DIY Investor Magazine
| August 2017
49
into this fairly inactive style - but I think it is a huge
positive because a big error many newbies make is to
overtrade, merely making their broker rich with dealing
commissions!
However, I then leverage up this return using spreadbets
so my overall returns are probably nearer 15%; I do a
‘mirrored’ portfolio using spreadbets which is much
more efficient in terms of capital.
I use hedging via index shorts to try to limit downside
when markets get in a mood - however, this has got
much harder as many indexes like the FTSE100 and
DAX are more like FOREX trades these days. FOREX is
insanely risky and I would never go near it - don’t start
me on Bitcoin!
WHAT ARE YOUR KEY CONSIDERATIONS WHEN
MAKING AN INVESTMENT?
My focus is on the business itself - I want to buy a
company that is likely to grow in coming years; for my
income portfolio I focus on a sustainable dividend and I
want to see some steady growth. Again, any new stock
must make sense in my overall Portfolio, I don’t want to
get ‘out of balance’ and increase risk.
I size my positions according to my judgment of their
likely volatility; my largest positions are FTSE100 stocks
and AIM stocks might only get 2% of my total exposure
(including spreadbet longs). If a stock does well I will
‘push the position’ by buying, but if something gets too
big and looks over-valued, I top-chop to reduce my risk.
Risk management is key for me; it is where investors/
traders make their biggest errors but it is rarely written
about in a practical way.
Valuation is another bee in my bonnet – it’s amazing
how few people seem to understand basic stuff like
Forward P/E, PEG, Dividend Yield, Discount/Premium
to NAV, etc. - This is an area that gives me an ‘edge’ -
because most people totally ignore it. I am addicted to
charts - I want to buy stocks in up trends or perhaps
after a 50/200 day
or on
a
- again most people
take little notice of such things, giving me an edge.
I avoid certain sectors like mining, biotech, and anything
loss making - ‘long shots’ rarely work out and they are
best traded short term not held as ‘investments’; it is
probably unwise to use leverage on such high risk plays.
ISA OR PENSION?
Many people plump for pension straight away, but I am
a huge fan of ISAs (especially now that you can shove
in £20k every year) - I have never had a pension so
I was able to max my ISA when I was working which
enabled me to retire early. If I had put my dosh into a
pension, I would have got the tax relief upfront (you
pay tax when your money is taken out) but I would not
have been able to retire until 11 years after I actually
did; heck, I would still be 3 years from retirement and
extremely depressed I would imagine !
ISAs are more ‘visible’ and people are much more
on the ball with regards to what they have invested
in them; governments are less likely to mess with ISA
rules whereas you are at their mercy with regard to
pensions - goal posts can easily get moved as the
WASPI women have found out to their cost.
If I was starting over, I would max my ISA each year
and if I had anything left over, shove it in a pension.
WHAT HAVE BEEN YOUR BEST AND WORST
INVESTMENTS?
With regard to ‘best’, I contend that sometimes it is
not just about raw returns on an asset but also its risk
and function within an overall portfolio. Back in 1999
when I started investing I put about 20% of my money
into a Prudential ‘with profits’ bond; these things got
a very bad press because they were often part of an
endowment mortgage, linked to paying off of the home
loan, but in my case it was a standalone product and it
has been an excellent buy.
It plays a critical role in my portfolio because it is
very much low risk, yet still returns around 4% p.a.,
compounded - this is way better than cash and is
stable and easy to cash in when there is trouble.
Having something like this as a ‘core’ to your Portfolio,
means you can take higher risks on things like stocks
and leverage, retaining an element of ‘safety’ from the
bond; it is still a big chunk of my portfolio and I have
taken quite a bit of money out of it over the years as
well. Slightly more exciting was Anglesey Mining (AYM)
which I bought at 4p and sold out at 60p; I bought
other chunks at around 20p - not quite so exciting, but
it was a big winner for me.
