VALUE INVESTING
Value: 300 Not Out

By Stephen Bland (TMFPyad)
August 5, 2005

This is my three hundredth value article for The Motley Fool, representing about six years worth of weekly keyboard assault. What's happened over that time? Here are some musings on the things that stick in my mind.

Well for a start, I've gotten six years older. I was old enough to start with, now it hardly bears thinking about. And those plastic bags you get in supermarkets have developed a couple of ostensibly purposeless ears on opposite sides to the handles. Check it out next time you get one. Never used to be the case, that.

Oh and we launched the Value Investor newsletter in January 2004.

When I started writing for the Fool we were in a strong bull market. Value was unknown and mechanical share systems were all the rage on the Fool then. I recall one reader showing me his plan that had a back tested 70%pa profit. What he refused to entertain was the possibility that this had worked only in the raging bull market of the last few years. Almost needless to say his system was ruined completely the moment the market collapsed.

Before I knew about the Motley Fool, I had become interested in mechanical strategies myself after reading Michael O'Higgins American book Beating the Dow. Then I found that the Fool had developed a UK version of O'Higgins' system which they called Beating the Footsie and eventually I became the author of the regular reviews of the Fool plan. We duly buried it after five years of testing that revealed it to be an almost constant failure. However not long after finding the Fool, I devised my own mechanical strategy as an improvement to what I saw as the serious weaknesses of the BTF. There was no back testing possible, it was based only on my own investment logic. With typical self effacement I called it the pyad26 and it went on to beat the losing BTF scheme.

In time, along with many readers, I lost interest in this type of strategy, including my own scheme, but I was delighted to hear recently from an old regular reader who revealed that he was still following the pyad26. After all these years it is beating the market well.

In the early days I was writing three regular weekly articles for the Fool. Apart from the value feature, the others were the above mentioned BTF update and a tax article. I retired from my accountancy practice some time ago now and almost overnight my tax knowledge has evaporated. Old tax knowledge is dangerous because the rules change so much and so often. Better to more or less forget about it altogether if you are not prepared to keep up to date any longer and so that is what I resolved to do. The result is that these days I'm inclined to think of tax as something with which carpets are held down.

Apart from what I see as my biggest contribution to the Fool, the value shares concept for traders, another development I view as significant was the launch of the long-term hold high yield strategy with the first high yield portfolio (HYP) back in 2000. It will be five years old in November and so far has put in a strong and regular market beating performance, as has the second HYP commenced in 2003. Following a poll on the subject, I believe we now have several hundred readers investing in HYPs, both for income and a lot of them I expect as alternatives to traditional long-term savings methods such as pension schemes. I hope they all have the perseverance to see it through bad times as well as good.

Readers unfamiliar with the stock market should be aware that there are hardly any simple reliable approaches that deliver market beating performance year after year. I have seen numerous ideas come and go, like mechanical strategies, unable to stand the test of time. I can't claim that my HYPs have been going for the long term yet but I am in no doubt that they will continue to win, as they have so far.

In the markets over my three hundred articles, nothing has changed. It may have as far as newcomers are concerned, but to me it is no change. Bull markets, bubble markets, bear markets, acquisitions, demergers, shares driven up excessively by ultimately irrelevant events, shares driven down excessively by ultimately irrelevant events and the rest of it are entirely normal things which I have observed many times in my decades of stock market watching and trading. It is never different, never. That is simply because human nature is never different. Consequently all the above will continue to recur.

Another thing that has not changed is my investment style of value. At times it works better than others but the fundamental principles I believe to be eternal. If a share is unreasonably cheaper than its peers then owning it should be beneficial in time. It can go wrong but if you do it repeatedly, on balance a sufficient number should come good to make worthwhile profits. I see the logic as unassailable and would apply the same rules if I was trading anything.

I've thoroughly enjoyed my time so far at the Fool. Originally my value ideas were controversial here because it was a time when readers were chasing fad shares on high ratings that for a time kept on rising. As those all went wrong though, value eventually became mainstream and now permeates in one form or another almost all investment comment you'll read on the site. So to be controversial now I'd have to promote shares on absurdly high ratings.

Which is not very likely.

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