QUALIPORT
My Tips Have Beaten The Market

By Maynard Paton (TMFMayn)
January 25, 2005

Did you struggle to find Qualiport-type investment opportunities last year? I certainly did. Despite monitoring all these different companies, I believed only two were worthy of a portfolio purchase in 2004: Associated British Ports (LSE: ABP) and London Stock Exchange (LSE: LSE).

So, as well as the occasional Qualiport opportunity, where else should you look to find sensible, longer-term share ideas? I'd recommend the Motley Fool's Value Investor newsletter. Although the newsletter is aimed primarily at deep-value players, many of my Value Investor selections have a certain business quality about them.

Scorecard

The Value Investor newsletter was launched this time last year and the table below summarises my 2004 tip performance:

Share	Month selected	Gain/ (loss) (%)	FTSE All-Share gain/(loss) (%)
Haynes Publishing (LSE: HYNS)	Jan 04	8.3	12.2
Churchill China (LSE: CHH)	Feb 04	(3.4)	7.6
Ultraframe (LSE: UTF)	Mar 04	(58.4)	6.8
FW Thorpe (LSE: TFW)	Apr 04	54.4	9.3
Yates	May 04	42.7	6.2
T Clarke (LSE: CTO)	Jun 04	32.4	9.9
Mystery Share	Jul 04	7.7	13.9
S&U (LSE: SUS)	Aug 04	13.5	11.6
Loades (LSE: LOD)	Sep 04	13.6	7.1
Swallowfield (LSE: SWL)	Oct 04	21.0	6.1
Infast (LSE: INS)	Nov 04	5.3	3.1
Lincat (LSE: LCT)	Dec 04	(3.6)	2.4
Average		11.1	8.0

Please note: The Value Investor newsletter operates an honest scorecard policy. Reported gains/losses are calculated using closing prices taken on the first trading day after the initial 'buy' recommendation and, where necessary, the first trading day after the initial 'sell' recommendation. Bid-offer spreads are included and dividends are accounted for from the ex-dividend date.

During 2004, Churchill China and Ultraframe were deemed 'sells' and 'accept offer' was recommended for Yates. The FTSE All-Share performances include dividends and are calculated for the effective 'holding' period of each share. Normal dealing costs are excluded from all scorecard calculations. All figures as at 19 January 2005.

Obviously the Value Investor's conservative scorecard policy restricts my reported performance (and should be compared to the cavalier reporting calculations adopted by many other stock market publications!). Nevertheless, I'm pleased so far with my overall progress and the lead I've built up over the market.

Qualiport

Of the twelve shares listed, I'd say five are of interest to Qualiport readers.

Haynes originally caught my eye in 2003. The publisher looked to be a niche company winner, it enjoying a market-leading position within motor manual circles and sporting an operating margin of over 20%. Haynes had experienced a rocky past, but a change in management has since revitalised the firm's fortunes.

The other four shares -- FW Thorpe (lighting products), T Clarke (electrical engineering), S&U (money lending) and Lincat (catering equipment) -- I'd describe as good, small, well-managed firms operating in tough industries. Aside from the boardroom talent, none of these four have any other obvious competitive advantage, let alone the kind of operational 'moat' sought by this portfolio

That said, Thorpe, Clarke, S&U and Lincat all have 10-year records (or more) of rising dividend payments, suggesting a certain amount of operating predictability. And with each having paid out special dividends and two performing share buybacks in recent years, their cash generation seems reliable.

(You can read more on these five companies by signing up for a no-obligation trial of the Value Investor newsletter, which will allow you to access past editions).

Note though that I'd never base an entire portfolio on these five shares -- I'd always recommend Value Investor readers go for a diversified portfolio of newsletter picks. For Qualiport investors, I'd suggest the likes of Haynes, Thorpe and so on could act in supporting roles alongside a handful of core watch list companies.

Lesson

If there's one lesson I've learnt from my first year as a stock market tipster, it's Cut Losers Quickly. I wrote this earlier in the year.

"Success with shares then comes not only from picking winners, but also from making sure dogs are ejected from a portfolio in a timely manner. Businesses rarely solve operational or financial problems overnight, while shareholders are often drip-fed the bad news over months or even years -- doing the share price no favours in the meantime."

"My mistake was to select Ultraframe immediately after it had warned on profits in March. In hindsight, I should have sat on the sidelines instead to see if the company would deteriorate further (sadly, it did).

Small companies having little in the way of competitive strengths are always prone to operational mishaps. Long-time Qualiport readers will remember Ultraframe was on this portfolio's radar until December 2002 and, despite various troubles in 2003, I (mistakenly) thought its (past) quality would at some point come to the rescue in 2004. But I've learnt (once again) not to be complacent with problem companies and Ultraframe's subsequent progress has gone from terrible to, well, even worse.

(For the record, my average Value Investor gain would have been +17.4% excluding Ultraframe and the whopping 58% loss.)

It's a mystery

And finally, what about the Mystery Share in the table? I've named eleven of my twelve Value Investor selections because I deem them all to be 'holds' at present. However, one share remains a 'buy' and in the interests of current Value Investor subscribers, I've decided not to divulge its name. Anybody wanting to discover the company's identity will have to sign up for a free trial of the newsletter, where all will be revealed!

Maynard tips a value share every month for the Value Investor newsletter. If you want to discover his tips for 2005, click here. At 19 January 2005, the newsletter's 34 value share recommendations were showing an average gain of 8.1% and the twelve high yield selections were showing an average gain of 14.6%. Maynard also owns shares in Associated British Ports and London Stock Exchange.

Portfolio value

Holding	Number of shares	Closing price 24/01/05 (p)	Value (£)
Associated British Ports	681	472.75	3,219.43
Emap	372	847	3,150.84
Halma	1,920	157	3,014.40
Johnston Press	1,608	530	8,522.40
London Stock Exchange	2,018	575.5	11,613.59
Cash			157.53
Total			29,816.21