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Diary of a Dumb Investor: my 2015 hits and misses

Although I own the best performing FTSE 100 stock of 2015 my portfolio is in the red over the last 12 months. I've learned my lesson.


by Dumb Investor on Dec 16, 2015 at 16:22

Diary of a Dumb Investor: my 2015 hits and misses

Sorry guys! I know it's been ages since I last updated you with my progress. 'Has this article been put to death?' asked Lee Whitehead. Fear not Lee, I'm still here, with my lack of noise more a sign of a kind of investment paralysis than any frantic behind-the-scenes activity.

Perhaps needless to say, it's not been a great six weeks since my last update. I've lost 5% over that period, even worse than the 4.6% drop by the FTSE All-Share, although better than the FTSE 100's performance.

Rolls-Royce (RR) has been hit by a double whammy: first, the aircraft engine manufacturer's profit warning, then the news that Neil Woodford had dumped the stock. But that's nothing compared to the 40% slump in the shares of Imagination Technologies (IMG) since my last update, as the chip maker reported interim results labelled 'spectacularly bad' by analysts.

It's left me in an oh-so-familiar position of letting double-digit losses on one of my stocks creep up on me. I've taken on board your suggestions of implementing stop losses. This is something I did when making my most recent purchase, of Lloyds (LLOY), setting the limit price at 68p. But it's something I need to do across the whole of my portfolio: a good New Year's resolution, I think.

As this year draws to a close, it's a natural time to take stock and reflect on the previous 12 months, and I've done just that with my portfolio. At first I thought it might be a bit arbitrary to look at my performance over the year. What's so special about the last 12 months? Ultimately it's the figure at the bottom of the portfolio that counts. But going through the figures has helped me learn some lessons.

First things first: I'm down 4.2% over the year. That's marginally better than the 5% drop suffered by the FTSE All-Share, and the 7.5% slump of the FTSE 100. But it's still a loss.  

But the more interesting story lies in which stocks did well, and which didn't. The wisdom of the old investment adage to 'cut your losses short and let your winners run' shines through clearly as I pick through my winners and losers.

'Let your winners run'

My best-performing stock this year, Hutchison China Meditech (HCM), was also my top stock in 2014, up 93.5% this year, and 123% in the previous 12 months. Had I not taken profits along the way, I would be boasting an even greater return than the 230% I have made since first investing three years ago,

I also hold the best performing FTSE 100 stock of the year so far, Taylor Wimpey (TW), up 43.8%. Again, it was a strong performer in 2014, up by more than 20%. RIT Capital (RCP ), up 18% this year, rose 10% in the last.

The same theme is evident in my worst performers of the year. Pearson (PSON), down 37.2% in 2015, fell 11.5% in the previous 12 months. Rolls-Royce lost around a third of its value in 2014, and did the same this year. Centrica (CNA), down 24.8% since I bought it in May, fell 19.7% in 2014.

Of course, there are exceptions: Imagination was my worst stock of 2015, down 41.4% over the year, but among my best performers last year, when the shares rose 36.3%.

But there's no ignoring the main message presented by the year's performance: I need to resist the temptation to take profits on my winners just because they have risen, and sell out of stocks earlier when things turn sour.

Sales pay off

Examining what I did sell over the year bears this out. I sold seven stocks and one fund over the 12 months and only one – Xeros (XSG) – is up significantly since. With every other, selling has so far proved the right call.

Some sales I can look back on with pride: banking a 25% profit on Tesco (TSCO) shares at 235p now looks a smart move with the shares trading below 150p.

But most other sales were made with a heavy heart, turning significant paper losses into real ones. Standard Chartered (STAN) and Templeton Emerging Markets (TEM ) certainly fall into this category. It took me too long to sell, as I waited for the investments to turn around and prove me right.

Getting over this emotional barrier is a key issue I need to address if I'm to improve my performance, and stop losses will, I hope, help to force me in the right direction. Setting these automated instructions will help to remove the emotion from these sales, by bringing forward the decision on when to sell to my (hopefully) more rational state of mind when I'm buying the stock.

And with the stocks I already hold, the lessons learned from my performance this year suggests it could be time for a clearout. Just because Rolls-Royce and Centrica fell this year and the next doesn't mean they won't next year too, and they are now shorn of the support of Neil Woodford.

For all that I don't like lining Hargreaves Lansdown's pockets with trading fees, it looks like I need to get to work on my portfolio if I'm going to turn things around in 2016.

Here's my portfolio:

Stock Units held Price (pence) Value (£) Cost (£) Gain/loss (£) Gain/loss (%)
Centrica plc  528 213.2 1125.7 1498.11 -372.41 -24.86
Hutchison China Meditech  75 2620 1965 349.33 1615.67 462.51
Imagination Technologies Group plc  537 129.75 696.76 1015.92 -319.16 -31.42
JPMorgan Russian Securities   235 298 700.3 996.78 -296.48 -29.74
Legal & General European Index   693.963 294.2 2041.64 2000 41.64 2.08
Legal & General Group plc  499 262.5 1309.88 998.39 311.49 31.2
Lloyds Banking Group plc  1667 70.38 1173.23 1279.46 -106.23 -8.3
Pearson plc  87 741 644.67 998.1 -353.43 -35.41
RIT Capital Partners plc   85 1643 1396.55 990.64 405.91 40.97
Rolls Royce C Share Entitlement  8991 n/a n/a 8.99 n/a n/a
Rolls Royce Holdings Plc  97 564 547.08 958.32 -411.24 -42.91
Scottish Oriental Smaller Cos Trust   172 720 1238.4 996.91 241.49 24.22
Taylor Wimpey plc  928 198.9 1845.79 999.99 845.8 84.58
Woodford Patient Capital Trust PLC   2910 99.6 2898.36 2910 -11.64 -0.4

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11 comments so far. Why not have your say?

peter montgomery

Dec 16, 2015 at 17:17

Still a stamp collection!

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Dec 16, 2015 at 18:24

I think you need to ask yourself a few very basic questions.

What is your return target, is it a nominal one, one that is relative to the FTSE All Share or to something else, howe long are you investing for and finally how do you define risk? Market professionals investing with an nunconstrained equity investment havitat, generally expect to be have 5-10% more upside and downside than the FTSE All Share which in turn goes up and down 15-25% in any year (the FTSE-100 doesn't have any income in its performance returns) and managers have an objective of making an extra 2-5% above the FTSE All Share over a market cycle (whatever that is - probably 3-7 years).

This means a lot in terms of final values. If you perform in line with the market, but only on average with annual returns ranging between 10-15% above or below the market, you are really wasting your time because you are taking oads of risk for no return.

You already seem happy to be paying high fees (for your Asian and small company funds), so you really ought to take a hard look at your approach relative to the pros who charge fees (but are supposedly smarter) to see what would be a sucessful outcome for you. Do you want to beat the market or beat the Woodfords over the next five years?

Lastly, do you ever look at whether your weightings per investment are too high or too low when you correlate their returns between themselves or the FTSE ALl Share?

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Dec 16, 2015 at 18:29

I did warn you about IMG a few months ago. With the way you trade I think stop losses are your best policy. Apart from HCM you would be better off just buying funds, some UK small company funds are up over 120% in last 5 years. You seem very slow reacting, you talked about Japan but did not buy, one of my Japan funds is up quite a bit lately (20% since 1st Sept. and 40% this year). Yes cut your loses early. If you had sold JPM Russia and bought a Japan fund you would probably have got most of your money back by now.

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Dec 16, 2015 at 20:17

DI, be consoled.

A number of us are nursing losses.

My portfolio is down by more than the 5%, 2 stocks (one of which you will recognise, Afren) are showing total losses.

In relation to Pearson, shortly after the announcement of the sale of the FT, I disposed of half of the stock and several weeks thereafter (and £3 per share less) the remainder, nevertheless making handsome profit on the original cost of investment.

In relation to Centrica, I in fact added to the amount I held, both for myself and my SIPPS, as well as adding, recently, to the BP and Lloyds Holdings.

I never got into Rolls-Royce, principally because at one time Rolls-Royce was regarded as a blue-chip (and considered, in leasing terms, a solid covenant), only to go, spectacularly, bust. Could this be happening again?

Overall, my portfolio remains solidly in the black (at this stage nearly 50% up on the cost of investment) and yielding a sort of respectable income.

Needless to say the commodities companies are well down, but I have continued to hold them. The other “dog” stock was also a commodities company, but regarded as something of a punt, but the long downturn has meant that the company could not continue to carry the losses so they are currently in the South African version of Chapter 11. But then that is a risk that we run in buying shares.

I repeat, over the long term solid stocks should show (and for me has given) a solid gain with a respectable income on the side.

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Dec 16, 2015 at 20:57

Two bits of advice, for what they're worth :

Operate a minus 20% stop-loss policy and stick to it.

Stop using logic and watch what the markets are doing. Anyone can put together a good argument that (e.g.) Rolls-Royce makes splendid engines, but if the markets don't like Rolls-Royce you have to sell. Waiting for the markets to appreciate Rolls-Royce's excellence is an excellent way to lose money.

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King Lodos

Dec 17, 2015 at 00:30

I think you need a strategy - I don't quite understand the philosophy behind this portfolio .. It is very easy to feel clever when markets are all going up together (especially with a few lucky stock picks) - but it's how you do in markets like this that determine your worth as an investor

I'd be thinking: are you going to be a fundamentals guy, like Buffett? Or have a process to run winners and cut losers, like Soros or Giles Hargreaves? Or more of a macro or endowment-style investor, focusing on diversification and opportunities, like Swensen?

Or you could be a quant guy, like Asness ... But as they say, the most important thing about a strategy is that you have one ... At a glance - you seem to be focusing on 12 month returns, which might suggest investing in more of an absolute return style ... Perhaps look at funds like Ruffer, BH Macro, how about Electra's ZDP shares? Maybe long/short equity, like Threadneedle UK Abs Alpha? ... More defensive layers, then more long-term, high return investments in the form of listed private equity? What one might call a 'barbelled' portfolio - I think where you're standing now is Middle of the road - and that can be a dangerous place

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Ian Holmes

Dec 17, 2015 at 03:13


Glad the TW holding worked out after your earlier doubts!

Just a cautionary note regarding stop losses. They are, as you say good for taking the emotion out of selling but be ready for a general market fall. When this happens, its nothing to do with your individual holdings per se - just a general sell off. When this happens, many of your stops could be hit including some good solid shares. Be ready to buy back those solid shares because they will surely bounce back.

So after the stop is hit, if the price falls further, and the reason for holding the share still holds good, buy back (you'll have to use judgement and a little guess-work to decide when!). Then you will have escaped some of the general sell-off losses and in effect double your gain as the price returns to the point the stop was hit..

IMHO, stop losses are useful when entering a trade, to curb losses unemotionally on a bad decision, but they are also useful to tie in profits. Revise upward (HL doesn't have trailing stops) occasionally if in profit and the price is in a rising trend.

(I would, for example, now put a stop on TW to tie in profits and revise upward every so often accordingly but don't ever reduce the stop - that;'s emotion kicking in!)

I'm not a believer in a general blanket percentage stop position on all holdings.

I'm sure my views will not be shared by everyone here, but I just hope it gives some food for thought as you consider using stops on the portfolio.

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Dec 17, 2015 at 09:03

This is how a small shop in Melbourne does it. It is typical of thousands of other small investment firms and looks comparable to your target scope.

it has these returns in A$ over the last five years before fees

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Kevin Gilmartin

Dec 18, 2015 at 18:02

I generally go along with Ian Holmes. A point to be prepared for with stop losses is that often, at whatever you set your SL at, you will see some shares bounce back almost imediately after an automatic sale. The lower in %age terms your SL is, the more frequently (especially with Small Caps) this will happen and the greater your dealing costs. It will happens at a 20% SL. It's something you've got to be philosophical about and be thankful for the times it has saved you deep losses.

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Dennis .

Jan 02, 2016 at 09:13

I have given up on this stock picking style of investment in favour of some well managed funds concentrating on boring assets. For instance Fundsmith delivered nearly 16% in 2015. When commodities such as oil fall over 50% for unforseeable political reasons, what's the point of trying to second guess the future value of any company?

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Jan 03, 2016 at 05:18

BTW, DI, do not ignore divi yielding shares.

In the current year, as of today, I am a hundred or two shy of last years financial year's income, even though there have been drops and nil income for previously yielding shares, and there is yet another 3 monhs to go to fiscal year end. The dogs didn't feature in income.

I do not use stop loss. Over the last 5 years, my income from divis has more than doubled, and yes I have been ploughing some back. I have to use some of it, the state pittance does not go far.

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