Hanging out the Bunting

NO investment rules are infallible, but those which have stood the test of time are worth a close look. Dan Bunting, veteran strategist at fund manager Prudential-Bache, is among the few left in the City who can remember the last time things were this tough.

He has privately accumulated Bunting's Laws during a City career spanning more than 30 years, stretching back to the dark days of the 1970s and the panic of 1973-74. They make interesting, and occasionally hilarious, reading.

Beware, he warns of companies with 'helicopters, oversized annual reports, luxurious new headquarters, plants in the reception, or socialist millionaire chairmen'. Avoid 'small companies with grandiose names and big companies with meaningless initials' or whose boss wins 'Young Businessman of the Year' awards. Headquarters are described as the campus? 'Aagghh'.

Other sell signs include companies which make massive acquisitions, diversify or 'reinvent' themselves ('sellers of their own business'), or get involved with litigation, issue profit warnings ('sell on the first one'), or squabble with analysts. Sell any company which changes its financial year end, says Bunting. He also muses on why chairmen with beards often seem to be bad news.

Do not take up rights issues. The company is either burning cash or paying for a big acquisition, or both. 'Your only decision is whether to sell the underlying equity.' Only buy share floats for 'stagging' - making a quick turn.

You should 'run a mile' from industries indulging in an investment splurge, which invariably produces overcapacity (hello, technology and telecoms!). For the same reason, avoid yesterday's shooting stars. Also sell companies forced to run down excess stocks. They over estimated demand and doubtless invested in capacity to match.

Once a company has fought off a bid, or there is talk of its 'break-up value', then, says Bunting, all the good news is 'already in the shop window'.

On the whole, 'do not invest in manufacturing', which is forever at risk of overcapacity, strikes, raw material price fluctuations, exchange rates, and international politics.

'As a rule, the closer you are to the consumer, the more money you will make. Millionaires are spawned far more readily in showbusiness or publishing than in more earthy pursuits. The ultimate guarantee of profit is to possess the trust of the consumer.'

Mistrust market gurus ('always become incapable just as they are hailed as infallible'), and economists. As Bunting notes approvingly, 'the economic fundamentals always look awful'. Ignore analysts, particularly their share price targets ('denotes a low-grade tipping business').

Do the opposite of City institutions - official figures show they always buy at the peak of bull markets. On the other hand, pay very close attention to share dealing by directors - especially when they sell. 'They invariably have an excuse, by the way, for selling stock,' notes Bunting dryly.

Those who attend company presentations should be wary of bosses who 'arrive 20 minutes late whining about the traffic, do not wear ties, and speak to other people on their mobile phones during their meeting with you - these persons are not serious about you or your money'. Flip charts, he says, are 'designed to avoid meeting your eye'.

Bunting's list of 'buy signs' is rather shorter. Buy monopolies, companies which acquire or neutralise their main competitor, and those generating cash ('nine times out of ten, it is the origin of sustained long run outperformance').

Counter-intuitively, he says you should always buy the market on a spectacular bankruptcy - when the frightened are heading for the hills. And buy bandwagons - but, even more important, once they slow, be sure to jump off. Of course those who played the dotcom bubble know this - now.

Accumulating this sort of wisdom usually takes a great deal of money and time - a lot of time - about thirty years' worth.