Not only did Mr Fisher have a brilliant talent, but he talked a lot of sense and no more so when asked to single out the most important lesson he had learnt from his career as an investor. The response is worth repeating: "It is just appalling the nerve strain people put themselves under trying to buy something today and sell it tomorrow. It's a small-win proposition. If you are a truly long-range investor, of which I am practically a vanishing breed, the profits are so tremendously greater."
That rings a cord with my own investment style, which is to run my profits for as long as possible until it becomes obvious that the rationale for making the investment in the first place no longer holds. It also rings true with the timescale I am working to for the majority of my share recommendations. Let's be clear on one thing: I have never once suggested that anyone trades my share recommendations for short-term gain. This seems to have been lost on some readers who think by simply buying shares in the companies I am writing about as soon as the articles are published, without doing any research of their own, is a sure-fire way to riches. Even worse, some are buying in at any price, which is utter madness.
What I do suggest is that when a company looks anomalously valued and its shares are trading below intrinsic value, then there is potential for the valuation anomaly to be arbitraged away over time by other like-minded value investors like myself. This process may take weeks or months, but I have never advised buying shares in any company on the basis the apparent anomaly will correct itself in a matter of a few days, let alone a matter of hours, as some readers clearly hope.
True, there is little I can do if market makers raise their quotes if they are deluged by buy orders following one of my articles. It is only rational behaviour on their part as it is a way of maximising their profit on the stock they are holding on their books. I would expect as much from them. But it is down to each individual investor to make the decision what price they are prepared to pay for a share that adequately reflects the risk-rewards on offer at the time and, importantly, decide what is a sensible timescale for those rewards to be reaped. In the case of the recommendation I gave on solar wafer maker PV Crystalox Solar (PVCS) ('Seeing the light', 21 Jan 2013), I believed that the offer price in the market of 12.14p at 12pm on Monday 21 January was one that offered enough upside to my target price of 16p - on the basis of a likely cash return in the second quarter this year - with limited downside risk. That's because the share price was trading below the liquidation value estimate of 13p a share, calculated by analysts at Peel Hunt, which I believe to be conservative.
It's worth noting that after the initial buying pressure abates as patient and value-oriented investors wait on the sidelines for the price to come back to them, more often than not there will be another opportunity to buy in at a price closer to my advised level and where the potential future returns on your capital are far more attractive. Admittedly, that requires discipline and strength of mind to resist chasing a price. But on the basis that the investment case is not going to change overnight, it clearly pays to show a degree of patience to try and attempt to buy in at the best price possible. If that means placing a share on a watch list then so be it. The worst thing you can do is buy in at too high a price where the risk-reward ratio is unfavourable. As Warren Buffett once said: "You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing." Now that's something worth remembering.
Finally, I will be taking a four-week break during April to complete a book on 'Profitable stock-picking', my follow up to Trading Secrets: 20 Hard and Fast Rules to Help You Beat the Stock Market. The book will be published in early summer.
MORE FROM SIMON THOMPSON ONLINE...
In the past few weeks I have written a number of online exclusive articles, all of which are available on my homepage. These include articles on the following companies or investment strategies:
Communisis, Netcall (Bumper trading gains, 23 January 2013)
Crystal Amber, API, Sutton Harbour (More upside to come, 22 January 2013)
PV Crystalox Solar(Seeing the light, 21 January 2013)
Bloomsbury Publishing (A publisher for the digital age, 18 January 2013)
Housebuilders first-quarter effect and performance table on all my recommendations from the final quarter of 2012 (Stock-picking Marvels, 16 January 2013)
Eros (A share firmly in the picture, 15 January 2013)
Netcall (Jumping the gun: take two, 15 January 2013)
Moss Bros, Communisis (Jumping the gun, 14 January 2013)
Stanley Gibbons, MJ Gleeson, Spark Ventures (Small cap wonders, 11 January 2013)
IQE, Trading Emissions ('A tech share worth buying now', 10 Jan 2013)
S&P 500 portfolio of dog shares (Dog shares barking back, 8 January 2013)
Air Partner (A share ready to take off, 7 January 2012)
FTSE 100 traded options strategy (Highly profitable options, 3 January 2012)
Telford Homes, MJ Gleeson, Molins, Noble Investments (Rampant bargain shares, 31 December 2012)
