It’s performance, Jim, but not as we know it

I’ve updated the Thrifty 30 performance table and as usual have nothing to say about the portfolio’s performance in terms of share price movements. But I’m still thinking hard about my my own performance.

Recently I’ve changed my stock picking process, the efficiency of which I will measure by the number of two minute monologues I publish every month. I’m hoping to go from a couple a month to a couple a week by streamlining analysis and various other activities.

The idea is to turn over more rocks, and find more of whatever it is people look for under them: undervalued companies to transpose the analogy to investing.

It’s not an original idea. Like the two minute monologues, I nicked it from Peter Lynch.

The relentless drive for efficiency is as important in investing as it is in business, because investing is competitive and the spoils go to those with most insight. For some time, I’ve felt inefficient both in deciding which rocks to turn over, and in scraping away at what I find beneath them.

The two minute monologue enforces concision. It requires a description of the business, my expectations for it, and the main threats in at least four categories: competition, management, finances, and valuation.  So that’s twenty seconds per section, assuming the basic six sections.

Filling in the monologue as I research keeps my eye on the overall picture. If the company is shrinking dramatically, say its paying the price of  over-expansion, it’s past earnings and competitive position may not matter much to me. I’ll concentrate on the management, finances and valuation (relative to hard assets). Instead of filling a giant spreadsheet examining its ten year record across all categories, I’ll just do the sums I think necessary.

Then there’s finding the companies. Now my old workhorse Sharelockholmes has been joined by the even more versatile and rather beautiful Stockopedia in my armoury, I could get very clever with screening. Screeners like these let you turn over the whole market in a second.

But that’s not the way I’m going.  Despite the vast array of statistics available to investors in these programs they mostly help find companies that are cheap relative to fundamental factors, or that are doing well in terms of price performance, or that are highly profitable, or unindebted. Things that can measured using data in the accounts.

No matter how I tweak my screens, the same old companies come up. Either I’ve already added them to the Thrifty 30, or I’ve rejected them because of things that aren’t so easily measured (pension deficits, operating leases, broken business models, you know the list!)

Relentlessly perusing old lists is not efficient. It can be depressing and lead to a kind of myopic scraping at infertile ground in the hope that you will find a seed that might germinate.

Instead I’m throwing the net wide open, my only criteria being that a company has been listed six years and has been more profitable than unprofitable in that time.

I expect to find value in unexpected places which can’t be captured easily in numerical terms, in the company’s competitive position, it’s management or its culture. I also expect to find companies I’d like to invest in, but not at the current price.

Should the price of a company like Churchill China fall, and the business remain attractive, I’ll be ready. Should the uncertainty facing PV Crystalox Solar diminish, and the price remain attractive I’ll be ready too.

That seems efficient.

So, how am I doing? I took time off around Easter but in the two weeks since April 18 I’ve cranked out five two minute monologues.

Things are looking up