As explained in the two minute monologue, defence technology company Cohort is cheap, profitable, and financially strong. Concerns about levels of defence spending may be preoccupying investors, and accounting errors in 2009 may have unnerved them, but bad news is often the signature of a good value investment, if it’s temporary.

I added Cohort to the Thrifty 30 yesterday morning at 124.5p, the actual price quoted by a broker, and also deducted sums replicating dealing fees and stamp duty.

Hopefully this is the end of my investor’s block, or summer doldrums, a period in which I’ve been unable to find new opportunities. The addition of Cohort, the Thrifty 30′s first defence company, is a step towards diversifying the portfolio and taking it closer to 30 companies (today there are 23). Although that’s more an aspiration than a target, I like to have my finger in lots of pies. One day I’ll write a defence of diversification, Nate Tobik already has.

It’s often said that a formidably large proportion of investment return is determined by asset allocation, being in the right sector, or instrument (bonds versus property versus shares for example), but this trade shows how asset allocation works for bottom-up investors. Commentators sometimes infer that stockpicking doesn’t matter, as long as you get the big decisions right. I think stockpicking can be the method of getting the big decisions right.

The defence sector was not attractively priced in 2009 when I loaded up on companies supplying car manufacturers, so until today the Thrifty 30 had none. There are certainly sound top-down reasons for that, the early stages of the credit crunch affected the private sector and companies dependent on government spending continued to thrive for a while, but the economic scenarios were not uppermost in my mind.

Now the public sector is in recession other defence companies are on my research list because they may be undervalued. MS International is next, now that I have finally received its annual report. The company does not have an investor relations website or publish its annual report online, and after four calls to head office, the postman finally delivered today.

The portfolio is slowly shifting out of motor vehicles (sometimes forced) and into defence, guided more by valuations than industry projections of new car registrations and defence budgets, though I like to know these things too.

This post, my first separately reported ‘trade’ marks another change to the investment process I started to develop at the beginning of the year. There are now three distinct stages:

1. Screen the market for likely candidates (see the Human Screen)
2. Research (see Two Minute Monologues)
3. Trade

The stages themselves are utterly unremarkable, though I hope my methods are noteworthy. More important is the separation of them. The first two stages, the output of the Human Screen, and the Two Minute Monologues, I write in the third person because it helps me be objective. I use words like ‘may’ and ‘might’ so I don’t box myself into defending positions I once held because I don’t want to admit I was wrong. The emphasis is on objectivity and detachment. It’s an intellectual exercise, and I try not to make my mind up about a company until I’ve finished (in practice that’s very hard, but it helps calculating the valuation last).

The third stage, this one, is written in the first person because the decision to invest is a personal one and the weight we give to the various factors, valuation, competitiveness, management, finances, sensitivity to factors outside a company’s control, is necessarily subjective.

By chronicling the whole process from idea to action you get to follow and participate. I get a record I can refer to later and hopefully some second opinions.

• About the Thrifty 30
• Two minute monologues explained
• Cohort annual reports
• Cohort worksheet
• Previous blogs about Cohort