Pioneer's advice still holds true

The Investment Column

One of the enduring mysteries of investment in this country is that there are so few decent books on the subject. Anyone with an interest in gardening or cookery or bridge can find a wealth of reading matter on their hobby, but beyond the odd "How to" primer, most small investors have little to supplement the often cursory coverage of the subject in newspapers.

There are some honourable exceptions, most notably Jim Slater, whose latest book, Beyond The Zulu Principle, is due to be published in the autumn. But the bulk of investment books worth a second glance have always come out of America, a country where they take their investment more seriously than we appear to.

Given the similarity of investment on both sides of the Atlantic, it doesn't matter that the books are aimed at an American audience. The principles of investment are the same the world over and change little over the years.

The unchanging nature of sound investment is nicely illustrated by the re-issue this year of the 1958 investment classic Common Stocks and Uncommon Profits by Philip Fisher, an American investor whose career started the year before the Wall Street crash of 1929. What is most striking about the book, which in the new Wiley Investment Classics edition includes some later writings as well, is just how little of it no longer applies and how much continues to make abundant sense.

It would be impossible to paraphrase all the pearls of wisdom packed into this small book, which sets out as clearly as anyone has done since why growth stocks are the single best long-term investment medium, how to spot them and how to maximise your profits from those you have chosen.

You may be familiar with Warren Buffett's maxim that the best time to sell a share is almost never but are less likely to know that it was Fisher in this book who coined the theory that once a great growth stock has been found, the best approach is to just let it run.

Other great pieces of advice contained in the book include avoiding blue- sky companies that have never made a profit - with so many opportunities for great growth from established companies why take the risk? He also cautions against the view that a company trading on a high price/earnings ratio has necessarily already discounted all its good trading prospects. If the earnings of the stock are growing fast enough, the share will soon look cheap more or less whatever its price.

Investors familiar with Buffett's philosophy will also recognise another extremely useful Fisher "don't" - don't overstress diversification. We're always being told not to put all our eggs in one investment basket but rarely are we warned of the dangers of spreading risk so widely that we end up investing in companies that we simply haven't researched thoroughly enough. As Buffett once put it, it is baffling why anyone should invest in their twentieth choice when they could simply increase their holding in their favourite share.

The best work from one of the pioneers of modern investment theory is a must-read for investors today, as it was in 1958.

Common Stocks and Uncommon Profits and Other Writings by Philip Fisher, John Wiley & Sons, $19.95.

Sanderson pulls

out the stops

Sanderson Bramall, the Harrogate motor dealer, has been transformed since Tony Bramall took the wheel in 1989. Powered by acquisitions, profits have soared in the past five years or so, but the latest interim figures show that Mr Bramall, executive chairman, is also adept at squeezing organic growth from the business.

Pre-tax profits leapt 44 per cent to pounds 6.13m in the six months to June, beating expectations and sending the shares 10.5p higher to 303.5p yesterday. The group had the benefit of last year's pounds 5.1m acquisition of most of the outstanding shares in Thrifty Car Rental, which moved from associate to subsidiary status. That added pounds 30m to turnover and raised the profit contribution from rental operations from pounds 356,000 to around pounds 1.3m.

Even so, much of Thrifty's contribution was absorbed by higher interest charges and there was clearly plenty of underlying growth. New car sales jumped 25 per cent to 10,000 units in the first half, easily outpacing a market in the UK which could struggle to top 2 million sales this year, an anaemic growth rate of around 3 per cent. Used cars were in even better form, with sales up over a third to 7,935.

This sparkling performance more than offset a disappointing period for commercial vehicles compared with last year, when Sanderson was able to cash in on the rebound in the market following its acquisition of Petrogate, a commercials group, in 1994.

The big questions are what happens to key August sales and, beyond that, whether it can maintain its forward momentum. August looks patchy, while acquisitions are likely to be complicated by the shake-up of dealership rules. That said, profits of pounds 12m should be possible, putting the shares on a forward rating of 13. Fair value.

Darby in the

winner's frame

Confirmation yesterday from Darby Group, the Scunthorpe glass- maker, that it has received several informal approaches that could lead to a bid, caps a good year for the company's shareholders. The shares soared 32 per cent to 109.5p, valuing Darby at pounds 30m. At the beginning of the year the shares were languishing at little more than 60p. Shareholders who took up their rights in last autumn's pounds 5m cash call at 50p will be particularly pleased.

Though Darby says none of the approaches has developed beyond the preliminary stages, it seems likely that the company is being courted by one of the big glass groups such as Pilkington, Saint Gobain of France, PPG of the United States or Luxguard, the Luxembourg group.

The world's largest glass manufacturers have been squeezed by falling demand and weak prices as customers have built up stocks. As a defensive move they have been going "downstream" to buy consumers of raw glass. Despite its small size, Darby is the largest independently quoted glass manufacturer and a large consumer of raw glass. It has developed a profitable niche in safety glass and has also been expanding its bent and tempered glass business, a higher-margin product that is used in curved shower cubicles, for example. It buys most of its glass from Pilkington and PPG.

Darby is expected to report doubled interim profits of pounds 800,000 before exceptional items on Thursday with brokers Albert E Sharp forecasting pounds 1.2m for the full year. Any deal would have to be agreed as chairman Michael Darby and his family control more than half of the shares. Despite founding the company 20 years ago with just pounds 1,600, Mr Darby is likely to hold out for a premium. Shareholders should do the same and hang on.