused investment approach. The Qualiport is happy to undergo periods of underperformance. Granted, two and a half years is a long time though. Warren Buffett suffers repeated public condemnation over his recent "non-performance". His famous aversion to holding highly-rated technology stocks comes in for constant criticism. I don't think the brickbats bother him too much. But then again, Buffett's been there and achieved it all. The Qualiport definitely hasn't achieved.
What's important for an investor is to stick to what he or she knows best. Usually, that means investing within the sectors you are accustomed to, or investing in a style that you are familiar and comfortable with. Of course, it takes time to develop a winning investing technique.
Coming Of Age?
Nothing had materially changed within those businesses. The attractive long-term outlook, for IT services and content-rich publishers, was still intact. Buying great businesses undergoing a short term "problem" can lead to enticing investment opportunities.
The Qualiport bought Misys at 524.25p, and EMAP at 787.5p in late 1999. Now that the Millennium date change has passed without incident, and the stock market is keen to hear about its US Internet activities in the healthcare industry, Misys shares have roared ahead. The shares have doubled in the last couple of months to reach 1049p. Also, the America Online (NYSE: AOL) and Time Warner (NYSE: TWX) merger has highlighted the desirability for media "content", and in doing so, has re-ignited significant enthusiasm for Emap last month. The shares now stand at 1283p. Exceptional returns, I'm sure you'll agree.
And now take a look at the some of the other current Qualiport constituents -- PizzaExpress (LSE: PIZ), Lloyds TSB (LSE: LLOY) and Independent Insurance (LSE: IIG). All companies that haven't lost their attractive business characteristics, but have share price performance to make you wonder if the companies are going to the dogs. Brief thoughts on these later.
Goalposts
The problem, I feel, is that we have still to master fully the long term buy and hold investment style. Although I've highlighted the outperformance of our two latest purchases, the subsequent paper gains have been somewhat out of the ordinary.
Introducing an "official" alternative strategy, at this stage, could be distracting and confusing. All to the detriment of the core long-term portfolio, especially when the recent investment decisions have been so favourable. I have no objection to theoretical musings and ideas, but we should learn to walk before trying to run -- before spending real money using any different investment technique.
Once we get our long-term investing skills sorted and our "theoretical" special situation skills in order, then some part of the portfolio could be specifically set aside for this new style of investing.
The Rentokil Proceeds-- What Next?
Firstly, Misys, Emap and Dell Computer Coporation (NYSE: DELL). There may be some readers who would encourage us to "take profits" on the top-ups of Misys and Emap. Indeed, Misys looks to be on a stretched valuation, with a forward price-to-earnings ratio (P/E) of 61, but Emap languishes on a surprisingly less demanding prospective P/E of 24. Dell trades on what I guess can be called a "reasonable" prospective P/E of 41.
Firstly, I'm not inclined to sell any of them. All three operate in attractive industries and possess material long-term growth prospects. Nor am I inclined to top up, given that we've been caught out before with high-multiple investing. I doubt there's any margin of safety at present in any of these companies; fatal if they should suffer the unthinkable.
Unilever (LSE: ULVR) I'm looking to sell. As I've mentioned before, it has minimal sales growth prospects. But I just can't bear to sell out at around 340p. Was it only a month ago that I looked at Unilever shares at 480p and declared them "fair value"?
With PizzaExpress, I'm already on record as stating our target buy price as 650p. Nothing has deterred me from this figure after the recent interim results. But for whatever reason, the PizzaExpress share price has steadily declined since the interims to 676p. It could have been tempting to just buy shares in PizzaExpress a month or two ago, at anything over 750p, relying on the "long term hold" to give you a suitable investment return. Patience is key. A few more days and who knows...
Lloyds TSB shares stand at around 577p, on a forward P/E of around 11. They look cheap, alongside the whole banking sector. Independent Insurance, at 232p, languishes on a forward P/E of 11.5, its lowest rating for four years. In terms of topping up, I think it would have to be either PizzaExpress or Lloyds TSB. We've already had a second helping of Independent Insurance and with their full year results due out next month, it may be prudent to defer any further evaluation of the company until then.
So with PizzaExpress and Lloyds looking very tempting, is it time to open the Qualiport wallet? Or am I feeling the pressure of sitting in the Qualiport hot seat, quickly selling and re-investing to boost the portfolio's performance? All your comments are welcome and can be directed to the Qualiport message board.
Related Links
• Special Situations
• More trading thoughts -- Selling Unilever on the cheap?
• Less is More -- Putting a value on PizzaExpress