When investors think about the competitive advantages, assets or capabilities businesses have that will enable them to profit handsomely from their activities, they often think of things such as patents, unique products and services or popular brands. But while these can make companies special, so can people.
In October last year, I noted that PZ Cussons was at a crunch point. The company owns illustrious consumer brands such as Imperial Leather soap, but revenue and profit had declined significantly over the previous five years. PZ Cussons had halted its acquisitive strategy and started selling its less profitable businesses, some of them acquired only recently.
A sudden re-rating of shares in Judges Scientific means Christmas came early for the Share Sleuth portfolio, but also left me with a thorny problem.
I have investigated three companies this month. As usual, this comes down to weighing up the quality of the businesses against their market values. None of these firms comes up short on quality, but in terms of value it is a different story.
For more than 10 years, growth in sales of disinfectant wipes, foams and sprays has confirmed the superiority of Tristel’s chlorine-dioxide chemistry for manually cleaning simple instruments in hospitals.
This month Share Sleuth is spoilt for potential trades. Victrex, one of the most highly rated shares in Share Watch, is under-represented at 2.5% of the portfolio’s total value, whereas the share price of Judges Scientific has risen so much that the portfolio’s holding has grown to 8.5% of its total value, so it is over-represented.
Over the long term, companies investing for future growth should earn higher returns than firms returning most of their profit to shareholders. Thinking 10 years ahead as usual, I prefer innovative Renishaw and Goodwin to conservative Colefax.
I recently ejected Colefax from the Share Sleuth portfolio (see previous page). Though the company believes it can grow, it has not grown convincingly for a long time. Revenue and profit remain stubbornly around their pre-financial crisis highs over 10 years ago.
This month, I have liquidated the Share Sleuth portfolio’s small holding of 434 shares in Colefax, raising £1,747 after a £10 deduction in lieu of broker fees. The share price, quoted by a broker, was 405p.
For me, investing is a continuous learning process. That is the joy of it. The world of business and finance is as complex as we choose to make it, but we don’t have to be particularly clever to succeed. In my experience, we need to be thoughtful, honest with ourselves, and always remember there’s more to life even than money.