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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
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.
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 (%)|
|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|
|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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More about this:
Look up the shares
- Rolls-Royce Holdings PLC (RR.L)
- Lloyds Banking Group PLC (LLOY.L)
- Hutchison China MediTech Ltd (HCM.L)
- Taylor Wimpey PLC (TW.L)
- Pearson PLC (PSON.L)
- Centrica PLC (CNA.L)
- Xeros Technology Group PLC (XSG.L)
- Tesco PLC (TSCO.L)
- Standard Chartered PLC (STAN.L)
- Imagination Technologies Group PLC (IMG.L)
- Legal & General Group PLC (LGEN.L)
Look up the investment trusts
- RIT Capital Partners (Ordinary Share)
- Templeton Emerging Markets UK (Ordinary Share)
- JPMorgan Russian Securities (Ordinary Share)
- Scottish Oriental Smaller Cos (Ordinary Share)
- Woodford Patient Capital Trust (Ordinary Share)
Look up the fund managers
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- Diary of a Dumb Investor: my star stock goes stratospheric!
- Neil Woodford sells Rolls-Royce amid dividend fears
- Rolls-Royce plunges on profit warning and threat to dividend
- Diary of a Dumb Investor: I'm buying Lloyds
- Diary of a Dumb Investor: why I'm selling Tesco
- Diary of a Dumb Investor: bailing out of StanChart
- Diary of a Dumb Investor: emerging markets nightmare