Citywire for Financial Professionals

View the article online at http://citywire.co.uk/money/article/a661587

Diary of a Dumb Investor: I’m unprepared for a market crash

But grateful that I've held onto my safer RIT and Personal Assets investment trusts should the Italian elections precipitate a lasting market sell-off.

 
Diary of a Dumb Investor: I’m unprepared for a market crash

Say – as is quite possible – the inconclusive Italian election result leads to weeks or months of general market uncertainty.

Say the eurozone crisis is properly back.

Now, say only 3% of your portfolio was in cash. Instead it’s almost entirely in shares (80%) – much of them in emerging markets and a couple of big risky UK bets.

How would you feel? Stark naked and exposed to Silvio Berlusconi’s urges, I imagine. Like me.

Standing there without any protection, having not heeded the most basic of health warnings.

Feeling foolish too for being taken in by the unrelentingly chipper market mood of the past half-year.

This is Italian politics, so any of my guesses (or anyone else's) about whether markets will go up or down are fairly useless.

But I do know my portfolio is only really positioned for one scenario: a rise. I'm an insufferable optimist in real life and I've let my sunny viewpoint stain what should be a rational selection of investments.

Judging from history, my emerging market funds will probably fare even worse than a European fund would do if things turn Bunga Bunga style nasty.

My portfolio: Click to enlarge

Suddenly though I’m glad of my holdings in my two under-performing investment trusts: RIT Capital Partners and Personal Assets Trust .

Sign in / register to view full article on one page

26 comments so far. Why not have your say?

Micawber

Feb 26, 2013 at 12:11

Yes, Italy & the shenanigans in Washington will usefully dampen down the markets which have been coming on rather too strongly over the past six months. Then with the approaching end of the earnings season and in UK the "sell in May" trend, If you think this will produce a dip of much over five percent, sell the lot and buy back in when it gets to your dip level.

On the other hand, your portfolio looks quite reasonable for a long haul, except for Aurum which looks flaky, but which (now bought) might just pick up if the market wobbliness leads to renewed interest in gold. So handing in there is quite an acceptable strategy, particularly if you think the markets except for Euro stocks will be resilient enough to absorb Italian stalemate and that the US Congress will again roll over on sequestration.

Then there's the compromise strategy of selling aprt of you portfolio and buying back in on a dip. Say sell Aurum and BP (latter unlikely to go anywhere fast while the lawsuits grind on) which makes your portfolio about 20% liquid and gets rid of a couple of dogs. Then wait for a dip of around 8% in the market and buy another couple. If no dip of that size, buy back in in July.

Then we'll have the uncertainty of German elections in September looming.....

report this

Jon Edwards

Feb 26, 2013 at 13:01

Who knows if there will be a more extensive sell off, but the markets certainly look rattled and it may be worth taking some money off the table.. Personally I think what tends to do worst during sell offs is banks and miners, and you have some useful profit in STAN. I really don't have an opinion on AUR as it's not the kind of share I'd buy but it looks highly speculative and the sort of thing that could be vulnerable during a correction.

report this

Micawber

Feb 26, 2013 at 13:45

Yes, STAN could be another sell, particularly if you're worried about Italy where at the last half-year report STAN had a net exposure of $749 million, second only to its exposure to Ireland. Also banks are being particularly hard hit in today's sell-off - a sign of continuing vulnerability.

So if you are feeling both energetic and worried, sell all of Aurum and BP and take £500 out of STAN and keep the cash (about 22% of the portfolio value) until the dip, or until the danger passes.... You'll feel happier that you have some STAN profit to offset the dog sales

report this

Matthew Charles Flinders

Feb 26, 2013 at 13:57

Not really sure why you would want to crystalise a loss. I would consider skimming off the profits from STAN and the Scottish IT and use that cash to invest into a defensive stock to bring further balance to your portfolio.

report this

HETTIE1

Feb 26, 2013 at 16:29

Hi, all sounds good advise to me, my problem,my best performing share , Pace

seems to go up when markets down, am i alone thinking, something could be going on there

report this

Keith Cobby

Feb 26, 2013 at 16:50

Italy today, Spain tomorrow and who knows another meteorite on Wednesday. I am fully invested, long-only in equities and intend to remain so rolling up the dividends. I will leave the trading to others and go back to sleep now.

report this

Graham D-C

Feb 26, 2013 at 16:51

Any spare cash you might have could be very profitiably invested in AURR - up 14% last Friday -agreed sale of one of four stakes in companies. In August 2011 the BoD made a commitment to sell it stakes in four companies within a two year period. One down 3 to go. Highly regarded Simon Thompson IC Small companies Editor, believes a cash return of 45p to investors is on the conservative side. DYOR

report this

gggggg hjhjkl;'

Feb 26, 2013 at 17:43

A not unexpected correction, whether due to Italy or not, who knows (or cares).

Sold enough last week at a profit, for moving part of a very good income producer into the shelter of my SIPP and S&S ISA accounts at the start of the new tax year.

Hopefully more of a drop so as to lower my re-purchase price.

report this

Micawber

Feb 26, 2013 at 18:58

Deciding what and when to sell is often clouded by plain reluctance - particularly if "crystallizing a loss" - see e.g. http://www.investopedia.com/articles/05/032905.asp#axzz2M24dGZWG

The facts are that in a market that has been steadily and firmly rising, by around 12 % over the past few months, BP and Aureum are showing double-digit falls. This suggests that even if the analysis was plausible when bought, the timing was bad and the price paid too high. They are dogs. If you hold for years they *might* rise again, but meanwhile (a) you are worried about a probability of a market fall and can mitigate that by going partly liquid, and (b) if the market rises then by sticking with your dogs you are missing the opportunity to buy two better shares.

The acid test is to ask yourself whether, if you had not bought BP and Aureum, you would buy them today. If not, sell them!

report this

Brian Stafford Garthwaite

Feb 26, 2013 at 19:03

Micawber -would you buy them today etc - that sounds good advice. I have been selling during past two months am now highly liquid. There seem to be so many factors which could affect the markets - who knows? You cannot beat having cash in a sound bank - despite inflation!

report this

Geoff Downs

Feb 26, 2013 at 19:33

We have been told for many months rising interest rates would savage the bond market. The BOE is now talking about negative interest rates. Bonds ok then.

report this

Lee Whitehead

Feb 26, 2013 at 20:00

FFS!!! how many dividends have you had from BP now? I keep asking this question and I never get an answer... chances are you have recovered enough in Dividends to recuperate your loss. Add the value you would get to the amount you have had in dividends and if its higher than your purchase price, sell the bloody thing

report this

Micawber

Feb 26, 2013 at 22:41

BP's yielding 4.9% per annum. I don't know how long Dumb Investor has held it, but over the last quarter BP has issued a divi worth 1.2% and has declined in capital value by 13.7%, while the FTSE yielding something like 3% has increased by about 12% in the quarter. BP is a dog.

By contrast, if you want an oil share with a yield, Shell is yielding 4.8% and over that same quarter rose in value 1.5% Both companies reported & paid about the same time. But over that period you are 15 percent worse off with BP.

If you want a dividend with prospects of growth, join me in Go-Ahead Group. It's recently reported, paying 5.75% with prospects of further growth, particularly from its bus division, and on a rising market had made me some 14% not counting the divi in four months. Beat the dog BP easily.

report this

Jon Edwards

Feb 27, 2013 at 00:08

Which quarter are those figures for, out of interest?

BP has paid out a dividend of 24.755p per share in the last year which makes a historic yield of 5.57% (according to Sharescope).

The share price performance has been disappointing, but the sector has been weak (BP is -10.5% in the last year, compared to -7.12% for Shell and -12.15% for FTSE 350 Oil & Gas Producers Index). This is against a 7.42% increase in the FTSE All Share over the same period.

report this

Dennis .

Feb 27, 2013 at 09:14

I wonder if Warren Buffet would have sold BP?

report this

Micawber

Feb 27, 2013 at 11:00

Well, Buffet hasn't *bought* any BP as far as I can see.

That might tell us something?

BP might be OK in the long run but at present it seems to me that holders are speculating on the prospects following the Rosneft deal and the negative outturn on endless civil lawsuits in the USA

report this

kince

Feb 27, 2013 at 11:54

lee W

DI (ver1.1) BP purchased last week of April 2012

Is BP a dog ?

This very much depends on your starting point, GBP 3.40 or GBP 5.00

We’re in the end game here. I expect that once the distraction of the biggest man made environmental disaster the world has yet known becomes…well, been there, done that, the shares will get a positive rerating.

Meanwhile I will collect my rent.

Longer term....

The big fear I have as a BP holder is this new adventure in Russia. History would suggest that small time players in high stakes poker games tend to do very badly.

Anyone else for poker with Putin?

report this

Lee Whitehead

Feb 27, 2013 at 12:25

Ok, so if according to kince and the dates you missed the Q4 dividend, that means you qualified for 3 dividends on 199 shares…

Q1 2012 @ 5.1498 x 199 = £10.24

Q2 2012 @ 5.0171 x 199 = £9.98

Q3 2012 @ 5.5890 x 199 = £11.12

Total payment in dividends £31.34

You purchase 199 shares at a total cost of £1018.60 (assuming like TD your book cost includes the stamp and commission), which equates to a share price of £5.1186 (rounded up)

Total loss as of portfolio snapshot at today’s price of £4.4548 equates to £132.08 and a book value of £886.52

Taking out the dividends received so far of £31.34 means an overall loss of £100.74

Add in a fee of £12.50 to the broker for selling it and you are looking at disposal loss of £113.24 (as priced above)… if you decide to hold, your break even individual share price point is £5.023 (£1018.60 book + £12.50 sell – dividends / share amount)

This may seem like a lot of work for a measly £100 loss, but when you get into bigger amounts of shares and higher values the formula/approach helps. Case in point being that if you were heavy on RSA over a few years the recent drop in SP from the dividend cut wouldn’t seem like so much of an issue…

report this

Micawber

Feb 27, 2013 at 14:06

Meanwhile the FTSE has risen 10.73% (since mid-April 2012) and is yielding 3.3% per annum.

DI's BP loss over the year is 12.96% taking Lee's figure on disposal. The opportunity cost (i.e. what DI would have gained on an average share in the FTSE or a tracker or ETF) is 14.03%, So the real loss is just about 27%. A dog. Would DI buy BP again at its current price? If not, better to cut this loss and buy a better share or fund.

report this

Luckycontrarian

Feb 27, 2013 at 16:27

@kince I think your BP worry about Russia may pale into insignificance relative to the DoJ and Uncle Sam - as one analyst pointed out, starting the trial on the same day as Italian governa-governa was a useful distraction but there's at least another year to go before any clarity. I bought post-Macondo so more than happy to hold and take the dividend and will possibly pick up more following some actual tangible news if I think it's cheap enough (which it's not right now).

report this

kince

Feb 28, 2013 at 08:32

Lucky C......

To put it plainly, I prefer the knowable unknowns ( of the trial) over the unknowable unknowns ( of poker with Putin), though I will try to profit from both.

DI

You’ve bought low, sold low, then bought high but it would be of greatest comfort to your err…’ fans’, if you could at some point complete this skill set and demonstrate that all important capacity for selling high or at the very least a strategy for it. You will struggle to make any money without it.

report this

Geoff Harrop

Feb 28, 2013 at 14:13

Sell up and buy MOS is my advice.

report this

Geoff Harrop

Mar 01, 2013 at 11:05

MOS have doubled recently and will probably do so again. And again possibly..

report this

Brian Stafford Garthwaite

Mar 01, 2013 at 11:18

Please excuse my ignorance - unable track down MOS

report this

Luckycontrarian

Mar 01, 2013 at 11:29

It's a tiddler but credit to Geoff, it's done very well. Mobile Streams Plc.

http://www.reuters.com/finance/stocks/MOSE.L/key-developments/article/2683989

report this

Brian Stafford Garthwaite

Mar 01, 2013 at 11:42

Lucky - thanks for that - will do the homework

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 investment trusts

  • RIT Capital Partners (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

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