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Diary of a Dumb Investor: my sell-off begins

As promised, I'm overhauling my portfolio. I've made my mind up on which shares to sell and am eyeing two funds with the proceeds.

 
Diary of a Dumb Investor: my sell-off begins

I asked for your opinions on my drastic plan to tear up my badly-performing portfolio, and you haven't disappointed. I'm convinced I need to do something, I just don't know how much to do in one go.

Broadly, your responses fitted three distinct lines of thinking. There were those like Craig Ross, David Lines and Anthony Tinsley who advised me to forget the whole shares business and stick to funds and investment trusts. Some welcome words of support from Lilly, Jeremy Stewart and Robert Goddard reminded me that I have at least made money since running the portfolio, and my current woes are by no means unique. A third view came from Michael Peter Fenwicks and Law Man among others, who told me that while some restructuring was in order, I shouldn't rush into it, and 'baby steps' were required.

Along with this, a few of you took the opportunity to remind me of my lacklustre approach to asset allocation. And it's with this that I think my approach to restructuring should start. The last time I looked at this properly, I was alarmed at how much emerging markets exposure I had, and took action. Here's what it looks like now.

Asset allocation
Geography % of portfolio Geography % of portfolio
UK 38.7 US 8.3
Woodford Patient Capital 16 Imagination Technologies 4.2
Taylor Wimpey 10 Pearson 4.1
Centrica 6.3 Global 11.3
Legal & General 6.4 RIT Capital Partners 8.2
Emerging markets 22 Rolls-Royce 3.1
Hutchison China Meditech 10.3 Europe 12.3
Scottish Oriental Smaller Companies 7.5 Legal & General European Index 12.3
JPMorgan Russian Securities 4.2 Cash 7.4

Despite having sold Standard Chartered (STAN) since I last performed this exercise, my emerging markets exposure is actually up, largely due to the continued rally in the shares of my star stock, Hutchison China Meditech (HCM).

But my other emerging markets investments, the Scottish Oriental (SST ) and JPMorgan Russian Securities (JRS ) investment trusts, have also held up since September last year. Looking at the value of my holdings, it's not that they have risen since then, it's just they have largely remained flat while almost everything else has fallen.

My US exposure has meanwhile been hard, and now stands at just 8.3% of the portfolio, down from 15.6% five months ago. Some of this is due to the sale of electric car maker Tesla (TLSA.O) from the portfolio (incidentally a sale I'm pretty happy with as the shares have lost a third of their value since then) but it's also down to the slump in the shares of Imagination Technologies (IMG), which have halved since then, while Pearson (PSON) has continued to fall.

Incidentally, I've classed companies according to particular geographies in the same way as I did before - if a company makes more than half of their revenues in a particular region, I've assigned them to it.

But before I go rushing to top up the US portion of my portfolio, which should account for around 19% if I am to follow Bestinvest's 'maximum growth' model, I need to accept my asset allocation problems are more fundamental than that.

Not only are there problems with how my portfolio is split across the globe; there are also issues with how it is positioned within those regions.

No-one could really pretend that Pearson and Imagination Technologies are, on their own, representative of the US stock market. Of course, that's the point: by buying shares myself rather than an exchange-traded fund or a tracker, I'm backing myself to pick investments that are going to perform better than the market.

But when I do such a bad job at it, isn't it better to enjoy some of the returns of the broader market, allowing myself the odd share pick here and there? I've got the same problem in the UK: while nearly 40% of my portfolio is exposed to Blighty, it's a pretty esoteric bunch of investments.

Or, as sgjhaghsdg put it, 'It all smells of "it seemed like a good idea at the time".' While I don't want to rule out the odd opportunistic investment here and there, I've let the bulk of my portfolio become populated with these, and disregarded the broader exposure that comes with the right sort of funds.

Having done some research into the funds I should buy, and taking on board some of your suggestions, here's what I plan to do.

Given the US is my biggest problem, I need to start there. I'm going to sell Imagination Technologies, as it has already lost a third of what I invested, and given the scale of the sell-off in technology stocks, I'm worried I'll have lost half my money in the near future. As mike88 put it, 'racking up losses of 40% on individual stocks is inexcusable'.

Rolls-Royce (RR) also needs to go. I've already lost around half my money, and there's no guarantee I won't lose more, as fears over its dividend conspire to send the shares lower.

As I write, another decision has been taken for me. A plummet in the shares of Taylor Wimpey (TW) has taken the house builder below my 170p stop loss level, so banking a 57% gain.

That's not the end of the issues with my portfolio. I'm also likely to sell Centrica (CNA) and Woodford Patient Capital (WPCT ), but I don't want to do everything in one go.

For the time being I'm thinking of investing some of the proceeds in two funds: Fundsmith Equity and Lindsell Train Global Equity. These have good track records and keep trading costs down by buying and holding for the long term, something I have failed to do. They also invest in a relatively small number of stocks, so when the managers get things right, which Terry Smith and the pairing of Nick Train and Michael Lindsell have done more often than not in recent years, they outperform the market.

They are focused strategies, but nevertheless giving me broader market exposure than I have been able to secure through my own share picking.

Of course, they are not immune to failure: it's not the first time I've warmed to Nick Train's investment philosophy, it's just a shame that of all his investments I chose to copy, I went for Pearson. If I do go for his fund, it makes sense to dump my Pearson shares.

By buying both funds, not only would I reduce my losses if one of them messes up, but it also helps with my asset allocation. While both are global funds, Fundsmith is heavily US-focused, with more than half its assets across the pond, a quarter in the UK and nothing I can see in emerging markets. The Lindsell Train fund is meanwhile more evenly split between the US, the UK and Japan, with some in the Netherlands and no emerging markets.

They will help me address my longstanding lack of Japanese assets, replenish the US portion of my portfolio left empty by my share sales, and at least won't worsen my heavy exposure to emerging markets.

Here is my portfolio, before the changes: 

My portfolio: Click to enlarge

11 comments so far. Why not have your say?

Pensioner

Feb 08, 2016 at 19:50

Your on the right track Fundsmith & Lindsell Train. Consider Slater Growth Class P Acc & Conbrio BUFFETOLOGY for Funds, small tight holdings. For IT's look at SMT. Better investment cover. Less stress and should make u some money. Good Luck and oh for a share look at AZN, expensive, but at a current long time low. Confess to owning all of these but one.

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snoekie

Feb 09, 2016 at 05:51

Ah Dumbo, you talk about selling Centrica, at the present price I am looking to buy. Not that I have much in the way of spare funds. It is a dividend yielding stock.

As regards Lloyds, I put in a buy order last week at 60p, and that happened yesterday.

You had a good portfolio (apart from afren – I lost money there), and all it required was holding your nerve and patience.

Nerve, you have none, patience, a word unknown to you. It reminds me of that old adage, patience is a virtue, virtue is a grace And Patience is a naughty girl who didn't wash her face.

You have been told this many a time. None so blind as those who will not see.

You are darting around like a mayfly, which has no apparent goal. In your present position you should be looking at dividend income, with patience, which will allow you to buy more shares. By all means look at it daily.

From my point of view, I buy with no intention to sell in the near future. Unfortunately, for you, it does not allow for you to post, almost weekly, on your woes or successes. I suppose that my portfolio is boring, with this boring portfolio having risen over 250% in dividend terms over the last 5 years. Regrettably, it puts me within the clutches of the socialist Chancellor's increased tax on my dividend holding.

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Michael Meredith

Feb 09, 2016 at 17:11

This is not the worst portfolio in the world, despite your critics and fans. Fundsmith is a definite plus, I hold this inside and outside of an isa, Terry is like a breath of fresh air in a confusing investment world. Stick with L&G long term. Centrica is a personal disaster for me but I intend to hold and top up, again for long term. This is what I am doing with Hutch.Ch.Meditec, which I bought on your recommendation! I shall look at Lindsell. Many fund managers would like to be in your position in the current market. I can't make my mind up about Woodford..he is an interesting foil to Fundsmith!

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ben ski

Feb 10, 2016 at 14:38

I don't quite understand whether this is a real diary, or if it's a sort of post-modern exercise striving to live up to its title

Your portfolio may be absurdly under-diversified and unbalanced, but this is quite okay if you're still earning money and dollar-cost-averaging in – it's why 100% equities portfolios can be okay for young investors

You're deciding to sell-off now after incurring some losses? There doesn't seem to be any underlying strategy or process here – not even basic asset allocation or rebalancing ... If you'd wanted an absolute return portfolio, why just go long on equities? Surely you knew drawdowns were part and parcel of long-term investing?

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robert nash

Feb 11, 2016 at 11:53

Forget funds and all this balancing business and buy some gold it's better than cash .

The best and most entertaining strategy for a portfolio this size is to tip-toe into distressed assets. These will be the better performers over the long term if you can pick the companies with good balance sheets. Commodities and energy shares are what you should be looking into now.

good luck

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Lee Whitehead

Feb 13, 2016 at 08:15

Did you sell RR or did you get the bounce?

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Pensioner

Feb 13, 2016 at 21:43

un ticked the box but still receiving comment. Citywire please sort this problem out?

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snoekie

Feb 17, 2016 at 02:43

ben ski, the clear idea behind the portfolio is to be able to do a weekly article, with little behind th investments, other than to invite comment.

Sadly, there appear to be few grey cells behind it.

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CUEBALL

Feb 18, 2016 at 19:46

I'll wager his sells outperform his buy's over the next 12mnth's

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snoekie

Feb 26, 2016 at 03:10

cueball, for sure, he hasn't learned to ride out the storm with good investments.

Ah well, he is enriching the brokers, and so the money goes around.

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ben ski

Feb 26, 2016 at 04:43

@snoekie, in that regard it's certainly working

Couldn't it be Diary of a Reasonably Considered investor? .. I guess that's not the way media's going

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