Newsletter 36 – Fletcher King: a decision on holding and buying more

​I would value your comments on the following – what have I missed?
 
Fletcher King (LSE:FLK) falls between two investment approaches.  It has reasonably good qualitative factors, sufficient to qualify for a Benjamin Graham NCAV share.  That is, able managers with a reasonable degree of integrity regarding minority shareholders’ interests, a good solid business, battle-hardened in the recession and a high degree of stability (e.g. long profit record, no borrowing, no pension scheme).

​But there is an insufficient margin of safety in the balance sheet.  To qualify on quantitative grounds I would need the share price to fall to NCAV, i.e. 36.4p to buy more.
 
The Buffett and Munger investment approach is much more demanding in terms of having a strong economic franchise surrounded by a deep and dangerous moat.  Fletcher King does not make that grade.
 
Having said that, I will not be selling my current holdings at current prices for two reasons:
(1) it is important to stick to a rule to prevent the tendency to sell NCAV shares too early.  This guards against the psychological imperative to cash-in to gain the boost to ego from recording a profit (or fear of regret from not crystalising a gain), thus frequently losing out on the potential for multi-baggers to grow. It also reduces churn, lowering expenses and tax on the portfolio.  This rule is bound to lead to individual-decision regret from time to time, but overall it will produce a better return.
 
(2) This is a good point in the cycle for property-related businesses to thrive.  However, when the time comes for great over-excitement about the commercial property market around the country I will be looking to sell. I’m hoping that will be after FK has reported a string of increasingly profitable years, and when latecomers are piling into the share, pushing it back to where it was in the last property boom, around 110p.   I hope, I hope.
 
So, it is on my watch list to buy at 36.4p, 30% below the current price.  if Mr Market pushes down there (stranger things have happened) I'll be very interested in picking up some more.

Investment is not about constant buying and selling activity; flitting about from flower to flower.

It is about constant activity in terms of PREPARATION.  While preparing it is about controlling emotions captured by the words DISCIPLINE and PATIENCE.  With these all in place and occupying most of the investor's effort, from time to time there will be a need for DECISIVE ACTION, but this is rare.
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I’ll keep an eye on FK, and update after the interims appear in a couple of weeks.