VALUE INVESTING
Never Look Back

By Stephen Bland (TMFPyad)
November 22, 2002

I've just looked back to my recent sale of Allders (LSE: ADS) after hearing the news today that they had jumped because a bid is on the table. I sold too soon it seems, taking a sizeable loss a few weeks back after their profits warning.

Does this hurt? Course it does. Loads of pyad shares in the past have in fact been outed by bids simply because the same factors that attract me will sometimes attract predators, although usually I have benefited by being still in the shares at the time. However, I never buy a share with bid prospects as the primary cause of interest, they come with the territory of deep value anyway. It is always the fundamentals that are the reason to buy and sell and the recent profits warning on Allders caused me to sell. That and the relative point of what I saw as the irresistible attractions of the financial sector into which I wished to sink the lot, including my Allders money. It was a decision which has paid off very well so far with Lloyds TSB (LSE: LLOY)(NYSE: LYG) being sold at a good profit, the proceeds going immediately into Royal & SunAlliance (LSE: RSA)(NYSE: RSA) leaving me with the latter and Abbey National (LSE: ANL) as my two shares at present. For me this a diversified portfolio about which I am slightly uneasy due to the excessive number of holdings, but I guess I can live with it for the time I'll be in them.

Against my hindsightedly wrong decision on Allders, if I look back to UK Coal (LSE: UKC) which I held briefly a while back and got out marginally above break even, again after a profits warning whose content I did not like, my decision to sell has been vindicated, to date, by the sharp fall since.

Both the above examples explain why I never look back, though I am doing so for the purposes of this article to illustrate the futility of it. Some sell decisions will be right, others wrong. Similarly some buy decisions will be right, others wrong. What does it matter? You have to live with it. I believe through very lengthy experience that my approach works often enough for it be worthwhile in the long run so what really matters is that sufficient profits are created ultimately to make some decent wad. No shortish term strategy can get it right every single time, you have to work on a percentage. But there is little point in beating yourself up over ones that went wrong provided you are certain that your overall strategy is correct.

I will often sell a share too soon by the standards of many investors and commentators. And that includes losers as well as winners. There are several reasons for this. Firstly the fundamental one that if I perceive too much of the value to have evaporated then out it goes, win or lose, even though others may still see some attractions in it. Secondly if I see it being widely tipped as a buy in the press etc. then I may well be outta there shortly after, simply because I do not want to run with the majority, that makes me nervous. Thirdly the pure wallet reason that because I invest relatively large amounts in a small number of shares, I have to be completely anal about the individual share risk. Those holding larger portfolios can afford to take a little more individual share risk and if I was such, I would almost certainly have hung on to Allders because it still represented a good value share.

So it does not pay to look back and kick yourself for making a wrong decision, or congratulate yourself too much for making a right one. It's hard to avoid doing this but both exercises are pointless in my view, as long as you are making enough right trades of course. Therefore, once you have demonstrated to yourself that what you are doing is correct, always concentrate on the next share and don't think too much about what went before or what anyone else thinks. Post mortems are undesirable.

Oh, and as a value share trader, always sell too soon. Otherwise it may be too late.