I am yet to see any sign of consistent performance in my fund - but in part that's because of my constant fiddling with the way I calculate the figures I report. This isn't in the same way my former-fixed income fund manager described that his marketing did when he was in the banks - identifying which period of time demonstrated the best period of performance then reporting it. No, I am trying to give as accurate account as possible; in part, it affects whether I continue this whole enterprise given that I have a lot of "skin in the game" i.e. my retirement income!
So, what is interesting this quarter? Well, my performance is again lagging the market (even though the market has really bellyflopped in the last few weeks). Disappointing really, given that I felt I had sped ahead when the markets realised that the world was still screwed - and that lots of people trying to outprint each other's currencies didn't actually produce a material growth effect.
I have dropped in my comparison against the Trustnet managers - and am now sitting in the 76th percentile (I also worked out you can actually see the performance for the year to date) - including an uplift of 1.2% for my lack of fund manager management charges (it helps a lot!).
A continuation of the good news from last quarter is that, now I am into positive growth, I can expect to net a pension equivalent to about 74% of my current income - although based on 3% inflation for the next 34 years that actually equates to a real income thats about 35.5% of my current salary. At least I won't be a higher rate taxpayer, I suppose!
Last quarter I told you the best and worst performing stocks for growth (Carnival and Aviva respectively) - well this has now changed. Carnival remains my growth genie (although CareTech was pegged back by a second purchase of shares), and my all-time dog is thee ater company Dee Valley Group.
Thinking ahead, I am always trying to think "fundamentals". In some cases I have bought stocks for stupid reasons - but on the whole it is because I believe theyy hae a long term benefit. This means if things are dropping in price it presents a buying opportunity - and my real suckers at the moment are Dee Valley Group, IG Group and Tesco. I'll buy more shares on Tuesday - I wonder if L will go for any of those or if she'll be more keen for something new.
To summarise - at least growth is now positive. There's still bad stuff on the horizon, so how the storm is weathered will dictate my future.
Saturday, 29 September 2012
Thursday, 6 September 2012
Sell out!
Sugar rushes all round today as the European Central Bank promised to bring bond yields into line. So that means that the ECB will buy bonds of government that noone else wants to lend to in order to make their borrowing costs lower. So rewarding their naughty behavior when they borrowed more than they can afford when times were good. Real moral hazard stuff.
Anyway, the stock markets liked it because it makes everything feel warm and safe - so stock prices went up. Don't count on them staying that way forever.
I made one further change to my portfolio yesterday - I mentioned earlier this year that I owned shares in a Scottish Widows tracker. Having looked at the breakdown, and unsurprisingly given its an index tracker, its stuffed full of those stocks L doesn't think are ethical - British American Tobacco, BAE etc etc. She wants it sold, so that's what i've started to do. Yesterday I sold a third of my holding - my intention is to sell the other two thirds over the coming two to four weeks. That'll leave me with substantially more cash to invest over the coming months.
Otherwise, little to report.
Anyway, the stock markets liked it because it makes everything feel warm and safe - so stock prices went up. Don't count on them staying that way forever.
I made one further change to my portfolio yesterday - I mentioned earlier this year that I owned shares in a Scottish Widows tracker. Having looked at the breakdown, and unsurprisingly given its an index tracker, its stuffed full of those stocks L doesn't think are ethical - British American Tobacco, BAE etc etc. She wants it sold, so that's what i've started to do. Yesterday I sold a third of my holding - my intention is to sell the other two thirds over the coming two to four weeks. That'll leave me with substantially more cash to invest over the coming months.
Otherwise, little to report.
Monday, 3 September 2012
What happens when it all goes wrong?
Over the last few days I've been running the scenario of "when it all goes wrong" round in my head. I've suggested several times before that I am holding onto around a third of my pension fund as cash in order to take advantage of the stock market collapsing - but I haven't actually decided what i will do when that happens.
And this seems to me to be quite important - if and when the markets crash - later this year or early next year when the Greeks get the boot and China's poor economic situation becomes apparent - I'll need to act really quickly.
Looking back at the 2008, 2002 and 1998 "tits up" moments in the markets, there's some interesting things to observe:
This Guardian article lists the top 10 largest falls in the FTSE 100 ever. The range is 5.58% to 12.22%. All but one were in the 2008 or 1987 market crashes (it was in 2001).
So, what does that information tell me about trading strategy? Well, firstly a drop over 5%+ should indicate that it's time to buy. Secondly, there's no reason to panic - these collapses last months rather than weeks. So, with that in mind, a 5%+ drop should indicate that its time to double the rate of market investment to start eating into that reserve fund - so investing around once every 16 days or so.
With regards individual shares, market panics usually lead to wholesale sell offs before the wheat is sorted from the chaff - so buying into the big reliable companies first is probably prudent, as they are likely to rebound faster. Smaller stocks are more likely to spend time in the doldrums whilst analysts try and work out what to start recommending again.
Obviously the FTSE 100 is UK listed stocks, although not necessary UK-focussed stocks (think about all those miners from post-Soviet states). International diversification will be key - who'd want to rely on one potentially knackered market when they could have the safety of exposure to many?
My first go at a list (to be bought in this order) would be something along these lines:
I'll update this every couple of months whilst we wait for the day stocks get cheap. Remember Baron Rothschild: "Buy when there's blood in the streets, even if the blood is your own."
And this seems to me to be quite important - if and when the markets crash - later this year or early next year when the Greeks get the boot and China's poor economic situation becomes apparent - I'll need to act really quickly.
Looking back at the 2008, 2002 and 1998 "tits up" moments in the markets, there's some interesting things to observe:
- In 1998 it took 2.5 months for the FTSE 100 to drop 1400 points
- In 2002/3 it took 10 months for the FTSE 100 to drop 1600 points
- In 2008/9 it took 6 months for the FTSE to drop 2000 points
This Guardian article lists the top 10 largest falls in the FTSE 100 ever. The range is 5.58% to 12.22%. All but one were in the 2008 or 1987 market crashes (it was in 2001).
So, what does that information tell me about trading strategy? Well, firstly a drop over 5%+ should indicate that it's time to buy. Secondly, there's no reason to panic - these collapses last months rather than weeks. So, with that in mind, a 5%+ drop should indicate that its time to double the rate of market investment to start eating into that reserve fund - so investing around once every 16 days or so.
With regards individual shares, market panics usually lead to wholesale sell offs before the wheat is sorted from the chaff - so buying into the big reliable companies first is probably prudent, as they are likely to rebound faster. Smaller stocks are more likely to spend time in the doldrums whilst analysts try and work out what to start recommending again.
Obviously the FTSE 100 is UK listed stocks, although not necessary UK-focussed stocks (think about all those miners from post-Soviet states). International diversification will be key - who'd want to rely on one potentially knackered market when they could have the safety of exposure to many?
My first go at a list (to be bought in this order) would be something along these lines:
- Unilever - big, international, selling something everything needs
- Microsoft Corporation - totally market dominant
- eBay- Paypal will give this company amazing growth, and the auction site is market dominant internationally
- LinkedIn Corporation - great growth story, with a high alpha (market correlation)
- ARM Holdings - this and Imagination between them dominant the chip market for mobile devices
- Imagination Technologies Group - as per ARM Holdings
- XP Power - great growth stock exposed to the far eastern market
- Golar LNG - 100% utilisation at the moment, a play on the global gas growth trend
- Fenner plc - if you want conveyor belts for mining, this is the company you go to. Late in the list because commodities arent going to be bouncing anywhere at the end of their supercycle
I'll update this every couple of months whilst we wait for the day stocks get cheap. Remember Baron Rothschild: "Buy when there's blood in the streets, even if the blood is your own."
Friday, 31 August 2012
Too much uncertainty!
Back from honeymoon as of Saturday morning, I was straight back on it with regards looking at where to invest next.
Having thought a lot about conviction over my holiday, I have been considering the merits of continuing to buy shares in companies I already hold - rather than always seeking "new" companies to buy into. After all, I bought the companies I did with good reason - and unless there has been a fundamental change I should stick with them.
On this logic, the next thing to do is consider which "end of the scale" to consider. Should I go for shares where the price has dropped since my first purchase - so they are "even better value" assuming they are a fundamentally good investment - or should I go for those performing exceptionally well, indicating that there is good momentum behind the share price?
Using this filter, I was looking at IG Group - the financial spread betting company - and Dee Valley Water, the UK's smallest listed water company - or Games Workshop Group, providers of wargaming hobby toys to young men in the UK and Europe - or CareTech Holdings, the specialist care home provider in the UK.
Thinking about the big picture, the FTSE All Share Index is up nearly 8% in the last three months. I, however, am still hugely pessimistic. China is slowing down, Australia exports are dropping off hugely, nothing good is happening in the Eurozone - how on earth can companies be worth 8% more over three months?! So, with this in mind, I wanted my next investment to be in an unloved sector (sectors, rather than stocks, is how you should invest - look for unloved sectors, like iron ore mining in about six months!!).
There's something called "beta" which is about the correlation between share price changes and index changes. A beta of 1 means the share price moves in line with the index, -1 means it does totally the opposite, and 0 means it has nothing to do with the index movements at all. If you think that the market is going to pile in, buy shares with a beta between 0 and -1.
Looking over the options about, Games Workshop and CareTech both fitted the bill. Initially I was going for Games Workshop, with the intention of making a "standard" investment (the market has been pretty flat over the last couple of weeks) - and even queued up the order overnight.
Having slept on it though, I started getting worried about a value trap - Games Workshop is paying out lots of dividends recently (its on a 6.57% yield), and its dividend cover isn't great at just over 1. That means that if profits drop, then the dividend is definitely going (which is not what I want as a long term investor focussed on dividends!). So I got scared and switched to CareTech.
So this has positives and negatives. I was kicking myself when I saw the share price changes this last week gone for Games Workshop (its up 6.5% in a week!!). But then, looking at the CareTech dividend cover, I feel better - its massive. That means on top of a good yield, there's lots of profit going into the savings account or into new business - which for me in the long term is great news! And talk about unloved - CareTech's share price crashed a few months after Southern Cross when wrong - it's definitely not tarred with the same brush, but certainly unloved!
Having written it all down, I feel better already about changing my mind. My next investment will be near the end of September unless the market tanks by a good 5-10% before hand, and then it'll be time for another portfolio review to see how this project's actually working out.
Having thought a lot about conviction over my holiday, I have been considering the merits of continuing to buy shares in companies I already hold - rather than always seeking "new" companies to buy into. After all, I bought the companies I did with good reason - and unless there has been a fundamental change I should stick with them.
On this logic, the next thing to do is consider which "end of the scale" to consider. Should I go for shares where the price has dropped since my first purchase - so they are "even better value" assuming they are a fundamentally good investment - or should I go for those performing exceptionally well, indicating that there is good momentum behind the share price?
Using this filter, I was looking at IG Group - the financial spread betting company - and Dee Valley Water, the UK's smallest listed water company - or Games Workshop Group, providers of wargaming hobby toys to young men in the UK and Europe - or CareTech Holdings, the specialist care home provider in the UK.
Thinking about the big picture, the FTSE All Share Index is up nearly 8% in the last three months. I, however, am still hugely pessimistic. China is slowing down, Australia exports are dropping off hugely, nothing good is happening in the Eurozone - how on earth can companies be worth 8% more over three months?! So, with this in mind, I wanted my next investment to be in an unloved sector (sectors, rather than stocks, is how you should invest - look for unloved sectors, like iron ore mining in about six months!!).
There's something called "beta" which is about the correlation between share price changes and index changes. A beta of 1 means the share price moves in line with the index, -1 means it does totally the opposite, and 0 means it has nothing to do with the index movements at all. If you think that the market is going to pile in, buy shares with a beta between 0 and -1.
Looking over the options about, Games Workshop and CareTech both fitted the bill. Initially I was going for Games Workshop, with the intention of making a "standard" investment (the market has been pretty flat over the last couple of weeks) - and even queued up the order overnight.
Having slept on it though, I started getting worried about a value trap - Games Workshop is paying out lots of dividends recently (its on a 6.57% yield), and its dividend cover isn't great at just over 1. That means that if profits drop, then the dividend is definitely going (which is not what I want as a long term investor focussed on dividends!). So I got scared and switched to CareTech.
So this has positives and negatives. I was kicking myself when I saw the share price changes this last week gone for Games Workshop (its up 6.5% in a week!!). But then, looking at the CareTech dividend cover, I feel better - its massive. That means on top of a good yield, there's lots of profit going into the savings account or into new business - which for me in the long term is great news! And talk about unloved - CareTech's share price crashed a few months after Southern Cross when wrong - it's definitely not tarred with the same brush, but certainly unloved!
Having written it all down, I feel better already about changing my mind. My next investment will be near the end of September unless the market tanks by a good 5-10% before hand, and then it'll be time for another portfolio review to see how this project's actually working out.
Tuesday, 24 July 2012
Bad day at the office
It certainly was for Aviva shareholders yesterday, when the share price dropped by 7.54% - which I took as a buying opportunity.
As per my last, I am off on honeymoon for a month at the end of the week so I wanted to get some more shares into my portfolio beforehand. I considered quite a few weird and wonderfuls, but something I am trying to increasingly consider is those companies that already exist in my portfolio - new is not always better once a certain level of exposure to different areas has been achieved, and I did buy those shares for a reason.
So, why more Aviva? Well, the share price dropped significantly, and the company binned its CEO and is now talking about "hoping" to maintain its dividend (just shy of 10%) whilst intending to dispose of underperforming businesses and get focussed. Sounds like a good long term plan, and with a 40% discount to assets held I am pretty happy to hold more.
What else was under consideration? Well, Caretech is up 25% since I bought it in late May. I also thought very seriously about an electronics company called XP Power which is being widely tipped and has a 4.6% historic yield based on today's price. They seem to be very good at what they do, but I am going to wait until the share price drops to sub 950p before I pick any of those up (i just feel that's about the right amount to pay).
Anyway, I am gone now until the end of August. I wonder what the market will do whilst I am away....
As per my last, I am off on honeymoon for a month at the end of the week so I wanted to get some more shares into my portfolio beforehand. I considered quite a few weird and wonderfuls, but something I am trying to increasingly consider is those companies that already exist in my portfolio - new is not always better once a certain level of exposure to different areas has been achieved, and I did buy those shares for a reason.
So, why more Aviva? Well, the share price dropped significantly, and the company binned its CEO and is now talking about "hoping" to maintain its dividend (just shy of 10%) whilst intending to dispose of underperforming businesses and get focussed. Sounds like a good long term plan, and with a 40% discount to assets held I am pretty happy to hold more.
What else was under consideration? Well, Caretech is up 25% since I bought it in late May. I also thought very seriously about an electronics company called XP Power which is being widely tipped and has a 4.6% historic yield based on today's price. They seem to be very good at what they do, but I am going to wait until the share price drops to sub 950p before I pick any of those up (i just feel that's about the right amount to pay).
Anyway, I am gone now until the end of August. I wonder what the market will do whilst I am away....
Saturday, 7 July 2012
Let's print some money....
No, not a reference to the Bank of England's latest smack-addict announcement to dump more money into the economy to the cost of all those who have spent time accumulating into savings and pensions (thanks guys!)
Actually, it's a reference to my latest stock selection - De La Rue - which prints money in over 150 currencies (there are 182 in total). That's a pretty strong start - it looks like market dominance to me. And in this era of money-printing, it has to be a classic "picks and shovels" stock selection. How could a selection like this go wrong? Well, we could all move back to barter or base metal currencies, but I am afraid that I don't see that happening.
Is it a good company? Well, the Wikipedia entry says that "the company was recognized by Hermann Simon as a role model for other small to medium sized business in his book Hidden Champions". Good for him. More importantly, other than market dominance, let's look at that driver of long-term market returns: dividends. It looks pretty good - okay, back in the mid to late 00s there were a lot of special dividends making it very attractive, but now it still yields around 4.28%.
Laura's a big fan - this months run-through of stock options was pretty pointless, as it was the only one she wanted me to buy.
What am I thinking about next? Well, i'd like to get some more Aviva stock because I think the announcements to sell off all the crappy business bits and focus on the profitable bits, makes sense. Sounds a bit like Jack Welch's approach to GE in the 1980s. I just had a look at their preference shares as well, although these only seem to yield 8.5%ish - and I don't think the company is going to the wall just yet.
Oh - final bit of good news. I said that I had opted out of the state second pension (last tax year was the last opportunity) - well this last week I got a decent rebate which has done a good job of bolstering my cash war chest. I am probably going to pull my next investment date forward by a few days - and probably drop back into a monthly cycle again. I am off on honeymoon at the end of this month, so I'll probably get back into the market a couple of days before that.
Actually, it's a reference to my latest stock selection - De La Rue - which prints money in over 150 currencies (there are 182 in total). That's a pretty strong start - it looks like market dominance to me. And in this era of money-printing, it has to be a classic "picks and shovels" stock selection. How could a selection like this go wrong? Well, we could all move back to barter or base metal currencies, but I am afraid that I don't see that happening.
Is it a good company? Well, the Wikipedia entry says that "the company was recognized by Hermann Simon as a role model for other small to medium sized business in his book Hidden Champions". Good for him. More importantly, other than market dominance, let's look at that driver of long-term market returns: dividends. It looks pretty good - okay, back in the mid to late 00s there were a lot of special dividends making it very attractive, but now it still yields around 4.28%.
Laura's a big fan - this months run-through of stock options was pretty pointless, as it was the only one she wanted me to buy.
What am I thinking about next? Well, i'd like to get some more Aviva stock because I think the announcements to sell off all the crappy business bits and focus on the profitable bits, makes sense. Sounds a bit like Jack Welch's approach to GE in the 1980s. I just had a look at their preference shares as well, although these only seem to yield 8.5%ish - and I don't think the company is going to the wall just yet.
Oh - final bit of good news. I said that I had opted out of the state second pension (last tax year was the last opportunity) - well this last week I got a decent rebate which has done a good job of bolstering my cash war chest. I am probably going to pull my next investment date forward by a few days - and probably drop back into a monthly cycle again. I am off on honeymoon at the end of this month, so I'll probably get back into the market a couple of days before that.
Sunday, 1 July 2012
Portfolio .... break it down
Before next week, when I make my next selection, it seems to make sense to take a "strategic view" of the fund as it stands - in order to improve decision making going forwards.
Hargreaves Lansdown is good in this respect, as it has a fairly rudimentary portfolio analysis tool. So what does it say?
The portfolio breaks down as follows between equities, funds and cash:
Funds 32.5%
UK Shares 33.4%
Cash 31.4%
So I realise I haven't spoken much about my cash holding on here to date. I do have a substantial amount which I am holding back, on the basis that I still believe Europe is going to experience a shock event in the coming months. Cash provides "optionality" - that is, it gives me the opportunity to do things. I don't include it in my calculations at the moment, other than the interest it throws off, but this isn't a big concern for me right now - over time it will dimish as a portfolio constituent. If that's not an approach you agree with, divide my dividend by two-thirds and my TER by two-thirds - frankly, the optionality is more important over the long term than the short term impact of the cash.
Industry Breakdown
A nice graphic here showing I am very much skewed towards consumers. The financial services are my Aviva and IG Group holdings - not the banks (another bad week for those guys!)
Market Capitalisation
Interesting breakdown here - for some reason I either hold very big companies or relatively small companies. It would probably be worth reviewing how this sits alongside the FTSE at some point, although that's not a task for this evening.
So what?
So what does this all mean? I am heavily exposed to consumers, which might not be the best with a long period of sluggish growth coming up - although that said, a) I aim for companies that have exposure to as many markets as possible and b) we do live in a consumer society. Buying shares in companies that sell things people need (soap) rather than want (foreign holidays) seems quite defensible to me.
What does concern me is how low my exposure is to "technology", although if I dig into this what does it actually mean? I am not too sure as the whole holding is via my SWIP All Share Tracker fund. Really, this is an area I know and so should be able to make good decisions about.
A positive? "Big" companies tend to be defensives because they sell things loads of people need - so having 44% of my shareholdings in companies in the top two categories seems like a positive to me.
Decision making
Being hard on myself, I really need to make sure that shares I buy as the work goes soggy sell things everyone needs, in as many places as possible. What does this bring to mind? The basics - soap, telecommunications (especially if they are selling TV which people will sit at home and watch), utilities, nice and cheap generic medicines - all that kind of thing.
However, given I have a buy-and-hold-for-the-next-30-years strategy, I have the opportunity to be contrarian - maybe I should buy into something I know has long term value which other fund managers will be avoiding on the basis they know it is likely to ruin their next few quarter's performance figures. Say.....oil rig manufacturers, shipping companies, PIIGS shares etc
Lots of options for the long term investor at the moment - I'll go through my short list and update you once the next purchase has happened.
Take care.
Hargreaves Lansdown is good in this respect, as it has a fairly rudimentary portfolio analysis tool. So what does it say?
The portfolio breaks down as follows between equities, funds and cash:
Funds 32.5%
UK Shares 33.4%
Cash 31.4%
So I realise I haven't spoken much about my cash holding on here to date. I do have a substantial amount which I am holding back, on the basis that I still believe Europe is going to experience a shock event in the coming months. Cash provides "optionality" - that is, it gives me the opportunity to do things. I don't include it in my calculations at the moment, other than the interest it throws off, but this isn't a big concern for me right now - over time it will dimish as a portfolio constituent. If that's not an approach you agree with, divide my dividend by two-thirds and my TER by two-thirds - frankly, the optionality is more important over the long term than the short term impact of the cash.
Industry Breakdown
A nice graphic here showing I am very much skewed towards consumers. The financial services are my Aviva and IG Group holdings - not the banks (another bad week for those guys!)
| Consumer Services | 28.3% | |||||||
| Financials | 16.3% | |||||||
| Consumer Goods | 15.0% | |||||||
| Telecommunications | 12.7% | |||||||
| Health Care | 8.6% | |||||||
| Oil & Gas | 6.0% | |||||||
| Utilities | 6.0% | |||||||
| Basic Materials | 3.9% | |||||||
| Industrials | 2.9% | |||||||
| Technology | 0.5% | |||||||
| Non-Classified | 0.2% | |||||||
Market Capitalisation
Interesting breakdown here - for some reason I either hold very big companies or relatively small companies. It would probably be worth reviewing how this sits alongside the FTSE at some point, although that's not a task for this evening.
| >£50bn | 27.4% | |
| >£20bn and <£50bn | 16.8% | |
| >£10bn and <£20bn | 8.9% | |
| >£5bn and <£10bn | 12.5% | |
| >£1bn and <£5bn | 10.4% | |
| >£250m and <£1bn | 6.9% | |
| <£250m | 16.3% | |
| Unknown | 0.8% |
So what?
So what does this all mean? I am heavily exposed to consumers, which might not be the best with a long period of sluggish growth coming up - although that said, a) I aim for companies that have exposure to as many markets as possible and b) we do live in a consumer society. Buying shares in companies that sell things people need (soap) rather than want (foreign holidays) seems quite defensible to me.
What does concern me is how low my exposure is to "technology", although if I dig into this what does it actually mean? I am not too sure as the whole holding is via my SWIP All Share Tracker fund. Really, this is an area I know and so should be able to make good decisions about.
A positive? "Big" companies tend to be defensives because they sell things loads of people need - so having 44% of my shareholdings in companies in the top two categories seems like a positive to me.
Decision making
Being hard on myself, I really need to make sure that shares I buy as the work goes soggy sell things everyone needs, in as many places as possible. What does this bring to mind? The basics - soap, telecommunications (especially if they are selling TV which people will sit at home and watch), utilities, nice and cheap generic medicines - all that kind of thing.
However, given I have a buy-and-hold-for-the-next-30-years strategy, I have the opportunity to be contrarian - maybe I should buy into something I know has long term value which other fund managers will be avoiding on the basis they know it is likely to ruin their next few quarter's performance figures. Say.....oil rig manufacturers, shipping companies, PIIGS shares etc
Lots of options for the long term investor at the moment - I'll go through my short list and update you once the next purchase has happened.
Take care.
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