Performance Update for Colm Fagan's ARF

ArthurMcB said:
I buy and sell based on price all the time.
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Sure, but in this situation the reason for selling is not directly based on price.

If you decide to sell Novo Nordisk to reduce your exposure, it doesn't mean you think the stock is priced unfairly. It just means you are too concentrated in that stock.

Colm Fagan said:
Like Warren Buffett, my favourite holding period is forever.
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Colm Fagan said:
I also believe in buy and hold.
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The difference between you (or anyone else post-retirement) and Warren Buffet is that he has a constant stream of new money coming in from the business activities of Berkshire's companies.
If he becomes overweight in Novo Nordisk he can reduce his exposure by buying anything other than Novo Nordisk.

You are already in drawdown, so you aren't contributing to your pension anymore. Your buy and hold strategy has lost the "buy".
If all you do is hold and hold, your portfolio becomes unbalanced.
 
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Corola said:
The difference between you (or anyone else post-retirement) and Warren Buffet is that he has a constant stream of new money coming in from the business activities of Berkshire's companies.
If he becomes overweight in Novo Nordisk he can reduce his exposure by buying anything other than Novo Nordisk.

You are already in drawdown, so you aren't contributing to your pension anymore. Your buy and hold strategy has lost the "buy".
If all you do is hold and hold, your portfolio becomes unbalanced.
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It's a fair point. There's no doubt that the investment challenge changed when I moved from accumulation to drawdown.
As I've documented on this thread, purchases - and even sales - are rare. For example, going back to post #1 above, which told of performance in 2023, there were no transactions whatsoever in that year. No purchases, no sales. The small amount of cash at the start of the year plus dividends were more than enough to cover "pension" withdrawals in the year. Similarly, in 2024, the only transactions up until December were two small sales (of my largest holding) to fund pension payments in excess of dividends.
There was a big change in December 2024, prompted largely by the lesson learned from my disaster with Novo Nordisk, documented above. I sold a large chunk of my Apple holding and reinvested in other shares (mainly Nvidia), for two reasons. One was that my exposure to Apple was too heavy. The other was that I thought it was overvalued. That transaction worked out well.
I've continued with (slightly) higher levels of buying and selling into 2025. That (I claim) shows that I've learned from my mistake with Novo Nordisk. It also proves your point that, if I want to change the balance of my portfolio, I must sell. If cash flows were positive, I could change the balance purely by redirecting new money and wouldn't need to sell.
ArthurMcB said:
I buy and sell based on price all the time.
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The problem with that is that it implies that you think you know better than the market. That may be true on the very odd occasion, but in general the market is far better than either of us at assessing relative values, so buying and selling is just a waste of money.
 
Colm Fagan said:
I sold a large chunk of my Apple holding and reinvested in other shares (mainly Nvidia), for two reasons. One was that my exposure to Apple was too heavy. The other was that I thought it was overvalued. That transaction worked out well.
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I remember from an earlier update you were initially disappointed that you bought Nvidia earlier in the year because it went down but it has since gone back up.

Maybe you have spoken about this elsewhere but how do you decide what new companies to buy? That choice is probably harder to make than to sell or hold?

Do you have a special interest in certain sectors and you keep abreast of related news. Are you looking at movements in the market more broadly?
 
CharlieMac said:
Maybe you have spoken about this elsewhere but how do you decide what new companies to buy? That choice is probably harder to make than to sell or hold?
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First of all, don't take whatever I write as gospel. I'm only an amateur. I've never worked in an investment department. The last investment course I attended (pretty exciting it was, though) was in London on the Monday and Tuesday after Black Friday in October 1987. But .... my long-term investing record isn't bad. The average return on my ARF in the 14.67 years from December 2010 to August 2025 is 10.8% a year, net of all expenses.
The reason for the good return has nothing to do with investment expertise, everything to do with following a few simple rules, like being as close as possible to 100% invested in equities at all times and keeping costs as low as possible (which includes trying to keep transaction costs low, which also means trading as little as possible).
To answer your question, it's probably best to take an example.
As mentioned in post #70 above, I decided to sell over three quarters of my Apple holding at end 2024. Here's how I documented my thinking. It was quite straightforward, really.

On 18 December last, in the course of doing research for another AAM discussion (in the thread "Should retirees be 100% invested in equities") I looked at some metrics for Apple, one of my biggest holdings. At the time, it accounted for almost a quarter of my ARF. Here’s how I documented my conclusions:
Colm Fagan said:
One of the "growth" shares is on a P/E multiple of over 40. I bought shares in the same company in 2015 at a P/E multiple of under 20. I don't think its prospects are much better now than they were in 2015, so I'm thinking of selling some or all of my shares in that company. I only did this analysis now, when drafting this post. It's very - VERY - superficial, but it seems to support the impression that came through a few times during the current exchange, that the current hype about AI etc. has many similarities to the dot-com bubble that ended with a bang in 2000.
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The “growth share” in question was of course Apple. Here is what I wrote about it back in 2015, when I had a “Diary of a Private Investor” column with the Sunday Times. The contrast between 2015 and 2024 shocked me and caused me immediately to offload more than three quarters of my Apple holding at an average of $252.82 a share. I used some of the proceeds to buy Nvidia at $137.20 a share but left more than 50% in cash, so the cash portion of the fund at year-end was much higher than usual: 11.7% of fund, compared with just 0.6% at end 2023.
As I recall, my reason for buying Nvidia was simply because it's the share that everyone was talking about (I know nothing about AI or anything like that). I looked at how EPS was growing and decided that, while I'd have to pay a higher multiple of profits than for Apple, its earnings were growing like topsy, so it seemed to be a better bargain. Not very scientific!!
The easiest decision of all is to do nothing, which effectively is to just hold what you have. As I wrote earlier, that's what I do most of the time. I look at individual shares in my portfolio very rarely. I explained the chance reason for looking at Apple.

CharlieMac said:
Do you have a special interest in certain sectors and you keep abreast of related news. Are you looking at movements in the market more broadly
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I think I know the life assurance business better than others (but I should keep reminding myself that it's more than 10 years since I worked in the business) so I have a high proportion of my ARF invested in life assurance companies, mainly because I think the companies I've invested in will deliver good (maybe not spectacular) returns and (most importantly at this stage in my life) they pay a high dividend.
No, I don't really look at movements in the market more broadly. My awareness of what's happening would be about average for someone who're reasonably financially literate, no more than that. For example, I ceased subscribing to the FT because it wasn't worth my while any more.
Dr Strangelove said:
Do you have a rule of thumb (say 15%) for when you are overweight in one specific stock?
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No. I'm comfortable holding 20% or even more if I think the company is cheap, with little downside risk in terms of either earnings (or dividend - it depends which I think is more important) or multiple; however, I would be wary of holding anything close to 15% in a company that's on a high earnings multiple or where the earnings could fall suddenly. One of the main reasons for cutting back on my Apple was that I thought the multiple was risky. But once again, take heed of what I said at the start, that I'm just an amateur; professionals would laugh at the naivety of some of my arguments.
 
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A funny postscript to my tale of woe on Novo Nordisk.
A former colleague, an investment professional, messaged me this morning to say that his firm sold Novo at 800 on the way up, bought back about 550, then doubled up around 300.
I didn't have the heart to tell him that the last time he contacted me was in 2007, when he urged me to borrow to the hilt to invest in Irish bank shares, because dividend yields were higher than the cost of borrowing - a unique opportunity to make a killing, he said!
 
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My ARF will celebrate its 15th birthday at the end of this month. In anticipation of the occasion, I’ve been considering aspects of my investment strategy that have had positive or negative impacts on returns.

The ARF is invested entirely in a concentrated equity portfolio (currently just 16 holdings).

One strategy objective is to keep turnover low: there were just two sales in 2022 (4% of fund), none in 2023, two in the first eleven months of 2024 (2% of fund). Withdrawals are 6% a year, funded mainly by dividends.

However, a disaster with Novo Nordisk prompted a strategy review in December 2024.

At mid-2024, my holding in Novo Nordisk, then valued at over kr. 1,000 a share, almost five times its original cost in 2020, represented over a quarter of my portfolio. I considered selling down but didn’t. By end 2024, the price was down to kr. 625.

I resolved never to get caught like that again.

In December 2024, I sold over 20% of my portfolio (Apple) and bought 9% (Nvidia), leaving the other 11% in cash. I’ve continued in similar vein through 2025, selling 12% and buying 20% (thus far), with mixed results.

One of my 2025 purchases was BAE Systems, at £18.745 a share; it’s now down to £16.54, while Phoenix Group, which I part-sold at £6.51 to fund the BAE purchase, is now up to £6.96. On the other hand, I topped up Ryanair at €18.235 in April and again in November, at €25.60. Its current price is €29.42. It now accounts for over 12% of the portfolio.

Following the review, I’ve decided to stick with buy and hold, with slight modifications. I’m comfortable holding over 20% in a single share if I think the company is cheap, with little downside risk, but I’m wary of holding anything close to 15% if it’s on a high earnings multiple or if I think earnings or their projected trajectory could suddenly worsen.

Oh, I still have all my Novo Nordisk shares, and the price has fallen another 50%, to kr. 310.
 
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Hi Colm,

Big admirer. But I suppose my 1 question would be, now that you are adding new positions to the portfolio, why are you not choosing a broad based index Fund?

By the way just on Buy and Hold as a strategy. Some time back Merrill Lynch decided to look at their best performing client portfolios. They reached out to contact the top performing ones and found that the vast majority of them were either dead or had forgotten that they had the portfolio.
 
Another admirer here of your posts.

Why not just set up your equity portfolio to mimic that of a global ETF, say the top 30-40 holdings of the ETF (adjusted weightings). You will remove your decision making on allocations (losses) and achieve market performance.
 
AJAM said:
By the way just on Buy and Hold as a strategy. Some time back Merrill Lynch decided to look at their best performing client portfolios. They reached out to contact the top performing ones and found that the vast majority of them were either dead or had forgotten that they had the portfolio.
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Ha! Howard marks mentioned this in the podcast around his latest memo. A bit of an urban legend (confirmation bias) for the buy and hold zealots!
 
AJAM said:
But I suppose my 1 question would be, now that you are adding new positions to the portfolio, why are you not choosing a broad based index Fund?
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Nothing against index funds. I just prefer to invest in real businesses. Now that you mention it, though, I've been thinking I should try to get some exposure to China but don't have a clue about how to invest there. Maybe a China fund would be a possibility. Not sure how I'd research them.
 
jpmackey said:
Why not just set up your equity portfolio to mimic that of a global ETF, say the top 30-40 holdings of the ETF (adjusted weightings). You will remove your decision making on allocations (losses) and achieve market performance.
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As per my answer to @AJAM, I like to invest in real companies and follow their progress. I'm finding it hard enough at present with 16 companies, the bulk of which I've held for years (some from the start 15 years ago, even previously, when I was in accumulation mode). God knows what it would be like with 30-40, most of which I'd be completely unfamiliar with.
I will stress, though, that buying individual companies is not a core "principle". As I get (even) older, I may take an easy option of buying index funds.
 
I posted the below on LinkedIn yesterday.
The responses on AAM are of better quality, so here goes!!!!

Investors generally agree that the Equity Risk Premium (ERP) is of the order of 4% a year, maybe more, maybe a bit less; however, they also know there’s a risk of it being negative – possibly to the extent of minus 10% or even worse – over the next month, year, or even longer. That risk makes equities unsuitable for short-term investors and can even cause committed long-term investors to hedge their bets.

Not I. Despite my age and despite my pension being in drawdown for the last 15 years, I still aim to be as close as possible to 100% in equities. At times, I have even breached my platform provider’s requirement to have sufficient liquidity for the next scheduled withdrawal, arguing that dividends on ex-dividend stocks that are due to arrive in the account before the payment date should be included in the liquidity calculation!

My reasoning is simple, if very non-actuarial: money held in bonds and cash is equivalent to investing in a fund that carries an extra management charge of 4% a year. On this reasoning, a fund invested 80% in equities, 20% in bonds or cash has an extra management charge of 0.8% a year (20% of 4%). Who wants to invest in a fund that incurs an extra charge of 0.8% a year?

Like everyone, I worry about the risk of a sudden downturn and of being forced to sell when prices are depressed; however, I’m a great believer in the adage that the market is always right – at the very least it’s much better informed than I am – so I usually try to resist the temptation to allay my worries by reducing equity exposure. The fact that dividends can be relied on to cover a good proportion of short-term income requirements is a help.

The debacle with Novo Nordisk (mentioned in my post of a few days ago) caused a change of heart. Since then, I have resolved to reduce (at least) my exposure to shares whose valuations seem particularly frothy and which represent a significant proportion of my fund, and to replace them with ones that seem more reasonably priced; however, if markets generally are frothy, it can be difficult to find reasonably priced replacements. I’m still trying to get comfortable with the inevitability of higher liquidity in such circumstances.

The liquidity ratio was 2.6% at end 2022 and 0.6% at end 2023; it increased to 11.7% at end 2024 because the bulk of the proceeds from selling most of my Apple holding in December was still in cash.
The current liquidity ratio is 0.8% - but that doesn’t mean I’m NOT worried about valuations!
 
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Colm Fagan said:
I posted the below on LinkedIn yesterday.
The responses on AAM are of better quality, so here goes!!!!

Investors generally agree that the Equity Risk Premium (ERP) is of the order of 4% a year, maybe more, maybe a bit less; however, they also know there’s a risk of it being negative – possibly to the extent of minus 10% or even worse – over the next month, year, or even longer. That risk makes equities unsuitable for short-term investors and can even cause committed long-term investors to hedge their bets.

Not I. Despite my age and despite my pension being in drawdown for the last 15 years, I still aim to be as close as possible to 100% in equities. At times, I have even breached my platform provider’s requirement to have sufficient liquidity for the next scheduled withdrawal, arguing that dividends on ex-dividend stocks that are due to arrive in the account before the payment date should be included in the liquidity calculation!

My reasoning is simple, if very non-actuarial: money held in bonds and cash is equivalent to investing in a fund that carries an extra management charge of 4% a year. On this reasoning, a fund invested 80% in equities, 20% in bonds or cash has an extra management charge of 0.8% a year (20% of 4%). Who wants to invest in a fund that incurs an extra charge of 0.8% a year?

Like everyone, I worry about the risk of a sudden downturn and of being forced to sell when prices are depressed; however, I’m a great believer in the adage that the market is always right – at the very least it’s much better informed than I am – so I usually try to resist the temptation to allay my worries by reducing equity exposure. The fact that dividends can be relied on to cover a good proportion of short-term income requirements is a help.

The debacle with Novo Nordisk (mentioned in my previous post) caused a change of heart. Since then, I have resolved to reduce (at least) my exposure to shares whose valuations seem particularly frothy and which represent a significant proportion of my fund, and to replace them with ones that seem more reasonably priced; however, if markets generally are frothy, it can be difficult to find reasonably priced replacements. I’m still trying to get comfortable with the inevitability of higher liquidity in such circumstances.

The liquidity ratio was 2.6% at end 2022 and 0.6% at end 2023; it increased to 11.7% at end 2024 because the bulk of the proceeds from selling most of my Apple holding in December was still in cash.
The current liquidity ratio is 0.8% - but that doesn’t mean I’m NOT worried about valuations!
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I love this thread. I'll preface this response by saying I mostly agree with your philosophical perspective - and while I'm not yet retired myself, your overall strategy is one I plan to (mostly) pursue myself. I just wanted to take the opportunity to comment out loud and share my thoughts about your most recent post.

100% equities portfolio is proven the safest long-term scheme for surviving the risk of inflation (along with fixed percentage withdrawal), but it will be a bumpy ride and will test your nerves.

Treating the Equity Risk Premium as a "management fee" you avoid by holding 100% equities does muddle a little your expected return with risk and cash‑flow timing. ERP is expected, but it isn’t a rebate you’re guaranteed to collect. It’s a mean of a wide distribution with fat left tails. In drawdown, as you point out, the danger isn’t average return, it is sequence risk and forced selling when prices are depressed.

Bonds and cash aren’t a dead weight fee, but insurance against ruin. They provide spending liquidity when equities are down, and optionality to rebalance. Calling that insurance "a fee" is like calling home insurance a guaranteed loss until the day you need it.

Dividends don’t solve liquidity. They’re variable, often cut in recessions, and arrive on someone else’s timetable. Platform liquidity rules exist to keep you out of the forced‑sale trap you’ve already flirted with.

You don’t have to love bonds. But in drawdown, a 2 to 3 year cash/bond buffer or a short‑duration ladder is less about belief and more about survival math. Without the independent income of your career phase, the goal in retirement is not so much about maximizing wealth, its about wealth preservation. As William J. Berstein (The Four Pillars of Investing) has said, "You invest because you want to avoid being poor when you’re old".

To this end, Ben Felix (YouTuber and Chief Investment Officer of PWL Capital in Canada) has been advocating regularly that 100% equities with *significant* global diversification is safer than any mix of fixed income in a portfolio *over the long term*. But the big risk always is behavioural -- any panic could lead to unrecoverable losses.

Maths matters, but psychology is always the biggest risk.
 
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