I was so bullish when the FT index had fallen
to 250 that I should, if anyone had been mug enough to have given me the credit, geared up to, saY, three to one and bought across the board. This would have wiped out at least half my investment now that the index is down below 210. Though sadly chastened, I am cautiously buoyant on a longer view.
However, it seems that the best investment advice, getting away from ridiculous notions like Kruger Rands, food hidden away in the woods, and so on, must still take account of the special situation. Smaller companies have not fallen, providing they are solvent and trading well, anywhere near to those levels of the leaders that constitute the index. This is of `course due to marketability, and the difficulty of getting in or out in volume, as much as to the strength of the stock.
For the moment I am in the process of constructing a portfolio made up of companies capitalised at less than £5 million with the criteria that they should be family controlled or strongly influenced by the founder. They should be liquid and have followed a policy of profit retention and harsh writedowns, as such businesses so often do. They will not have watered their stock through acquisition. Better still the founder or moving spirit will be approaching retirement age and have little dynastic urge — or possibly only daughters. A share such as this will be lowpriced since it is takeover-proof by definition. It will yield poorly due to profit retention policies. However, the company will have, it would be hoped, a market position, unique product or brand name. At some time the principal owner will seek a take-over not at current prices but at a price that reflects the worth of the business and probably for cash for his retirement.
If you dare risk your cash I have such a share in mind. The companY is Stewart Plastics of Croydon. They own some valuable land that they got from the Croydon Corporation after the war. The balance sheet is fairly strong and they have been very profitable. At the moment they are capitalised at only just over £1.2 million and are selling at 55p on a price earnings ratio of 5.5. All this is fairly humdrum you may say, but the firm is run by an ex-Polish airman called, unlikely as it may sound, Charles DuganChapman. I have never met him but he has a true businessman's reputation for getting a lot done and paying no more than he has to for it, which is what I like to hear as a shareholder. Better still, if my theory is going to work, he has no son, though daughters to provide for, and he is getting on for sixty. Now I know and have heard nothing and it is only hunchwork, but I think a little flutter on a two-year view might see those Stewart Plastic shares selling for something a little more like what they are worth.
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