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Robert Cole

Robert Cole is editor of the Tempus investment column in The Times newspaper. The column analyses UK companies and their share prices, and addresses investment themes relevant to industrial sectors and overseas stock markets.

Robert contributes to a variety of other financial media, including the web site www.equityeducation.com, and also lectures in financial journalism at The City University on a part time basis.

Books

Getting Started in Unit and Investment Trusts, John Wiley, 1997

The Tempus ten golden rules

1. Hail the herd.

Share prices rise when there are more buyers than sellers. They fall when sellers outnumber buyers. The consensus view is not always right but the actions of many usually tell a stronger story than an individual view. However, the best investment profits go to those who anticipate change and that means investors often need to swim against the tide.

2. Valuation, valuation, valuation.

If the three important things about retailing are location, location and location, the three important things about equity investment are valuation, valuation and valuation.

Value a share price in at least three ways: by reference to the underlying assets, the company’s profitability, and the dividend income. In addition, there should be a close relationship between the price of a share and the total value of its future earnings, discounted to allow for the fact that money promised is worth less than money possessed. So undertake discounted cash flow calculations.

Do not confuse the strength of a company with value of a share. Shares in good companies are not always worth buying. It all depends on price.

3. The sentimental journey.

Share prices do move for reasons other than those dictated by the laws of fundamental valuation. Swings in investors’ perceptions of value, or sentiment, can be as powerful as any fundamental strength. Share prices can also move because money chases particular stocks for technical reasons. Many large investors choose to structure their share portfolios to mirror the membership of a stock market index, such as the FTSE 100. Changes to the membership list of indices can influence share prices as investors buy or sell in volume.

4. On time.

Stock market history suggest that the reliable returns are generated by long term investors - those who invest for five years or more. However, the performance benchmarks that underpin faith in the reliability of rising share prices measure, largely, success stories. Failures can harm individual portfolios in a way which is minimised by the stock market indices. Remember also that the long term is made up from a series of short terms joined together. Get short term decisions right and the long term performance will be enhanced.

5. Hedge your bets.

Never underestimate investment risk and do everything you can to reduce it. Diversify across the investment four asset classes: cash, property, bonds and shares. And then diversify within each asset class. Diversify geographically and, with shares, bonds and property, between industrial sectors. Also diversify across time. Drip feed money into equities and equity-based savings plans and stage phased withdrawals. That way you reduce the chance of falling victim to the inherent volatilities of stock markets.

6. Costs equal losses.

The costs of investment - such as share dealing fees and professional management charges - can be a serious drag. But be prepared to pay for services that enhance performance. Money spent on good information is rarely wasted because good investors are informed investors.

7. Tip top tips.

Read newspapers and stockbrokers’ research for the information first, and investment recommendations second. Journalists and analysts’ key skill is information gathering and this is where they add most value. Treat tips for what they are: advice, not instructions. The position of tipsters does not guarantee the wisdom of their views and ask what axes they have to grind. Are stockbrokers independent? If tipsters are so good why are they trying to make a living telling others their secrets, rather than investing themselves? Make up your own mind and take responsibility for your decisions - better decisions lie that way.

8. Keep a distance.

Do not be too proud to recognise mistakes and learn from experience. Refrain from personalising your relationship with equities. Shares do not reciprocate affection so there is no need to invest loyalty as well as cash.

9. A taxing thought.

No tax break in the world is worth anything if the underlying investment is bum. And if an investment needs a tax incentive, does it mean it cannot justify itself on its own?

10. Rules are rubbish.

The stock market does not adhere to immutable laws of behaviour. Good rules may be contradicted by other good rules in a way which is perfectly consistent in the context of the wider picture. Investors need to be flexible in the analysis of opportunity.

‘New tech is always superseded by newer tech. Product cycles continue to shorten, and competition will remain excruciating. As in the past, today’s new tech gizmos will become tomorrow’s profitless commodities.’

Gary Shilling