VALUE INVESTING
Supermarket Investing Lessons

By Stephen Bland (TMFPyad)
May 7, 2004

I was in Tesburys recently buying cereals and found that one particular variety was selling slightly cheaper per 100g if you bought it in the 500g size rather than the larger 750g box. So I bought two of the smaller boxes and saved myself a whacking great ten pence or something. I stress that I am not one of those thrifty types, who spend half their life searching for ways to save pennies, but where stuff is available in different sizes and I can use the larger one I'll probably buy it, principally for the convenience rather than saving money. But if I remember to check unit costs, I have noticed that occasionally such anomalies occur for some reason.

My point is not that people should necessarily mess around comparing cereal packet prices but simply that what I found just shouldn't happen. Mostly it doesn't, so that larger sizes of products are generally cheaper per unit than smaller ones. But occasionally it does. I don't know why it does, but it does. Grab it while stocks last.

A similar phenomenon takes place with shares. Occasionally one appears, call it a value share, which for some reason is underpriced. I don't know why it does but it does. Grab it while stocks last.

On the same shopping trip, I attempted to buy some plain crisps. It was quite a job. I spent about four hours going through miles of crisps shelves blossoming with every conceivable flavour available - except plain of course. Had I wanted prawn and marmalade flavour they were there, had I wanted chocolate and draincleaner flavour, no problem. But plain? Eventually I discovered them tucked away, lurking in a hard to find corner of the crisp area, as if the store was ashamed to stock them.

I first noticed this choice problem in the US many years ago. Touring around, I recall going into a supermarket somewhere to buy something as prosaic as a carton of milk. But it was not so simple. I found a staggering variety of different kinds of milk there and became temporarily paralysed by indecision. Remember this was at a time when here in the UK there was only a couple of choices so the culture shock was quite impressive. I didn't even know what half of the varieties on offer meant. It's something like that here in the UK now though, as my crisp experience demonstrates.

I feel another one of my sad stock market analogies coming on. Too much choice is not always a good thing. There are a large range of strategies out there. Which one suits you? I found out what suits me decades ago but it wasn't that easy. Like US milk, I was at first bewildered by the range of possibilities available so I fired off in all directions and naturally by so doing I missed my target, that of making money.

Eventually, after trying a few things, I found the approach which suited my curmudgeonly personality perfectly. Any investment strategy I believe has to fit you for it to work optimally. If, for example, you're not naturally a market-ignoring long-term holder, you might find it difficult to make a success of a high yield portfolio or even just an index tracker fund. You can change though. I have known people adopt long-term hold strategies after trying short-term trading approaches and making losses as most do. Indeed, I changed after finding that I was losing money at trading with no particular strategy, though I stuck with trading but narrowed it down to the value method. I selected the crisp flavour that I liked best.

Fancy learning more about Value Investing? Then sign up for a free 30-day trial of Stephen's value newsletter.