My Basic Investment Rules

Vernon Coleman

Here are my basic rules for investing:

a) Preservation is now my first rule. I look for asset cover. Is the NAV per share near or above the price of the share? I am conscious that for every £1 I invest I had to earn £2 before tax. I like being able to buy shares in a company for less than asset value.
b) I want a decent history of dividends and good dividend cover (in other words the company can comfortably pay the dividend out of its earnings).
c) I donít want a p/e over 16.
d) I look at charts to make sure I am not buying at a high price Ė especially for a volatile share such as a mining company.
e) I am a natural contrarian and eschew anything fashionable.
f) I avoid companies which are heavily promoted (the price will probably be too high).
g) I need to know what the company does, so I can understand it and see the political risks.
h) I tend to take a position and then build on it.
i) I try to trade as little as possible. Some of the investments in my portfolio have been there for years. As long as they behave and do what theyíre supposed to do I am happy to leave them there. Boring is wonderful in the world of investing.
j) When studying annual reports or financial prospectuses I try to remember that the most important information will invariably be tucked away in the appendices so that as few people as possible will see it but so that in times of trouble the directors can point to it and say that it was there all the time.
k) I never put money in companies which blame the weather for their bad performance.
l) I think itís crucial to take a macroeconomic view Ė and to consider geopolitics. So, for example, the effect that Brexit is going to have on British companies is clearly crucial. (My guess is that shares will soar when the mess is finally sorted.)
m) Investing for value rather than growth has always made more sense to me.
n) I tend to invest in categories. So for example I think commercial property in the UK is cheap and likely to remain cheap until Brexit is sorted out. Young analysts and investment managers seem to think that Britain is finished and that there will be no need for offices or shops or warehouses in the future. Maybe. But even internet companies need storage space.
o) I never buy anything I donít understand. I never understood what Enron did so I didnít invest in it. I cannot see how Tesla can possibly be considered a good investment.
p) I like companies which have a unique product or position in the market.
q) I donít take any notice of company forecasts or predictions. Financial forecasts (by companies or analysts) tend to be as good as weather forecasts.
r) I try to hold investments for long periods for this reduces dealing costs and tax liabilities. But if a share price rises too high then I will often sell half of my holding. If a share price doubles and I sell half then Iíve got the remaining holding for nothing.
s) If Iíve made a mistake then I tend to sell quickly. On the whole I tend to hold winners and sell losers. (It is, of course, common to do the opposite.)
t) I like companies which do things I understand. So, Shell gets oil out of the ground and sells it. That I can understand. RTZ digs metals out of the ground and sells them. Big property companies own buildings and rent them out.
u) I wonít invest in companies which do crooked or evil things. I wonít invest in drug companies, in companies such as Facebook or Google, in Monsanto (which is now owned by a drug company, of course), in Volkswagen, in Vodafone or in anything handled by Goldman Sachs.

Those are some of my general investment rules.

Copyright Vernon Coleman March 2019

Taken from Tickety Tonk Ė Vernon Colemanís seventh (and final) diary. This book is available as an eBook and a paperback. Vernon Colemanís book on investing is called `Moneypowerí and is available as an eBook and a paperback on Amazon.