Fortunately this year the SOTD is so much easier to write as overall my Performance has been very strong. However, before I get too cocky, my Spreadbet performance is frankly disgusting and I need to address this over 2016 - and I suppose I need to do this reasonably quickly. It annoys me because I am just peeing Cash down the drain that I could so easily be scooping up - it has costs me many £Thousands (if not more !!).
To set the scene, here is a Screenshot of how the Major Indexes turned out for 2015 - these are not including Dividends (i.e. they are not ‘Total Return’) and I calculated these myself from ShareScope numbers put in a Spreadsheet. They may not be Total Return but I guess in some ways they are fair Benchmarks as of course our Portfolios get hit by Dealing Costs, so in reality we could never really match the Benchmarks even if we bought exactly the same Stocks in the same Weightings. Roughly speaking, you can add on about 4% for FTSE100 Divvys and about 2.5% for the FTSE250. Isn’t it interesting how all the usual Media Suspects are talking about how badly the FTSE100 has done, when in fact it is only down about 1% on a Total Return basis……..
Trading ISA Portfolio
Well, I am starting with this one because it has been so damned good this year, with a gain of 28% over 2015, after all Costs and including Dividends and obviously loads of reinvestment over the year as I bought new Stocks or added to existing Holdings - and of course Stocks that I sold had the money reinvested in something else. This is my biggest Portfolio so has a huge impact on my Wealth so I am really pleased. OK, I can whinge because I really thought I could hit 30% and it got very close, but a few duff days at the end of December meant I couldn’t quite get there.
Overall I have been very pleased with how I have done here this year - areas for improvement are really around even better Stockpicking and concentrating on timing issues of Entry and Exit. I need to get to the WD40 as I go on about continually, but I will not sell stuff just for the sake of it. As I will explore further down, this Portfolio is critical as it should drive the performance of my Spreadbetting Portfolio - sadly this has not happened well this year, but the fault does not lie with my Trading ISA.
As a general point, I am overall very pleased with the Stocks I have bought this year, and with just the odd few like TCM and UTW which have disappointed, I have had some really big Winners. I expect more gains from my Winners and the underperformers will most likely deliver the goods with patience. I am pretty much happy with my Stocks with the odd exception like FCCN which I really don’t like - I screwed up here in many ways (one was not selling out fast enough once I had decided it was not good enough for my Collection).
My small collection of Overseas Unit Trusts was up 9% in 2015. Although compared to my Trading ISA this is a bit flabby, in reality I am happy enough. I don’t expect amazing results here and it is very much a ‘buy, Hold and Forget’ Portfolio. I think a lot of the performance is driven by FOREX with US Dollar strength being a key factor - this is something I am unhappy with and over time I have been reducing the Money I have invested in these Unit Trusts - this is also because I think I can make better Returns investing the money myself in my Trading ISA.
On the flipside, this Portfolio adds to my overall Diversification (a rare ‘Free Lunch’ that should be taken advantage of and all Investors can do this) and this makes me keen to keep it going but I just feel a need to amend it a bit.
Here is the first of a series of Blogs I wrote recently which looked at this issue - the Conclusion was that I need to sell my European Unit Trust (or perhaps sell half of it) - I am still not 100% there with the Decision but it is likely that I will sell it very soon so I can boost my Cash reserves a bit and reduce my number of Holdings. If we get a bit of a run up early in the year, this would be a good rise to sell into:
Right, this one is a bit harder to measure. In fact, it is so hard to measure the performance that I really can’t be bothered to do it !!
Sloppy I know, but I have better things to do. The problem is that I have been adding Cash to the Portfolio throughout 2015 so it is not easy to do a proper Annualised Return figure. I could use the XIRR function on Microsoft Excel but I really have no enthusiasm to do this.
The purpose of this Portfolio is to create a Dividend ‘Revenue’ Stream for myself so that in about 9 years when I hit 60 (yes, I am a shade off 51 - where did that year evaporate to?), if I want to, I can just take the Divvy Cash and spend it for a big part of my usual living Costs (more on these further down). In the meantime I am reinvesting the Divvy Cash whenever I buy a new Position or topup on an existing Holding - although I am not doing a DRIP (Dividend Reinvestment Programme) as I think they are a cr*p idea). On this basis, the Yearly Performance of the overall Portfolio is less important to me - what matters is the growth of the Dividend Stream.
The Income Portfolio also has a benefit of diversification - more and more I find I am doing less stuff with FTSE100 type Stocks in my Trading ISA (mainly because I generally do much better on Smaller Cap Stocks) and this Income Portfolio therefore gives me diversification across Stock Size.
In the absence of proper Return figures, let me just put down some simple Numbers from the Portfolio for this year:
- The Portfolio started 2015 with £26,520 invested - during the year I added another £12,150, so the Total Invested over 3 years is £38,670.
- The Closing Value at 31st December 2015 is £42,536, so over 3 years the Value is up by £3866 which is 10% over 3 years. This doesn’t sound all that impressive but of course it beats Cash and it is a totally skewed figure because of when I put money in this year and in previous years.
- It is worth noting that over 2014 the Income Portfolio gained £1674 but over 2015 it has gained £2192 (an increase of 131% and hugely from the Divvys) and the total gain is £3866 as in the Bullet Point above. What is interesting here is that the Total New Capital Invested only increased by 46% - so the efficiency of the Capital has improved (this might be from timing of Divvy flows - see next Bullet Point).
- The Dividend Income increased from £723 to £1516, which is 110% higher and looks pretty good to me. This represents 3.6% of the Current Portfolio Value - this is way down on the 5% Dividend Return I am aiming for, but again the flows of new Money into the Account are distorting things. I suspect (although I can’t be arsed to check) that many of my Stocks have gone Ex-Div during the last few months of 2015 but the Cash will not hit my Account until the Divvy Payment Dates in early 2016. The Divvy for the year represents about 1 month of my Living Expenses - it will be nice to see how over time the Divvy Payments grow and cover more months of spending.
- I am still able to put another £3090 into my iWeb ISA this year - I need to do this before April.
OK, this is where things start to go horribly wrong. The Value of my igIndex Spreadbetting Account increased by 38% - this may appear good, but due to Leverage this is truly awful and I am kicking myself hard (not easy with paralysed legs but it shows you how irritated I am by this !!).
In theory, I am supposed to ‘Mirror’ my Trading ISA by using Spreadbets in similar proportions and I have clearly failed at this miserably. Let me explain this with an example:
- Imagine I have a £100k ‘Mirror’ Portfolio of Spreadbets.
- This would need Cash of perhaps £30k to support it (this is just an example, in reality this figure might change, but the Leverage gives the exposure to £100k).
- Let’s say my Trading ISA is up 28% (like it was in 2015), then the Mirror Spreadbet Portfolio should be up by a slightly smaller amount on its Exposure (i.e. the £100k) - perhaps roughly £25k (this is due to Interest Charges on Spreadbets).
- So, £25k Return on the £30k Cash should be a Return of 83%.
Hopefully that should demonstrate the problem - 38% is actually woeful, pathetic !! In fact, it is worse. I did some Hedging during the Year and I made at least 0.75% (against my Total Exposure) on a FTSE100 Long Santa Rally trade - these probably add up to about another 30% on the Performance. Therefore, if you strip this out, my Mirror Spreadbet Portfolio was barely up at all !!
Remember, Spreadbets are Leveraged and therefore very Dangerous - many people get into serious trouble (like losing House !!) with these things. This is partly why 38% Return is not acceptable - it is not enough to compensate for the Risks involved. A minimum I would be happy with is about 50% per year.
Why did this happen? Obviously I need to sort this out as it is Cash being wasted and I am a total muppet for not addressing this earlier (I have been aware of the problem but not really done much about it). The underlying reasons I think are as follows:
- I have screwed up by being worried about ‘Risk’. I had mistakenly taken the view that FTSE100 type Stocks were less Risky than Small Caps and FTSE250 Stocks etc. This means that I underweighted the Smaller Stuff and overweighted the FTSE100 stuff - despite my weighting to FTSE100 being quite low in my Trading ISA. What I was doing partly was copying my Income Portfolio Stocks in my Spreadbet Account - with things like RDSB and HSBA doing poorly this really hurt my Returns.
- I held a few FTSE100 Stocks as Spreadbets only and not as normal Shares in my Trading ISA. These were all ‘Legacy Stocks’ that I bought some years ago but they have all been poor performers and have hurt my Spreadbet Portfolio - although I expect all of them to recover. These were STAN, AGK, GLEN and I had quite a Weighting to all of them.
- FTSE100 Stocks tend to need less Margin Deposit than Smaller Stocks - this made me favour FTSE100 and was an error.
- I think a ‘Mirrored’ Spreadbet Portfolio will lag a Portfolio of Normal Shares due to Interest Charges (these are partly offset by Dividend Payments) but it seems that DFBs (Daily Funded Bets) have wider Spreads than Normal Shares and this is another drag on performance - although there is not much I can do about this. It might be worth me looking at Corespreads or others to see if their Spreads are tighter.
- Maybe I should use Stoplosses - although I am not convinced, if I cannot rectify the performance in 2016, then this is something I could look at.
If you click on the ‘Spreadbetting’ category on my Blog Page, then you can find loads of stuff on how to Spreadbet safely - but I do not recommend Spreadbets for beginners and it is best to start small.
Prudential With Profits Bond
I must just mention this Unsung Hero of my Overall Portfolio (I have not included this in my overall Stockmarket Returns in the Conclusion bit), this returned 7% on the Year which is superb and unexpected. I always think it will do 3% to 4% so this is really welcome. I have about 10% off all my Wealth in it and it really is a ‘Core Holding‘, so it had quite a nice impact.
It’s a funny old beast. These are the things that get linked to Endowment Policies and they therefore have a bad name. However, mine is a standalone thing that I have had for about 16 years and it is pretty steady and solid. It came under some slight pressure during the Credit Crunch but it was nothing compared to what other Asset Classes suffered. I have been very pleased with this and it has some Tax Advantages. It is a ‘buy and Forget’ type of investment and I recommend it to anyone. I used to have one with Liverpool & Victoria (now LV= or some dopey name) but this one was rubbish - if you are tempted then go with the Pru. When I started Investing seriously in 1999 or so, this was probably my only good decision !!
Only caveat here is that the 7% growth figure is calculated from the Last Paper Statement I received which was back in April - so it really represents gains from 2014 to a large extent. I am sure if I contacted Prudential they would give me the current figure - but not worth the bother. I always record it this way every year, so it is consistent and understates the true Value now. Ah, good old Conservative Accounting…….
(If you recognise the text above, it is because I copied it from last year’s ‘Scores on the Doors’ and tweaked it a bit. Note, this ‘With Profits Fund’ has now made 7% for 2 years on the trot - flippin’ impressive).
My Mate’s Unit Trust Portfolio
If you go to the ‘Funds’ Page of my Website, you will see an Example Portfolio there which I run with a mate. This year that Portfolio was up 3% and we are a bit disappointed with it. Seems like the Bond Funds have not really compensated for weakness in the Equity element - we will be meeting in the coming weeks to do an autopsy on this and we need to do some rebalancing as my mate wants to take out some Cash for a House Extension. I keep saying they should invest directly in Stocks themselves !!
Another Mate’s SIPP Portfolio
I have another friend who copies my Trades in her SIPP (obviously no Readers should copy my Trades - please see Disclaimer on Homepage) and this year it is up 22%. Over a few years it is averaging 15% a Year which we are really pleased with - I always say we should be targeting 10% a Year compounded - so this is going very nicely.
It is worth nothing how 2 people can have similar Stocks but quite different Results - in this case it is partly due to different Weightings and also because she holds some Stocks that I have in my Income Portfolio - so she has a bit of a hybrid Portfolio really. I also said she should sell RR. right near the peak some years ago but she was totally in love with it and held on while I banked a lovely profit - the rest, as they say, is history……(if you’re reading this, sorry !!)
After my 6th year of Retirement and Freedom (try it, it‘s marvellous), I have managed to increase my Wealth by 10% over the year - this is despite having a nice Cash Pile and some less well performing Assets. I am very pleased with this.
Really surprised by this - over 2015 I only spent £17,353 on ‘Living Expenses’ which was down 6% on the £18,378 I spent in 2014. Not really sure why this is, I guess being an Old Git my Car Insurance has dropped a bit but seems like lots of other costs, like Rent, Car Tax, have increased. Weird.
I guess I save on Petrol (because I never seem to drive anywhere much these days !!) and since doing WheelieDealer I am probably perched in front of a Screen a lot more and not out spending Money.
I don’t have expensive Holidays (this is really down to the physical limitations of being Paraplegic - in all honesty going away just means hassle for me) and I don’t smoke or anything like that. On the flip side, I run 2 cars but I do such little mileage that they never seem to need much repair work and suchlike (although a Rear Suspension Spring did break on the Leon hitting me for £350 - ouch !!).
My Rent was £6576 this year, so if you strip this out for Reader Comparison purposes, my Living Expenses excluding Rent were £10,777. I could probably reduce this figure a bit by only having one Car. Obviously I am no big spender, but it is amazing how little I live on - means more Cash to invest - hurrah !!
No point me downplaying this, it is a very strong result and I am very happy. Sadly it is not my best ever year (I achieved this back in 2013 when I did 32% in my Trading ISA and my Spreadbet Portfolio was superb) but it is pretty damned decent. You know my irritation over the Spreadbet Account and this must be addressed, but 20% Return against the Capital Employed across all my Stockmarket Activities is lovely.
This game is all about Compounding Returns over years - for instance, if you can grow at 10% a year then your Money doubles in 7 years. If you can grow at 15% a year, then your Money doubles in just under 5 years. Most people do not get this - it is utterly vital to understand and it really is one of the rare Stockmarket ‘Free Lunches’ - anyone can grab it so make sure you do.
Something I just want to mention is that one of the most common discussions we have on Twitter on a regular basis is around how many Stocks to hold. What is interesting here is that despite having a huge number of Stocks, my Returns are pretty good - in fact, better than many from people with smaller, more focused, Portfolios. My suspicion is that the Risk Reduction benefits of having a wider and more Diversified Portfolio outweigh the supposed advantages of a focused Portfolio - interesting stuff.
I would contend that I make pretty good Returns with a reasonable amount of Risk - people with focused Portfolios are taking on more Risk and really should be achieving far higher Returns to compensate - that’s got you thinking !!
A strange thing about this Investing malarkey is that I always find there is room to improve and I can hopefully do better in the future if I make some changes - maybe this is a big part of the attraction and why I enjoy it so much - you never stop learning and improving.
All in all, a very good year, let’s hope we can all do better in 2016 and good luck to all Readers !!!
Related Blog Links
Here are 2 Blogs on the subject of Compounding - to capture this effect you must keep your Risk low and make sure you don’t Crash the Plane - volatile Returns over the years will not help you - aim for consistency year in, year out: