Diary of an amateur investor

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spanners

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In another thread I discussed the pros and cons of whether to move to DIY investing with an equity portfolio I inherited. I have now taken the decision to do just that, and am planning on documenting my ongoing amateur investment experience and thinking here.

My main reason for doing this is to keep myself honest - i.e hopefully if I am posting what I am thinking it will focus the mind, not to panic madly if there is a market correction, not to get too cocky if the bull keeps going, not to suddenly put it all on a penny share I heard about down the pub etc etc. I hope it will also provoke discussion along the way.

The final decision on leaving the investment manager was actually nothing to do with fees. It was level of service eg dividends not showing up, an error in calculating book cost across portfolio, calls not returned. I suddenly realised that if I got the same level of dissatisfaction from a post office savings account I'd shut it, so made no sense to carry on with investment manager.

To start, position as is today, background, objectives, etc etc.

Me - early 40s, cohabiting, 2 young children, low rate tax payer.
Homeowner - property comfortably worth €900k, no mortgage.
Debt free.
No pension.

All other things being equal, I plan to sell the house in 3 years time and buy a cheaper house putting approx 300k into investment portfolio.

Overall strategy is to build a portfolio to provide income in retirement - approx twenty years time. I do not anticipate needing the capital in that time, but I may take some of the income in the meantime.

Portfolio low 6 figures.

Portfolio is currently almost entirely in £GBP with a UK Investment management company. I intend to keep it in £GBP and move it to Hargreaves Lansdown, online stockbroker with relatively low fees.

I realise there are questions over the future of £GBP but reasoning behind sticking with it is largely that with the property I am already heavily exposed to € and I don't think that is without problems either.

There will be a few big decisions to make when the property is sold and I will take another look at currency at that stage.

Portfolio is currently approx 50% bonds and approx 50% equities/investment trust holdings. These holdings are:

ROYAL DUTCH SHELL PLC EUR0.07 B Shares (UK Listed)

RIO TINTO PLC 10p Ordinary Shares

ROLLS ROYCE HOLDINGS PLC 20p Ordinary Shares

INTERTEK GROUP PLC 1p Ordinary Shares

UNILEVER PLC 3 1/9p Ordinary Shares

BRITISH AMERICAN TOBACCO PLC 25p Ordinary Shares

GLAXOSMITHKLINE PLC 25p Ordinary Shares

PEARSON PLC 25p Ordinary Shares

VODAFONE GROUP PLC USD0.2095238 Ordinary Shares

SEVERN TRENT PLC 97.89p Ordinary Shares

LEGAL & GENERAL GROUP PLC 2 1/2p Ordinary Shares

PRUDENTIAL PLC 5p Ordinary Shares

LONDONMETRIC PROPERTY PLC 10p Ordinary Shares

SAGE GROUP PLC 1.051948p Ordinary Shares

STANDARD LIFE INVESTMENTS UK Equity Inc Uncon Instl Inc

NORTH AMERICAN INCOME TRUST 25p Ordinary Shares

NESTLE SA CHF1 Shares (Regd)

ABERDEEN UNIT TRUST MGRS World Equity Income I Inc

ARTEMIS FUND MGRS Global Income Units Instl Inc

LAZARD FUND MGRS (IRE) Gbl Listed Infrastructure Eqty

RIT CAPITAL PARTNERS PLC £1 Ordinary Shares

T BAILEY FUND MGRS Aptus Global Financials A Inc

PERSONAL ASSETS TRUST PLC £12.50 Ordinary Shares

SANDITON INVESTMENT TRUST PLC Ordinary Shares

That's it for now. Next post I'll go into a bit of detail about what I plan to change with the existing portfolio.
 
Hi Spanners

No problem in naming the shares you have invested in. But please remember the Posting Guidelines.

11 We don't discuss individual shares
You won't find any messages suggesting investing in CRH or asking if AIB is a good investment. It is not the purpose of Askaboutmoney. We don't facilitate stock tipping or speculation about the future performance of individual shares. There are other forums which discuss individual shares such as The Investments and Markets Forum of boards.ie

This guideline does not restrict you from discussing
1) the mechanics of buying or selling shares in a flotation
2) Rights issues - pricing and mechanics
3) Dividend Reinvestment Plans - pricing and mechanics
 
Hi Brendan,

Thanks for the reminder. I had intended to simply name the shares that I will keep, will buy or have bought. Beyond outlining at the start some basic parameters all shares should satisfy, I don't anticipate (nor would welcome) any discussion on the merits of the individual shares. My reading of the guidelines would allow that?

Presumably a summary of past performance in context is permitted? i.e ABC plc has been a solid performer but XYZ has been a disaster.
 
spanners said:
Portfolio is currently almost entirely in £GBP
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It doesn't really matter. The portfolio comprises international companies with predominantly USD / EUR revenue.
In simple terms, if GBP collapses, their GBP price should increase, leaving you with the same EUR equivalent value (all other things being equal).
 
Agreed, and that has been precisely the case since the devaluation of GBP after Brexit vote.

Though some of my changes might be more GBP centric.
 
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spanners said:
Agreed, and that has been precisely the case since the devaluation of GBP after Brexit vote.
Click to expand...

Be careful of this assumption. Very few of these companies take exchange rate risk even if the majority of earnings are in eur/usd. Many of them will hedge the vast majority of exposure to strip out volatility in reporting figures when they convert to reporting currency.

I am curious to know what companies are showing a higher share price due to the devaluation of GBP. As GBP recovered, I would have expected share prices of international companies in UK to fall if that was the case but I have not seen that. I would imagine the impact of GBP movements is seen more in profit margins at these companies than in the actual share price.
 
Sunny said:
Be careful of this assumption. Very few of these companies take exchange rate risk even if the majority of earnings are in eur/usd. Many of them will hedge the vast majority of exposure to strip out volatility in reporting figures when they convert to reporting currency.

I am curious to know what companies are showing a higher share price due to the devaluation of GBP. As GBP recovered, I would have expected share prices of international companies in UK to fall if that was the case but I have not seen that. I would imagine the impact of GBP movements is seen more in profit margins at these companies than in the actual share price.
Click to expand...

To be honest in terms of specific companies I am not sure, but arguably there has been some correlation in the ups and downs of FTSE 100 and GBP over the last couple of years - I think I am more aware of it on drops of the FTSE, GBP has tended to rise.

Either way, at this stage, I am not overly worried about the currency side of the decisions required now.
 
I will allocate 80% equities, 15% bonds, 5% cash.

The equities I will retain from the existing holdings are:

LEGAL & GENERAL GROUP PLC 2 1/2p Ordinary Shares
PRUDENTIAL PLC 5p Ordinary Shares
ROYAL DUTCH SHELL PLC EUR0.07 B Shares (UK Listed)
GLAXOSMITHKLINE PLC 25p Ordinary Shares
BRITISH AMERICAN TOBACCO PLC 25p Ordinary Shares
RIO TINTO PLC 10p Ordinary Shares
UNILEVER PLC 3 1/9p Ordinary Shares

With the funds from the sale of the remaining equities and bonds I will add no more than 20 individual shares, selected according to a few different metrics, dividend history and potential growth being a big influence. I understand the dividend vs selling shares argument but for my situation dividend payers are more attractive than non dividend payers.

To respect AAM posting guidelines I will hold off on naming these shares until I have purchased them. There is a bit of admin and paperwork involved with the transfer but that should take no more than a couple of weeks and will up date the portfolio then.
 
Without duscussing individual shares, would you not look at investing in a listed investment trust company? You'll get a broader portfolio than selecting individual shares, and you can find one invested in high dividend payers since that works for your tax situation. Should keep down your trading costs as you'll be making fewer, larger purchases.
 
RedOnion said:
Without duscussing individual shares, would you not look at investing in a listed investment trust company? You'll get a broader portfolio than selecting individual shares, and you can find one invested in high dividend payers since that works for your tax situation. Should keep down your trading costs as you'll be making fewer, larger purchases.
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have thought about the idea, and whilst it is very appealing I decided against it on the basis of it is trickier for me to compare one against the other in order to make choice of which to buy.

I get that large part of the evaluation would be same as evaluating individual shares - past performance, but one thing about individual companies that appeals to me is I can understand (or not) pretty quickly what they do.

With an investment trust the variables seem to come down simply to have they made good investments in the past?

So I am worried if I picked one investment trust company, or even 2 or 3 and my choices were poor, that would be quite damaging to the returns.

If I hold most shares long term as I intend to, hopefully transaction costs will be relatively insignificant.
 
I should probably expand on that to explain that I don't think that I have gift for picking shares better than established investment trusts!

A lot of investment advice I have read appears quite contradictory, and I have tried to concentrate on a few basic concepts, simple stuff that is accepted across the board.

Eg a huge factor in boosting returns is long term positions in the market with as little interference as possible.

With that in mind, if I can stick to a twenty year plan, it strikes me that there is there is relatively little difference if I "pick" BP or Shell now. Nobody can tell where they will be relative to each other in 20 years, so there is little point not purchasing either because you know that nobody can pick winners.

Obviously if one is looking at oil companies and suddenly decides to pick Providence Resources instead because there is more potential for an upside, then that is a different strategy.

There is an element of picking that will affect returns in any investment decision, you pick your asset allocation, you pick your investment trust, you pick your invest manager etc etc.

Each of those picks will potentially have a huge impact on your returns but you have no idea what impact until it is too late to do anything about it!

seeking an acceptable long term return In a diversified portfolio of shares, it is not necessary to pick 20 winners, just more winners than losers and hope that your outliers are winners. Make as an informed decision as you can, stick to it and hope for the best!

Essentially that is my strategy. If you agree that nobody can pick winners over a 20 year period, is my strategy any crazier than picking an investment trust and hoping for the best?

In an ideal world I would take out the picking risk by splitting it up over a few low cost ETF trackers, but clearly as a low rate tax payer the tax treatment of ETFs is not great.
 
What do you do if you have a decent chunk of your portfolio in either and oil goes the way of the dodo?

I’m aware of plenty of private wealth managers who completely eschew oil companies and miners (for example).
 
Gordon Gekko said:
What do you do if you have a decent chunk of your portfolio in either and oil goes the way of the dodo?

I’m aware of plenty of private wealth managers who completely eschew oil companies and miners (for example).
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Apologies if I phrased it badly, but the point I was making was not specific to Shell, BP or the oil industry - I was using an example of a point I believe is applicable across all sectors. Eg compare Proctor & Gamble vs Unilever.

To answer your question literally though, you would hope that your winners outnumber your losers.

I've no doubt plenty of private wealth managers avoid oil and miners, and many other sectors. It stands to reason - the very fact you are able to buy or sell a share means somebody has taken the completely opposite view, but neither can be sure that view is right over the long term.

So we're back to the original point - the best you can hope for is to be more right than wrong over time and diversification can help the odds of that.
 
Hi Fella,

I remember your posts well and read them with considerable self interest! And I agree that Sarenco's advice seems to be generally on the money.

A big fear for me is how I would react if the market tanked 40%. I know psychologically I am more likely to worry about having all my eggs in one basket if I am in an investment trust, and panic sel. That might seem irrational but I think irrational behaviour has been proven to be a real risk to all investors.

I am interested in total returns - capital + income - so one reason I am targeting dividend payers is to aim for higher returns over a bank deposit - i.e I get that dividends come at the cost of capital growth but I am locking in a return little and often. I might well miss all of the big capital growth risers that move markets but if the bulk of my holdings are paying above average dividends then in the current interest rate environment I will comfortably outperform bank deposits. Of course that strategy might change if interest rates rise, but any rise will be gradual.

Sarenco's advice is one reason why I'd prefer an index tracker. But I don't see how I can confidently pick the investment trust that is most likely to be invested in the 0.33% of stocks that provide half of all gains.

Yes I agree on Gordon's point - time in the market is the single most important factor.
 
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Gordon Gekko said:
What do you do if you have a decent chunk of your portfolio in either and oil goes the way of the dodo?

I’m aware of plenty of private wealth managers who completely eschew oil companies and miners (for example).
Click to expand...

Without wanting to sidetrack this thread, many commentators were predicting the end of oil a few years ago when the oil price collapsed in 2014. It was all talk about electric cars and renewables, yet world oil demand continues to rise. I thought wealth managers had more of an issue with tobacco companies.
 
I notice your biggest asset is your house with a conservative value of €900k which you say might be sold in 3 years time. Do you not think this strategy is very dangerous? House prices could very easily be an awful lot lower by then which will greatly reduce what you have in order to make up a substantial portfolio? Just a thought on something else to consider in these uncertain times.
 
noproblem said:
I notice your biggest asset is your house with a conservative value of €900k which you say might be sold in 3 years time. Do you not think this strategy is very dangerous? House prices could very easily be an awful lot lower by then which will greatly reduce what you have in order to make up a substantial portfolio? Just a thought on something else to consider in these uncertain times.
Click to expand...

Yes, that's something I do worry about but the reason I am selling in three years is

a) there are significant tax advantages to wait until three years, the property could drop in value substantially by then and I would still be better off waiting

b) there are local factors beyond the vagaries of wider property market - a couple of events likely to take place in next three years with a small chance of increasing the value greatly. And if things don't fall my way with these events, the property value will not be adversely impacted by them.
 
Ok, your choice. One other piece of advice from me and that is, make a will if not already done. Good luck.
 
So have given everything a lot of thought over the last couple of weeks, I've tweaked a few ideas, and gone ahead and sold the holdings I did not want and purchased the replacements.

I'll explain my thinking below, without going into specifics of individual shares. Details of portfolio are:

Fixed Interest / Bonds / Defensive - 20%

TESCO PERSONAL FINANCE PLC 5% MTN 21/11/2020
TREASURY 1/8% I/L Stock 22/11/2019
RIT CAPITAL PARTNERS PLC
TWENTYFOUR INCOME FUND LTD
HENDERSON DIVERSIFIED INCOME
CITY MERCHANTS HIGH YIELD TRUST

Equities - 50%
Anglo Asian Mining
Bellway
Bloomsbury Publishing
British American Tobacco
City Of London Investment PLC
Glaxosmithkline
Griffin Mining
Headlam
Legal & General
London & Associated Properties
Morgan Sindall
Persimmon
Plus500
Property Franchise
Rio Tinto
Royal Dutch Shell
Schroders
Tate & Lyle
Taylor Wimpey
Vodafone

Investment Trusts - 25%
British Empire Trust
City Of London Investment Trust
European Assets Trust Nv
Henderson Far East Income
Henderson High Income Trust
North American Income Trust
Polar Capital Technology Trust
Standard Life Uk Smaller Companies

CASH - 5%

The weightings of the above are approx equal in proportion - i.e there are 8 ITs and each holding is 1/8 of 25%.

The main difference is the introduction of the Investment trusts. I thought more about Red Onion's suggestion and realised that they are very useful in providing exposure to emerging markets, technology etc - i.e specialist areas to which I would prefer to have exposure but not involved decision making.

I have tried to get a reasonable blend of large/mid/small cap equities.

I also have ITs instead of 20% Bonds, mainly because when I looked closer at bonds, they seemed expensive.

My hope is to be a long term holder of all the above (I will distribute the Tesco & Treasury when redeemed amongst the debt/bond ITs), though I would be more sensitive to taking profits and cutting losses from the small cap equities.

I will rebalance the allocation eg between ITs and Equities annually, and only rebalance individual holdings if any individual position is more than 6% of the portfolio.

For two years I intend to reinvest all income (less 20% used to pay tax).
 
OP,

A few observations. You did well to diversify out of specific stocks.
You are very exposed to GBP quoted equities / IT's.
I think you still have too many holdings. By focusing on IT's as tax efficient as they are, you are letting the tail wag the dog.
I know you stated a "total return" strategy, but you can hold cash or near-cash as a hedge. For me, thats a short-dated bond fund.
I have seen this a lot - people wanting or needing to be fully invested. Remember, cash is an asset class.
I ask you this as your conscience - can you handle a 20 - 30% market correction? What would you do?
Hold tight, re-invest back in at lower levels?

F.
 
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