Citywire for Financial Professionals

View the article online at http://citywire.co.uk/money/article/a573630

Diary of a Dumb Investor: how I made 11% in seven months

Examining the performance of one of my top gainers makes me think that I’ve finally figured out how to do okay in this investing thing.

 
Diary of a Dumb Investor: how I made 11% in seven months

‘Dumbo! Idiot Investor! Moron Punter! Dog Boy!’ That’s what they call me, and it stings (although ‘Dog Boy’ is more confusing than painful). But I believe I won’t hear those names for much longer.

Read Dumb Investor: the story so far

An analysis of the performance of one of my top gainers makes me think that I’ve finally figured out how to do okay in this investing thing.

Scottish Oriental Smaller Companies , an investment trust I bought in early August at the height of the market carnage, has topped the leader board in my portfolio for a number of weeks.

I haven’t really paid the trust much attention of late, focusing instead on my purchases of shares in BP (BP.L) and Personal Assets . But this morning I noticed that I’ve actually made 10.7% on the holding, which has rebounded far more strongly than some of my other investments, such as Lloyds (LLOY.L) and TR Property .

That said, my entire portfolio is up 11.7% since I bought Scottish Oriental (although at £9,236.84 last time I looked, it’s still down 7.6% since I started investing…)

Basically the trust, which unsurprising invests in smaller companies across Asia, has done well as emerging markets have rebounded on hopes that Europe won’t collapse and the global recovery is still on track. The chance that China will start easing monetary policy, I understand, is likely to help those shares do even better in the future.

And it’s also got a great name: makes me think of a haggis, in a tartan-coloured takeaway container, stuffed with egg fried rice and sweet and sweet and sour noodles.

But what's really encouraging about the investment is that I bought in when everyone else was selling out of markets. They were scared; I was collected and machine-like.

Of course, I need to own a wide range of investments to diversify my portfolio yada yada, but my gains on this trust teach me that other golden rule: buy good quality assets on the cheap, then hold them.

Admittedly the price I paid for BP, 503.3p, was not particularly cheap. But it is a solid company, with a growing dividend – and I read a while ago that the stock could actually be worth as much as 900p if management decide to act on a radical break-up strategy.

And readers were generally supportive of the move, even though a few bristled somewhat at the triumphalist tone of my last piece.

Sign in / register to view full article on one page

55 comments so far. Why not have your say?

Rustie

Mar 12, 2012 at 12:42

Not so much the "dog boy" as a graduate in stating the bleedin' obvious,

quote:

"......buy good quality assets on the cheap, then hold them."

No!.......really!!.....gosh, why didn't we think of that?

Incidentally you haven't "made 11% in 11 months"......you haven't "made" anything until you sell. Interesting the way you bracket your on-going losses as if that doesn't really count.

report this

Dave P

Mar 12, 2012 at 12:51

Well, this hopefully is just one small step on a learning curve.

report this

Rustie

Mar 12, 2012 at 13:03

Dave: As learning curves go it seems to have taken forever for him to grasp the utterly obvious....DI seems to be conducting a master class in, at best, ineptitude....at worst crass stupidity with a generous helping of patronisingly facile observations.

report this

mike88

Mar 12, 2012 at 13:06

Run your gains and sell your losses. Invest in quality and diversify your portfolio. Don't try and make a fast buck. Investing is a marathon not a sprint. Don't buy a share on the way down (don't catch a falling knife). These sayings have emerged for a reason based on the investment experiences of many but DI has done the opposite insofar far as I recall but gradually some sensible acquisitions have been made.

In terms of the individual shares now held I think BP will serve DI well in time - he should be patient - even though that was probably not the best oil pick given the litigation that still remains to be settled with State and National governments.

Another saying springs to mind. Don't buy on uncertainty as that is a gamble not an investment.

Barclays probably would have been a good hold at the price paid but DI was impatient and since this series began the strategy has emerged of selling winners and keeping losers.

But, apart from Lloyds the portfolio now looks reasonably OK. Of course I'm no expert just an enthusiatic amateur who has reached his investment goals and now invests for safety.

report this

cc

Mar 12, 2012 at 13:14

And how much has the market risen in that time? I estimate around 11% since

August - and remember that tracker funds are as effective as managed funds in the longer term.

report this

Clive B

Mar 12, 2012 at 13:14

"Scottish Oriental Smaller Companies, an investment trust I bought in early August"

"my entire portfolio is up 11.7% since I bought Scottish Oriental"

I think you're confusing skill with general market movement.

Depending on when in Aug 2011 you use as a start point, the market is up between 8-18%. Hence, 11.7% demonstrates no added skill whatsoever.

report this

Rufus Dogg

Mar 12, 2012 at 13:28

And what, precisely, is wrong with being called "Dog Boy"?!

report this

Jonathan

Mar 12, 2012 at 14:14

"I’ve finally figured out how to do okay in this investing thing."

Are you sure it's not just luck?

report this

an elder one

Mar 12, 2012 at 14:19

11.7% is probably about average for most of us I've appreciated 12% since August 15 th by doing nothing much, though I sold Petra diamonds in November '11 for 112% profit after 3 months 2 weeks, cos I needed cash.

report this

an elder one

Mar 12, 2012 at 14:26

I've not looked into it, but diamonds could be a better bet than gold, and do have some utilitarian value too. Any opinions?

report this

stiff watt

Mar 12, 2012 at 14:28

Some people make gains, some make losses - this is because the maket is not static. The net sum of gains and losses is zero.

People don't usually write articles about their technique for making losses.

report this

Jonathan

Mar 12, 2012 at 14:35

There should definitely be some sort of measurement of how shares perform against the general market for that type of share. Brokers get massive bonuses when the markets go up and their shares go up with the market (even if they go up by less than the market average). If they don't do better than the market average they shouldn't get any bonus as they are doing no better than a simple bot.

report this

Michael Peters Fenwicks

Mar 12, 2012 at 15:02

DI,

Congratulations on your 11% gain a sum better than the high street rate.

You have touched on a few subjects in your latest posting but most importantly the overall ability to buy good quality asserts on the cheap.

The rule can sometimes apply in a few scenarios such as the overall encouragement to be playful when it comes a percentage in the portfolio something you are showing lately.

One more other rule would be to cream off the profits on those so quality bits of the market by holding them short to mid term life cycles instead of the opposite - sometimes even a few hours.....days........buying and selling..........as quickly as you bought them.

You seat on your holdings like granny's deposit underneath the mattress which discourages money to work harder in the portfolio.

Therefore I encourage you to divide the portfolio into reserves, short to mid term and buy to hold as a sealing to strengthen the foundations earning dividend interim vs afar.

If you can complete that exercise it will allow you to see the bigger picture while delivering plenty of time to concentrate on the necessities.

Where you go wrong in my opinion is management which sometimes make your portfolio haphazard.

report this

an elder one

Mar 12, 2012 at 15:03

cc, it seems to me that most funds are trackers of some sort anyway.

report this

cc

Mar 12, 2012 at 15:42

Yes elder one, but sadly they don't often show us their results compared with the market they are (sort of) tracking - I suspect that (after charges) they don't do very well at all.

report this

Jonathan

Mar 12, 2012 at 16:16

cc, i suspect exactly the same thing, i also suspect that they also would kick up a massive stink if bonuses were changed to their performance compared the market performance

report this

an elder one

Mar 12, 2012 at 16:52

Ah Jonathan, but if they are more or less all performing the same, ie against a herded benchmark there's no way to differentiate for the most part; they have the argument of a clique mentality in their defence. You pays your money and takes your pick!

report this

Jonathan

Mar 12, 2012 at 17:04

an elder one

If that was the case you would always be better off choosing a fund with a very low fee that just uses a simple bot to buy a particular market. Fund managers take the credit for a rising market and don't get any credit when they perform better than the market in a falling market. So they are paid mainly against market performance and nothing to do with their particular skill.

report this

an elder one

Mar 12, 2012 at 17:16

Jonathan, logic suggests you could be right; in any case it most likely the bonus is not for the fund's performance against the market, rather how many clients have been acquired (business done) in the year against competitors.

report this

gggggg hjhjkl;'

Mar 12, 2012 at 17:40

DI - be careful you do not suffer from the sin of arrogance!!

Many a new investor has fell at this hurdle, after their perceived "first success".

Pride often precedes a fall, to quote another oft used saying.

report this

Arunboy

Mar 12, 2012 at 19:23

"Pride often precedes a fall" Not wrong there.

report this

Jonathan

Mar 12, 2012 at 19:44

an elder one

Of course having more clients which implies more money on your books which would make for a bigger profit, that goes without saying, after all 2% of a large amount is more than 2% of a small amount. Where I feel no ease and get no comfort from is that fund managers get a certain percentage annually of the investors money no matter how good or bad they are at investing. The percentage should be a certain percentage of performance when compared to the overall performance of the market. If they do the same as the market they get the same take a simple bot would get and if they do better than the market a big cut of the amount they have made above the market performance and if they do worse than the market they should get some deductions from their salary.

report this

an elder one

Mar 12, 2012 at 20:58

Jonathan, that is just wishful thinking, thus pointless aggravation, how could it be implemented? in fact I don't know how fund managers and their people compute their remunerations, but a client of theirs can employ the democratic imperative and leave failures to their own devices and find better. Personally, I choose individual equities through reading various analytical advice and only invest in funds for special cases to provide further diversification.

I am not sure that the activity of a bot as you call it is much different in principal from what a fund manager does anyway, inasmuch it is as I understand it a computer programme that goes through data wth a degree of autonomy and is just as likely to fail and succeed in the same way; admittedly it's just a formula, but it is set up with presumptious parameters and constraints by someone. In fact all that business is not my field, but I imagine fund managers use bots, charts and other devices in varying degree in the process of asset selection. Do you suggest using one of your own.

report this

Hans Wabnitz

Mar 12, 2012 at 22:48

What is the Quote for :

Scottish Oriental Smaller Companies Fund,

and

Aberdeen Asia Smaller Companies Fund,

please ?

Did not find them on the FT.com or MAnager MAgazine sites - nor on Morgenstern's

Thanks,

hans-werner wabnitz

report this

steve sodium

Mar 12, 2012 at 23:06

an elder one

I've not looked into it, but diamonds could be a better bet than gold, and do have some utilitarian value too. Any opinions?

emeralds are the new diamonds

http://www.dailymail.co.uk/money/investing/article-2113112/MIDAS-Profits-soar-emerald-miner-Gemfields.html

http://www.proactiveinvestors.co.uk/companies/news/39829/gemfields-lays-foundations-for-a-record-year-says-jp-morgan-cazenove-39829.html

I bought last week . very happy with my investment so far.

DYOR

report this

steve sodium

Mar 12, 2012 at 23:10

http://www.investorschronicle.co.uk/2012/03/12/shares/news-and-analysis/gemfields-shares-set-to-dazzle-YMQyLrr4WdTCWH5I5QQkhK/article.html

report this

Jonathan

Mar 12, 2012 at 23:36

steve sodium,

Diamonds aren't attractive to investors, they are only made of carbon and can be manufactured synthetically to the same or better quality than mined diamonds.

Also De Beers have a cartel on diamonds they own a lot of the mines and have in storage back large stocks of diamonds that the hold back from the market to artificially hold up prices.

report this

Jonathan

Mar 12, 2012 at 23:38

steve sodium,

Diamonds aren't attractive to investors, they are only made of carbon and can be manufactured synthetically to the same or better quality than mined diamonds.

Also De Beers have a cartel on diamonds. They own a lot of the mines and have large stocks of diamonds that they hold back from the market to limit supply and artificially support prices.

report this

alan thorburn

Mar 13, 2012 at 11:47

Dear D I, as I have said before, you have not made anything until you sell at a profit !!

report this

Rustie

Mar 13, 2012 at 12:13

To Alan: I think we're the only two to have noticed this elementary flaw in DI's logic - everyone else seems intent on displaying their faultless knowledge of financial speak gleaned from poring over publications like Investors Chronicle and countless "expert" websites....they're all masters in the art of self-deception and they all sincerely believe that they know what they're doing, if it wasn't funny it would be tragic. Mike88 is a splendid example.

report this

mike88

Mar 13, 2012 at 12:58

Thanks Rustie. I pointed out that these sayings had emerged for a reason implying that DIs strategy ran completely counter to all of these which was to sell winners and keep losers.

Not once did I say that I knew what I was doing. Indeed I have pointed out previously that people who think they are clever in making money are more often than not gamblers not investors.That upset a few but I stand by it even though I'm in a minority of one. That hardly constitutes self deception in my book but if you want to chuck around insults then that's fine by me.

report this

Rustie

Mar 13, 2012 at 13:28

mike88...let me quote one of your quotable quotes:

"Another saying springs to mind. Don't buy on uncertainty as that is a gamble not an investment."

So what qualifies for certainty?

report this

mike88

Mar 13, 2012 at 14:13

The word "uncertainty" was used in the context of the litigation surrounding BP. If State and national governments get their way the share price could collapse. If that doesn't constitute uncertainty I don't know what does.

Certainty is not a word I used.

report this

Rustie

Mar 13, 2012 at 14:20

...but all equities carry an element of uncertainty in one form or another - so should none be acquired?

report this

an elder one

Mar 13, 2012 at 15:00

Alan and Rustie you are a cocky pair; the fact of selling to secure ones profit seemed too obvious for most to make the observation/

report this

an elder one

Mar 13, 2012 at 15:12

There are degrees of uncertainty in all aspects of life; the only certain thing is we are all eventually dead.

report this

mike88

Mar 13, 2012 at 15:22

Rustie..............Oh dear! You know exactly what I mean and you are now splitting hairs. Surely it is obvious that some risks are greater than others. If a company is facing claims for damages running into billions then that creates greater uncertainy than normal trading risks experienced by all companies. But you know that and I'm surprised you feel it is necessary to continue the argument.

You seem to be suggesting that the quote originates from me. It doesn't and I thought I had made that clear.

report this

Jonathan

Mar 13, 2012 at 15:25

an elder one

don't forgot taxes, death and taxes are the only certainties unless you are god or Greek respectively.

report this

Rustie

Mar 13, 2012 at 15:36

Mike88

Quote: "...... But, apart from Lloyds the portfolio now looks reasonably OK"

This month 25 out of 29 analysts have either strongly recommended, recommended or held them.

report this

mike88

Mar 13, 2012 at 17:25

Rustie.............you have now changed tacks

In your earlier post you said:

"..............................everyone else seems intent on displaying their faultless knowledge of financial speak gleaned from poring over publications like Investors Chronicle and countless "expert" websites....they're all masters in the art of self-deception and they all sincerely believe that they know what they're doing, if it wasn't funny it would be tragic."

On Lloyds you said:

"This month 25 out of 29 analysts have either strongly recommended, recommended or held them."

Your latest post on Lloyds seems to be at odds with your original post. Now you seem to be displaying your knowledge of Lloyds by referring to other sources of information such as the "expert" websites you decry.

I should also mention that you have quoted me selectively again. I said that I now invest for safety because I have reached my investment goals. For that reason I would not hold Lloyds. But that is my opinion based on my own investment position

You really need to be sure of your facts before sounding off.

report this

Rustie

Mar 13, 2012 at 17:40

Mike88:

I'm demonstrating my original point - that contributors affect to know, when in fact they don't. That 25 out of 29 analysts are bullish on Lloyds puts your advice to DI re: Lloyds where it belongs, in the rubbish bin along with all the other pseudo-expert claptrap that appears on here. Let me spell it out - you say no to Lloyds, they say yes.........get it yet?

report this

mike88

Mar 13, 2012 at 19:53

Rustie

Your first sentence makes no sense. Are you suggesting contributors know nothing but you do because you study analyst recommendations?

That aside there are 4 of the 29 analysts who are not bullish on Lloyds according to you. Are these 4 necessarily wrong? Do you know anything more than the 4 which rate Lloyds as a sell. The implication is that you do.

You imply you buy shares based on a consensus of analyst recommendations. Is that it?

Contributors on here are expressing opinions mostly as enthusiastic amateurs. You are the only person who professes to have a degree of expertise which onthe evidence so far seems to be based on the flimsiest of evidence - namely analyst recommendations.

If you thinkyour "expertise" gives you the right to critisise everyone else so be it. That is my last word on the matter.

report this

Rustie

Mar 13, 2012 at 23:32

mike88: You need help, seriously.

report this

Michael Peters Fenwicks

Mar 14, 2012 at 07:20

We have a good argument regarding decision chains when it comes market information.

On that point in my experience it comes down to common sense once again on the simple basis analyst recommendations in many cases are fairly not in line with what the market says.

The first lesson to any investor is that too often analyst recommendations offer very simplistic view of the instrument because it is between good, neutral and bad when one examines the terms.

Secondly is the lack of a uniform picture when it comes to information delivered to the investor - too many firms delivering different outcomes which when looked at can become confusing.

On LYG am afraid I see too many technicalities not even accommodate the instrument on the basis that we have just had a slightly stead market as of recent but the EPS - Earning Per Share is -753.25% so far this year.

Other indicators also in play since the start of the year;

- ROE - Return On Equity -6.06%

- Institutional Ownership has headed to -22.32 to 0.27% now - One Of the powerful health status of a stock.

With Figures like that am afraid to say that analyst recommendations are absolute DOGS after all it never their money just an opinion.

Common Sense and good fundamentals beat any analyst recommendation any day.

report this

Arunboy

Mar 14, 2012 at 17:01

Fantastic debate, educational and funny.Handbags at 20 paces anyone?

report this

cc

Mar 14, 2012 at 17:12

Sad boys, sad....

report this

ERic Hancock

Mar 18, 2012 at 09:35

My advice? - don't give advice and don't take it. Nobody knows anything more about what shares are going to rise than you do and if they did, they wouldn't tell you and some unforeseen event could trash their plans anyway. Nothing's certain, either in life or the Stock Market

report this

brian taylor

Mar 18, 2012 at 09:56

For any who wanted to take a gamble I don't think you could have done any better than lloyds tsb and rbs in November lloyds were worth 27 p they are now worth 37p and still got further to go

report this

Anonymous 1 needed this 'off the record'

Mar 18, 2012 at 11:58

You have some following, obviously people like to feel superior when they read something and that is easy when reading your articles.....

report this

Holger S

Mar 18, 2012 at 13:10

yes, no one deserves rude words, but then you call your project dumb investor.

Do you remember when you wanted to short France?

"Diary of a Dumb Investor: shorting France with an inverse ETF"

what a disaster that would have been, and had you topped up on LBG well the past 3 months certainly would have been happy days.

that said, almost everything has been happy days in the past 3 months, perhaps time to put in some training stops to lock into profits where you have them!.

The great performance comes more often from avoiding the down side than calling the bottom.

And feeling good about 11% hm. well in absolute terms that sounds good. but have you looked at the alternatives? opportunity cost? What did you say your benchmark is?

These could have been stress free, cheap via index trackers but of course not much to write about.

FTSE 250 20% over past 3m, 13% over 6,

report this

Holger S

Mar 18, 2012 at 13:12

that is trailing stops :) not training ....

report this

Rustie

Mar 18, 2012 at 13:58

Smug but impenetrable comment of the day thanks to Holger S with:

"And feeling good about 11% hm. well in absolute terms that sounds good. but have you looked at the alternatives? opportunity cost? What did you say your benchmark is?"

I'm also awarding the same contributor the day's honorary doctorate in stating the bleedin obvious with this little gem:

"The great performance comes more often from avoiding the down side than calling the bottom.".........no, really?

report this

cc

Mar 18, 2012 at 15:14

Thanks for this Rustie!! I do like a good swipe at the smug and meaningless....

I'm sure that there are many of us who have slightly more knowledge of how to assess investments, but in reality the timing aspect is B.S.

Even if we spend the whole day in front of our screens we're never going to get the timing perfect - by the time we pick up on selling signals the price has usually fallen further. And if we're wrong prices rise again - we've incurred costs and lost potential profit. In any case it is long term investing that really makes the money.

report this

snoekie

Mar 18, 2012 at 18:54

CC, last para, well summarised.......

report this

Dumb Investor

Mar 19, 2012 at 09:48

Hi Hans!

The quote for Scottish Oriental Smaller Companies is: SOST

And I think the one for Aberdeen Asia Smaller Companies is AAS, just from looking at its factsheet.

enjoy

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Fund managers from Standard Life Investments quizzed on investment trusts


What can SLI bring to the table for those who want to put their money into investment trusts?

More about this:

Look up the shares

  • BP PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Lloyds Banking Group PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Barclays PLC (BARC.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the investment trusts

  • Scottish Oriental Smaller Cos (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Personal Assets (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • TR Property SIGMA (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet