Alistair Blair discovers that revisiting previously discarded investment ideas can prove to be a valuable discipline
Investors should build up a reservoir of investment ideas based on the shares they nearly bought. After kicking yourself for missing the winners, cheer yourself up with the losers. This is not an idle diversion. Casting through old ideas will occasionally turn up a share whose price has halved (or better) despite no serious deterioration in the fundamentals. If, upon further inspection, you are convinced your original rationale remains intact, you are staring at a share which is twice as good a buy as it seemed in the first place.
A few years ago I wrote about a little food company which had just arrived on the stock market via the reverse takeover of a quoted shell called John Lusty. The business included importing niche overseas food brands.
It looked extremely solid, especially as the management owned over half the shares. When I wrote about Lusty, the shares were 11p, but the reverse takeover was very messy. Next time I looked, Lusty's early fans had got cold feet. The shares were 4.5p which looked very cheap indeed. And so it has proved. Now at 9p, they have been a helpful component of my portfolio.
Recently, I decided that a company called Highbury House could do me some similar favours. Previously known as Harrington Kilbride, it is a contract publisher of magazines, a business which lives by selling colour advertising. During a disastrous 1994 when it acknowledged a pile of bad debts in eastern Europe and had to restate its accounts, the share price collapsed. The management left and Ian Fletcher, who had just sold his previous publishing company to United Newspapers for £17 million, moved in. Fletcher refinanced Highbury at 15p per share and appeared to be kicking it into shape. Then he made two acquisitions, financed by issuing new shares at 18p per share at which price I thought they looked very promising.
Now they're 10p. That's a big dent - caused by losing lots of sales staff.
However, I believe they've now been replaced and the company claims it's back on track.