Investing in companies: the Tickler test

When it comes to investing in shares you get all manner of recommendations based on varying criteria. Some quote the price earnings ratio formula: the market value divided by the earnings per share. I do not want to get too technical here as I have probably lost the reader already, but the problem is its historical and the data not always reliable. Others look at the performance of the sector. Shame to say there are others- chiefly journalists – who take the lazy option of the PR emanating from the company or cosy up to the Chief Executive. Very few apply the Tickler test of learning at the coal face what the company is trying to achieve and how its going about it. Let me give you two examples.

The first is Easyjet. I flew this carrier for the first time on our Vienna trip at the recommendation of my P/A Polly and I was impressed. It left on time, the cabin crew were helpful, they even had my favourite gin Bombay Sapphire and I noted it was full. On the journey back as I waited outside the loo I chatted to the cabin steward who enjoyed working for the airline and said it was receptive to client complaint unlike other well-known budget carriers.

I was still not ready to invest. More home work was necessary. Good results produced more coverage of their Chief Executive Carolyn McCall whose background was not aviation but media at Guardian Media, who own that newspaper and The Observer; their business model was punctuality, good relations with staff in an industry where this is not the norm – she immediately restored the free crew meals which were part of cost cuts; she sought to attract the business traveller by premium priority seats which Polly booked and frequent flying loyalty. My homework was almost complete but before I invested I spoke to a close friend who heads up an international advertising agency. He only had good to say of Ms McCall. I did read of some negatives: could the growth in share price be sustained, oil prices could rise, the cost of a Gatwick slot might increase. However with 51% occupancy to break even the planes were 91% full. This I could partially confirm from my own knowledge as the flights to and from Vienna were full. My only concern was whether Ms McCall would be poached by one to one of the legacy airlines. So I wrote a letter to Ms McCall congratulating her on the performance of Easyjet but seeking reassurance that she is in for the long haul not a short hop.

Now lets look at Marks and Spencers. All the big four in the store sector are struggling one way or another as Lidl and Aldi make their inroads. M & S recently posted their results: of significance was they had reduced cost of production to maximise profit. This was due to the input of the Lindsay Brothers who learned their capacity to do this at Next. I have known Neil Lindsay for many years and knew that his involvement in any clothes business would improve it. However when I visited the local store in the centre of Brighton to buy non-iron shirts for the trip to Vienna, all the checkout lady could say “If you want to bring them back, you will need the packaging.” What does this tell you? Negativity with customer, lack of belief in product, poor engagement. A tour of the store revealed little sales activity anywhere but in the food section. The clientele were mainly senior citizens and insufficient check out areas meant queuing. Because of the Lindsays I was going to invest but they failed the Tickler test.

I am not saying my system is full proof or would avoid the meltdown of 2008 but I would urge the reader to do his own research before he invests in any company