Foolish Special

[ December 21, 2000 ]

Nightmare on Fool Street: Our Worst Calls of 2000

Anyone seen those glossy leaflets that various investment institutions, periodicals and tipsheets put out from time to time? You know, the ones that proudly trumpet all of the previous year's successes, aimed at making us think "Wow, those guys who do Old Mutual Widows' Red Hot Endowment Tips sure sound like they know a thing or two."

It's common practice in the investment business to crow about your successes and sweep your failures under the carpet, but that's not very Foolish. Long-term success in any venture is a continuous process of learning from experience. Looking back on the biggest howlers that you and your colleagues have committed over the previous year can be a very educational exercise. And besides, it provides a bit of seasonal fun.

So let's roll back the Fool carpet and see what poorly-hidden secrets lie beneath...

Bottom Fishing

Way back, Nigel Roberts (TMF Nigel) picked a tiddler of a computer software company as a Germinator. DCS Group (LSE: DCS) was its name. DCS shares performed reasonably well of their own accord for a while and then seriously took off in the techno Spring of 2000, peaking at over £20 per share.

But like all things that are too good to be true, it wasn't. When shares in high tech companies suddenly became about as desirable as the kind of rash you wouldn't show your mother, DCS shares duly obliged and dived. But good old Nigel's faith was unshaken, as this thread demonstrates. The shares fell and fell, and after the company suffered a profit warning, dropped all the way back to around the £4 mark.

At this stage, the baton passed to me (TMF Alan), writing in this Sector Dissector that "But with so many people blindly following the old 'falling knives' and 'bottom fishing' saws, DCS might just be oversold and worth closer attention." DCS wasn't oversold, and a second profits warning telling of full year doom and gloom buried the share price, which currently stands at around £1.

There'll Always Be Games

"Grown men, with a tear in their eye, started to reminisce over their wargaming experiences. Oh, those were such happy days..." So said Maynard Paton (TMF Mayn) in the Qualiport spot back in March when he focused on Games Workshop (LSE: GAW). Maynard kind of liked the company, saying about the competition "All in all, none of the aforementioned companies holds a candle to Games Workshop."

And what's happened since? Those words were but a few days old when the Games Workshop share price collapsed, with the chart telling the sorry story. From over 300p when he offered his humble opinion to about 150p today (and that only after a recent recovery). And those downcast words that he wrote about Tesco (LSE: TSCO) too, that came before a healthy year 2000 rise in the share price, make for salty wound time.

Oh well, we all get it wrong sometimes.

Last What?

Quite often, in fact. At least the Qualiport didn't buy any Games Workshop shares and so didn't lose any money, but the Rule Shaker wasn't so lucky. Without doubt the most controversial purchase for the Rule Shaker, and the first to actually be dumped, buying Lastminute.com (LSE: LMC) shares must count as one of the most memorable decisions made by David Berger (TMF FoolUK) this year.

He said this about them: "You can argue whether the 'last minute' market is an important one, but whether it is or not Lastminute.com has cornered the Internet part of it pretty effectively." And this: "In fact, I don't think the market we're talking about is the 'last minute' market at all. It's really the e-commerce market and lastminute.com has carved out some pretty choice real estate for itself there." Oh, and this: "If recent experience with the iii (LSE: IIN) float is anything to go by, on the first day they'll probably end up valued at £500 million or more".

Mind you, he did also say "So, lastminute.com, acting Rule Shaker on probation, you're in, but watch it!". The probation is over now and those once-expensive shares have since been exchanged for peanuts (and not many peanuts at that).

Monopoly Dog

In the Monopoly board game, the little dog was never one of my favourite playing pieces. After all, a near monopoly position in a market is surely one of the best ways a company can avoid exhibiting doggy characteristics. Telecommunications is the industry I know best, and though the sale of bandwidth is becoming commoditised, British Telecommunications (LSE: BT.A) must surely be in a powerful position. Well, that opinion turned out to be a howler and a half from TMF Alan (that's me).

Writing in last year's Industry Focus, I said "It [local loop] will still be capable of providing leading edge domestic bandwidth up until sometime around 2005 before the growth in available bandwidth should start threatening it. DSL over copper loop will still satisfy many domestic users for quite some time after that..." and "Steadily growing sales figures are very encouraging and suggest that BT is achieving the most vital goal at the moment; that of maintaining and growing its bandwidth customer base."

Ooh, and did I really finish up with "It will be interesting to see how BT shapes up against the competition in the Motley Fool UK Industry Focus for the year 2020. And the next BT? Well, it'll be BT, probably"?

A share price of around £10 at the time of writing, rising quickly to over £13, but now down below £7. Ouch. Oh, and the Rule Shaker came in for a double whammy by buying some too.

Recovery Over?

Value investors didn't get away lightly either, as Rob Davies (TMF Essex) so ably demonstrated in August. Long a favourite with value-seekers, the name of Royal & Sun Alliance (LSE: RSA) was rarely seen early this year without the company of the phrase "perpetually undervalued". Rob thought that the undervaluation was close to being over at a price of around 400p per share. Well, look at them now.

Any Others?

Like many private investors, TMF Nigel was a big fan of Freeserve (LSE: FRE) when it floated, and in its first few months the price did perform rather impressively. "It's not overvalued" cried Nigel in this Fool's Eye View from just before the New Year. He reckoned at the time that Freeserve might easily achieve a sustainable 80% operating margin. Sadly, that didn't happen, and Freeserve is being sold out at just a few pence above the flotation price. The price chart looks a bit like The Big One at Blackpool.

The worst thing that any of these opinions did, though, was lose money. Nobody risked any physical pain by them. With the exception of Mark Goodson (TMF FatBlokeMarge), that is. He was rather taken with the shares of NetB2B2 (LSE: NEB) though he, perhaps sensibly, didn't write anything about them at the time. Take a look at this chart. So, did he buy any on the strength of his convictions? No, he did a much more dangerous thing. He got Mrs FBM to buy some! She bought several batches, at 60p, 50p, 38p and 25p, and now they can be had for around 10p. Is that an eye-patch you're wearing, Mark?

What To Learn

Remember two things, at least. Firstly, never trust anybody's opinion bar your own because only you are responsible for your own financial wellbeing. Secondly, accept that you will make mistakes from time to time, and be prepared to handle them without the need for a straitjacket. And thirdly (OK, three things), never pass on a bum tip to your wife.

Anyway, in the words of Stan Potter, "Merry Christmas Everbody".

Where Next?
• The Best of the Fool 2000
• Best of the Fool Community 2000
• Vote for the Post of the Year
• Vote for the Bribble of the Year