Learning how to invest

Since my pension fund is likely to get called into action as a safety net in the foreseeable future, I keep a close eye on the performance of my investments, and try to make some kind of sense of the stuff I read in the financial columns. It's been clear to me for some years that most people in the industry don't understand they companies they invest in nor, indeed, do they take any interest in them. It's all about trends and statistics. Necessarily, the indicators they use are historical and they just use statistical trend analysis and extrapolation to "understand" what's going on. Perhaps it's unfair to describe it as gambling but the distinction is a fine one.

I started work in the computer industry (English Electric Leo Computers Ltd) when it was in its infancy, and was fortunate to work in an office in London with a load of very clever and well informed people. Some of their conversation was about their stock market investments and it stimulated my interest in the topic, though my income didn't allow me to do anything about it.

The following year I moved to Bristol, my home town, and a couple of years later took on a sales role. The increase in income re-awoke my interest in the stock market. Coincidentally a local firm of stockbrokers occupied the floor below us in our office building and I was wondering aloud how to approach them as a naive investor when one of my colleagues said, "Oh, my Uncle Fred works for them. I'll introduce you if you like." A meeting with Uncle Fred was arranged, and I walked down to his office to meet him.

Uncle Fred was a genial old chap, and we got on well. He explained that he couldn't give me specific advice but that he would give me some general pointers. I agreed. The advice he gave me will be familiar to anyone who invested in the stock market at the time. He said, "Buy when prices are low and sell when they are high; most people will be doing the opposite but have confidence in your own judgement. And only ever invest in companies you know about and understand".

My sales role brought me into contact with directors and senior managers of local companies. One such company was Reed & Mallik, who were working on the new M32, the motorway spur from the M4 into the centre of Bristol. I had a meeting with the site manager and was able to persuade him that our payroll service would meet his needs. However, I would need to go to meet the Finance Director at their head office in Salisbury to get a signature.

I got to Salisbury to meet the FD, and spent an interesting hour with him and a couple of senior managers having the business explained to me. My researches had shown that Reed & Mallik's share price was in the doldrums and I concluded that the stock market's valuation was in error. The following day I bought a parcel of shares for 10½d each and, six weeks later, sold them for 1s 4½d each, a profit of around 50% after dealing expenses.

I had many other successful investments, and a few failures, of course but I've always invested by focusing on the fundamentals - what the company does, how good it is at doing it, and what's happening to the markets on which it depends. I still do. It works.