QUALIPORT
Five Top Qualiport Decisions

By Maynard Paton (TMFMayn)
June 26, 2003

The Qualiport has coped well with the bear market. Had the portfolio switched entirely to an index tracker at the December 1999 FTSE peak, its value at yesterday's close would have been £16,914 (with dividends re-invested). In contrast, the Qualiport is actually worth £20,682. The outperformance stems largely from five strategic decisions:

1. Sticking to the buy and hold knitting: It's been all too tempting to give up on 'buying great companies at attractive prices and holding for the long term'. In recent years, tech, growth, momentum, PEGs, high yield, deep value, cash rich shells and even charting have all had their day in the sun.

Trouble is, successfully switching investment strategies to cater for 'new market conditions' is impossible. It's difficult enough to get to grips with one basic philosophy, let alone chop and change every so often. The Qualiport has a strategy that suits -- and so keeps to it. Read more.

2. Looking for the obvious: Keep it simple, stupid. Investors too often get lost in a maze of corporate details and miss the big investment picture. As Warren Buffett once said: "Investors should remember that their scorecard is not computed using Olympic-diving methods:  Degree-of-difficulty doesn't count. If you are right about a business whose value is largely dependent on a single key factor that is both easy to understand and enduring, the payoff is the same as if you had correctly analysed an investment alternative characterised by many constantly shifting and complex variables".

The Qualiport (now) selects companies whose competitive advantages are obvious. In the past, the portfolio has found being 'too clever' and relying on 'cunning' businesses strengths rarely pays off. Read more | more.

'Value' has to be clearly seen as well. The best returns come when value is staring you in the face, not through a complex series of discounted cash flows or similar. Read more.

3. Starting a watch list: The secret of good stock picking? Preparation, preparation, preparation. Introducing a watch list has undoubtedly helped the Qualiport beat the market. By limiting the number of shares under scrutiny, the portfolio's understanding of certain sectors has improved greatly -- which is no bad thing.

Setting watch list 'buy prices' can work wonders, too. When the market takes a sudden turn for the worse -- as it has done a number of times since 1999 -- the Qualiport is ready to buy. A good example was September 2001, when the portfolio responded quickly to heavy market falls. Read more.

4. Getting tough on losers: Nobody gets it right all the time. Over the years, the Qualiport has realised bad shares become simply a drain on time and money. When a mistake starts to appear, get rid. Independent Insurance was dumped quickly (thankfully), but dithering with MMT Computing (LSE: MMT) sadly cost the portfolio dear.

Similarly, the Qualiport has had to get tough with possible new candidates. Companies like Electrocomponents (LSE: ECM), Provident Financial (LSE: PFG) and McCarthy & Stone (LSE: MCTY), while sound businesses, just don't make the portfolio grade. You've got to be strict.

5. Running a focused portfolio: Or big bold bets are best. Over the last few years, the Qualiport has generally operated with just six different holdings.

Of course, a tight-knit portfolio will provide plenty of short-term volatility and, perhaps, prolonged bouts of underperformance. Yet to diverge significantly from the market (in both directions!), a focused portfolio is the only way to go. A broad spread of shares will only dilute the Qualiport's performance, which means getting the right sort of business at the right sort of price becomes all the more important. Read more.

So there you go: five decisions that have helped the Qualiport cope with a falling market. No doubt they'll aid the portfolio when the next bull market arrives, too!