VALUE INVESTING
Are Shares Sexy?

By Stephen Bland (TMFPyad)
May 5, 2000

"Dear Pyad,

Where has your sense of humour gone? At first I thought your posts in this thread had to be ironic they were too pompous even for you!

You know that for most men the story starts and ends with their genitals (gross generalisation, sorry guys!) and you are one of the better examples of that cliché. When you write at your most lyrically about investing styles you illuminate the whole thing through sexual imagery. Sticking with a share through dangerous times takes "titanium 'nads", you write of the search for the perfect share as if it was "a perfect f–k" and rail against love, valuing only lust, the "smell" of the object of your lust, the thrill of possession, the need for ultimate control and the timely (probably premature) withdrawal, walking away and NEVER LOOKING BACK.

This is how you write about investing – it's big macho stuff and you're very good at it. What's the saying – you talk the talk and walk the walk – or is it the other way round?

So c'mon Pyad, lighten up. We all know you're the super-mature Big Brother but let the rest of us enjoy a snigger around the back of the bikesheds sometimes.

All the best

Jane"

So ran a message on our Land of Off Topic Posts board recently, which I reproduce in its entirety. I don't believe our reader Jane will mind. The thread concerned a non-financial matter, as befits the LOOTP board, about the breathtaking puerility of certain messages there. Having had a moan about this, and being shot down in flames, this was one of the responses.

This is not TMFJane, by the way, but another regular reader.

For some sociological reason of which I am only dimly aware, we have a large number of Janes amongst our regular readers and even one on the team, my colleague the legendary TMFJane. The Jane ratio round here is much higher than that amongst ladies in the population generally, it seems.

Do they share common characteristics? Well if like me you have studied nomenology, you will know that it is possible to determine people's characters from their names – within certain limits of course, the science is not an exact one, more economics than physics. Clearly Janes share an interest in financial matters amongst other interesting personality traits, hence their substantial presence amongst Foolish readers, who may wish to speculate on the personalities of alternatives like Kevins, James's, Barbaras, Susans, and yeah, okay if you must, Stephens. Note that the science works only with common names, being fundamentally a statistically-based approach that plots the trend amongst large groups of items. So a Petrea or an Elvis, for example, are too rare to draw any meaningful conclusions.

An interesting proposition by our reader though. I guess it's true; the Freudian approach to share investing, where being "short" or "long" carry meanings, particularly for male investors, far beyond those that indicate a mere position in the market. I never set out to write in the style of which I stand accused by Jane, though: it's just that writing about shares, or anything in which I have a deep interest, makes me come – out with all sorts of lyrical language, babbling on like a gold medal trainspotter about that with which I am enamoured.

As I may have said before, I don't really care about shares that much. To me they're just like the playing cards in a game of poker. A means to an end, not the end itself. The real end being money, the making of which in large amounts is perhaps the greatest conquest of all. Though even that is perhaps not really the real end. The game itself is the real end. Just like cricket. Money simply is the way you keep count of how you're doing, like runs.

The challenge is this. Start with a modest amount of cash. A few grand. What ways are open to you to in the stock market to multiply it substantially – and I am not talking tracker-style 12% returns here, but maybe 30%?

Despite what you may have read, I don't believe it is possible to make serious money in shares by investing in trackers or other funds, or by holding large portfolios of individual shares. I am not knocking trackers or long-term share portfolios. They suit the majority of investors and by holding these for a long time I believe that you will do very well. But not well enough for me.

In real life I often advise clients on share portfolios. Better than maybe any other form of investment and thus for a very large number of people this is the way to go, most Foolish. But you almost certainly will not make serious money in real terms, that is after inflation is taken into account. The real return on the market in general, over very long periods, has been perhaps 7%. Something like that.

Work it out for yourself: how much money could you make by investing £10,000 at a real 7%? I'll tell you. After 20 years, pretty long term, it would be worth a real £39,000 roughly. After 30 years, around £76,000. Do note that these are real, not absolute returns. In other words, if anyone is not clear what this means, the final sums are expressed in the same buying power terms as the original sum. Thus if £10,000 today buys you a certain something, then the £39,000 that I show that it becomes in 20 years, would buy you 3.9 similar somethings.

Now that isn't bad, not at all, but you haven't really become wealthy out of it. You have beaten inflation well, far more than merely preserving the original value of your money, you have increased it by a real 7% per year. But from your £10,000 you haven't created serious stash. You haven't manufactured a sum big enough upon which to retire comfortably, even after 20 or 30 years.

It follows that to increase your £10,000 or whatever into something really worthwhile requires a far higher return. For example, a real return of 25% will turn this into some £867,000 after 20 years. That implies an absolute return of, say, 30%, if you assume 5% inflation. Now we're talking. Do it for 30 years and you will have a real lump sum of over £8m. Even better.

All this, of course, is just talk. But as Jane might agree, it is sexy talk. What sexier than money? Sexier than sex itself. At my age, anyway. The magic stuff that enables you to do almost anything. Pure portable pecuniary power. How to do it, though? That of course is the hard bit. But you know what I'm going to say.

Value shares. As far as I am concerned, the most consistently successful approach to share investing.

But not just any old value shares – the focus and concentration of all your money into a carefully selected portfolio of just one share, with all the risk that it entails. Can you live with that? Year in and year out, staying out of the market when you can't find what you want, not weakening because you feel you have to be in it. Then when the right one comes along, you go in with the lot, knowing that this time it might go wrong, that you could take a big hit at any moment. Do you enjoy doing this?

But first who are you? Financially? Look in the mirror. How dedicated are you? How unemotional, how ruthless? Can you live with the risks? How patient are you to wait for the right share, then wait again for it to perform, perhaps going nowhere or down for a long time?

Answer the questions truthfully. And don't follow this or any other strategy, including buy and hold, unless you are emotionally suited to it. Know yourself before you even start to know shares.

Related Links

• Value Investing discussion board