DIY Investor Magazine
|
Oct 2017
33
Because of this, I try to ensure I do as much due dili-
gence as possible before making an investment. I think
it also helps that I have a demanding day job, which
restricts my ability to meddle with my portfolio and be-
come my own worst enemy!
I will usually make, at most, half a dozen trades in a
year, and do not use stop losses. In the two years I have
been investing, I have held positions that have fallen by
30%+ and have since recovered.
Because of the time I take in conducting my initial inves-
tigation, I will usually only sell if the circumstances of the
business have changed for the worse and I believe the
long-term prospects of the company have declined.
WHAT ARE YOUR KEY CONSIDERATIONS WHEN
MAKING AN INVESTMENT?
I feel as though the more you learn, the more you are
able to simplify your investing methodology. I also feel
it becomes easier to quickly identify opportunities that
match your investing style. I have no problem immedi-
ately dismissing 90%+ of businesses if they don’t fit with
how I invest, because I don’t think it’s necessary to have
an opinion on every company you see.
I will usually identify opportunities by running a screen
across different markets. There are fundamental require-
ments I set on this screen. I look for companies with little
to no debt, whose current assets cover current liabilities
(preferably with cash holdings). I also look for compa-
nies with consistently decent returns on invested capital,
which serves as a measure of quality.
In terms of valuation, I am learning to be less restrictive
in terms of the metrics of a company. In an ideal world,
I would want to invest in a quality business trading at a
reasonable valuation. However, quality seldom comes
cheap. That being said, I’m not sure I’d ever feel com-
fortable paying 90-times earnings for a company, simply
because of the expectation required of it. If growth so
much as stutters, a business can be punished quite
severely.
Once a potential investment has been identified, I like
to spend a few hours reading up on the business itself.
I will usually read at least the last five years’ annual
reports to get a measure of the progress of the compa-
ny, as well as ten years of financial data (if it’s available).
Last, but not least, I like to undertake a discounted
cash flow exercise to model a range of potential growth
outcomes going into the future. This helps me get a
handle on the price of a business relative to the cash it
generates.
ISA OR PENSION?
Working in the public sector I pay into a pretty decent
pension; however with pension deficits being what they
are I am not taking this for granted.
I therefore use ISA’s to invest, with a view to growing
capital. The way I see it, I have a good 30+ years before
I retire, so my investing time frame allows me to be a
little more adventurous.
WHAT HAVE BEEN YOUR BEST AND WORST IN-
VESTMENTS?
In terms of pure return, toiletries and fragrances manu-
facturer Creightons PLC is currently my best performing
holding, currently up around 400%. I firmly believe the
company has a bright future ahead of it as well.
Regarding worst investment, I would have to say Gatta-
ca PLC.
From the minute I bought it, it just went down and
down, and unfortunately I held for far longer than I
should have. I ended up selling with a 53% loss. I was
still in the mind-set that if I held long enough, the price
would recover and I would end up with a satisfactory
return. However simple mathematics tells you that the
price would have to double just to get back to break-
even.
