Sometimes, many natural ‘value’ stocks become relatively expensive. Investors searching for yield typically target companies with a number of positive characteristics – good historic dividend growth, high dividend cover, strong balance sheets and stable businesses. However, this theme may become overcrowded and thus offer little in the way of value. At these times, we are happy to wait patiently for outstanding opportunities rather than be forced into second-best alternatives. We are also very aware that trading attracts costs and is not always as successful as intended. As Tweedy, Browne a very successful American asset management outfit has noted:

‘Investment managers and analysts tend to be energetic, intelligent, well-educated, highly paid and self-confident individuals. Great traits in most lines of work! However, it appears that it is very

difficult for people with these traits to do very little, to not make lots of buy and sell decisions, even though a detached view of the empirical data…..may suggest that the best course, the most rational decision, would be to sit tight and do nothing.’

In our search for value, we are focusing on some long-term underperforming stocks which we believe investors are viewing with an undue degree of caution, perhaps because they may have sustained significant losses for them in the past? Or maybe the market views the industries in which these companies operate as risky or declining or see the company’s management as poor? Perhaps recent trading statements have indicated a lack of immediate visibility in the operating conditions? Whatever the reason, we believe in many of these situations the shareholders are being adequately compensated for the uncertainty and that, as the future becomes clearer, more potential investors will be attracted.