ST article 16 Sep

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ST article 16 Sep

Post by richard@imutual » Sun Sep 16, 2018 9:53 am

This Sunday Times' article may be of interest to some
Time flies when you are making money. Five years ago, after escaping from another newspaper, I gave myself that much time to find out if I could run a “forever fund” with my life savings to see me out. It was a big leap from investing relatively small sums to managing a seven- figure pot built up from more than a quarter of a century of company pension contributions, so I resolved to remember this was irreplaceable capital and amend my attitude to risk accordingly.

Several friends sucked their teeth and warned me it would end in tears — and they didn’t all work in financial services. Running real money is very different from fantasy fund management because you cannot afford to forget your failures.

Writing a weekly column on this venture only made me more nervous about what felt like something between a financial strip-tease and a high-wire act. Worse still, some comments from readers gave me the queasy feeling that quite a few folk were paying for the pleasure of watching me make a mess of it.

So, for the benefit of DIY investors everywhere, I am delighted to report that the first five years have gone surprisingly well. Despite recent setbacks for global stock markets and the odd car crash for my personal portfolio along the way — Volkswagen’s diesel fraud still makes this former shareholder wince — my forever fund has delivered a total return, including dividends and costs, of 63%.

By contrast, the FTSE 100 index of Britain’s biggest stocks has returned about 35% over the same time. The MSCI World index of global stock markets, which is probably a fairer comparison, because I began investing overseas before anyone worried about Brexit, has grown by 60%, but neither index figure includes fees.


How did I do it? With a little help from my friends and a lot of luck, would be a candid answer. Here are my top 10 holdings, in rising order by value, with the price I paid when I first invested and a few words of explanation, as well as the price they closed at on Friday.

IN NUMBERS
63% Return on the ‘forever fund’, including dividends and costs, over five years
Deere, one of the world’s biggest tractor-makers, went into my forever fund because food will never go out of fashion. As a Londoner born and bred, I know nothing about agriculture, so I rang my uncle, Norman Marshall, who is a farmer in Canada, and asked if this was a great business or a legacy brand. He gave US-based Deere the thumbs-up. I paid $82 in November 2013 and the shares have trundled up to $149 since then. Thank you, Uncle Norman.

Baillie Gifford Shin Nippon investment trust provides exposure to smaller companies in Japan. Although I have visited Tokyo on business, this is another sector where I know next to nothing and am happy to pay for professional stock selection. I invested at 367p in October 2013, but a five-for-one share split earlier this year cuts the comparison price paid to 73p. The investment trust closed last week at 196p.

Boku, a technology tiddler that enables people to pay for goods and services through their mobile phone bills, is the big surprise of this top 10. I read Liam Kelly’s report in The Sunday Times Business section about Boku’s float on AIM, London’s junior stock market, and was impressed by the company’s disruptive potential. I bought at 73p last November. The price is now 176p. Cheers, Liam.

Worldwide Healthcare Trust aims to do well by doing good. As the world grows wealthier, more people are willing to pay for longer, healthier lives. I invested at £13.53 in March 2014. By last week’s close, the share price had perked up to £28.

Polar Capital Technology is another investment trust. It provides specialist stock selection in a sector where I see massive potential for growth but would rather not pick which companies to back myself — with one big exception mentioned later. I paid £4.67 in October 2013. Last week the shares were changing hands at £13.50.

Adidas, the German sports goods outfit, was regarded as an also-ran by City types. However, I reckoned that making football kit for pennies and selling it for pounds was just the sort of business I should have a stake in. My shares, bought at €61 in July 2014, have run up to €210.

McDonald’s, the world’s biggest fast- food provider, was another business out of favour in the Square Mile. Wherever I travelled, though, I could see strong demand for affordable treats from people unwilling to spend their spare time in the kitchen. I grabbed a bite at $95 in July 2014, since when the shares have been super-sized to $161. I’m loving it.

Apple, the world’s first $1 trillion company, makes technology that even my 1950s cerebral software can cope with and is the exception referred to earlier. I have been a happy buyer of its computers since 1989 but wasted years thinking it was too late to buy shares as the price did not have much further to go. I finally booted up at $95 apiece in February 2016; the price has since upgraded to $224.

The American aerospace giant Boeing has benefited from rising demand for international travel. I got on board at $126 in November 2014. Since then the shares have soared to $360.

Fever-Tree, the posh tonic maker from west London, is a favourite of Sue, my wife, and our gin-loving friend Lucy. I got bored with whingeing about how much they were spending on their fancy G&Ts and decided that, if you can’t beat them, you might as well join them. I invested in this AIM stock at 211p in March 2015, tipping it here at that time, since when the price has fizzed up to a truly intoxicating £38.63.

Despite several bouts of profit-taking — including to help Joe, our son, buy his first house, and to repair my wooden boat — Fever-Tree remains my most valuable holding and makes up more than 6% of my forever fund.

These top 10 holdings make up just over 40% of the total value of my forever fund, which contains 50 stocks in all. I hope this represents a reasonable balance between backing winners and maintaining a diversified portfolio.

It’s striking that none of my top holdings is a FTSE 100 stock. So much for smart alecs who claimed I might as well buy a tracker fund. Another surprise is how a couple of corporate minnows — such as Boku and Fever-Tree — can do wonders for portfolio performance. One good idea beats a dozen duds.

Most importantly, my personal experience shows that DIY investors are capable of obtaining decent returns. What remains to be seen is how we will fare when markets fall, as they certainly shall at some point in the next five years.

In the interests of balance, I intend to review my losers — or Cowie’s clangers — here next week. Nobody should invest in shares without carefully considering how it will feel when things go wrong because, as I know from personal experience, losing money is no fun at all.

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Re: ST article 16 Sep

Post by garindan » Sun Sep 16, 2018 12:41 pm

Interesting read. I'd like to see what next week's article says. Not wanting to sound dismissive but when you have significant funds to invest like this, which is all your own money, you'll very probably do significant amounts of selection work and talk to numerous people about the companies you are thinking of putting money into. Our reality is we don't seem to have that level of desire among members, to do a comparable job. Therefore, our approach is more scatter-gun in style and we are hoping for a hit on a basis that is more fire and hope.

These kind of articles are interesting to read for sure. The key part of the article is this sentence "How did I do it? With a little help from my friends and a lot of luck, would be a candid answer." and this one "What remains to be seen is how we will fare when markets fall, as they certainly shall at some point in the next five years." He is candid about this. It brings back memories of when we were 15% up and things looked rosy. 15% is not 60% for sure but in the same breath it shows how a bad luck (in Carillion) destroyed our good luck of the preceding years.
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Re: ST article 16 Sep

Post by AAAlphaThunder » Sun Sep 16, 2018 3:54 pm

Congratulations and well done Sunday Times guy.

There is nothing like taking a mega-risk and it paying off handsomely for you.

Full marks and 100% respect Sunday Times guy.
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Re: ST article 16 Sep

Post by Boro Boy » Sun Sep 16, 2018 10:54 pm

...always good to have a strategy and stick to it rather than bending with the wind in one direction and then the other...!
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Re: ST article 16 Sep

Post by blythburgh » Mon Sep 17, 2018 10:17 am

Boro Boy wrote:...always good to have a strategy and stick to it rather than bending with the wind in one direction and then the other...!
You have to know when to be a tree and stand still in the wind and when to be a reed and bend with the wind.
Keep smiling because the light at the end of someone's tunnel may be you, Ron Cheneler

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Re: ST article 16 Sep

Post by Derbiean » Tue Sep 18, 2018 12:25 am

garindan wrote:Interesting read. I'd like to see what next week's article says. Not wanting to sound dismissive but when you have significant funds to invest like this, which is all your own money, you'll very probably do significant amounts of selection work and talk to numerous people about the companies you are thinking of putting money into. Our reality is we don't seem to have that level of desire among members, to do a comparable job. Therefore, our approach is more scatter-gun in style and we are hoping for a hit on a basis that is more fire and hope.

These kind of articles are interesting to read for sure. The key part of the article is this sentence "How did I do it? With a little help from my friends and a lot of luck, would be a candid answer." and this one "What remains to be seen is how we will fare when markets fall, as they certainly shall at some point in the next five years." He is candid about this. It brings back memories of when we were 15% up and things looked rosy. 15% is not 60% for sure but in the same breath it shows how a bad luck (in Carillion) destroyed our good luck of the preceding years.
You make a good point about our scattergun approach to buying perhaps we can address this before our next purchase (tho we are sort of in the process of looking to purchase again but so far there's a lack of response from the club) along the lines of deciding which sector to focus on to give us a guidance of what shares to look for? I'd trust yourself or alphathunder or kev to recommend a sector to focus on tho i appreciate this may be asking for alot of your times.

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Re: ST article 16 Sep

Post by garindan » Tue Sep 18, 2018 11:42 am

Derbiean wrote:You make a good point about our scattergun approach to buying perhaps we can address this before our next purchase (tho we are sort of in the process of looking to purchase again but so far there's a lack of response from the club) along the lines of deciding which sector to focus on to give us a guidance of what shares to look for? I'd trust yourself or alphathunder or kev to recommend a sector to focus on tho i appreciate this may be asking for alot of your times.
As much as I would like to I don't have any advice on this as it is not something I have experience in I'm afraid. I think my point is more that we don't seem to have much insight into what we are doing, and that's why when something is suggested there is not much on the table to compare with. If we had more insight then we'd be much better placed. Unfortunately I don't now the answer to this.
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Re: ST article 16 Sep

Post by garindan » Tue Sep 18, 2018 11:43 am

That is apart from it being from the AIM listings or something similar that will give opportunities for price growth...
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Re: ST article 16 Sep

Post by richard@imutual » Sun Sep 23, 2018 8:47 am

Here's the follow-up article
If you have tears to shed, prepare to shed them now — even if my DIY investment pratfalls only provoke tears of laughter. An occupational pitfall of writing this column is that, when the going is good, it can seem smug. To balance the books, it’s only right to report how my stock market assets have suffered their fair share of shocks. Unlike fantasy fund managers, real life investors have to take the rough with the smooth.

So, without any further ado, here is the latest review of Cowie’s clangers — shares and funds whose prices have fallen by more than 10% since I invested, according to Hargreaves Lansdown’s online calculator. Several, sad to say, have lost much more than a tenth of their value.

Cluff Natural Resources, a British energy company that got caught up in controversy about fracking, remains the stand-out stinker. Impressed by the reputation of its founder, Algy Cluff, I paid 4p a share in August 2014, since when they have plunged 52% to 1.9p.

Thank heavens I never punted as much as 1% of my “forever fund” in this penny stock. It would be tempting to sell and forget Cluff but, instead, I hang on to what’s left in the hope that it will help me resist the temptation of similar spiv stocks in future.

Braemar Shipping Services is another Great British bright idea that went badly wrong. Most of the world’s trade is delivered by sea but my hopes of recovery in this cyclical sector have proved an embarrassing example of premature speculation.


I paid 467p in September 2013, and topped up at 504p that October, but the shares have sunk to 260p since then. Taking all purchases into account, Hargreaves calculates my loss to be an eye-watering 37%.

Worse still, I had 2% of my fund on board before Braemar began to ship water. Dividends expressed as a percentage of the plunging share price deliver a yield of 5.7% to keep my spirits up, but they do say a drowning man will grasp at straws.

Kraft Heinz, the prepared food giant, has proved a can of worms. No amount of ketchup can conceal the bad taste left after paying $78 in September last year for shares that now trade at $58. So much for my homely strategy of investing in companies whose products I enjoy.

The investment guru Warren Buffett is also in the soup at Heinz. Garry White, chief investment analyst at the wealth manager Charles Stanley, is not encouraging. “Kraft Heinz reported earnings 8% lower in its latest quarter. It also faces rising costs and appears to be considering a big purchase. If forced to buy growth, it had better get it at the right price.”

Vodafone, the telecommunications giant, is my biggest disappointment. Encouraged by soaring use of mobiles, I invested more than 2% of my fund in this FTSE 100 blue chip but foolishly overlooked balance sheet fundamentals and am now about 23% down.

This paradox was explained by George Salmon, equity analyst at Hargreaves Lansdown: “Mobile usage is growing but there’s little to differentiate Vodafone from its competitors, meaning customers just choose the cheapest deal regardless of the network.

“Upgrading infrastructure soaks up cash, and the €30bn net debt position casts a big shadow. The yield of 7.5% is an obvious attraction, but there’s work to be done before the payout can grow.”

Medica, a small company that provides radiology analysis to the National Health Service, caught my eye with what seemed a clever idea. Instead of radiologists hanging around in hospitals or travelling to work, x-rays are sent to them by secure email.

Since I paid 190p in April last year, it has provided anything but healthy returns, trading at 155p last week. But Paul Kavanagh, chief executive of the stockbroker Patronus Partners, sees signs of life: “Medica is growing strongly, enabling NHS tele-radiology to reduce costs and speed up scan interpretation. The upside opportunity for the business is significant and the longer-term prognosis remains good.”

BlackRock Latin American is an investment trust in which I have owned shares for about a decade, transferring to Hargreaves at 686p in November 2011, compared with 400p last week.

Richard Troue, head of investment analysis at that wealth manager, summed up the situation by saying: “Few things will test your long-term horizon like an investment in Latin America. Over the short term, a turbulent political environment and weak currencies have worked against you. In the long run, rising consumer spending and economic development are likely to present opportunities.”

Fidelity China Special Situations is another out-of-favour emerging markets trust, where I am currently 14% down. I had originally invested in what was then Fleming China more than 20 years ago, after visiting Hong Kong on business before the handover of the British colony, and I have been in and out of JP Morgan China and Gartmore China since then.

But I was late to the party at Fidelity China, where I paid 237p last October, compared with 214p now. Ben Johnson, collectives analyst at Charles Stanley, told me: “Fund manager Dale Nicholls has delivered strong performance but this trust sits at the higher end of the risk spectrum, as demonstrated by share price movements experienced this year. Only those who are happy with this level of volatility should continue to hold.”

Woodford Patient Capital, a start-ups and technology trust, demonstrates how even the most high-flying professional fund manager can fall to earth with a bump. Inspired by Neil Woodford’s long-term record, I paid 100p at flotation in April 2015 and topped up at 76p in March this year.

Sad to say, Woodford continues to test investors’ patience with shares trading at 86p and my holding — less than 1% of the fund — showing a 10% loss. Troue told me: “In lots of ways, this trust is what investment is really about — finding people with great ideas and providing capital to develop them. I still think the long-term rewards will be substantial.”

Daimler, the German maker of Mercedes-Benz cars, is a victim of trade wars, with the American president, Donald Trump, throwing more petrol on the fire last week. I paid €63 (£56) a share in September 2016, but since then they have skidded to €58 and a 10% loss. Fortunately, a 6.5% yield serves as a financial airbag to soften the impact.

In summary, I would say this DIY fund management lark is not as easy as it looks before you put your own hard-earned cash at risk. More positively, my experience for good and ill demonstrates the importance of diversification — that is, not having too many eggs in one basket.

Even so, this list of losers shows how high hopes can be dashed by harsh reality. No wonder Square Mile types joke that a stockbroker is a man who invests your money until it is all gone.

I would say individual investors willing to do the work and accept responsibility when things go wrong can reasonably consider running our own fund, or part of it. But we must remember that it is always better to laugh than cry because, sooner or later, we will probably do both.
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