Thursday, 13 September 2018

Summer Review

We spent the Summer meandering through selected parts of Europe in our campervan. The constant outdoor activity of an August camping trip provided an enforced but welcome escape from the regular feed of news and information and was a great chance to reflect on life and priorities.

Also having time away from a computer and TV finally gave me time to get to grips with my new Olympus PEN-F camera. It's a wonderfully stylish piece of retro design, that lets me do clever things with colour, without having to suffer the trauma of learning PhotoShop!

Anyway, this is an investment blog, so back to the subject. Driving through France, Italy, Austria, Germany, Belgium and Holland I was looking around and hoping to maybe gather real-world insights that would help me to make better investment decisions.

I noticed the Germans and Austrians are spending more than the value of a few HS2s on motorways, bridges and tunnels, and just like us when we build infrastructure over here they use German machinery. I noticed again that Italy is two countries (a rich one and a poor one), that rural France is barely awake, that Belgium can match us for potholes and that Holland is unbelievably cycling friendly.

These observations are nothing new, however, but they do give me comfort that the economic engine of the Eurozone is keeping its foot on the investment pedal.

It also made me wish that the UK could take a more decisive approach to develop infrastructure, with less talking, fewer endlessly time-consuming reports and studies and more digging.

The Germans and Austrians wouldn't put up with terrible road and rail links between two of their major cities, as is the case with Manchester and Sheffield for example; they'd have got to work years ago and dug a very long tunnel.

Behaving as equities have done since the beginning of time my investments went up and then came down again to finish the Summer where they started. The graph was a striking virtual copy of the real mountains I'd been exploring.

Looking to the future I have decided to move my daughter's Junior ISA to another provider (more on that in another post), and I have just noticed three quite interesting new investment trust launches that will take place over the next month or so - Mobius Investment Trust, AVI Japan Opportunity and Smithson. I am having to repeat to myself over and over again "do not invest at IPO stage, do not invest at IPO stage, do not invest at IPO stage."

History tells me (or rather shouts at me) to sit on my mouse hand when tempted to subscribe to an  Investment Trust IPO as if I'm patient I'll almost certainly be able to buy-in later at a discount.

The Rural Investor

Tuesday, 17 July 2018

12 Month Performance

I've done some light analysis of my investment performance over the last 12 months, looking specifically at my personal return i.e. taking account of what I've bought and sold over the year, rather than just looking back at the current holdings' returns over the previous 12 months.

My own share selections are doing well against my chosen benchmark (Morningstar's Global Flex-Cap Equity), 14.2% vs. 7.5%.

The collection of Investment Trusts and ETFs are doing well too at 10.4%, but the funds are lagging at 6%. There was a large holding in Woodford's Equity Income Fund, now sold. With that and some other changes, I'm confident my funds will do better now.

Unfortunately, the funds are the largest proportion of my holdings. Such a such a large part that my weighted average return is a shade under 7%, so lagging the benchmark a bit. Grrrr.

There's an easy solution to this underperformance - I could choose a different benchmark. Let's say I go for UK Large-Cap Growth Equity at 6% over the last 12 months. Hooray, I'm ahead!

Actually no, I won't do that. I would only be cheating myself, as teachers used to say to me.

The Rural Investor

Wednesday, 27 June 2018

The Shares I Own

Here's a dull but comprehensive list of all the individual shares I currently own. There are quite a few as I only sell when there's a really good reason, for example when Tesla was close to 400 and it just seemed too high to last.  There's a mixture of growth, income and speculative bets, including a few that would be called 'special situations'.

UK Listed
US Listed
De la Rue
United Continental
Walt Disney
First Group
Continental Europe Listed
Novo Nordisk
Rolls Royce
Sports Direct
Stobart Group
Thomas Cook
Ultra Electronics

Thursday, 17 May 2018

How to Choose a Fund

Fund supermarkets or platforms offer a valuable, comprehensive and low-cost service to retail investors.

However, using the fund information provided by the platforms is not always the best way to select funds for your portfolio.

Yesterday, as a test, I looked at a fund supermarket, picked a random managed sector, and selected ten funds at random. Their fund information all showed essentially the same chart!

In fact, pretty much every fund I chose has a sales patter that says their product is a skillfully managed ultra-sophisticated benchmark-beating machine. The sales information for all of them has graphs where there's a line that is above another line. Guess which line represents the fund, and which one the benchmark?

In the early days of my independent investment career, using charts like this gave me FOMO (fear of missing out), so I bought a lot of funds. I wanted to own all these great products managed by brilliant people who could make me rich.

Eventually, I realised that by buying so many varied products I was now the proud owner of a very expensive world tracker.

So, I now treat a fund supermarket like a real shop - I prefer to know exactly what I want before I go in. I use other sources of research (Morningstar, general financial press, my own experience, etc.), and compare different funds and benchmarks together.

I have a very clear idea of the geographical split I want and if I can't find managers in whom I have the confidence to beat my benchmark then I go for a cheap tracker.

Where I do have managed funds they are now with a limited range of individual managers who have a style I like (I read what they write, watch what they record, see how invested they are in their funds and look at their portfolios and activities). Alex Wright, Nick Train and Terry Smith are three examples of rock-star managers whose funds I hold.

Having fewer funds and a small range of managers to assess means that I don't fall into the trap of merely looking backwards, I can make a judgement about how well the funds are positioned to preserve and grow my wealth in the future.

To conclude, fund supermarkets offer great benefits to private investors, but they offer a huge choice and it's easy for the client to confuse sales information with impartial facts. So I do plenty of research of my own and know what I want before I log-in to make a new investment.

The Rural Investor

Thursday, 10 May 2018

Focus on Costs

If I could give one bit of advice to myself as a novice investor 20-25 years ago it would be to take costs seriously. I remember thinking "1%, that's OK" when looking at an early PEP (now ISA) that I opened.

A rough calculation tells me that all the avoidable charges I've paid over the years would compound up to the value of a very fancy car, something red and Italian. That's platform percentages, wealth management costs and IFA commissions.

I really became aware of this issue when I started using a discretionary wealth manager for a large proportion of my assets. They sold me on the skill and personal attention that would be given to my portfolio in return for 1% a year and then proceeded to charge way more than that. They invested the money mainly in c.£5K chunks charging £90 commission a time (i.e.£180 for a sale and purchase) and churned regularly. They would even buy tracking ETFs for my portfolio, so I was paying £90 plus 1.15% a year for something I could have bought for £10 plus 0.15% a year.

The moment of clarity came when after a presentation from a small telecoms company my wealth manager bought over £10K worth of their shares for me. Soon after the shares halved, so the manager doubled-down, as 'the investment case has not altered'. Soon after this, the company failed.

I was existing in a state of cognitive dissonance, telling myself they knew what they were doing, justifying my original decision, but after this large capital loss I admitted what was really happening and withdrew my assets (incurring huge dealing fees). It was at this point that I started trusting my own decision-making ability above that of paid experts.

I chose a platform charging 0.3% a year, which seemed really low. The portfolio did well, and I was a happy investor.

But a couple of years ago when the value of the investments had grown through appreciation and new contributions I took another look at the costs and realised I could make large additional savings (several thousand pounds a year) just by moving to a fixed fee platform - so that's what I've done.

But what about people who don't have any knowledge or expertise about investing, shouldn't they trust experts?

If I was qualified to advise (I'm not) I would say this - pay a qualified adviser on a fee basis to get your asset allocation and risk appetite agreed, and then invest in the cheapest Vanguard (or similar) product that gives you the allocation and level of risk you need. Choose either a percentage charge or fixed fee platform, depending on the value of your assets and your withdrawal plans.

I would suggest that most people need to look no further than Vanguard's own platform and their LifeStrategy or Target Retirement products until they find their feet and start looking at other trackers, investment trusts, funds and possibly individual shares.

The Rural Investor

Monday, 7 May 2018

Some Changes in May

In my last post, I said I was continuing to hold some Woodford Patient Capital Trust (WPCT) as a kind of gamble. Well, I kept thinking about that and realised that it just wasn't logical. If I was going to hold risky stocks I didn't really like, just in case, then why not buy a whole load more risky investments that I didn't like, just in case. What a great plan that would be!

So, more changes to be made...

I track the three main parts of my portfolio against a benchmark I've chosen - Global Flex Cap Equity.

Over the last 12 months, I have achieved the following personal return against the benchmark of 7.7%

- Managed and passive funds - 6.4%
- Investment Trusts and ETFs - 12%
- Individual Shares - 9.8%

The managed and passive funds have been held back by having a high proportion of under-performing UK funds (e.g. Woodford).

The excellent showing of my ITs and ETFs derived from adopting a concentrated strategy, with large investments in Japan and UK smaller companies, and I'm happy with this mix.

Of course, I'm most pleased that the individual shares have beaten my benchmark.

These are a range of UK and overseas shares, and I adopt a buy and hold strategy, only selling if there's a compelling reason to do so (e.g. I sold my Tesla shares when the price seemed ridiculously high and bought Renault instead - so far so good with that one).

There's a range of shares I'd been watching, so after releasing funds from my WPCT holding and another small random ETF (Vanguard Global Momentum) that didn't sit well in my portfolio, I had some cash to play with.

My purchases are:

- Bodycote
- Chemring
- De la Rue
- Lloyds
- Ultra Electronics
- Rolls Royce
- Umicore (adding to an existing holding)

This brings me to a total of 43 individual shares. I lot I know but as I'm not trading each week, and I invest overseas as well, I think it's OK.

I've come to realise that my biggest mistakes have been selling too early. An example is Thomas Cook. I bought this in 2016 and sit on a profit of close to 100%. However, I had previously bought in 2012 at a very low price and thought I'd done well to sell at a small profit. I think I paid about 20 pence a share first time around; the price is now about 130 pence. It was a bit of a mental challenge to buy-in again at a price above where I'd sold!

Finally, what lovely weather in this part of the world at the moment. Here's a photo that I took on a walk yesterday. It's one of my faithful friends who is reminding me as I write that I should be outside right now, not at my desk.

The Rural Investor

Friday, 27 April 2018

Au-Revoir Woodford Funds

I hadn't intended to do much in the early part of the year, but I decided in a fit of annoyance to sell my entire holding of Woodford's Equity Income Fund. This was prompted by the news from one of the major holdings Prothena that sent their share price down by 60% or so.

However, I didn't act too much in haste, and I had been considering this move for a while.

The fund seems to contain some large and pretty risky bets and holds companies I don't particularly like or rate. The dangers of gambling on early-stage drug trials was illustrated by events at Prothena and this came after a string of share price falls with other large holdings e.g. Capita and Provident Financial.

Also, I'm trying to be a little more ethical in my life, and the Prothena news gave me a good excuse to drop a fund that has a tobacco company as its largest holding.

I still hold a little of Neil Woodford's Patient Capital Trust, but maybe not for much longer. It's a gamble.

I spread the proceeds of the sale amongst a range of funds I already hold and used the opportunity to increase the proportion of passive funds in my portfolio.

- Vanguard Emerging Market Tracker
- HSBC FTSE 250 Tracker
- Marlborough UK Micro Cap
- Liontrust Special Situations
- Stewart Asia Pacific Leaders

I wonder if Neil Woodford's move to run his own funds has given him too much leeway to follow his own interests at the expense of the solid long-term performance expected by his many fans?

The Rural Investor

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Summer Review

We spent the Summer meandering through selected parts of Europe in our campervan. The constant outdoor activity of an August camping trip pr...