Dart (LON:DTG) has, as I mentioned in my portfolio review last week, seen a rather strong rise in the time it's been sitting in my portfolio. I bought at about 90p back in July 2011, and after a (not at all worrying) 40% drop in value in the first half year of holding, it's now seen an relentless surge and sits at about £2.50 a share. Before I get into talking about Dart's position now, I just want to note that the story above illustrates quite nicely a principle I was talking about in the comment section of that post:
I am a little stubborn as an investor. I don’t buy into the stoploss mentality. I think buying shares because you think the market is irrational and misprices securities is a perfectly reasonable thought process – but then saying that you’ll sell if it falls below some arbitrary, predetermined value is a little suspect. I stick to my guns almost relentlessly unless either I realise I was wrong in the first place or something significant changes.
Being a long-term, fundamentals based investor is sometimes at odds with much of what is apparently market mentality, and is even more often at odds with what seems like common sense or ingrained behaviour. I don't want to take the intellectually seductive line in painting 'value investors' (a phrase which, as I've learnt, hasn't a great deal of meaning) as stoic, noble stalwarts against the foolishness of the market, but when investing you always have to ask yourself what edge you have over the market - what it is which makes you better. It's not a question about deserving a better return as such, but if you're investing in the hope of doing better than the fund managers and their fees, you have to understand what you're bringing to the table which means you can earn a better return. Looking at smaller shares is a good start, in terms of both taking on additional risk (a reason congruent with EMH) and in terms of allowing more potential for pricing error (a reason at odds with EMH). Even better is having the conviction to ride out big falls in the knowledge that it is exactly your perception of a mispricing that caused you to buy in the first place.…
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