VALUE INVESTING
Carry On Value Investing

By Stephen Bland (TMFPyad)
February 22, 2002

One of the modern benefits of age, and digging around in the muck heap of an ancient life there aren't many I assure you, is that you can walk down the road mumbling to yourself with impunity. Up until a few years ago if I did this I would have been thought to be just another barmy old git, but now, whilst simultaneously perambulating and mumbling, I can claim to be talking into my hands-free mobile phone, thus making me resemble, as far as talking into thin air goes, all those much younger people one sees walking along ostensibly talking to themselves.

I am informed that hands-free phones are not in fact designed in order to free the hands, but to free the brain from the possibly harmful effects of the radio frequencies used by mobile phones. So you keep the phone in your pocket but use a mike and earpiece to connect to it. The result is that instead of frying your brain, you fry your 'nads instead, which at my age perhaps makes little difference, but may be of some concern to those still young enough to enjoy them.

Age and value shares are this week's theme. Is value investing a game predominantly for those still some way from their appointment with the zimmer frame?

One slightly related branch of value investing, long-term high yield portfolios, is actually promoted by me as a fine way for an older or retired person or to invest a lump sum for income provided they can accept the risks of equities. There are few places you can invest in this way, with no charges to speak of, no hassles, and a decent chance of growing income faster than inflation over the long term. You also start from a base higher than deposit interest rates and with the likelihood of capital appreciation in line with the income growth.

Conventional wisdom, as often promoted by financial journalists or perhaps IFAs eager to sell you some insurance investment, says that those entering retirement should, if they were in equities earlier, move over to a greater weighting of fixed interest investments and the like for reasons of lesser risk and more certain income. The problem though is that the more you fix your income and move away from risk investments like equities, the less opportunity you are creating for the income and capital to grow faster than inflation and thus actually improve your standard of living. And lack of such growth might be a problem if you live another twenty years for example.

Nobody who reads my column is going to receive conventional wisdom. Once I start offering people that, I may as well put away my keyboard for good. As far as investing goes, the great majority of what I do, or suggest that other people might find rewarding, has always been directed by the astounding discovery that the way many investors go about investing is frequently wrong. And I was saying these things many years before the Motley Fool even existed. I refer here not only to direct equity investors but all those wretches in poorly performing personal pensions, the enormous number in other savings vehicles promoted by insurers, banks and so on that have returned peanuts after lengthy periods.

But should people carry on investing directly into value shares, in the same style as they might have done earlier in life? Or should they retire from value investing as they may have done from their jobs or businesses? Such investors may actually have more capital than before, perhaps the release of money from moving to a cheaper property for example. Clearly there is no general answer to this, it depends on your attitude to risk, but I say carry on value investing. In fact I know of some retired investors who have actually taken up value investing for the first time in later life, having discovered it here.

So I suggest that those value players of advanced years, far from shunning equities in general and value shares in particular, should actually embrace them or continue doing what they did before if they have already been following the strategy. In a sensible way of course, nothing daft like risking all your share money on just one play at a time. But in my view holding a portfolio of short term value shares is a perfectly sensible method of investing, even for zimmer club members.

Also there is an emotional benefit. Value investors will be following this strategy because they enjoy it, and people in retirement need interests.