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Diary of a Dumb Investor: on the prowl for some ETF action

Instead of letting fund managers put their hands in my pockets as they try to beat the market, I think I’ll ‘passively’ enter North America with an exchange traded fund.

 
Diary of a Dumb Investor: on the prowl for some ETF action

I almost kept my promise not to look at my nascent portfolio last week; but on Friday afternoon, just as my spirits were flagging post-pub lunch and pre-weekend freedom, I couldn’t help myself and snuck a peek.

Click here to read Dumb Investor: the story so far.

What I saw cheered me: my three investments had trimmed their losses from the previous week’s heart-rending 3.3%, or £98.64, to a mere 0.9%, or £27.81. Pretty striking improvement, right? There was an across-the-board rise in the value of my investments, with my units in the Aberdeen Emerging Markets fund actually turning positive and my shares in the Jupiter European Opportunities investment trust gaining £35.67. My Lloyds (LLOY.L) shares also did quite nicely.

My investments on Friday: Click to enlarge

I have fully assimilated what readers said in response to my last diary entry – essentially: chill out, excitable youth! – since in the  long-term, these fluctuations in value don’t really matter so much.

The interestingly named Citywire reader 'gggggg hjhjkl;' pointed out that if you can’t ignore short-term price movements, I should not look at them as ‘they will always stress you out;’ and JEL G noted that he expects to be down 20% on his initial investment before it regains and moves into positive territory. ‘You never ever manage to buy at the bottom, but that is all so irrelevant over the long term,’ he said.

I think the lesson here is that I basically need to rein in my expectations.

A massive missed opportunity

Oh by the way, William N, another reader, suggested I buy shares in Rockhopper (RKH.L), the oil company, two weeks ago when they were at £2.18.

Had I taken his advice that week, I would have seen them shoot up to as high as £3.25 at one point, after the explorer said a prospect off the Falkland Islands was commercially viable. They closed on Friday at £2.60 – still a very healthy 19% profit, not including charges.

What a missed opportunity! I really am a dumb investor!

That said, I do think NormaDear’s comments at the time were pretty valid – that I steer clear of ‘one off’ stocks ‘that keep you on the edge of your chair.’ I think I know enough now to make a semi-informed decision on blue-chips like Lloyds; but so-called ‘minnows’ like Rockhopper are a bit too specialist for me.

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19 comments so far. Why not have your say?

mark gordon

Mar 28, 2011 at 12:56

Do not understand charges you pay, how do you pay these charges. If held in a nominee account like an equity how can you be charged. I have more than a passing interest i bought several thousand of said ETFs. Now what was that we said about understanding what you are buying.

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AE

Mar 28, 2011 at 13:09

HSBC S&P 500 is cheaper

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mark senior

Mar 28, 2011 at 13:43

Dear Dumb Investor

As you are a hargreaves lansdown customer, it will be cheaper to buy the

HSBC American Index Tracker

no dealing fee, no bid offer spread, TER = 0.28%

The ETF you are proposing to buy, will in addition to the costs mentioned above, also be subject to an annual charge of 0.5% from HL.

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la mamma

Mar 28, 2011 at 14:28

Shares held in the HL Vantage Fund & Share account are NOT subject to the 0.5% charge - only when they are held in an HL ISA or SIPP ...

... but finally a sensible choice in going for ETF - have a look at PHAU, PHAG, PHGP or GBS - yes, gold and silver, which despite all the sceptics, are set to continue higher, even with hiccups en route, against increasing demand, espec silver with so many industrial uses, but limited supply. Mine have more than doubled in the past year - something Uncle would surely approve!

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Maverick

Mar 28, 2011 at 14:28

Dumb Investor - Do you actually know how that particular ETF works? Does it physically buy the S&P 500 stocks? I say this because I am tracking the ishares FTSE250 ETF, and it's lagging quite a long way behind the real thing.

There should always be one unbroken rule - if you don't understand it, don't invest in it.

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wayne roberts

Mar 28, 2011 at 15:56

Hi DI, I like your column, its getting interesting now.. can I ask you to consider the TLT ETF (iShares Barclays 20+ Year Treas Bond)? Obviously no one can say for sure but with the world as it is I think this is looking good.. just my opinion, be good to hear others thoughts..

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Aesthete

Mar 28, 2011 at 16:22

DI - brilliant! I've read your column with interest, as I'm in pretty much the same position - investing for the long term with a relatively modest amount of funds. I like your macro thinking re: America and thought I'd share with you my current outlook.

I have the same holding of Lloyds as you do (though purchased at 67p. It's one of the UK's biggest banks, and I believe will continue to be.

My other major conviction investment is in the growth of Africa over the next 30 years. I have split 15% of my capital over Sub Saharan Africa - investing in infrastructure, mining and agriculture. The mining stock, Cluff Gold (CLF), is the one that least excites me - they're making a profit, and tapping new reserves. I think it'll grow slowly, but there isn't anything majorly exciting in their outlook. My agricultural stock, Agriterra (AGTA), excites me a bit more - they have an organic market in both senses of the word. They are investing in farms in Mozambique and have big ambitions. They have both a great domestic demand (and this is due to grow), and have just signed a deal to share operation of part of the West African port of Conakry. The last company, whose prospects excite me the most, is Lonhro (LONR). It is a UK based investment company, who invest in infrastructure, water, mining, transport, hotels. They are perfectly poised to grow along with the domestic market. It was a major name in the 90s, owned by Tiny Rowland. At the time they were making £270m profit a year, and their name is still well known in many African states. They are now making a profit (albeit modest), and are transferring to the main market from AIM next month.

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snoekie

Mar 28, 2011 at 17:02

Aesthete, thank you for the vote of confidence in Lonrho.

I noted in the last ffew days that members of Lopnrho were visiting Mocambique looking at farms and I wondered if they were looking at Aggriterra, which would certainly fit well into their portfolio, and being an existing established business. I know nothing, just speculating having recently looked into Aggriterra. That would be a long haul business, meat , milk products (which Mrs Mugabe has been successfully exploiting having 'stolen' it from the owner who started and built up the business) etc, as an alternative to Argentina etc, which has more cattle but is further away, in terms of transportation costs.

Thank you for the info about the transfer from AIM, that is almost certainly going to boost the price.

Added to that it should mentioned that they own 25% of Lonzim, concentrated on mining projects in Zimbabwe, and curiously, in profit, but with infinitely better prospects when stability returns to that country and the present shower removed. It is surely a matter of time. Not presently on my radar because of their limited target, but I am keeping an eye on it. Take note DI, 'targets' for the future, having done your reading and considered the risks.

As for the profit, projected for September, and that the earnings ratio forecast to drop from 34 to 11.3 next year. But then I have been a fan for a few years.

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Tractorboy 11

Mar 28, 2011 at 17:12

I have this in my SIPP 0.45% TER but hedged. Ticker is IGUS.L

iShares S&P500 Monthly GBP Hedged is an exchange traded fund (ETF) that aims to track the performance of the S&P 500 British Pound Hedged Index as closely as possible. The ETF invests in physical index securities and is currency hedged which enables investors to hedge currency exposure in one transaction, without having to monitor and maintain a currency hedge. The S&P 500 British Pound Hedged Index offers exposure to 500 large cap US stocks which comply with S&P's size, liquidity, and free float criteria. The index also incorporates a monthly hedge, using a one month forward FX contract, to reduce currency exposure.

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snoekie

Mar 28, 2011 at 17:27

BTW DI, look at the tips from newspapers, eg Questor in the DT, and doing your research. some 8 years ago, reading a tip about BHP Billiton and looking further and my 'gut', I bought in @£1.89. Today, £23.51! One of my better decisions. So, Read, digest, research, decide.

Above all, do not let the money burn a hole in your pocket. Choose your moment to invest, do not rush it. As my broker continually tells me, cash is king. Spend too quickly, regret at leisure.

Invest for the long term, the bulk in dividend yielding shares (and you hold the certificates, not CREST which is better for the trader, avoiding the semi annual charges of the broker for CREST accounts, per investment) and an amount in the slightly riskier but promising investments. Prospectors are just that. Hit pay dirt and you are in luck, but most do not.

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gggggg hjhjkl;'

Mar 28, 2011 at 17:57

DI - Thanks for the mention in dispatches! My comment on reviewing your portfolio was based on my 12 year experience (or is it 1 years experience 12 times!!)

I have learnt to ignore my base emotions and am now able to review my portfolio daily without emotional panic.

On the question of ETFs be careful about the nature of any 3rd party involvement( important where derivatives ae used), as this might lead to losses.

As others have said why not choose the HSBC option, if going this route.

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john_r

Mar 28, 2011 at 19:32

Investment Idea: Thinking long term then 'Agriculture' is probably up with the best of investment themes. However I wouldn't invest directly in grains as these funds are often based on futures and requires specialist knowledge as well as being at the mercy of weather spikes. But a fund which invests in the major agricultural companies of the world (machinery, seeds, fertilisers, livestock etc) has a certain allure to me as a buy and hold fund.

Enter ETF Securities: ITG Global Agri Business Fund £(AGRP).

This tracks the performance of the S-Network ITG Global Agriculture IndexSM which includes 30 Global Agri companies such as Monsanto Co. (Usa), Potash Corp. (Canada), Syngenta Ag (Switz), Deere & Co (Usa), Agrium Inc. (Canada), Archer-Daniels-Midland Co (Usa), Mosaic Co (Usa), K & S Ag (Germany), Bunge Ltd (Usa), Wilmar International (Singapore).

It is available as Usd (AGRI) or £ sterling (AGRP) denominated funds so all the foreign exchange is taken care of. Annual charge 0.68% and dividends are rolled back into the fund. Performance over the last 6 months is around +20%. Do your own research at - www.etfsecurities.com/fund/etfs_fund_agri_business_gb_en.asp#invest

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Broomtree

Mar 28, 2011 at 23:56

I held the HSBC S&P 500 ETF until recently and my one observation is to be very aware of the effect of currency movements i.e. £=$ exchange rates - for much of last year the ETF was down in £ terms even though the S&P was rising - This ETF is not hedged - That said of course get the index and the exchange rate movement right and you get a double bumper on the up side!

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snoekie

Apr 02, 2011 at 16:45

DI, by all means watch your purchases, but do not fret. Some are going to not perform as you will.

For example a broker put me into Vodafone @£1.95, and they have not been close to that for quite a while, but do pay a decent dividend.

I bought Morgan Crucible at about £2 to see it drop to £1 and now at £3. Pity I didn't buy more at £1. Still it continued to pay a dividend. I also bought Billiton at £1.89, currently £25.12, and it did suspend its dividend for a while. These and quite a few others are all as a result of tips in papers, research and considering the prospects. You said it. A better way of putting it is stop trying to run before you can walk.

Be ready for some of your purchasesto languish at way below what you paid for them. I have investments in Banks, two of which are way below what I paid for them, but I think will eventually show me a profit. Another is HSBC, original investment £16k odd, but current value over £32k, but if highs of last 5 years counted, over £40k.

I have other examples, I lost on Cookson and Invensys, but won on many others.

BTW, obvious, if you haven't already started it, set up a list of your purchases, date, price (including cost of purchase) and where you add to them by re-investing divis, if you do, and a seperate column for the dividends. Easy reference for what you have, what bought for and if kept updated what you are getting in income. Accountants will want see this (if you have one) when doing your tax returns, without have to ferret through paperwork for the information. At the end you can add the amount you have left to invest, adjusted each time you purchase.

Keep a seperate list for annual dividends, entered on the day of receipt, together with the tax paid amount. Much easier at year end for those pesky returns and above all, keep the contract notes in one place. On a sale you will have to prove what you paid for them. Also maintain a record of your sales and keep it, for at least 6 years, Much easier in the days of a computer.

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Chris Marsden

Apr 02, 2011 at 22:28

@ Snooekie useful info, re record keeping etc.

However this begs the question:

Stop Losses - should we use them?

Morgan C dropping 50% even if it came right in the end. Didn't Connaught drop 50% before going bust? I don't like them, the quickest way to lock in losses especially in a spike down. I use soft stops, alerts when it has fallen by a predetermined amount say 3% to 10%, and Emergency stops for going too low, (holidays, loss of access to trading platform, hospitalisation even!) at quite low levels. Having said this, many losses ie Microfocus etc drop 50% overnight, and stops are useless. Or worse, with the wider spreads at the start of the trading day, can lock in that extra loss, even though it bounces back.

@ Tractorboy11

Interesting info on the S&P 500 IGUS, however the losses can be high when times are bad.

http://www.h-l.co.uk/shares/shares-search-results/i/ishares-v-plc-s-and-p-500-monthly-gbp-hedged/charts

if that works, look at the last 6m both are almost identical. Look over 3 years and that may indicate how volatile it can be.

@ DI. You were given this £10k I believe so your Uncle could see how you managed, and what you learnt. Even if you lose SOME of your money, HE may regard the investment as worthwhile.

As well as recording what Snoekie advises above, you may care to record the FTSE when you make your buys and sells. This is another measure of 'success', if you can beat the FTSE.

If you make 5% but the Index goes up 15% you have not done that well. If the index goes down 20%, you have done very well. You lose 5% when the index goes down 20% you have risked and lost, no bad thing. Yes of course you would have been better off in the bank, but that is not why you were given the money.

CONSIDER CFDs. VERY high risk, £2000 is the most you should put in with your size portfolio, and that is the minimum to be viable, don't invest more than 10% at any time, try to make it 1% of capital at risk on any one trade, use a Practice account first, etc etc. Stick to a VERY few markets, say Indexes and Gold, or Silver, not any more to start with.

I am disappointed HL offer a CFD account. I think the risks are too high, they give so many risk warnings on Funds, of course they can go down, but the risk of significant loss is small. Most people gambling (which is what it is) on CFDs lose money. A separate account where you are not tempted to feed more and more money in is better. IG or rather FXCM would be better.

By learning a lot first with a dummy (dumby) account, you CAN make money, and you will have learnt some incredible lessons, win or lose. These will help you invest in shares in the future, you may surprise him with your initiative and sensible, calculated risk taking. As of close yesterday I am up about 160% on 16/3/11 (yes 2 1/2 times!), a low point. Even if you did lose all your money (and it could be more), he would probably admire your balls for doing it, so long as the risks were controlled and calculated, and lessons learnt. (Stops, volatility, Charting, Forum and Market info, Inter-relation of Markets, what drives the price of commodities). You need to watch the $ basket rate and the WTI chart even though you do not want to trade them, they all give clues as to the next move of PMs (Precious Metals). Identify trends early.

ps Don't be greedy. I doubt you will do this (CFDs), but one to think about. either way, good luck, but I thought I would throw this in before you allocate all your (his) dough.

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Chris Marsden

Apr 02, 2011 at 23:08

Some further thoughts on a few of the suggestions above.

@DI

some ETFs are very good, but to invest AT THIS TIME, in AGTA, or more LLOYDS would need a lot of courage or conviction things have turned around. I would most strongly advise looking at what has happened over the last 2 years and last 5 years, to 'stress-test' your intended investment when there is a downturn.

HL can provide this info on the same chart, as can Iweb.

Try entering LONR CLF LLOY IGUS AGTA into the Tickers box on

http://halifaxiweb.digitallook.com/indicator_chart

My instinct from these charts would be IGUS LONR and poss CLF for a bumpy ride!

On http://halifaxiweb.digitallook.com/company_performance

screening stock by 1yr change, then looking for a STEADY increase from left to right gives potential steady performers. look at Real Good Food Co (good) and Uniq (poor) in this poorly tabulated copy ( Selected - Food Producers):-

Name

Price

Volume

Today Chg

7 Day Chg

30 Day Chg

3 Mth Chg

6 Mth Chg

1 Year Chg

2 Year Chg

3 Year Chg

5 Year Chg

Real Good Food Company 45.50p 272,333 -3.70% 6.43% 33.82% 89.58% 102.22% 287.23% 1,356.00% 333.33% -41.29%

Uniq 67.00p 124,421 3.96% 939.57% 727.16% 722.09% 633.84% 191.30% 586.48% -35.11% -43.93%

Take a look at Uniq 5yr chart - for a laugh if you don't own it. High 2580, low 24.. £10,000 invested would be worth not even £10 at the lowest.

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Chris Marsden

Apr 02, 2011 at 23:28

Final thought. On

http://halifaxiweb.digitallook.com/indicator_chart

if you enter

AMS OXIG FRES HL. CHAR

these are the few stocks I do hold as CFD, and are showing a tidy return, albeit only over a month or so. ie for AMS, I only have £1875 value bought, uses £580 of margin, and is showing a return of £443 with a stop now above buying price.

As it is leveraged, you are making your modest investment go further, or 'work harder' if you like. Now uncle would be pleased with that?

I would be quite happy to have these as actual stocks.

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snoekie

Apr 03, 2011 at 02:23

Chris, not sure about Aggriterra, but am with you on Lonrho, but that is long haul, with a maybe divi next year.

Mind you the former maybe a minnow that the latter could be looking at. As said before I am merely speculating. For the moment I have enough of Lonrho.

Now have to look for another spot to park the money from Northern Foods.

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Chris Marsden

Apr 03, 2011 at 12:35

If you are thinking of buying GLD these are long articles, but express differing, but informed views.

http://seekingalpha.com/article/260900-the-impending-collapse-of-the-gold-bubble

http://www.absolutereturn-alpha.com/Article/2787563/Sprott-Debunking-the-gold-bubble-myth.html

(Sprott runs a $2.4Bn hedge fund)

http://seekingalpha.com/article/261422-how-to-make-gold-bulls-and-bears-happy

http://seekingalpha.com/article/261423-does-gld-have-the-proper-amount-of-gold-in-its-vault

(Does anyone expect there to be, given the auditors couldn't spot the impending banking crisis?)

http://seekingalpha.com/article/259549-will-jpmorgan-now-make-and-take-delivery-of-its-own-silver-shorts

http://seekingalpha.com/article/260171-did-ubs-mislead-small-investors-about-stored-silver

http://seekingalpha.com/article/257237-time-to-get-precious-metals-out-of-storage-in-london

http://seekingalpha.com/article/256696-trading-the-big-dips-in-silver

(A lawyer's view)

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