In property investment the accepted mantra is “location, location, location”. For stock market investment, I suggest it should be “patience, patience, patience”. Two recent examples in my portfolio confirm this hypothesis — Fenner and UDG Healthcare.
I first bought Fenner, which makes conveyor belts and polymer materials, at 60p in late 2008 at the nadir of the banking crisis, adding more in early 2009.
Like so many excellent companies I judged it to be ridiculously undervalued, since any economic recovery would see it significantly bounce back. This duly came to pass; I sold half my shares in late 2009 at 185p and my final tranche in 2014 at 354p.
If I had been patient, though, the recent takeover at 610p would have been “a 10-bagger” in 10 years. A lesson learnt.
I first bought UDG Healthcare, or United Drug as it then was, in December 1994, subsequently taking up a rights issue. It was then just a small Irish pharmaceutical wholesaler, which looked interesting and hopefully would benefit from improving Irish healthcare.
Thankfully, its managers had much wider ambitions. They made a number of strategic acquisitions over the years to develop a broader international portfolio of healthcare businesses. As the shares steadily climbed on profits growth and upward re-rating, I sold some in 2010. I finally bade farewell at the end of May at 895p to fulfil looming commitments made as “The Bank of Mum and Dad”.
UDG has been an outstanding long-term hold. My equivalent 1994 cost price was 56p, thus 16-fold increase over 24 years. This was very pleasing — despite heading straight into a stinging capital gains tax liability.
Getting private investors to be patient and stay aboard, letting profits run, is not easy. In many ways, technological developments that give instant access to price movements create an understandable temptation to deal and take short-term profits.
But investors should ask themselves: “Is that which I am considering re-investing in clearly and demonstrably likely to be a significantly better performer than my existing holding?”
Of course, situations develop that are more complex and not always clear cut. Two recent examples for me in this category have been Air Partner and PZ Cussons. With the former, the shock announcement of accounting irregularities over many years saw the shares virtually halve to between 70p and 80p.
I kept my nerve, had faith that AP could withstand the likely financial write-off and recover over time. Thankfully, this transpired with the shares recovering to 110p — indeed I have just bought more. Further encouragement has come from Peter Saunders, chairman, who just doubled his holding, buying a further 25,000 at that price.
PZ Cussons has proved a much more agonising situation. I have huge admiration for its long-term growth, from very modest beginnings in the 19th century as an overseas trader of textiles and basic commodities from UK to Nigeria, to the current personal hygiene and household products manufacturer with major businesses in the UK, Indonesia, Nigeria and Australia. Indeed, I was a non-executive board member for 10 years.
For our family, PZ Cussons represents a serious holding and even after the recent fall in price still shows very considerable appreciation. I have never doubted the value of its major manufacturing brands and distribution networks in Nigeria and more recently in Indonesia. With a population of 196m, Nigeria has three times the combined population of Canada, Australia and New Zealand. So the long-term consumer opportunities in this vast market are clear.
However, in recent years profits and share price performance have been disappointing — years of attractive annual dividend increases have dwindled to near zero as the group wrestled with Nigeria’s well-publicised problems and margin and consumer pressures in the UK.
Although the shares now yield a safe and historically high 3.6 per cent, it is difficult to see an early improvement in fortunes. Thus while retaining my main holding, I decided to part with my smaller Isa unit. I have chosen to reinvest in the aforementioned Air Partner, as well as Charles Taylor in insurance services and Tarsus in events and exhibitions.
John Lee is an active private investor and author of ‘How to Make a Million — Slowly’. He is a shareholder in all the companies indicated.
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