Shares for the future: my five best shares for long-term investment

Our companies analyst discusses an amusing experience of shareholder democracy and names a handful of highest-scoring stocks in his Decision Engine.

It is easy for those of us who invest in stable, well-managed businesses to neglect voting at annual general meetings (AGMs).

Voting often feels like a formality. Few of us own sufficient shares to dent the large blocs wielded by insiders and financial institutions, and many of the resolutions are uncontroversial. The directors have done a good job, so we are not going to try and take them down. Voting is also a hassle, especially if we have to attend the meeting in person.

I always try to vote, however, for the same reason that every time there is a general election I trundle down to the polling station even though my Member of Parliament occupies a safe seat.

Voting sends a signal. The more of us who vote in elections, the better our democracy, and similarly the more of us who vote at AGMs, the better our companies.

AGM voting 101

A problematic feature of the nominee system – the way brokers hold the shares of all of us with Individual Savings Accounts (ISAs) and many of us with Self Invested Personal Pensions (SIPPs) – is that it has tended to disenfranchise shareholders.

Our shares are pooled, so our names are not recorded on shareholders’ registers and companies cannot invite us to upcoming AGMs. To vote, we need to request a letter of representation from our broker entitling us to vote our portion of the shares held for us by them.

But many brokers have stepped in to keep us better informed and allow us to vote easily online.

Last year, I moved one of my SIPP accounts to interactive investor, the platform you are reading this article on.

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My previous broker was old school. I had to keep track of when the companies I had invested in were holding their AGMs myself, and call the broker’s call centre to request letters of representation. Sometimes I did not get those letters, and for a while the broker’s ineptitude meant that compensation became a lucrative second source of income after dividends.

Even though I have been happily voting electronically since I shifted broker, sometimes I still attend in person. This may be because there is an important vote on the agenda. A vote on a company’s remuneration policy, which happens every three years, always encourages me to go.

Voting in person makes a more powerful statement, which is why I prefer it when companies allow voting by a show of hands. If we wish to amplify our statement, we can ask a question before the relevant vote.

I may also have questions about the company’s strategy and culture, which are not part of the formal meeting. There is always a chance to buttonhole management, and often they will present to shareholders and solicit questions.

Be prepared

That is why I attended Quartix (LSE:QTX)’s AGM in April. It has a new chief executive and the company’s strategy may be shifting, so I hoped to glean a few insights. Better still, Quartix is an easy AGM for me to attend because the company’s corporate headquarters are only a short bike ride away.

Although visiting a company can itself be revealing, Quartix’s corporate HQ is located far from its operations in Newtown, Wales. It is in an office inside a building mostly occupied by another company, on an estate of almost identical buildings in Cambridge.

I was not even sure I was at the right building because the locked front door had another company’s name under the buzzer next to it.

I had half an hour to kill so, rather than risk ringing the wrong doorbell, I sat on a low wall outside and flicked through my hastily written questions while waiting for another shareholder to come, so I might follow him in like a fare dodger pushing through a gate on the Tube.

Nobody came, and with ten minutes to go I plucked up the courage to press the buzzer.

The receptionist summoned somebody from Quartix, who arrived after a short hiatus and took me back out of the front door to a side entrance, where she deposited me on a chair and promised to return.

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Something about her manner, friendly but perhaps slightly flustered, and our protracted journey to the boardroom, suggested to me that she might be playing for time. Maybe I was unexpected. Maybe no outside shareholders were expected. I imagined the boardroom and the agenda being hastily rejigged.

Minutes later my escort reappeared and delivered me to the boardroom.

We made our introductions and suddenly I felt a little exposed. I was the only shareholder. I had the board to myself. Indeed it felt like the board had assembled for my benefit. Faced by a panel of six or seven directors I felt a bit ridiculous, and I could not rely on the intelligent questions of other shareholders to make up for any deficiencies in my own.

Then the only member of the board I know arrived, which put me at ease. He is the company’s founder and non-executive chairman Andy Walters, a keen cyclist who also arrived by bike.

The meeting started, an incongruous blend of formality and informality that we all endured with good humour. You can read what I learned in my annual review of Quartix, but the experience left me thinking about shareholder democracy.

Quartix says its investor roadshows in London are better attended, but roadshows are not substitutes for AGMs. They are public relations exercises. We cannot participate in the governance of a company at a roadshow.

Although I did not have a powerful statement to make, if I had and there had been no other shareholders there to witness it, would it have been as powerful?

Decision Engine

Since last month’s Decision Engine update, I have re-appraised industrial filter and laboratory equipment manufacturer Porvair (LSE:PRV), educational supplier RM (LSE:RM.), and XP Power (LSE:XPP), a manufacturer of power adapters for complex machines.

The results of these deliberations have been fed into the Decision Engine along with the latest prices for all 40 companies, to determine this month’s scores.

As always, the combined score for profitability, risks, strategy, fairness and price determine a share’s overall score and its rank. By following the process I expect to identify the best shares for long-term investment, from my list of 40 or so good businesses.

Scores and stats: Richard Beddard. Data: SharePad and annual reports.
Shares marked with an asterisk* score less than 5 out of 6 for Profitability, Risks and Strategy. They are more speculative.
Click on a share's name to see a breakdown of the score (scores may have changed due to movements in share price).

Richard Beddard is a freelance contributor and not a direct employee of interactive investor.

Richard owns most of the shares tracked by the Decision Engine, weighting his portfolio so that its biggest holdings are in the more highly ranked shares.

For more information about Richard’s scoring and ranking system (the Decision Engine) and the Share Sleuth portfolio powered by this research, please read the FAQ.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard