Last month I gave a couple of talks about penny shares. One was at the World Money Show, and the other was to members of The Zurich Club. At such events, I find that I often get asked the same questions. So on that basis, I decided that what would interest them might also interest you.
1) Do you buy the shares that you recommend?
Yes! Apart from a bit of money in building society deposits, the Bulford savings are entirely invested in smaller companies, including several that are in the Red Hot portfolio. So as well as talking the talk, I also walk the walk.
However, my share dealings are restricted by regulations, so that a decent interval of time has to elapse between me advising you to buy or sell a stock, and actually dealing in the shares for myself.
Incidentally those of us who give share tips via newsletters are regulated by the FSA which means, amongst other things, that we must have passed various exams. But these rules do not apply to those who give share tips in the newspapers. Don’t ask me why.
2) How do you research companies?
This has been made much easier now – thanks to the internet! There is a mass of information out there, both on the companies themselves and industry background. Through sites such as www.investegate.co.uk, and www.digitallook.com, you can find all the official company news as reported to the Stock Exchange, along with broker forecasts, charts, etc. You can also set up your own watch list of shares in which you have a particular interest.
Just about every quoted company these days also has its own website, which gives more detail about its business. This will usually include a section devoted to investors, which will include the latest annual report and sometimes an investor presentation.
Having said all that, I nearly always try to meet a company’s management face to face. You can get a much better feeling when you can see the whites of their eyes...
3) How do you arrange meetings with companies?
By asking them! Many companies have an investor relations programme which might typically involve giving presentations to journalists twice a year. That is all very well, but it is hard to ask lots of questions in such a forum, and anyway the best time to be looking at companies is not when everyone else is looking at them. So I decide which companies I want to research, and then see if I can get a meeting with them. I will either approach the company directly or through its PR agency. Nine times out of 10 my request is granted, and off I go to meet the company, preferably at its own offices.
The directors of just about every small company give me a warm welcome. They enjoy telling me about their Tom Bulford business and their plans, and almost without exception believe that their company is not well understood, and does not get due recognition from the stock market. They often spend five or 10 minutes sounding off about the poor job their broker has done, and the difficulty of getting financial analysts to write proper research notes. They tell me that City investors and analysts rarely visit them, and instead they have to make regular trips to London, where they are met by a junior who knows nothing about the company, and has not bothered to find out anything in advance.
4) What do you learn from these visits?
The whole point of making these visits is to find out things that are not apparent from publicly available material. This could involve actually seeing or feeling a product that I have only read about. Or taking a walk around the office or factory, and looking out for signs of corporate extravagance – the old “counting the Jaguars in the car park” test, to see how shareholders’ money is really spent.
Mainly, though, these meetings begin with a discussion about the business. I am interested in things that are never mentioned elsewhere. Questions like – who are your competitors and how do you try to beat them? How do you try to win new customers? When do you charge your customers and when do they pay? How many customers have you lost in the last year and why? What is your level of staff turnover, and how easy is it to recruit qualified staff?
You will not find the answers to any of these important questions in corporate presentations, which tend to describe the broader sweep of strategy. And it is very important to me to find executives – like David Wraith, of the Wraith Group, for instance – who have all the facts at their fingertips.
One of the most important reasons for visiting companies is to meet the people involved, and judge whether they have real money-making nous, or are simply nutty fantasists engaged in some kind of ego trip.
The Zurich Club publishes a newsletter which has an excellent stock-picking record. But its editor, Andrew Vaughan, does not believe in visiting companies, on the very reasonable grounds that it is the numbers that count and not the corporate spin. I think that is fair enough when you are looking at large companies. How much is an hour with BP’s investor relations officer really going to tell you?
But with smaller companies I firmly believe that company visits are of great advantage. I always learn something new. Sometimes I pick up stories about competitors. Sometimes I am told things “off the record” that I am not supposed to know. Besides I like getting out on the road, away from my PC screen!
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