wrong forum?, page-6

Thanks Cam – as I suspected, we share more common ground on investment style than differences.

Like you, I feel very strongly that if a company has been around for a few years, it should be generating income for its shareholders with sufficient retained earnings to fund profitable growth (preferably organic). To my way of thinking, companies that do not pay reasonable dividends a decade or more from being founded look like Ponzi schemes, and those that regularly stick out their grubby mitts for capital funding are worse. I dislike dividend reinvestment plans for the same reason, but they are so common that I have to put that dislike aside.

My preference for organic growth is that it causes less indigestion than growth through acquisition, and the cost of organic growth is expensed, rather than capitalised, and hence in the immediate term the books are more conservative. This is an other-things-being-equal preference, so there is leeway to justify some acquisition, but a cogent case for this growth style should be articulated, and pass critical analysis.

My experience in investing in companies that one could call “aggregators” has been unsatisfactory. BOL (aggregator of crane companies), has been a disaster (and not the only one). QBE (aggregator of insurance companies), is worth less than what I paid for the shares years ago. There are a few other stocks of this ilk that I have bought in past years that range from awful to submediocre. My star performer, TGA, which meets my dividend-plus-self-funded-growth criterion (and other criteria), blotted its copybook in my view when it raised capital to acquire NCML, but like the Prodigal Son's father, I have overlooked that escapade, but not forgotten it. Cecil Rhodes, the son of an impecunious clergyman, made his fortune as an aggregator (of diamond claims), so there are exceptions, but as a rule I prefer organic growth of non-extractive companies in staid business that I understand, and which tend to be predictable.

The preferences in the above three paragraphs are not matters of debate – they are personal to me and like-minded individuals. There are well-known investors who have different views, and they are welcome to them.

Anyhow, in spite of a number of less than astute investments made when I jumped into the market in late 2007, my investment successes have eclipsed the failures, and apart from them being my only source of income as a self-funded retiree, I enjoy the intellectual challenge, so it is fun too.

On the fun side, about 10% of my portfolio are what I call punts – that is, I am mentally prepared to lose money, but my intuition tells me the upside is more likely than the downside. However, even these are punts on future cash-and-earnings-based dividend streams, not on SP movements per se. I bought 100,000 NWH at $1.344 and 150,000 BYL at $0.353 on the basis that I think they will do better than what brokers and Mr Market think. I have my reasons for thinking so, but they are too subjective to support numeric analysis within narrow bands of certainty.

There is no need to reply to this rambling post. It is written to stimulate thought in the minds of other HC readers, rather than being directed to you specifically.