Investment Clubs

[ November 30, 1999 ]

The Curse of the Monkeys

By Mark Goodson (TMFFatBlokeMarge)

Well, here we are at article number 4, and I hope you are all enjoying the Investment Club series so far.

The Dirty Harrys have now spent the whole £10,000, in a most unFoolish manner. I did suggest saving some for next month or even next year, but I was outvoted by -- what was it -- oh yes, 15 to 1. The members had put their money in to buy shares with, I was told. Anyone could stick it in the Bank! OK, fair enough I suppose. And we are talking about a different market and a different time of year than we were with the Brass Monkeys. I'll elaborate more in a future article.

But for now, let's concentrate on the Brass Monkeys. This Investment Club, you may remember, was started in May 1997 for a 5-year term. It must be understood, and this is quite important, that in the 18 months leading up to the inception of this new club, the flagship, H&G Investments, had turned in a fantastic performance. When your shares consistently rise, as they do occasionally, you easily get sucked into the misapprehensions that:

1. you have selected some foolproof stock selection system, and
2. your shares will never go down.

Now the Brass Monkeys began at the beginning of a summer, the beginning of a new Government, a fresh wave of optimism was sweeping the country, and on the whole, things were very bullish. We had managed to get a copy of Company REFS, I had applied all the sieves, and the out-and-out 100% roaring dead cert put-your-house-on-this-stock company to purchase in May 1997 was... Severfield Reeve. Who, you say? Severfield Reeve, now called Severfield Rowan (LSE: SFR). Up to over £5 from £1 in a year and the momentum and prospective excellent figures were set to send this share into orbit. Says who? Quantum Leap tipsheet, that's who. And some other publication I can't recall. Anyway, we stuck £3500 of our initial £10K into this stock, and then £1500 into Toy Options (now Character Group (LSE: CCT)), SFI Group (LSE: SUF), Amey (LSE: AMY) and Yorkshire Tyne-Tees Television. A speculative £500 was put into Pan Andean Resources (LSE: PRE), a Bolivian oil mining company, as a pure gamble.

Now I have recently learnt that at least 2 members never felt comfortable with the purchase of Severfield Reeve, and felt that they were "bad luck". Hence the Curse of the Monkeys! Without giving you details of every trade, let me highlight some of the bad luck this club endured in its first 18 months:

1. Yorkshire Tyne-Tees were the subject of a takeover bid within 2 weeks of us buying the shares. At exactly the same price we had paid!
2. Toy Options were featured in the National Press for getting the licence for the Spice Girls Dolls -- and up went the price 50%! Within a week the Spice Girls had sacked their manager and been booed off stage in Turkey. Back came the price to what we paid. Knowing how fickle the Pop Music Industry can be, the Club sold -- only to subsequently watch the shares rise again by 300%!
3. Amey announced they were being investigated by the DTI for alleged fraud. This can be very serious if proved and could have shut Amey down. On the news the price unsurprisingly dropped and we sold out at a £1 per share loss. As soon as we had sold the price moved back up again and had we been holding today they would be showing gains of over 50%.
4. Another purchase was Telewest (LSE: TWT). Within 30 minutes of buying the shares at 170-ish (I kid you not) they failed to place a load of shares at 145 and the price collapsed to about 110. We eventually made money, but 30 minutes later would have meant 30% more shares. How's that for bad luck on the timing?
5. Northern Leisure (LSE: NLS) was another purchase a week before takeover talks were announced. The price shot up about 20%. We decided to hold on -- and promptly watched it drop all the way back and then some.
6. Pan Andean's drilling partners were sacked, and the oil price collapsed leaving no demand for new oilfields. Pan Andean, who don't even own a Black and Decker, dropped from 35p to 5p.

We were, unfortunately, the victims of bad luck. Our portfolio of stocks read well enough, but we had managed to somehow buy on the highs for every stock we owned. It was almost as though someone was waiting for us to buy so they could drive the price downwards. They weren't all losers, but mostly. SFI has done very well for us, and we made good money on DCS, but generally we were looking very dodgy.

So, at Christmas 1998, 2 members suggested a new strategy. Buy a stock, let it rise 30%, and sell it. Not my choice, but the members voted it in. So, we bought Next (LSE: NXT), Marks & Spencer (LSE: MKS), Versailles (LSE: VLL), Copyright Promotions (LSE: CPH)... all were sold at 30% plus profits. WHOO-HOO! At last a bit of success. And then we bought... Triad Group. BANG! 50% loss after warnings!

It was the October 1999 meeting when we looked at the portfolio of 15 shares, 12 of which were losers, and thought "enough is enough"!

OUT went Severfield Reeve, Triad (LSE: TRD), Stagecoach (LSE: SGC) and Skyepharma (LSE: SKP).

IN came Kingston Communications (LSE: KCOM), NXT (LSE: NTX) and Vodafone AirTouch (LSE: VOD).

Since the disposal of the "bad luck omen" Severfield Reeve, the turnaround has been uncanny. Card Clear (LSE: CDE) have started to move on up, along with Lloyds TSB (LSE: LLOY), and the 3 new stocks are setting a blistering pace. In less than one month a trading loss of 15% has been turned into a gain of over 16%. The Curse of the Monkeys may be over, and within the club there is a new wave of optimism -- long may it continue!

And finally...

Hear ye, hear ye. Calling all London-based investment clubs. If you're interested in having one of the Motley Fool staff talk at your next investment club meeting, speak up now or forever hold your peace. In 100 words or less, simply tell us "What's the most important thing you've learnt in setting up your investment club."

We'll pick the best responses, and your prize will be a Foolish visit and talk at your next club meeting. Second prize will be two Fools, and third prize will be a trip for the whole investment club to a location...

Ooops. We got a bit carried away there. Seriously, send your responses to Phil Southgate at PhilS@fool.co.uk or post them on the Investment Clubs message board, along with any comments or questions on this feature.