QUALIPORT
Improving With Experience

By Maynard Paton (TMFMayn)
December 28, 2000

Carburton Street, London -- There's no doubt about it. The Qualiport's life-long performance has been poor. Since its inception in 1997, this real money portfolio has invested a total of £24,186.62 in the stock market. Today, the portfolio is only worth around £22,150.

The reasons for the dreary returns have been well-documented on these pages before. Amongst other decisions, a combination of paying cheery prices for Dell Computer Corporation (Nasdaq: DELL) and Unilever (LSE: ULVR), failure to take advantage of the gross overvaluation of Misys (LSE: MSY) and getting involved with Marks and Spencer (LSE: MKS) have all cost the portfolio dear.

It's sad to say, but this year's Qualiport performance has been disappointing too. The portfolio has tumbled 16% since the start of the year, while the FTSE 100 has shed just 10%. Our underperformance during 2000 can easily be explained. Simply, as we entered the year, 50% of the portfolio consisted of Dell, Misys and Emap (LSE: EMA). With all three of those companies having (in hindsight) unsustainably high valuations at the time, the Qualiport's fate for 2000 was sealed from the start.

But although the overall portfolio performance has been very substandard since 1997, I feel the decisions made by the Qualiport have noticeably improved over the past two years. Unfortunately, in terms of the portfolio's long-term showing, our recent decisions have been more than masked by the mistakes of the years before.

Let's take a look at the Qualiport's purchase decisions in a little more detail.

Purchase activity

Here's a table of our "buys" for 2000, comparing the subsequent performance of our decisions to the subsequent performance of the FTSE 100. For ease, dividends and dealing charges have been ignored.

Purchase    Company             Subsequent
Date                            Performance
                             Purchase    FTSE 100
                              (%)          (%)
 

06/04/00    MMT Computing     (9)          (4)
14/06/00    PizzaExpress      (4)          (5)
24/08/00    MMT Computing     (4)          (5)
19/12/00    PizzaExpress      (2)          (1)
19/12/00    MMT Computing     (4)          (1)

It's not a spectacular performance and granted, it's still early days, but in a year when a fair few Fools bought shares only to see them decline substantially, I'm quite content with the general market-equalling performance.

Here's a similar table, this time detailing the Qualiport's purchases made during 1999. Again, dividends and dealing charges have been ignored.

Purchase    Company            Subsequent
Date                           Performance
                           Purchase    FTSE 100
                               (%)          (%)
27/01/99    Dell              (60)           6
22/04/99    Misys*              9            0
29/09/99    Lloyds TSB         (7)           3
20/10/99    Independent Ins.   46            4
22/10/99    Emap                4            3
01/11/99    Misys*             20            2

(* Calculations based at time of disposal)

Apart from the obvious Dell clanger, only the purchase of Lloyds TSB (LSE: LLOY) now looks a little mispriced. All of the other investments now appear to be quite prudent.

And finally, here's the table for 1997 and 1998, again with dividends and dealing charges ignored. The deterioration in our decisions should be obvious.

Purchase    Company             Subsequent
Date                            Performance
                            Purchase    FTSE 100
                              (%)          (%)

 


19/12/97    Rentokil*         (5)          26
17/04/98    Emap             (30)           5
11/05/98    M&S*             (29)           3
17/07/98    Unilever*        (34)           4
27/10/98    Independent Ins.  50           17
04/11/98    PizzaExpress     (20)           6


 
(* Calculations based at time of disposal)

It's pretty clear that the overall portfolio performance is due to those early Qualiport purchases. Of the ten purchases made post-Dell, we've been quite consistent in at least equalling the stock market with our investment purchases. Touch wood, none of those decisions will subsequently prove to be howlers on the scale of Dell, M&S, and Unilever.

2001

So what of 2001? Although I'm reluctant to make any firm prediction, I'm quite comfortable entering the New Year with the current portfolio. As opposed to starting 2000, when the Qualiport was stuffed full of richly valued shares, 2001 will commence with all six portfolio members exhibiting very fair or reasonable valuations. In fact, the two companies with the highest ratings (both on prospective price to earnings (P/E) ratios of 20), Emap and Dell, are the Qualiport's smallest holdings, making up 11% and 4% (!) of the portfolio respectively.

More important, however, is considering not just next year, but the years after. Of the six portfolio constituents, I think those with the real prospect of doubling their profits over the next five years are Independent Insurance (LSE: IIG), PizzaExpress (LSE: PIZ) and MMT Computing (LSE: MMT). And with their valuations at present, I'm quite happy that these three companies currently represent three-quarters of the Qualiport.