Investment Philosophy Investments
  Director's Investment Philosophy  



Q1 : How did you become an investor? 
Ans: I was first exposed to equities aged 11, when my father used to discuss specific opportunities that were reported in the financial press. One lasting memory occurred when an stock performed particularly well, and as a result we were able to buy our first music system.

However it was only after joining Unilever plc in 1990, that I had sufficient funds to begin investing seriously. In 2003, after 13 years of working in finance for large corporates, I finally took the plunge and decided to setup my own company PMH Capital in order to concentrate full time on investment and business consultancy.

Q2 : How would you describe your investment strategy? What lessons have you learnt along the way?
Ans: I don’t have many hard and fast rules per se, but instead try to be flexible and open-minded with regard to new opportunities. However two conditions by which I try to religiously abide, is only investing in equities where I feel:
· the share price is more than 30% below its fair value, which builds in a healthy margin of safety
· with an 80% level of certainty, that the stock will appreciate in value from current levels
Discipline is key.

Although the strategy is neither rocket science nor bomb-proof, the absolute size of my portfolio between January 2000 and 20th March 2006 increased in absolute terms by 547%. In comparison over the same period, the FTSE100 fell by approx 9%. So in broad terms the approach has worked—although of course, please be aware that the past is no guide to future performance.

One important lesson that I’ve learnt is to consciously dampen-down my initial enthusiasm on identifying an opportunity, so that all major downside risks can be properly considered. Consequently when I decide to invest, I always conduct detailed due diligence, review the competitors, read the trade press and speak to management to assess their credentials & confirm/reject my thoughts.

Q3 : What would you say differentiates you from other investors?   And how do you come across a winning idea?  
Ans: My philosophy is based on common sense and sound financial principles. What differentiates successful investors from the herd is purely results. I define investment success as “long term capital growth both in terms of positive absolute returns, and outperformance verses the benchmark indices for a chosen level of risk”. 

I’m a “GARP” investor with a keen eye for value – or rather “Growth at Value Prices (GAPV). I find that combining growth with value is more attractive than simply choosing value, since with value investing there is generally a maximum ceiling on the share price. GAPV offers greater upside coupled with an asset backed floor to the price.

Importantly now that my family’s standard of living hinges on PMH Capital’s success, I have a very strong incentive to choose investments carefully. Indeed I spend a great deal of time investigating markets, trends and companies, and particularly focus on those which are off the beaten track for most research houses. Indeed an excellent indicator of a possible winning idea, is how difficult it is to obtain background information on an industry. The more arduous the research, the potentially larger the price-value gap and the more lucrative the possible returns.

Q4 : What are the best investments you’ve recently made?
Ans: Over the past 2 years I’ve invested and exited stakes in the online gaming and machine-to-machine communications industries, which have generated substantial returns. See examples of investments.

And your worst?
Back in early 2003 I bought Trafficmaster plc shares at an average price of 14p, and then disposed of the entire stake at 25p following negative press comments from the CEO. Although no one should be too disappointed at realising a profit, I exited far too early, only to see the shares race up to over 100p, nine months later!

Q5 : Which areas/sectors most interest you now, and over the next 12 months (Date March 2007)?
Ans: In my view this is a stock-pickers market, with most of the key benchmark indices being fairly valued and trading on p/e multiples in line with accommodative interest rates and a benign inflationary environment. Indeed its been amazing how the markets have shrugged off strong headwinds such as higher oil and commodity prices, terrorist attacks, a war in Iraq, together with natural disasters. Consequently I’m neutral on equities as a whole, since valuations are reasonable, but aware that with further monetary tightening (Re US interest rates) possible, corporate profits, consumer sentiment and the housing market could all be negatively impacted in 2007/8.

As such it’s proving increasingly difficult to find new investment opportunities where at least a 30%+ margin of safety exists, but I do see excellent smallcap opportunities on AIM. AIM was a laggard in 2005/6, due largely to a plethora of new IPOs and fund raisings, which over-supplied the market with available stock and thus depressed prices. Again stock selection, discipline and patience is paramount.

Recently there's been another rebound in equities, and indeed the Shanghai stock exchange is now back to levels prior to its one-day fall of 9% at the start of March 2007. However I suspect this is more a dead-cat bounce rather than a sustained recovery. If my suspicions are correct and this is just the "lull before the storm", then those stocks with downside resilience - say as a result of high recurring revenues or strong market positions - should outperform.

Q6 : What do you think are the keys to investment success, and the most common mistakes that private investors make?
Ans: Although a cliché, the key to investment success is detailed research, monitoring ongoing performance and selling if either the shares become unrealistically over-valued or your logic behind the original purchase proves incorrect. 

In my view most mistakes made by private investors occur due to a lack of thorough research and/or a poor understanding of valuation. Consequently many private individuals either don’t invest in equities or pay expensive fees to fund managers to manage their portfolios.

Q7 : What are the objectives for the MoneyWeek newsletter?
Ans: In my book, there is no silver bullet for investment success. Out-performance is linked directly to how much focused research is undertaken coupled with ongoing monitoring of the selected positions. Typically I will spend several days, and sometimes weeks, analysing each of my preferred targets before investing. The objective of this newsletter is to allow the readers of MoneyWeek access to my proprietary research and highlight 1 or 2 potential stock picks each month.

Date last updated : March 2007