QUALIPORT
Qualiport Beats 2002 Bear Market

By Maynard Paton (TMFMayn)
December 23, 2002

Unless anything dramatic happens in the next few days, the Qualiport will beat the stock market in 2002. But let's not get too excited. The portfolio effectively repeated its 2001 achievement and simply lost less than the FTSE. Year to date, the portfolio is down 17% versus the market's 23% decline.

Final standings

Here's how the Qualiport stood at the close of trade on Friday (December 20th). To clarify, the Qualiport's value includes all dividends received and charges incurred (dealing commissions and stamp duty):

Company            Number     Average     20/12/2002        Value
                  Of Shares    Cost       Close Price       (£)
                                (p)           (p)

Carpetright          425       562.7         572.5       2,433.13
DFS Furniture        236       466.6         340           802.40
Emap                 372       796.9         745         2,771.40
Johnston Press     1,608       268.8         367.5       5,909.40
Lloyds TSB           510       690.0         450         2,295.00
London Stock Exch  1,265       324.8         307.5       3,889.88

Cash                                                         2.06

Portfolio Value                                         18,103.26

And here's how the Qualiport performed against the FTSE 100 and the FTSE 100 Total Return Index (which accounts for reinvested dividends) in 2002:

                  Value at         Value at          Change
                 31/12/2001       20/12/2002          (%)

Qualiport         21,805.77        18,103.26         -17.0 
FTSE 100           5,217.40         3,889.90         -25.4 
FTSE 100 TRI       2,476.05         1,901.83         -23.2 

But a one-year performance tells you nothing. How has the Qualiport fared over the years?

For reasons explained in this article, the Qualiport versus tracker comparison starts from December 31st 1998. At that point, the Qualiport was worth £16,809.60, with a further £8,000 added during 1999 and 2000. With the FTSE 100 Total Return Index closing at 1,901.83 on Friday, how much would the Qualiport be worth today had everything been invested in an index tracker?

Date         Amount      FTSE 100     QP 'Tracker'
              (£)          TRI        20/12/2002
                                          (£)

31/12/98    16,809.60     2630.48     12,153.30
01/04/99     2,000.00     2825.58      1,346.15
01/10/99     2,000.00     2697.96      1,410.35
01/04/00     2,000.00     2949.73      1,289.49
01/10/00     2,000.00     2900.09      1,311.57

Total                                 17,510.86

This time last year, the portfolio was lagging its tracker equivalent by £1,000. Now it's £600 ahead. Remember too that the QP 'tracker' benchmark does not include costs.

Mistakes, I've made a few...

At the start of 2002, I wrote: "Almost all of the really big trouble you will experience in the forthcoming year will be in your portfolio right now"

And so it came to pass. PizzaExpress (LSE: PIZ) started the year in the portfolio at 894p per share. By November, the holding was sold at 340p to record a 50% loss.

Needless to say, the Qualiport's biggest mistake of 2002 was buying more PizzaExpress shares (at 676p) in April. At the time of purchase, I believed the restaurateur's problems were more external (falling tourist numbers and so on) than internal. However, annual results in September revealed plenty of operational issues and concerns. Another PizzaExpress mistake: predicting the shares could fall to 300p (which they did) when they stood at 450p -- but keeping them in the portfolio!

Other blunders? Well, maybe purchasing DFS Furniture (LSE: DFS) in February was one. Certainly I could have insisted on greater 'value'. The shares have since fallen 26%, albeit mitigated by some decent dividend payments. However, a greater issue perhaps is DFS' sustainable competitive advantage. Although the accounts at DFS are great, selling furniture is not a traditional hotbed for creating 'franchise' businesses.

Had I exercised some patience, there were ample opportunities later in the year to invest in companies with greater long-term competitive moats (such as Associated British Ports (LSE: ABP), Halma (LSE: HLMA), London Stock Exchange (LSE: LSE), Johnston Press (LSE: JPR) and Renishaw (LSE: RSW)). That said, DFS is still a great business and I'm happy to hold on.

2003

What will 2003 bring? The only certainty I have is reliving a few more portfolio regrets this time next year! The next Qualiport article will be published on January 2nd, when I'll 'preview' the dangers some of the Qualiport watch list companies could face over the coming twelve months.

More: Qualiport Beats 2001 Bear Market | The Qualiport's Trade History | The Easy Way To Invest: Index Trackers

The author owns shares in Carpetright, DFS Furniture, Halma, Johnston Press and London Stock Exchange