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Diary of a Dumb Investor: time to tear up my portfolio
As my investments continue to haemorrhage money, it's time to face the facts: my portfolio isn't very good.
by Dumb Investor on Feb 03, 2016 at 16:09
It’s time for an overhaul of my portfolio. I’ve already seen most of my gains whittled away as I wait in vain for ill-fated stock bets to come good, and some drastic action is needed.
The sell-off in markets since the beginning of the year has left my already weak portfolio looking even more sickly. There’s scant consolation in the fact that some of my worst performers haven’t actually fallen much further: the portfolio needed work before the New Year falls, and it definitely does now.
It’s time to take my head out of the sand. The disastrous nature of some of my investments has left me locked in inertia for too long. With so many things going wrong, where do you begin putting things right? Not knowing where to start, I have been wishing the problem away, losing ever more money in the process.
It’s a small miracle that I have somehow managed to hold onto some gains since taking over the portfolio from my brother nearly four years ago. But a 19% return over four years isn’t great.
Start from scratch
I want to start again from scratch. What’s stopping me from selling everything and starting again? Desperately hoping that my bad bets would come good has acted as a barrier, but so too has anxiety over my excessive trading costs. It would cost me around £240 in commission to Hargreaves Lansdown to sell all of my investments. But then there is the cost of reinvesting on top of that: I’m not considering piling into cash and sitting there in anticipation of a market meltdown, I just want a better portfolio.
For all your criticism hurts, it is right: my portfolio isn’t a proper one, just a stamp collection of stocks. I’ve been desperately hoping to impose some sort of asset allocation over the last year, but kept coming up against the same fears: don’t sell at the bottom of the market, and don’t trade too much.
But that has left me helpless as the market has gone from bad to worse. The best investors, I’m told, are able to ride out these periods of panic, safe in the knowledge of the underlying soundness of the businesses they invest in, or the balance of their portfolio. I have none of this comfort to draw upon.
While I haven’t lost money over the four years I’ve been in charge of the portfolio, this has largely been down to a few spectacular successes outweighing multiple failures. I guess this is what James Anderson, manager of the top-performing Scottish Mortgage Trust (SMT ), is talking about when he refers to ‘asymmetry of returns’: even an investor like me can’t lose more than 100% on an investment, while the investments that do spectacularly well, like Hutchison China Meditech (HCM) or to a lesser extent, Xeros (XSG) can deliver much more than that in growth.
But this is not a sustainable investment strategy. I’d love to say that I’d anticipated the explosive gains in Hutchison’s shares, but the truth is it was more a mildly educated guess that went very well. It’s certainly not something I can rely upon replicating.
And while it’s great to see a share like Hutchison rocketing, it’s not much use if my many failures whittle away at the gains I make on it. An annualised return of 5% is nothing to write home about.
Portfolio needs backbone
I don’t want to throw in the towel entirely with shares investing, but my portfolio needs a bit of backbone to do a better job of withstanding the sort of markets we’ve seen recently.
That’s not to say I’ve had unbridled success when I’ve invested in funds. But those that have gone wrong have largely been down to the same mistakes I’ve made when investing in shares. Witness JPMorgan Russian Securities (JRS ), bought in the hope of a quick recovery as the country was in the midst of the Ukraine crisis. While that political tension did subside, the plunging oil price then took its toll. It was a bet, not an investment.
So too Woodford Patient Capital (WPCT ). While the early stage and biotech companies Woodford is buying may seem exciting, placing 15% of my portfolio in a fund investing in these sorts of stocks does not make much asset allocation sense.
While I’ve been wasting energy on trying to spot the next big win in markets, whether through a fund targeting a niche market like Russia or biotech, or a share that looks cheap but could well be cheap for a region, I’ve been foregoing the less exciting, less volatile growth that comes from a diversified portfolio.
A few good global funds would do this for me in one fell swoop. I would allow myself to play around the edges, buying the odd share or riskier fund as I go along (I’ve got to have something to write about, after all) but with a core to the portfolio that would give me more of a chance in these choppy markets.
What’s more, it would not be too costly. While I’d be doling out another £240 to Hargreaves to get rid of everything in my portfolio, I wouldn’t be paying trading costs to invest in funds, unless they were investment trusts. And £240 seems like small fry when set against the sort of losses I’ve been making in recent weeks.
Your thoughts below would be welcome. Should I get rid of everything? And if not, what should I keep? It strikes me that RIT Capital Partners (RCP ) does this job of steady returns and diversification pretty well, and should survive. Taylor Wimpey (TW), I think, should have a good year: if nothing else, the much-vaunted UK interest rate keeps getting pushed back, which should help.
Stocks that definitely need to go are Rolls-Royce (RR), Centrica (CNA) and Pearson (PSON). It looks from what I read that Pearson’s dividend could come under threat, and I think it’s time to draw a line under my substantial losses on the first two. I’m also unnerved that Neil Woodford has sold both of them. If he thinks there is something wrong with the businesses, I think it’s unlikely that I’m about to prove him wrong.
I’m off to do a bit more research into my portfolio overhaul. I think you’ll agree it’s been a long time coming. Take one last look at this grim collection of stocks, it won’t be around for much longer.
|Stock||Units held||Price (pence)||Value (£)||Cost (£)||Gain/loss (£)||Gain/loss (%)|
|Hutchison China Meditech||75||2370||1777.5||349.33||1428.17||408.83|
|Imagination Technologies Group plc||537||135||724.95||1015.92||-290.97||-28.64|
|JPMorgan Russian Securities||235||282.25||663.29||996.78||-333.49||-33.46|
|Legal & General European Index||693.963||288.6||2002.78||2000||2.78||0.14|
|Legal & General Group plc||499||220.9||1102.29||998.39||103.9||10.41|
|RIT Capital Partners plc||85||1580||1343||990.64||352.36||35.57|
|Rolls Royce Holdings Plc||98||512||501.76||967.31||-465.55||-48.13|
|Scottish Oriental Smaller Cos Trust||172||702||1207.44||996.91||210.53||21.12|
|Taylor Wimpey plc||928||191.9||1780.83||999.99||780.84||78.08|
|Woodford Patient Capital Trust PLC||2910||88||2560.8||2910||-349.2||-12|
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More about this:
Look up the shares
- Centrica PLC (CNA.L)
- Hutchison China MediTech Ltd (HCM.L)
- Imagination Technologies Group PLC (IMG.L)
- Legal & General Group PLC (LGEN.L)
- Pearson PLC (PSON.L)
- Rolls-Royce Holdings PLC (RR.L)
- Taylor Wimpey PLC (TW.L)
- Xeros Technology Group PLC (XSG.L)
Look up the investment trusts
- JPMorgan Russian Securities (Ordinary Share)
- RIT Capital Partners (Ordinary Share)
- Scottish Oriental Smaller Cos (Ordinary Share)
- Woodford Patient Capital Trust (Ordinary Share)
- Scottish Mortgage (Ordinary Share)
Look up the fund managers
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