On Having A Variant Perception

What a great term, ‘variant perception’. It sounds both straightforward and intelligent. The meaning is also both simple and profound. How does what I think differ from what everyone else is thinking?

Well, if you take a moment to consider it, you’re really not going to do particularly differently to the average if you lack a variant perception. Equally, it’s worth considering that the ‘crowd’ could very well be correct in their thinking, and by seeking to be contrarian too often, you may end up fighting against the tide.

What this whole Value Investing business boils down to is the attempt to find better-than average businesses at lower-than-average prices. Ideally you’ll find a superstar business at a price usually reserved for basket cases, but that may be a wish too far for most of your lifetime (incidentally these wishes were coming true for brave investors back in March 2009).

Well, having tried both the global macro approach to investing, and the value investing approach, it just seems to me far, far easier to have a useful insight and a ‘variant perception’ in the field of relatively simple-to-understand businesses (micro-economics) than in the field of enormously complex and difficult-to-understand global economies (macro-economics). Not to say that the latter is impossible, I just personally find it much, much harder most of the time.

Being a fairly simple soul, and thinking that results gained from less effort are superior to those gained via more effort, the value approach seems preferable to me over the alternatives. This is especially true with small sums of money to invest, however I can see how things would change as the pool of capital under management gets large enough to limit your investable options in the equity space.

Back to ideas and performance, as it’s the end of the year. Some mixed luck came my way on the 11th of December. HMS, spiked up in price on news of an all-cash bid taking place. The price went from 125p to 215p in the course of the morning, and has been gradually ticking up towards the 233p takeover price ever since. This sort of luck is something that I’m very happy to receive every once in a while, although it is somewhat mixed as the company would be worth far more if it could secure reasonable funding from the banks. In the absence of available credit, it makes sense for them to sell out to a well-financed entity, but the deal was struck at a lower price to the acquirer than I think the enterprise was worth.

Anyway, that provided a nice boost to the portfolio to end the year up 24.1% versus 27.6% for the FTSE 100 index with dividends reinvested. Since inception the portfolio is now up 80.3% versus 31.8% for the FTSE and 1.9% for the S+P. Over the past 3 years the portfolio is now up 52.7% against returns of -1.0% for the FTSE and -16.0% for the S+P, also with dividends reinvested. Long may the outperformance continue!

In terms of current ideas, I’m looking at a US stock that builds GPS units, called Garmin, Interior Services Group and Lo-q in the UK, as well as Velosi and a fair few others. I’ve also been screening for new ideas via the Company REFS service and via the Bloomberg system, which has produced a cacophony of stocks to research in more detail. I’ve been meeting a few hedge fund managers to hear how they invest and talk about my ideas with, as well as some potential investors.

Well, a new decade is here and it’s time to look ahead. Significant uncertainty is all around, but this is always true no matter what the talking heads or wisdom of crowds tells you. I’m very pleased to have kept a record of the past year as it could well prove to be one of the most instructive (and possibly constructive) 12 month periods in my life. Whatever happens next, I’m guessing my role will be far more in-line with my ideals than in the past, which is a pretty nice thing to be able to say about your outlook, even if it’s not a particularly variant perception.