Make sure your failures are weeny ones

There is not a serious active private investor who has not got a string of failures to their name. The trick is to minimise your losses

Timeshare salespersons should make good private investors. They have that essential ingredient necessary to the makeup of everyone who buys and sells shares: they can accept failure.

Timeshare salespersons should make good private investors. They have that essential ingredient necessary to the makeup of everyone who buys and sells shares: they can accept failure.

The timeshare seller - not to be confused with the timeshare tout, who accosts you on the promenade or the beach and persuades you to go and look at a property - will often complete a tour of inspection only to have the sales pitch rejected. And the refusal may come at the end of a three or four hour session, when the salesperson has used every trick in the book to get you to buy.

Despite the sales pressure, nine out of ten of the Ups (potential buyers who have been enticed to the timeshare development) walk away without having signed the purchase document. They insist on time to think about handing over a few thousand for the promise of "free" holidays for years to come. But when the timeshare salesperson hears those fatal words, "I'll be back", his or her heart sinks. The game is over.

In the bad (but exciting and wonderful) old days of the 1980s, my partner and I had around 260 timeshare salespersons working for us. I say working for us, but in fact they were in the business very much for themselves and the commissions they earned were astronomical. It was not unusual for a good operator to pick up in a month what the average worker took home in a year, and a special few could achieve the amount in a week.

These charismatic sales folk had a communal flaw. They could spend money as fast as they made it and rarely saved enough to buy shares. If they did manage to hang on long enough to enter the market, I imagine it was Australian gold mines or ostrich farms that captured their imaginations. Never mind, they were fun times, and I would not have missed it for the world.

But back to the link between the timeshare seller and the private investor. Failure. The sales people did not receive a basic wage, their only income was commission, so when after four hours of selling spiel the punter walked away, there was no hiding place. They had failed. No excuses, no sales and therefore no commission. It is a hard pill to swallow and to pick yourself up, dust yourself off, fix that winning smile and greet the next punter like an old friend is even harder.

For the private investor the challenge is the same. We spend hours, often days or even weeks, researching a share for our portfolio. We use our skills, our common sense and our intuition to pick a winner and then (because, of course, we are sensible and buy for the long term) we sit back and wait.

Because we are wise investors who have followed Terry's teachings in The Independent, we monitor the share carefully. We watch the news columns and make sure the company or our broker forwards the annual report and any interim information.

The company results come out and they're like the son-in-law - not quite what we expected. A news story about a competitor's product is heralded as a breakthrough. There's a profits warning about our company, nothing serious, just a hint that a bit of belt tightening might be in the offing. So the price trundles, slowly but inexorably, down.

It is time to bite the bullet and consider personal failure. Have you picked a bad 'un? Go through a routine to check the position out.

* Is the principal reason you bought the share still valid?

* Has something happened to alter the overall picture, even slightly?

* Hand on heart, are you still completely confident that (a) this is a still a winner and (b) the market will realise that fact eventually?

Above all you must be brutally honest with yourself. Don't dismiss a new but negative fact because it doesn't quite fit with your original perception. There is no point in kidding yourself, if you have picked a failure sell it and cut your losses.

This is a most important lesson because I have been looking at other people's portfolios this week and one anomaly is becoming worryingly common. An increasing number of investors are giving themselves a false sense of security by selling their winners and taking a reasonable profit. That's sensible and enables them to say they are showing a profit on the year. But they are ignoring the shares in their portfolios that are showing losses and justifying the retentions by saying they will come good in the future.

Remember, there is not a serious active private investor who has not got a string of failures behind him or her. The secret is to make sure the string of winners is longer and the failures are weeny ones.

I reckon to have seven winners out of ten selections, and from conversations this week with other investors that seems to be a reasonable to good average. Some will show single percentage gains over a year, but a significant number will show double figure profits and a heaven-sent few will return several times my investment.

The point is that my failures will not be big losers. As the share price dropped, I realised I had got them wrong so I sold. Then I picked myself up, dusted myself off, fixed that smile and greeted the next investment like my best friend.

* It seems the lunatics are in charge of the asylum, and they are reducing the revered old institution to a pile of rubble. When I first entered the City, a decade or so ago, I held the London Stock Exchange in awe. For me, and I suspect most investors, it was the rock of security that lay behind all our deals, the intricate and well-oiled mechanism that made Britain's trading system the envy of the world. The biggest and the best.

How wrong can you be? And how impotent, frustrated and angry can you feel? Behind weasel words like "merger" and "proposed tie-up", the LSE is being blatantly pillaged by a bevy of foreign competitors. Offers, counter offers, hostile and friendly bids are popping up daily. The Germans, the Swedes and the Americans are each throwing their caps into the ring in the guise of creating a pan-European market.

And what is the London Stock Exchange doing? Well, not a lot, or if the faceless few who run it have a master plan, then they are playing their cards close to their chests.

We need a well-organised and powerful European market, to enable us to spread our money and thus increase our opportunities and minimise our risk. But, for goodness sake, should not the captain of the new ship be the London Stock Exchange? Would it not be more appropriate for the Pride of the City of London to be making decisions, deciding who should be on board on this exciting journey, looking after our interests, guiding and leading from the front?

It's a vain hope. I am ashamed of the way the LSE is incompetently allowing itself to be sold to the highest bidder.

terrybond@hemscott.net