I picked up the book "How to Pick Quality Shares" by Phil Oakley. I'm only part-way reading through it. I thought I'd share some observations. The idea behind the book is, of course, to buy quality shares at reasonable prices. Two quality shares I do own are Diploma (LON:DPLM) and £ULVR. The ROCE on Diploma (LON:DPLM) has fallen back lately, so maybe it's worthwhile checking my assumptions.
I am using figures from Stockopedia, rather than doing my own calculations or performing a more thorough analysis. I must admit, I do like the idea of buy-and-hold quality shares, but it's not a strategy that I seem to stick to. There is something satisfyingly lazy about the whole process. I am quite a fan of the FT250, as it restricts my search, and the index seems to do well. I think the FT100 contains too many puffed-out companies. I once asked the question about if you had a buy a share for a 10-year timeframe, what would you choose. I got back suggestions like £VOD. But Vodafone (LON:VOD) has a ROCE of about 3%, which I view as "pretty manky". It lost 47.4% of its share value over 5 years. Oof. Bad luck could be part of it, but when the ROCE is that low, it figures that the company cannot really generate adequate returns. Manky share returns over a 5-year performance are fairly predictable. The stock market is a funny old game, though, so you can't always tell.
I picked 5 putatively quality shares: Cranswick (LON:CWK), Domino's Pizza (LON:DOM), Diploma (LON:DPLM), Howden Joinery (LON:HWDN), Unilever (LON:ULVR) off the bat. Domino's Pizza (LON:DOM) is used as a case study in the book.
With the benefit of hindsight, how did they perform over 5 years. Here are the results: Cranswick (LON:CWK) +0.5%, Domino's Pizza (LON:DOM) -14.4%, Diploma (LON:DPLM) +118.4%, Howden Joinery (LON:HWDN) +30.9%, Unilever (LON:ULVR) -13.4%. That's an average of +24.4%. Compare that to FT100 -1.8%, FT250 -5.1%.
What do we learn from that? Well, maybe not that much. Two underperformed, three outperformed. A lot may have to do with changes in valuations, and perhaps short-term influence. Paying crazy high prices maybe tilts the odds against you. There's no guarantee of success whatever you do. My choice…
