Diary of a Dumb Investor: buying protection for the 2012 crash

The best laid plans often come amiss! As everything slid down the pan in 2008 I did virtually nothing, fairly fully invested, but since Jan 2009 when life was at its lowest ebb I've appreciated circa 25% per annum to date and can't be convinced to do otherwise.

Nothing wrong with the odd gamble, just make sure you can afford it. In the past four years I've stuck with good ole stable companies paying a nice dividend, big miners, oils, gold stocks and metal etfs, the odd Indian fund and some Berkshire Hathaway B shares forsooth!

A very sensible investment which will help balance DI's unstable portfolio to date and reduce his risk profile. In these markets buying individual shares is far too much of a gamble so collective investments are the way forward for now.

Not a dumb move at all, I agree with the analysis. They are aware that price is an issue because it means most people can't reinvest their relatively reliable dividend. I guess if there's a big recovery bounce, like January, Personal Assets won't rebound so much, but it doesn't have much to rebound from as it's a smoother operator than most. What I really love about Personal Assets are the quarterly reports, which you can view on their web site or just the latest one on the HL site. They recently produced a book of them 2002-2011 containing the type of sense that you get in Warren Buffet's annual letter to shareholders, only this is in UK English!

Personal Assetts , you won't regret the investment.

I have held them since 1996, and continued to invest every year,

Together with my wife, we also were able to pep/isa the trust, reinvesting the dividends,

Now retired, we have a good, tax free income from the holdings.

They are a canny bunch !,with t heir own money invested in the trust.

Mostly the strategy followed has been appropriate for the market/ economic conditions, and weathered the 07-08 crash very well. They are not frightened to move to a near liquid position for the trust and have done so in the recent past.

Welcome to the club!

Oh bother. I have a fair few bob in Personal Assets, and DI buying into this trust has made me nervous, very nervous!

Listen, Dumb Investor. I like your posts. Because you're horrible. I don't mean your investing decisions. I haven't invested in the types of assets you have, so I don't know if you pick the good ones. I mean your attitude. The way you handle succes and failure.

Here's a sniplet from your post:

"But when shares tank – as I firmly believe they will, what with Greece teetering on the brink of default and US figures bound to disappoint sooner or later – I should be safer."

I get the impression you are expecting the worst. You don't know if everything will tank. But you assume that it will. You also talk about defending your assets. This makes me think you're scared, and fear can cloud your judgement. So is this really a great time to make new purchases?

A few articles ago, I believe when you sold Barclays, and then it rose, you mentioned having a quick sob in the shower. That made me shudder when I read it. If losing a few hudred pounds disturbs you to the point of crying, something is really wrong. And you could've made some money from Barclays if you hadn't gotten scared of losing your money in the first place.

What I'm trying to get at here is that you let your emotions get to you too much, and you pay for that with your wallet.

I'm sure you have a job, and an income. Investing is just a way to earn some more on the side. It's not like losing some money on a bad company will cost you your house. So there is nothing to be worried about.

When I buy shares, I consider my money lost, unless the price rises enough to make a profit, in which case PROFIT! And if the price doesn't rise, I'm not as bummed out. I'm sure you've seen this dozens of times: only invest what you can afford to lose. I guess that's my take on it.

You could also try reading a book about emotions, to help you realize when you're panicking. I recommend Emotions Revealed by Paul Ekman.

Lastly, if you want to trade instead of investing for the long term, try AIM. That's where the real fun is. You really need to be indifferent to paper losses though. Also try to trade a company that you hold for the long term. Since you invested for the long term, you should have done lots of research on it, and it should be easier to judge wether the price might go up or down.

Anyway, this has gotten long winded. I hope you get the hand of dealing with your emotions, and make some money eventually :)

Thanks DI for the favourable reference to my earlier comment about Personal Assets. A true 'Investment' for you at last. Do not expect any sparkle and hold for the long term for safety and gradual growth. Pity that you did not also follow my other comment about holding on to Barclays. Selling out at 178p, the price you paid, never was sensible and at 225p they are well on the way to my short term forecast of 240p. Results due on friday, I believe will show that targets met, profit considerable and bonus package reduced although that will not stop the socialist inspired critical comments.

mike88, depends on how much you have to invest, admittedly 10 grand isn't a lot to put on individual shares and get diversification so DI is better off with funds; a bit like money in the bank was once upon a time.

elder one......I think we are in agreement. When this series of articles first began I said as much. Of course in order to maintain interest in this series DI has to continuously buy and sell but his latest investment is a good core holding in anybody's portfolio.

DI - I do not hold PA though I see nothing wrong with it. Some of the comments start to make it sound a bit like a religion ( though not so intense as that in support of gold).

I am sure you will be welcomed to the congregation, but beware of the consequences of any deviation you manifest (like selling) from the belief!!!

Bernard Bedford

Not sure what you meant by this, only I have been thinking of buying but would want to re-invest dividends

Not a dumb move at all, I agree with the analysis. They are aware that price is an issue because it means most people can't reinvest their relatively reliable dividend- is it becuase you can only buy a complete share? If so thats a big disadvantage

Thank you

Hi,

I will certainly look at that - i have quite a lot in Seb Lyons Troy Trojan fund which continues to sparkle.

My question is, bearing in mind tha tfund is mad eup not only of gold etfs and microsoft etc, what will happen to the fund price if all those bonds stop coming in good??

do these fund managers just sit tight, or will they ditch anything that starts to look risky?

banjofred, one imagines they wiil try to do, as they think, the right thing in whatever circumstances, including sit tight which is always an option; also they are rather closer to the marketplace than us private investors and will probably get the messages sooner. Risk in any case is a perception that depends on the person, though attempts are made to evaluate it and/or read the runes (charting and the like)

Hi Hilary

My point was that in order to reinvest the dividend in a share, you would need to have a bigger investment than I usually make in a single fund. Current share price £344, last year's annual dividend £5.40 (1.56%) now paid out quarterly. Dividends get taxed, and from memory we receive 90% of the dividend after tax, so you would need around £24,500 invested to receive enough dividend to buy 1 additional share in 1 year. (Bear in mind I'm 64 so my neurones have been declining for 20 years - worth checking the sum.) Troy Trojan has the same manager, 1 unit is £2.34, and you can have either income or accumulation units as you prefer. Since it's not an IT annual costs are higher but there's no premium to NAV to buy in.

Bernard, Hilary and others re Personal Assets. The whole point of the share price being what it is is to discourage small investos. At the start of 1993 I held 1,144 shares but the next day they were consolidated and then I held just 11 shares (i.e. 1 for 100). The share price was c£80 instead of 80p. PA are designed for the more wealthy investor and run a very good and cheap Savings programme but with a minimum monthly investment of, I believe, £200. IF you fit the bill it is great but otherwise not for you.

Investors not investos. Further point is that the savings scheme money and re-investment of dividends are simply held until enough funds available to buy a share

If there is an all mighty crush this year, you will not defend your assets by investing £1,400 in an investment trust, dude.

.

But you probably got much more from the trust managers and arch shark Hargreaves for the plug.. Very shroud.

Sell your granny, buy the market. DI's gone defensive. This is the most bullish signal since the ECB turned on the liquidity tap.

"Bernard, Hilary and others re Personal Assets. The whole point of the share price being what it is is to discourage small investors."

Point understood Anthony. The December 2010 quarterly no 59 states "In favour of not splitting (the shares) is that our share price is distinctive. It sends out a message as to the type of trust we are and the kind of people on whose behalf we manage money." So it's indicative but not exclusive of riff raff like me.

There is quite a noisy cult around Personal Assets, but if you look at the total return over ten years, it's nothing special-- on a par with Global Growth as a sector. Buying and holding many Global Growth funds that remained almost fully invested throughout, or another sort of contrarian fund such as RIT Capital Partners or Lindsell Train, would have produced better results.

PNL claims that its special sauce makes it safer, but the very low risk score at present is a function of its hunkering down during the crisis-- and since when has gold bullion been a one-way street uphill? As it is, the share price has lagged the All-Share Index in six of its last ten financial years. If the market suddenly bucks up-- and it has a habit of blindsiding one by doing so amid the encircling gloom-- PNL is not well positioned to seize the day.

If Dumb Investor is suddenly obsessing about the downside, but with less of a doomy horizon than PNL, why doesn't he write a few options instead of parking one-sixth of his funds in a LTBH vehicle and sterilising them?

If you are convinced the market will crash, why don't you buy a short ETF on FTSE or on CAC, DAX or S&P 500? All are available from a normal broker. Failing that a fund that invests in US Treasuries which will rise as idiots park their funk money.

so,just to be clear, unless you have an absolute bucket of money in PAT you cannot reinvest dividends becuase you can only buy complelte shares. Is that right? Thanks

its, ok, its late, I need to go to bed, it is all clear from above and perhaps I will buy Troy Trojan instead from HL its on soft close but can still get it. How does thhis perform compared with others in same sector does anyone know?

Correct Hilary. You can't buy fractions of PAT shares, it's one or none, but you can buy fractions of a unit trust like Troy Trojan if investing or if reinvesting dividends. However HL don't reinvest until you have £50 in dividend from a fund or £200 in dividend from a share.

Too late .. PAT should be PNL.

Franco.....shrewd. Tut.

Love PA trust. No you're not going to shoot the lights out, but long term you have a very good shot at beating inflation, which is all any pension investor can hope for. I use the word pension specifically because PA trust makes an excellent long term holding.

Personal Assets makes a great core for your portfolio as it works on the principle of "get rich slowly". During the giddy boom years, the managers of PNL get a ribbing for failing to buy into whatever is bubbling up at the time. They don't care and neither do I.

The last slab of PNL I bought was back in April and they are up 10% since then. I've been sleeping soundly during 2011, which works for me.

@Muffeiy DI, be wary of all these dealing costs eating up your investments - they do add up. I do like Glaxo - though with all the bad news AstraZeneca have had recently with their R&D - maybe there is better value here, and being smaller they are a little more likely to merge with another pharma business.

A very good investment you should have just stuck your 10k with them from the start and come back a year later 10% better off. Have a look at Morgan stanley global brands also.

sgjhaghsdg (in this context) have you noticed that cgt premium is down to 3%

@ david rogers - yes, CGT is on my watch list, and they might get added to our S&S ISAs come April when it's 2012/13 subscription time.

I love cmc markets as a broker, they offer a non leveraged cfd account, there is no broker fee, no commision, no stamp duty, no annual management fee, no administration fee, infact no fee of any kind only the normal bid offer spread applies. There is also the option of buying part of a share, so you could buy £50 worth of Apple and hold the appropriate percentage of one share and the only fee being about 25p which is a result of the normal bib / offer spread. Another great thing about using this platform is that you get your dividend payment on the x-dividend date, not the pay date, so you can re-invest on the day the shares fall by the amount of the dividend payment made.

It offer's commodities and larger shares from around the world and in the uk the top 350 shares / investment trusts are available.

Using this platform you can easily get a good mix of big / small / income / growth which is the mix I aim for, as surely we don't know what the market will do in the coming months and years - who saw this recent rally coming?

I feel I am quite a switched on investor and fail to see any drawbacks to the cmc account aside from very small companies and funds not being available, I do not and have not worked for them.

what is cgt please?

CGT = either Capital Gearing Trust, which is a rather conservative "steady Eddie" trust, or Capital Gains Tax. The former is a good thing during torrid times and the latter about as welcome as a fart in a spacesuit at any time!

Thanks I know about the latter (spit) but had never heard of the former. Worth a Look?