Each week, a professional investor tells us where he’d put his money. This week: Tristan Chapple, of the Aurora Investment Trust.
A patient approach and taking time to understand a business usually pays off for investors. Everyone needs time to learn the value of an investment, and it can take months to learn everything about a new company, even when you know the sector. New sectors, of course, take longer. This learning process should tell you whether a firm is a great business or not. If it is, investors should wait for the share price to fall, assuming the reason for the fall can be rectified in time, before buying. The fall in UK stocks after the EU referendum is a good example of when long-term investors had the opportunity to buy great businesses at attractive prices. When this happens, they should buy the shares and monitor the company. Then, sit back and wait.
Housebuilder Bellway (LSE: BWY) has a management team that combines both conservative and entrepreneurial talents. It buys up land well while keeping its costs low. The company is a national housebuilder, but is relatively small – it is still only half the size of the large listed housebuilders such as Taylor Wimpey and Persimmon. So Bellway should be able to grow its sales and profits ahead of the overall growth in the housing market in the UK. Bellway has been expanding into areas of the country that are new to it, such as Manchester, Bristol and Coventry, so investors should be able to look forward to a national housing market that is growing in the long term (the UK is still building far fewer houses than the country needs) and a company that is growing faster than the market as a whole.
Successful retail businesses listen to their customers and then do what they want. And they copy the best ideas of their competitors. Tesco (LSE: TSCO) is doing both with a low-cost British “farms” range to compete with discounters as part of its “back to basics” strategy. Tesco’s high market share online is a valuable asset, whatever the future holds and the threat from discounters is overstated. Today Aldi and Lidl have 11%-12% of the market – a similar share to the one discounters had 15 or 20 years ago, before Kwiksave went bust and Somerfield disappeared from the market. In parts of the UK, such as Bristol, Aldi and Lidl have had a presence for more than 20 years. In these areas they are still in fourth or fifth place behind the UK supermarket groups.
The decline of British pubs has not held back JD Wetherspoon (LSE: JDW). A total of 6,700 pubs closed in the UK between 2007 and 2015; JD Wetherspoon, by contrast, managed to open 294 pubs. Wetherspoon’s edge is that it is the lowest-cost producer and it is better at tracking consumer trends. The stockmarket tends to concentrate too much on the “wet” trade (drinks sales) which has been in decline, but Wetherspoon has succeeded in replacing falling drink sales with increased sales of food. In 2000 only 18% of its sales came from food. Today that number is 37%. In other words, the company has exploited the growth in casual dining in the UK.