UK Value Investor

Electronic Data Processing is a company I bought recently. I've since found out that they bought back half the shares for 6 million pounds just after the most recent financial report. The web sites that I use to filter stocks have the new number of shares (12.5 million, down from about 25 million) but have the cash balance as at the last statement, £8 million, rather than the actual amount post-buyback of around £2 million. So the NTAV isn't 13.5 million, it's 7.5 million, so the market cap of 5.8 million isn't below half NTAV, it's about 80%... there's a lesson in there. READ the last few reports rather than just the latest one!

Over the past 6 months I've worked on my approach to finding good investments and I think I'm quite happy for now. I started out just looking at price to book, which often gave me companies with lots of debt, i.e. Ennstone, which then fall over at the first sign of trouble. Then I looked at liquidation value and cash flow, to protect against such a failure. However, I've now simplified it so that I pretty much just look at liquidity (current and quick ratios) and debt to equity ratios. Once the companies are filtered by those criteria I just buy whatever is cheapest to book, with half book being the most I'll pay.  The ratios I use aren't set in stone, but they are ball parks to get me started and the amounts come from various texts as 'reasonable' amounts.

The owner of Barratts shoes I think. I had a quick look at their valuation as at Feb 08. They had negative liquidation values (using net net or 80/50). Their cash flows had been about -8p per share over the last few years. Not sure how that gave a share price of about 60p in the good times.

I think it can be difficult to learn anything without actually living it. So handily Ennstone, my first purchase of a value stock using not much more than price to book, has fallen over into the abyss. This is good for a number of reasons, although of course not so good for the staff.

The collapse of Ennstone has helped me re-think my approach to value investing and most importantly helped me to clarify to myself what it means to me to invest at all.

Alba sold off their brand name to Argos for 30p a share, which is more or less what I bought them for. Alba had almost zero intangible assets so I'm not expecting the book value to have changed after this sale, so I still haven't sold the company. However perhaps I should have since it reached about 55p soon after the 30p dividend was announced and stayed there-abouts until after the ex-divvy date. This dividend gives me some fresh capital for allocation and French Connection is looking interesting.