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Questor: ‘Mr Market’ can’t make up his mind about Craneware but we can – ignore the noise and hold
Questor Inheritance Tax Portfolio: The software firm’s share price may be all over the place – but the business isn’t. Keep your nerve and hold on to the stock
No rollercoaster could get away with the vertiginous rises and falls in the share price of Craneware, the software firm that we added to our Inheritance Tax Portfolio of Aim-quoted shares in January last year.
At first it seemed that we had timed our purchase, at £17.50, nicely: the shares rose smartly for the next few months, culminating in a very sharp sprint to about £36 in mid-September last year. They then fell and rose again to stand at about £30 before a profits warning in June sent them all the way back to £17.20.
Neither was that the end of the story. After a quiet couple of months they came back to life in September with a 40pc rise to about £25. But in the past few days they have lost a fifth of their value to stand at £19.
What are we to make of this spectacular inability on the part of the stock market to decide what the business is worth? It feels like a good time to invoke Mr Market, the notional investor invented by Benjamin Graham, one of the fathers of scientific investing, in his 1949 book The Intelligent Investor.
Imagine, he said, that you own a small share of a business in which one of the other shareholders is a man named Mr Market. Every day, Mr Market tells you what he thinks your shares are worth: he says he will either buy your shares or sell his to you at the same price.
But Mr Market, Graham said, is something of a manic depressive and the price he quotes for the shares in your business swings wildly from one day to the next. In particular, they often bear no relation to the state of the underlying business.
So one day he may be in a depressed mood and quote you a price that significantly undervalues the business, in which case you may decide to buy his shares and increase your stake on the cheap.
But on another day Mr Market may be feeling irrationally optimistic and decide that your shares are worth far more than what you regard as their true value. This time you may decide to sell them to him for a handsome profit. Instead of believing that the prices offered by Mr Market painted an accurate picture of your company’s worth, Graham said it was vital to form your own idea of its true or “intrinsic” value.
This is what one investor, Keith Ashworth-Lord of Sanford DeLand Asset Management, has done in the case of Craneware.
Writing about how his UK Buffettology fund had performed in September, Mr Ashworth-Lord said: “Craneware was the standout performer as the share price recovered from the drubbing it took in late June. In the intervening months, I had increased our share holding by over 14pc, having been satisfied that the company’s recent travails would be short lived.”
We will apply his thinking to the latest setback in the share price, which took place after he had written his update: we will advise existing investors to ignore it and potential investors to see it as a buying opportunity.
Craneware strikes Questor as a textbook example of a share to buy and hold, checking occasionally on its performance as a business but taking scant notice of the share price.
Questor says: hold
Ticker: CRW
Share price at close: £19
Update: Scapa
Scapa, the maker of industrial and medical tapes, has been another volatile holding for our IHT Portfolio. In this case, unfortunately, the shares remain about 56pc below the 471.4p we paid for them in March 2018. The firm suffered the loss of an important contract and the resignation, later rescinded, of its chief executive.
- Read Questor’s rules of investment before you follow our tips
This week Scapa issued a trading update in which it said sales had risen by 10.4pc, stripping out currency effects, in the six months to September. It said it expected profits to be about 17pc lower for the period, reflecting the loss of the contract.
In this case too Keith Ashworth-Lord has been buying more stock.
Questor says: hold
Ticker: SCPA
Share price at close: 208p
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