This week I draw to your attention two different but related investment themes. The first concerns a US fund manager, Allan Mecham, who takes a long term view and ignores the conventional tools used by most of the fund management industry. An article about his approach can be accessed by clicking here. I particularly liked the Rule-Breaker's Rules, namely:
- Ignore the economy. Where is the economy going next quarter? Where is the S&P headed? Mecham says he ignores those issues; instead, he looks for stable, defensive businesses that can thrive whenever bad times come.
- Don't diversify. Most mutual funds own dozens or even hundreds of stocks (regulations usually require them to own at least 15). But to outperform with a big portfolio, a manager has to outsmart the market simultaneously on a raft of securities. Smaller funds and private-investment funds, which are not under the same requirements, can rely on just six or eight stocks.
- Don't sweat the spreadsheets. Many Wall Street analysts build elaborate financial analyses to calculate a company's earnings growth and other patterns. But some say it's more productive to use that time trying to understand a company and its industry -- the management, the competition, the customers and so on.
- Think decades, not quarters. Shareholders and managers tend to focus on companies' announcements of quarterly or annual earnings, and whether they beat or miss analysts' estimates. But some managers -- including one Warren Buffett -- say it's more useful to try to figure out where a company will be in a decade or more.
- Don't just do something. Stand there! One of the toughest things for investors to do is to sit still and do nothing -- especially when nervous clients demand that they respond to short-term fluctuations in the market. But most of the time, say a few contrarians, inactivity is the right longer-term move. It's about "keeping emotions from corroding the decision process," says Mecham.
The second theme concerns UK manufacturing. Last week I referred to Sir Philip Green and this week saw Sir Anthony Bamford submitting a report to 10 Downing Street on the need for the UK to boost its manufacturing base. With the growing number of luminaries advocating this strategy, I am optimistic that the government will seek both to attract investors to invest more in manufacturing and also to make the development of such companies easier.
Two companies reporting…
