Qualiport

[ September 25, 2000 ]

Forget The Share Price

By Bruce Jackson (TMFGoogly)

We don't often comment about the price movements of our Qualiport constituents. That's done deliberately. Firstly, it would make for rather boring reading. For example, a comment could go along the lines of:

"It was good to see PizzaExpress (LSE: PIZ) gain 2p to 650p today. We love it when the shares of our portfolio go up. We're jumping for joy here in Fool HQ. That 2p is going to make all the difference. It puts PizzaExpress back on a positive upward share price trend, breaking the one day downward streak after yesterday's fall of 3p. Phew. We think everything's going to be all right now, and that the expansion into France will be a success. That seemed a million miles away after yesterday's share price setback. We couldn't find the reason for today's rise, but who cares? It's great!"

Secondly, and a lot more seriously, in the short term the share price movement is unimportant. It will jump around on a daily basis completely independently of how the company is performing. For example, the share price may move because the market in general moves. On any given day, that doesn't mean the company is performing any better or worse.

On a very few occasions the share price may move for valid reasons -- usually in response to an earnings release or some other company announcement. They are the times when you should sit up and take notice, because there is some concrete news.

Take Emap (LSE: EMA) for example. The share price has been in the doldrums now for a couple of weeks, falling from 1220p to 950p on Friday. That's a 22% reverse in just 2 weeks. Ouch. But what's happened to Emap the company in that time? Absolutely nothing. There have been no official announcements from Emap -- nothing. So why then has the share price fallen by 22% in such a short period of time? Beats me.

Here's the moral of the story.

1. Concentrate on the company, not the share price.

2. A rising or falling share price alone does not tell you about the health of the company. It is very easy to be euphoric about a company when the share price is rising, and depressed when it is falling. Really successful investors show no emotion. They also go against the crowd.

3. If and when a share rises so much as to be overvalued, instead of cheering or buying more, investors sell. If and when a share falls so much as to be undervalued, instead of getting depressed or selling, investors buy some more. Compare that behaviour to the emotions shown on many of our individual company discussion boards.

Going back to the Emap example, I'm neither happy nor sad. If the shares fell again to below 800p -- as they did in October last year -- I may get happy, because I may buy some more. If the shares rose again to above 1700p -- as they did in January this year -- I may get happy because I may sell. You can't complain with happiness all round!

I'd get sad if the shares did nothing for a further 2 1/2 years, as they have since our original purchase. That would mean:

a) the company is not growing, or
b) we paid too much for the company, or
c) a combination of the above.

We probably went a little too far down route b. We're not going to make that mistake again. If we were John Lewis, we'd say:

Never Knowingly Overpaid.

Finally...

Saturday was Fool UK's 3rd birthday. On September 23rd 1997 we flicked the on-switch, starting off with this Evening Fool. Funnily enough, PizzaExpress was the featured company, although not so funnily for long-term shareholders, the share price was 759p, significantly above today's level. Not a case of "Never Knowingly Overpaid".

Co-founder David Berger is writing about our anniversary in tonight's Rule Shaker -- he does all that fluffy stuff much better than me. I'll just close by saying that the last three years have been the most rewarding of my working life. There's not many jobs where you can do your hobby as your job. But the best part of all has been working with all the Fool staff and all the Fool users. We've assembled a great bunch of people here at Fool HQ, and we've also got a stack of loyal and committed Fool users. Together we can keep changing the financial services world. Thanks one and all.

Here's to the next 3 years, and many many more. Stay Foolish.