20 Questions for Richard Beddard of The Interactive Investor Blog
Richard Beddard is the editor of Interactive Investor, one of the UK’s leading financial websites, and the main contributor to its blog. He’s a keen private investor in smaller UK stocks and larger American ones.
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1. Are you a value investor?
My starting point isn’t value. I look for stocks I can pigeon hole: growth, income or recovery usually value always has the last word though. Knowing why I’m buying the company helps me decide how to evaluate it. For example, if I’m looking at an income share I focus on the dividend yield and cashflows . If I’m looking at a growth share I look at earnings growth, return on capital, and margins initially. If I’m looking at a recovery share the price needs to have tanked and management must have a credible plan. But it all comes down to price in the end, and how it relates to the other factors.
2. What is value investing?
It’s buying good companies on the cheap. The price is one side of the equation, what you get for it is the other side. I like my companies to have little debt or, better still net cash in the bank. Partly that’s about safety – a cash rich company is unlikely to go bankrupt tomorrow, and partly it’s about potential, because cash can be reinvested or returned to shareholders. A growing company needs cash to fund expansion. A recovering company needs cash to see it through difficult times. I don’t mind if a company I own takes on debt, but I like to get in there before it does. Other signs I look for are less tangible: straightforward accounts, companies that put substance ahead of style, insiders buying, reputation…
3. What is your approach to investing?
I’m a long-term bottom up investor. I don’t pretend to read the markets, but I buy the stocks I do for specific reasons which means they are often un-correlated. That protected me from the savage downturn between 2000 and 2003. I suppose you could say I’m a contrarian, though I don’t set out to do the opposite of everyone else. I just set out to do my own thing.
4. How do you evaluate a stock?
It doesn’t take me long at all. Maybe an hour or two. But finding the stocks to evaluate takes a lot longer than that. I follow all the US shares covered by the Value Line Investment Survey, and all the shares listed on the London Stock Exchange. I reckon that’s 4,000 odd companies, so you can imagine – I don’t have much time to spend on each. I don’t use screens to whittle down the number as I think they are too literal. If a company has one year of low growth in five, it’s not a growth share. That’s mad. I think the ‘fuzzy logic’ of the human brain is a better filter. But Value Line and similar UK services (I use Sharescope) allow you to page through data very quickly. It takes me about four hours a week for both markets and I get through all 4,000 shares in about three months. I do a lot on the train, commuting to and from work. When I’ve found a company I like, I check for recent key developments and then read some of its latest annual report. I check the financials because data from third parties can be wrong, or misleading, and I read what the executives say. I don’t spend more than a couple of hours on a single stock. If I can’t make up my mind, then I just move on. I’ll come back to the stock in three months time anyway.
5. Why do you buy a stock?
That depends on what sort of stock it is 🙂 Fundamentally I buy a stock because I can see potential in it, and the price seems low. I compare earnings to cashflow to make sure the profits have substance, and I use the conventional ratios (price to earnings, price to sales, price to cashflow, and dividend yield) and compare them with ratios for previous years and the market in general. But ratios are often useless for cyclical and recovery shares where, for example, earnings can be very low but the price relatively high in anticipation of the rebound. That’s why I tend to avoid cyclical shares, and exercise more judgement with recovery shares.
6. Why do you sell a stock?
Usually because I have to! Buy-out firms are very active in the UK and because they’re on the prowl for profitable, undervalued, cash-rich companies they tend to single my portfolio out for attention. It’s unwanted. I know some traders specialise in picking stocks likely to fall to private equity but I’m in for the long-term. Otherwise I sell when I want to buy another stock, which I think has demonstrably more potential. Hopefully that’s because the original company has increased in value, but it could be because I think I got it wrong.
7. What investment decision are you most proud of?
The ballsy recovery plays. I think, perhaps Inchcape. I bought it in 2000 for 52p (adjusted for splits), and it’s worth £5.35 today – a ten bagger! It’s pretty easy surviving a crash with one of those in your pocket.
8. What investment decision do you most regret?
I bought Dialog (which became Smartlogic) a week before I bought Inchcape. It delisted when my shareholding was worth pennies, a dot.com share in every sense. For some reason my broker couldn’t remove my phantom Smartlogic holding from my account. It remained there for years, haunting me.
9. Why do you blog?
Because I’ve got a story to tell. Being the editor of an Internet site I could write regular features – we have plenty of those. But I think blogging has more potential. I’ve got to know you because I blog, and lots of other people. I think life’s more interesting if you put yourself about a bit. You learn more when you blog. Although I’m lucky in that I’m paid to blog, I also have a personal blog – which gives me just as much satisfaction.
10. What’s your best post?
I think it’s the “The cheapest six shares on the market“. It’s an exclusive, it got loads of comments, and it’s about value investing!
11. What’s your worst post?
Right now, I’d have to say Win a copy of Ken Fisher’s “The Only Three Questions that Count” because I’ve got five copies of a great book to give away and nobody wants them. Perhaps the question was too difficult!
12. What financial publications do you read?
I really don’t. I used to read the Financial Times, The Economist, The New York Times and Fortune but I canceled the subscriptions when I decided to blog. I figured if I wasn’t using the Internet, what was the point of blogging? I’m glad actually, because I felt guilty about buying those newspapers and then only reading a portion of them. A colleague gives me the FT after he’s finished with it – but it’s full of holes left by the stories he’s cut out. I do read the newspapers online, sometimes.
13. What investing blogs do you read?
Here is a selection: A is for… The Adam Smith Institute, Alphaville, BBC’s Nick Robinson’s News Log, CXO Advisory, Gannon on Investing – I particularly liked this post, Google Earth, Stumbling and Mumbling, Value Investing News, Value Plays, and Wallstrip.
14. What’s the best investment book you’ve read?
I recently said Ken Fisher’s book “The Only Three Questions that Count” was the most stimulating investment book I’d ever read. I stand by that because it caused me to re-evaluate everything. But in doing this interview, I realise I owe an enormous debt to Peter Lynch, and “One Up on Wall Street”. Everything I said about debt and knowing what type of company you are investing in (cyclical, growth, recovery etc.) that’s straight from him.
15. What’s the last investment book you’ve read?
That would be “The Only Three Questions That Count“. In fact it’s so challenging (in the right kind of way) I’m still reading it. And I intend to read it again.
16. When did you start investing?
I started in 1995. I got an interest only mortgage and needed to find a way to pay off the capital. First I bought mutual funds, then I set up an investment club and finally I started buying shares on my own.
17. How have you improved as an investor?
I think I am more aware of my limitations. Although I believe the only way to progress is to innovate and try out new things, I do it iteratively now. Also I pay more attention to the past. One way to learn about a company is read its annual reports last time its price slumped (assuming it did).
18. How do you need to improve as an investor?
There are a hundred million ways I could improve as an investor. All I can do is keep on plugging away, evaluating what I do, and trying new things. Actually, that’s from Fisher – be more scientific.
19. Where are the bargains in today’s market?
It looks like larger companies to me and that’s where my US/international focus is. I’ll continue to focus on smaller UK companies too because there are always bargains there, though they might be slightly harder to find. Also I think we may be in for a period of supremacy for growth stocks, in which case I’ll be looking for the value in them :-).
20. What’s the most interesting company we haven’t heard of?
Well, that’s easy for me because most of the UK companies I own, I suspect you won’t have heard of. I think HMV is very interesting. It’s an iconic British entertainment retailer with lots of stores in Japan and Canada. Amazon, Apple and the supermarkets are eating into it’s CD, DVD and book sales. Digital media is threatening to make its products redundant. You’d have to be a be a contrarian with balls of steel to stick with HMV , but it’s still profitable, it has a new chief executive who launched a recovery plan a few days ago and it’s not very indebted. Either it’s facing extinction or it’s a classic recovery story. I need to re-evaluate HMV but, despite recent falls, I won’t be rushed or shaken out. I cycle through the market alphabetically by sector. Right now I’m on ‘Food Products’, ‘Specialty Retailers’ is at least month and a half away.
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