LONDON -- One of Warren Buffett's famous investing sayings is "Be fearful when others are greedy and greedy only when others are fearful" -- in other words, sell when others are buying and buy when they're selling.
But we might expect Foolish investors to know that, and looking at what Fools have been selling recently might well provide us with an indication of investments that may be past their prime.
So, in this series of articles, we're going to look at what customers of The Motley Fool ShareDealing Service have been selling in the past week or so and what might have made them decide to do so.
Decreasing profit, increasing debt
A couple of weeks ago, high street stalwart Marks & Spencer (LSE:MKS) revealed generally disappointing results for the year to the end of March 2013. Pre-tax profit had fallen by 14%, to 564.3 million pounds, debt had risen 37%, to 2.6 billion pounds, basic earnings per share were down 10% to 29.2 pence, and the dividend was being pegged. It was the second successive year Marks & Spencer's annual profit had fallen, and the lowest it had recorded since 2009.
Despite what seems to have been a poor performance over the past year, Marks & Spencer's share price is up more than 40% on June 2012 (helped to some extent by recent takeover speculation). At the end of May this year, its share price was already at its highest since the end of 2007, so perhaps some investors began to think to that the good times were over for now, and they put Marks & Spencer in the No. 9 spot in our latest "Top 10 Sells" list.*
And they're not alone. As fellow Fool writer G.A. Chester noted a couple of days ago, according to the Financial Times, directors of Marks & Spencer have sold an average of 7,600 shares during each of the last 36 months. True, there may be perfectly good reasons for some of the disposals, such as paying golf club fees or redecorating the country retreat. But such a long-term pattern of sales really doesn't paint a picture of director confidence, notwithstanding boardroom pronouncements about expecting "a material improvement in free cash flow from 2014/15" and "delivering improved shareholder returns." If the directors really believe their own story, they should be buying, not selling.
Half of Marks & Spencer's revenue comes from food sales, which have been doing well, up 4.9% over 2012's results. But the other half comes from clothing and homewares sales, both of which have been decidedly lackluster for a long time -- clothing sales have seen five quarters of decline in the last eight, and homewares is even worse, with seven quarters of falling sales over the same period. And there's no real sign of improvement in either, as yet.
If Marks & Spencer is to continue to provide rewards to shareholders, it absolutely has to deliver on its plan to transform the company into "a truly international, multi-channel retailer," as promised in its annual results. But the company is already two years into a three-year plan to do that, and the results so far may not be convincing some investors.
Top-quality share selections
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*Based on aggregate data from The Motley Fool ShareDealing Service.