Qualiport

[ April 7, 2000 ]

MMT -- A Long-Term Hold?

By Bruce Jackson (TMF Googly)

Carburton Street, London -- As you can see from the numbers at the bottom of this page, the Qualiport has acted quickly and bought MMT Computing (LSE: MMT). We did the deed on Thursday morning, buying 344 shares @ 5.80 = £1995.20, plus £15.00 dealing charge and £9.98 stamp duty. Don't you just hate those charges? They wipe 1.25% off your investment. Add to that the bid-offer spread, which in MMT's case is about 3%, and you can see how you're immediately behind the 8-ball. The Qualiport is aiming for returns of 15% per annum, no easy task, as we're currently proving. Dealing charges make that goal just that harder to achieve.

A quote from Jane Mack's excellent Women's Finance article of last Wednesday is very appropriate:

"It appears that, so overconfident are men in their own investing abilities, they trade 45% more often but underperform women by 1.4% a year. Single men, in particular, trade 67% more than single women and produce returns of 2.3% less per year. Quite simply, over-trading leads to underperformance."

What a damning indictment of men! As I'm from that race, it leads me to question my own investing ability. Perhaps we should inject some female calm and reasoning into the Qualiport management team in the hope of turning things around. Any takers?

Having said that, despite the sub-standard returns of the Qualiport, it feels as if we have at least generally sat on our hands and not traded too often. But that's not really the case. With the MMT buy, we've made 19 trades in not much over 2 years. That's far too many for my liking, although in our defence, four trades were completely unplanned, being our en-masse across the board halving of all our investments back in October 1998. This happened because we ran out of cash! Another 3 trades came about because we topped up on current holdings, two of which -- Misys (LSE: MSY) and Emap (LSE: EMA) -- to date have been great successes. These top-up decisions, as long as they are successful, are very Foolish, as we are hopefully taking advantage of a buying opportunity brought about because of short-term market irrationality.

So, in summary:

8 companies in the Qualiport = 8 trades
3 top-up opportunities = 3 trades
2 sales = 4 trades (2 buying, 2 selling)
4 unplanned sales = 4 trades

Total trades = 19

No too bad when you look at it like that, but nevertheless an expensive pastime. Imagine what it must be like for those people who are constantly trading? They probably don't realise it, but their returns are probably sub-standard, unless they are really good traders. Those people are few and far between.

Going forward, Unilever (LSE: ULVR) is the only Qualiport company on the sell list, but we will wait for at least 480p before cutting them, a price we see as roughly fair value. Unilever are a steady, lumbering giant, with relatively limited future growth prospects. We'd much prefer to look at a faster growing company operating in a growth industry -- something like MMT Computing. On that point...

MMT Computing Buy

Apart from reading Maynard's excellent articles about the company, I don't profess to know much about them. Maynard obviously does, and understands the industry, so I was happy to buy them yesterday. In true Qualiport tradition, we missed the bottom of 515p, instead paying 580p plus charges. That's 14% down the gurgler, and considering we're looking at 15% per annum returns from our portfolio, potentially significant. On Monday I'm sure Maynard will elaborate more on his thoughts and reasons for buying MMT.

MMT are a smaller company than the usual Qualiport fare. I've got nothing against the size of the company, but must admit to feeling as if we have to keep a reasonably close eye on them. Both sales and earnings growth slowed in 1999. We're obviously hoping that's a short-term glitch in a great long-term growth record. If that's not the case, we can expect some more Qualiport pain.

Having said that, we believe the buy price of 580p affords a significant margin of safety, with MMT trading on a forward forecast price to earnings ratio (P/E) of just 10. That's cheap for a lot of companies, but potentially could be very cheap for a company operating in a growth industry.

The Qualiport's holding period for MMT may turn out to be less than the 5 or 10 years we ideally like to aim for. The truth is that companies which fit that bill are few and far between. However, I am conscious of Warren Buffett's quotation that if a company's not worth holding for 10 years, it's not worth buying. Does this make MMT Computing a special situation investment? It just might.

Games Workshop

Yesterday's profit warning was not nice for shareholders in this niche war game company. I've been there plenty of times with my own investments, so feel for them. It just goes to show you how difficult this investing lark can be. I'm not going to pretend to know the reasons, and whether there's any chance we could have seen it coming. I've not been a big fan of the concept of toy soldier war games, and I guess at this stage that's a blessing for the Qualiport, as the company was being looked at as a potential new member.

Profit warnings often see a company's share price whacked beyond recognition, and often present what looks like a potential buying opportunity. I would almost always caution against buying in such circumstances. Firstly, when you think the share price is as low as it could possibly go, it falls yet lower. The bottom is impossible to pick. Secondly, the market is very slow to forgive, and often never does so, especially as the company continues to underperform. There are exceptions to this rule, but it can be a very difficult game to play. It is not a special situation, but a turnaround situation. The latter is a far more risky investment proposition.

Finally...

Have a great weekend. If you haven't read the great content on the Qualiport discussion board, I urge you to take a peek. It's a great learning area, coupled with very sensible and civil debate, especially surrounding Games Workshop (LSE: GAW). Feel free to post your thoughts -- we promise not to bite your head off.

Related links
• Special Investing for the Qualiport?
• MMT a buy?
• Women's Finance