Investor Meet Company, Fevertree, Closet Trackers, Politics and the Environment

I recently came across a company called “Investor Meet Company” (see https://www.investormeetcompany.com/ ). They claim to enable individual investors to meet with company directors over the internet, i.e. via a digital web cast. The service is free to investors but there is a small charge to companies who take part.

The company was formed in 2018 by two founders, Marc Downes and Paul Brotherhood, who seem to have lengthy financial backgrounds and the web site looks professional. However, their contract terms are over complex and their privacy policy likewise so I am not rushing to sign up. They also invite you to provide details of companies you are interested in, which may be your holdings, which is not ideal. But if any readers have experience of this service, please let me know.

I mentioned Fevertree (FEVR) in my last blog post and Phil Oakley’s review of the business. Today the company issued a trading statement which was positive – it mentions “acceleration in key growth markets of the US and Europe in the second half”, but UK performance seems to be mixed. Growth in the USA is now expected to be c. 34% which is ahead of previous expectations. But the overall revenue forecast of £266 to £268 million is less than the previous consensus brokers’ forecast. The share price is up 7.8% today though. I may have to look at this business again because US growth is key to the share valuation.

The Financial Conduct Authority (FCA) have fined Janus Henderson £1.9 million for running two funds as “closet trackers”, i.e. actually closely tracking an index while charging high fees that are more normal for actively managed funds. This apparently was particularly obnoxious because they did not tell the investors in the funds that they were switched to a passive approach in 2011. The funds affected were Henderson Japan Enhanced Equity and Henderson North American Enhanced Equity. Investors have been paid compensation. Investors in funds need to be very wary that the fund managers of actively managed funds are actually putting in the effort and not sitting back and being a pseudo index tracker while charging high fees.

I watched some of the debate last night between Johnson and Corbyn but as it was so trivial in content I turned it off fairly quickly. I can imagine a lot of people did. The programme producer and compere can be mostly blamed for allowing such bland questions to which one could guess the responses and allowing evasions and irrelevant interruptions. The format of the US presidential debates is so much better.

Rather surprisingly I received a flyer in the post yesterday from an organisation called “Tactical Vote”. If I go to their web site it advises me that the best choice for me is to vote Labour in the Bromley and Chislehurst Constituency. The flyer makes it clear that their agenda is to keep the Conservatives out! But I suspect that they won’t get far in my constituency as Bob Neil had a 10,000 majority last time. If anyone was to switch it might be more likely be to the Brexit Party or the Liberal Democrats but there is not even a Brexit candidate standing so far as I can see. I am all in favour of “tactical voting” in some constituencies but we really need reform of the political system so that we have better representation. A transferable second vote system as we have for London Mayor is relatively simple. Tactical Vote seem to be pursuing a false agenda though; they should call themselves the “Labour Vote Promoters”.

One of the hot political issues, at least so far as the minority parties are concerned as the major parties are more focused on Brexit, the NHS and give-aways in the current General Election is the environment, i.e. how we become carbon neutral by 2050 or a date of your choice. Even the Conservatives wish us all to be driving electric cars, changing our home heating system and changing our way of life in other ways to avoid disastrous climate change. There was an interesting article in today’s Financial Times showing how this is quite pointless because China will soon be emitting more carbon from burning coal than the whole of the EU. They are expanding the number of coal power stations and the result will be to offset global progress in reducing emissions. In 2017 China produced 27% of world CO2 emissions, while the UK produced 1.2%. China’s emissions have been rising while the UK’s are falling so any extreme efforts by the UK are not likely to have much impact on the world scene.

However if you want to save the world and cut your heating bills (the latter is a more practical objective) I suggest looking at product called Radbot from Vestemi. The company was founded by a long-standing business contact of mine. It’s basically an intelligent radiator valve that monitors when a room is occupied and adapts to your usage.

Apart from that point, I consider there is so much misinformation being spread around about climate change and the impact of CO2 emissions that it is impossible to comment on the subject intelligently enough to refute much of the nonsense in a short blog article. But I do think it might be helpful to reduce the population of the UK which is just getting too damn crowded and leading to housing shortages, congestion on the roads and in public transport and other ills. That would be a better way of reducing emissions.

Part of the problem is that the NHS has become very good at keeping people alive despite what some politicians believe, while immigration has boosted numbers as well. You can see this in the latest forecasts for London’s population which is likely to grow by 18% to 10.4 million by 2041. See https://data.london.gov.uk/dataset/projections-documentation for more details.

Those are the issues politicians should be talking about.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Fevertree Fall, Trading Times and More on HBOS/Lloyds

Last week when I spoke at the Mello event I talked about my investment winners over the past few years. One of them was Fevertree (FEVR) but I was asked why I no longer held the shares. I gave a brief explanation at the time but there is good exposition of the issues by Phil Oakley in this week’s Investors Chronicle.

Fevertree’s share price peaked at 3200p in May 2019 but it’s now about 1900p. It has declined so much in the last few months that I considered buying it back but it has also perked up in the last few days so it did not reach my target price. Phil’s article is headed “Fevertree may fall further”. This is what he has to say about the business: “The high selling price of its products make for high profit margins. Combine this with an asset-light balance sheet and you have a recipe for an outstanding business with high returns on investment and lots of free cash”. But he is wary of their reliance on sales of tonic and on the UK market.

Will they manage to continue to achieve high growth rates? One concern I have is that every luxury hotel or good restaurant I have visited in the last two years has served Fevertree in my gin and tonic. Growth in the UK must surely be becoming limited. So future growth surely depends on them making a success of the US market. In their interim results in July the company talked about “encouraging momentum in the US” but we have heard nothing more since. Phil Oakley also points out that their competitors have reacted to the success of Fevertree with their own “premium” mixer offerings. Future growth is still well discounted in the current share price in my view so I am not rushing to jump back in until the picture becomes clearer.

Fevertree is a great branding and marketing story but I fear that there are ultimately no barriers to entry in their market. Others can surely copy their business model relatively easily.

Another article in this week’s Investors Chronicle was on changing market trading times. Would shorter hours improve markets is the question they ask? The UK LSE has some of the longest trading hours in the world. It opens at 8.00 am and closes at 4.30 pm but there are opening and closing auctions before and after those times.

RNS announcements are issued starting at 7.00 am so anyone who wishes to be on top of the news has to get up early. Many older private investors like me would prefer a later market start time. Although I tend to make most of my trades in the early morning as I review investments in the evening and make decisions on what to do the next day, it seems much of the market trading volume takes place in the last hour of the trading day. A more concentrated trading day might actually improve liquidity and avoid the volatility one sees in small cap stocks. In summary I am all in favour of a shorter trading day – 10.00 to 4.00 pm would be fine and even a break for lunch as they have in Japan would not be amiss.

Lastly, as a follow up to my previous blog story on the failure of the HBOS/Lloyds legal claim, I would like to point out that the judge made it clear in his judgement that there were significant omissions from the prospectus that was issued at the time.

Specifically he says in his Executive Summary: “But I consider that the Circular should have disclosed the existence of the ELA facility, not in terms such as would excite damaging speculation but in terms which indicated its existence”; and “Likewise, I consider that the board ought to have disclosed the Lloyds Repo. The board assumed that because at the time of its grant it had been treated by the authorities as “ordinary course” business that provided an answer to all subsequent questions. But whether it should be disclosed in the Circular as material to an informed decision was a separate question. The Court must answer that question on an objective basis. The size of the facility, the fact that it was extended in tight markets, the fact that it was linked to the Acquisition and was part of a systemic rescue package showed that this was a special contract which ought to have been disclosed”  (see paragraphs 46/47 of the Executive Summary which can be obtained from here:  https://www.judiciary.uk/judgments/sharp-others-v-blank-others-hbos-judgment/

There were also possible other omissions from the disclosures which the judge did not consider but the above does provide prima facie evidence of a breach of the Prospectus Rules.  The directors of the company (Sir Victor Blank and others) would certainly have been aware of this funding and hence they might be considered to be negligent.

Investors in Lloyds TSB (I was one of them) were misled by these omissions and the subsequent outcome was financially very damaging to those investors.

I have written to the Financial Conduct Authority (FCA) suggesting that it needs to investigate these matters as a breach of the Prospectus Rules surely is a matter that makes the transgressors liable to sanctions under the Rules and there is no statute of limitation in regard to these matters. I suggest other investors in Lloyds TSB should do likewise and I have suggested ShareSoc should also take up this issue.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Lloyds Shareholders Lose Case

After many months of deliberation, a judge in the High Court has rejected the claims by former Lloyds TSB shareholders over the takeover of HBOS and recapitalisation of the company by the Government. That resulted in major capital losses to Lloyds Banking Group (LLOY) shareholders and suspension of the dividends which many private shareholders relied on for income.

For those not familiar with the case, this stems from the events in 2008/9 when all banks came under severe financial pressure. HBOS was clearly in major difficulties due to imprudent commercial lending although how bad its position really was only became public much later. But there seemed to be only two credible options as nobody was willing to refinance it – nationalisation by the Government or a takeover by another large bank. Lloyds TSB agreed to do the latter with Government financial support. A prospectus was issued and voted upon. The shareholders supported it based on what they were told, but many institutional shareholders held both Lloyds TSB and HBOS so had a vested interest in the deal going through.

Note that this writer had an interest in the case because I held some shares in Lloyds TSB but I was not a claimant in the litigation because I sold most of my shares as soon as I knew the deal was going through this minimising my losses. However I did provide a witness statement to the court via solicitors Harcus Sinclair who represented the shareholders. I did write some articles at the time complaining about the deal and its likely effect on shareholders and met with Sir Victor Blank, then Chairman of Lloyds TSB who defended the actions of the company.

The claim which was against the company and the directors was based on two specific issues: 1) that the directors had recommended the deal when it was not in the interests of Lloyds TSB shareholders which is all they should have considered; and 2) the prospectus did not disclose the financial support in loans received by HBOS from Lloyds, the Bank of England and the US Federal Reserve. Prospectuses should disclose all relevant information under the relevant legislation.

It seems the court judgement was that the directors were not negligent in recommending the acquisition of HBOS and that the failure to disclose the HBOS funding would not have affected the outcome of the vote on the deal. But the judge acknowledged that the failure to disclose the funding was wrong.

Last week I gave a talk on Business Perspective Investing in which I argued that company accounts are not be relied upon. This latest judgement implies that a prospectus is now not be relied upon either. It can be grossly misleading but nobody will be held to account for that.

This is a most disgraceful outcome and I hope that an appeal is made.

The costs of pursuing this legal case are also a disgrace. Lloyds solicitors expected to run up costs of more than £25 million and there were probably similar costs incurred by the other party. There were weeks in court and it was a pretty impressive scene when I attended with at least 6 barristers in wigs and gowns plus about another 10 supporting legal staff. In essence what were in essence quite simple issues became a beanfeast for lawyers and demonstrates much of what is wrong with the English legal system. It’s now ten years since the events on which the litigation was based took place and many claimants have since died. And at the end for all that time and expense, justice was not well served.

If shareholders in such a major and simple case supported by litigation funding cannot obtain justice, what chance do they have in the case of misdeeds by directors in smaller companies? None at all in summary.

Go here if you wish to read the full judgement of the case: https://www.judiciary.uk/judgments/sharp-others-v-blank-others-hbos-judgment/

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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BT Nationalisation and Promises, Promises

We are clearly in a run up to a General Election when politicians promise all kinds of “free” gifts to the electorate. The latest promise, even before the manifestos have been published, is the Labour Party’s commitment to give everyone in the UK free broadband. This would be achieved by simply nationalising BT Group (BT.A) apparently.

I just had a quick look at the cost of this commitment. BT actually receives over £15 billion annually according to the last accounts from Consumers and from Openreach. There is some profit margin on that of less than 20% which might be discounted, but there are many households who do not yet have a fibre connection so that would be an additional cost to be covered by the Government.

In addition there would probably be some cost of nationalising BT Group and paying compensation to shareholders. The current market cap of the company is about £19 billion. They might get away with paying £10 billion up front but the annual cost of at least £12 billion to maintain the network would be an enormous burden on the state. They might be able to raise that by taxing multinationals or others but it still makes no sense.

I am not a BT shareholder currently although I am one of their customers. I also remember how dreadful the service from BT was before it was nationalised. It may not be perfect now in comparison with some of their competitors but nationalised industries such as telecoms, the railways, the motor industry, the coal industry, shipbuilding, the gas/electric/water utilities and about 40 others were all abject failures. They typically lost money and provided diabolical service.  The young who are voting socialist may not remember but Jeremy Corbyn should do so.

The fact that the share price of BT only dropped by 1% today (at the time of writing) just shows you how much credibility investors attach to this promise. It also surely shows how desperate the Labour Party is to win some more votes as they are now trailing well behind in the opinion polls.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Mello Event, ProVen and ShareSoc Seminars and Lots More News

It’s been a busy last two days for me with several events attended. The first was on Tuesday when I attended the Mello London event in Chiswick. It was clearly a popular event with attendance up on the previous year. I spoke on Business Perspective Investing and my talk was well attended with an interesting discussion on Burford Capital which I used as an example of a company that fails a lot of my check list rules and hence I have never invested in it. But clearly there are still some fans and defenders of its accounting treatment. It’s always good to get some debate at such presentations.

On Wednesday morning I attended a ProVen VCT shareholder event which turned out to be more interesting than I expected. ProVen manages two VCTs (PVN and PGOO), both of which I hold. It was reported that a lot of investment is going into Adtech, Edtech, Fintech, Cybersecurity and Sustainability driven by large private equity funding. Public markets are declining in terms of the number of listed companies. The ProVen VCTs have achieved returns over 5 years similar to other generalist VCTs but returns have been falling of late. This was attributed to the high investment costs (i.e. deal valuations have been rising for early stage companies) in comparison with a few years back. Basically it was suggested that there is too much VC funding available. Some companies seem to be raising funds just to get them to the next funding round rather than to reach profitability. ProVen prefers to invest in companies focused on the latter. Even from my limited experience in looking at some business angel investment propositions recently, the valuations being suggested for very early stage businesses seem way too high.

This does not bode well for future returns in VCTs of course. In addition the problem is compounded by the new VCT rules which are much tougher such as the fact that they need to be 80% invested and only companies that are less than 7 years old qualify – although there are some exceptions for follow-on investment. Asset backed investments and MBOs are no longer permitted. The changes will mean that VCTs are investing in more risky, small and early stage businesses – often technology focused ones. I suspect this will lean to larger portfolios of many smaller holdings, with more follow-on funding of the successful ones. I am getting wary of putting more money into VCTs until we see how all this works out despite the generous tax reliefs but ProVen might be more experienced than others in the new scenario.

There were very interesting presentations from three of their investee companies – Fnatic (esports business), Picasso Labs (video/image campaign analysis) and Festicket (festival ticketing and business support). All very interesting businesses with CEOs who presented well, but as usual rather short of financial information.

There was also a session on the VCT tax rules for investors which are always worth getting a refresher on as they are so complex. One point that was mentioned which may catch some unawares is that normally when you die all capital gains or losses on VCTs are ignored as they are capital gains tax exempt, and any past income tax reliefs are retained (i.e. the five-year rule for retention does not apply). If you pass the VCT holdings onto your spouse they can continue to receive the dividends tax free but only up to £200,000 worth of VCT holdings transferred as they are considered to be new investments in the tax year of receipt. I hope that I have explained that correctly, but VCTs are certainly an area where expert tax advice is quite essential if you have substantial holdings in them.

One of the speakers at this event criticised Woodford for the naming of the Woodford Equity Income Fund in the same way I have done. It was a very unusual profile of holdings for an equity income fund. Stockopedia have recently published a good analysis of the past holdings in the fund. The latest news from the fund liquidator is that investors in the fund are likely to lose 32% of the remaining value, and it could be as high as 42% in the worst scenario. Investors should call for an inquiry into how this debacle was allowed to happen with recommendations to ensure it does not happen again to unsuspecting and unsophisticated investors.

Later on Wednesday I attended a ShareSoc company presentation seminar with four companies presenting which I will cover very briefly:

Caledonia Mining (CMCL) – profitable gold mining operations in Zimbabwe with expansion plans. Gold mining is always a risky business in my experience and political risks particularly re foreign exchange controls in Zimbabwe make an investment only for the brave in my view. Incidentally big mining company BHP (BHP) announced on Tuesday the appointment of a new CEO, Mike Henry. His pay package is disclosed in detail – it’s a base salary of US$1.7 million, a cash and deferred share bonus (CDP) of up to 120% of base and an LTIP of up to 200% of base, i.e. an overall maximum which I calculate to be over $7 million plus pension. It’s this kind of package that horrifies the low paid and causes many to vote for socialist political parties. I find it quite unjustifiable also, but as I now hold shares in BHP I will be able to give the company my views directly on such over-generous bonus schemes.

Ilika (IKA) – a company now focused on developing solid state batteries. Such batteries have better characteristics than the commonly used Lithium-Ion batteries in many products. Ilika are now developing larger capacity batteries but it may be 2025 before they are price competitive. I have seen this company present before. Interesting technology but whether and when they can get to volumes sufficient to generate profits is anybody’s guess.

Fusion Antibodies (FAB) – a developer of antibodies for large pharma companies and diagnostic applications. This is a rapidly growing sector of the biotechnology industry and for medical applications supplying many new diagnostic and treatment options. I already hold Abcam (ABC) and Bioventix (BVXP) and even got treated recently with a monoclonal antibody (Prolia from Amgen) for osteopenia. One injection that lasts for six months which apparently adjusts a critical protein – or in longer terms “an antibody directed against the receptor activator of the nuclear factor–kappa B ligand (RANKL), which is a key mediator of the resorptive phase of bone remodeling. It decreases bone resorption by inhibiting osteoclast activity”. I am sure readers will understand that! Yes a lot of the science in this area does go over my head.

As regards Fusion Antibodies I did not like their historic focus on project related income and I am not clear what their “USP” is.

As I said in my talk on Tuesday, Abcam has been one of my more successful investments returning a compound total return per annum of 31% Per Annum since 2006. It’s those high consistent returns over many years that generates the high total returns and makes them the ten-baggers, and more. But you did not need to understand the science of antibodies to see why it would be a good investment. But I would need a lot longer than the 30 minutes allowed for my presentation on Tuesday to explain the reasons for my original investment in Abcam and other successful companies. I think I could talk for a whole day on Business Perspective Investing.

Abcam actually held their AGM yesterday so I missed it. But an RNS announcement suggests that although all resolutions were passed, there were significant votes against the re-election of Chairman Peter Allen. Exactly how many I have been unable to find out as their investor relations phone number is not being answered so I have sent them an email. The company suggests the vote was because of concerns about Allen’s other board time commitments but they don’t plan to do anything about it. I also voted against him though for not knowing his responsibility to answer questions from shareholders (see previous blog reports).

The last company presenting at the ShareSoc event was Supermarket Income REIT (SUPR). This is a property investment trust that invests in long leases (average 18 years) and generates a dividend yield of 5% with some capital growth. Typically the leases have RPI linked rent reviews which is fine so long as the Government does not redefine what RPI means. They convinced me that the supermarket sector is not quite such bad news as most retail property businesses as there is still some growth in the sector. Although internet ordering and home delivery is becoming more popular, they are mainly being serviced from existing local sites and nobody is making money from such deliveries (£15 cost). The Ocado business model of using a few large automated sites was suggested to be not viable except in big cities. SUPR may merit a bit more research (I don’t currently hold it).

Other news in the last couple of days of interest was:

It was announced that a Chinese firm was buying British Steel which the Government has been propping up since it went into administration. There is a good editorial in the Financial Times today headlined under “the UK needs to decide if British Steel is strategic”. This news may enable the Government to save the embarrassment of killing off the business with the loss of 4,000 direct jobs and many others indirectly. But we have yet to see what “sweeteners” have been offered to the buyer and there may be “state-aid” issues to be faced. This business has been consistently unprofitable and this comment from the BBC was amusing: “Some industry watchers are suggesting that Scunthorpe, and British Steel’s plant in Hayange in France would allow Jingye to import raw steel from China, finish it into higher value products and stick a “Made in UK” or “Made in France” badge on it”. Is this business really strategic? It is suggested that the ability to make railway track for Network Rail is important but is that not a low-tech rather than high-tech product? I am never happy to see strategically challenged business bailed out when other countries are both better placed to provide the products cheaper and are willing to subsidise the companies doing so.

Another example of the too prevalent problem of defective accounts was reported in the FT today – this time in Halfords (HFD) which I will add to an ever longer list of accounts one cannot trust. The FT reported that the company “has adjusted its accounts to remove £11.7 million of inventory costs from its balance sheet” after a review of its half-year figures by new auditor BDO. KPMG were the previous auditor and it is suggested there has been a “misapplication” of accounting rules where operational costs such as warehousing were treated as inventory. In essence another quite basic mistake not picked up by auditors!

That pro-Brexit supporter Tim Martin, CEO of JD Wetherspoon (JDW) has been pontificating on the iniquities of the UK Corporate Governance Code (or “guaranteed eventual destruction” as he renames it) in the company’s latest Trading Statement as the AGM is coming up soon. For example he says “There can be little doubt that the current system has directly led to the failure or chronic underperformance of many businesses, including banks, supermarkets, and pubs” and “It has also led to the creation of long and almost unreadable annual reports, full of jargon, clichés and platitudes – which confuse more than they enlighten”. I agree with him on the latter point but not about the limit on the length of service of non-executive directors which he opposes. I have seen too many non-execs who have “gone native”, fail to challenge the executives and should have been pensioned off earlier (not that non-execs get paid pensions normally of course. But Tim’s diatribe is well worth reading as he does make some good points – see here: https://tinyurl.com/yz3mso9d .

He has also come under attack for allowing pro-Brexit material to be printed on beer mats in his pubs when the shareholders have not authorised political donations. But that seems to me a very minor issue when so many FTSE CEOs were publicly criticising Brexit, i.e. interfering in politics and using groundless scare stories such as supermarkets running out of fresh produce. I do not hold JDW but it should make for an interesting AGM. A report from anyone who attends it would be welcomed.

Another company I mentioned in my talk on Tuesday was Accesso (ACSO). The business was put up for sale, but offers seemed to be insufficient to get board and shareholder support. The latest news issued by the company says there are “refreshed indications of interest” so discussions are continuing. I still hold a few shares but I think I’ll just wait and see what the outcome is. Trading on news is a good idea in general but trading on the vagaries of guesses, rumours or speculative share price movements, and as to what might happen, is not wise in my view.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Pound Jumps Up on Brexit Party News and Portfolio Impact

The pound has risen by about 1% against the US Dollar and Euro today with suggestions that it is the news from Nigel Farage’s Brexit Party that prompted it. He won’t be putting up candidates in seats where the Conservatives won the vote last time when he was previously threatening to have candidates stand in all constituencies. This makes some sense because even if they have good candidates willing to stand, building a local campaigning organisation from scratch to get the vote out is not easy. It strengthens the probability of a Conservative win although there is still some risk because in marginal seats which the Conservatives hoped to win but lost last time there could still be a split vote.

The result has been quite significant on my portfolio with companies with large overseas revenues and profits falling while UK dominated businesses rose. That was particularly so with Greggs (GRG) who are up 16% on the day after a trading statement that indicated overall sales were up 12.4% for the last 6 weeks and year end figures should be even better than expected.  Sales growth continues to be driven by increased customer visits apparently but as many of their outlets are now not on the High Street I suggest that should not be seen as a revival for other retail businesses. But Greggs certainly seem to have a winning formula of late as they consistently report positive news.

I tend not to react to short term changes in exchange rates because the impact can be more complex that first appears. I will not therefore be taking any steps as a result. In any case my overall portfolio is up 0.5% on the day so this might just reflect more confidence that the political log-jam will finally be resolved in a few weeks’ time. Investor confidence has a big influence on markets of course.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Bearbull Also Doubts Reliance on Financial Analysis Alone

The writer Bearbull in the Investors Chronicle made some interesting comments in this week’s edition. He said:

“Talking of research, I might question the way that I dig out investment candidates. My off-the-peg approach focuses on number crunching from a company’s accounts. It uses past performance as the basis for guesstimating a range of per-share valuations – from optimistic to pessimistic – based on both accounting profits and cash flow. I back that up with more spreadsheet work to assess the trends in a company’s efficiency, its productivity and its financial resilience.

The merits of this approach is that it is an efficient way of scanning lots of candidates. Its shortcoming is that it pays insufficient attention to the future, which is where investment returns will come from. True, but the lion’s share of my time spent crawling over any company always comes down to relating the quantitative findings to the question, to what extent is the future likely to be as good as the past, better than or worse than? I don’t think that will change”.

This is very much my own approach. Doing an initial scan of the financials to weed out the worse candidates for investment makes a lot of sense. But the problem with relying on financial analysis alone is that it is not very predictive of the future. In the modern world where markets and businesses are rapidly changing, relying on a study of past accounts is of limited use. Or as I say in my book Business Perspective Investing: “typical ratios used by investors to evaluate and compare companies tell you almost nothing about the future”. That’s assuming you can even trust the accounts of companies which is another dubious proposition of late.

I’ll be covering this more and what investors really need to look at in my presentation at the Mello London event (Tuesday the 12th at 12.55 pm: https://melloevents.com/event/ ).

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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