Well, 2019 turned out quite a ‘funny’ year where we had untold (or, more accurately, told far too much !!) political farce and a very nervous Market, yet by 31st December 2019 most Markets had rallied hard and the US Market in particular was truly incredible. To give a bit more colour to that statement, the Table below I worked out as I do every year using the Start and Finish Numbers for each Index from SharePad and this shows exactly how well the Markets performed. Please note this does not include Dividends, so for example on the FTSE100 you need to add about 4%, bringing the Total Return up to about 16% and for the FTSE250 you can add about 3% to give a Total Return of 28% - that is pretty impressive !!
Of course there are no Costs in here so in reality when you run a Portfolio you will get some drag from Costs such as the Dealing Fees and Buy/Sell Spreads and the Stamp Duty. Using ETFs you could get nearer these figures as the Costs are often extremely low (see the ‘Funds’ page of my Websites).
Needless to say if you have not read Part 1 yet then it probably makes sense to go back to that one first before you start on this one. You can find it here:
Anyway, I was going through various Bullet Points around the subject matter concerned and here are the next bunch:
I am bashing out this blog as a result of a conversation with a mate which was along the lines that he finds it hard to hold things for the long-term and tends to bottle it at some point and end up selling when a decent Profit has built up; but often this might not be the best approach. Even a bit of a numbskull can figure out that if you continually sell Stocks after making perhaps 40% Profit, you will never ever get gains of 200%, 300%, etc., which are the ones that really transform your overall Returns.
Buying high quality Stocks and then holding them for long time periods has many advantages and of course many drawbacks. The benefits are really around ease of execution and low activity; which of course can lead to lower Dealing Fees and costs, and effort around selecting Stocks and general Portfolio Management activity.
I often think of subject matter that is way too short to justify its own blog, yet at the same time far too long to just send out via a Tweet and also I would like to store such stuff in the Website Archives so it can be retrieved by anyone who wants it; and of course with Tweets they tend to be quite ephemeral and soon lost in the River Twitter. On the basis of that, I am envisaging that this blog will cover a few possibly unrelated subjects but at least they get captured in ‘black and white’ electron imagery for the future.
Stay in control of your Position Sizes
This is something I see so often and I know I have fallen into this trap many times myself in the past. It’s a very simple concept where we buy into a Stock, and we quite like it, and we give it perhaps 4% of our Portfolio and then we leave it to do its stuff. Then it turns out that this one is a real beauty and it keeps steadily pushing higher and after a period of time we find that it has grown to be much larger and could even be up to 12% or our Portfolio or more. If we have a very focused Portfolio with maybe just 10 Holdings or something, then a Stock like this could easily grow to be 20% or more.
I am approaching an important and significant milestone with my Investing activities where I will need to start taking Cash out of my Main ISA Share Account in order to have dosh for my day to day spending needs. In this blog I intend to go through the implications of this and to look at best ways to manage any Drawdown so I get out the Cash I need to eat but also so that I still achieve decent Investment Returns and manage to compound gains as much as I can but obviously removing Cash reduces this beneficial effect. I am pretty sure that careful management of the Drawdown process should mean the impact on Returns is not too hefty.
I have now been ‘retired’ for pretty much 10 years (by the way, today is my second birthday – 21 years since my Bike Accident !!) and up until now I have had Cash and Investments outside of my ISA Share Accounts which I was merrily spending through but that source is drying up. I still have a big chunk of my overall Wealth in a Prudential With-Profits Bond but I see this as a bit of a ‘rainy day’ kind of thing and in a way it is for ‘emergencies’ such as if we are in a horrible Bear Market when I can’t see obvious ways to get Cash out of my Share Accounts. Fortunately over those 10 years my Main ISA has grown a lot.
I am breaking all the well established ‘Rules’ of Blog scribbling with this one as I am going ahead without a plan and half watching the Lionesses in the Semi-Final against the USA which is very distracting (I am sure if I was watching the Men’s game I would be able to focus almost 100% on the Blog because it would be extremely dull as Men’s Footie often is).
I got the idea for this Blog from a fairly new chap to the Markets who strikes me as very much in the early stages of trying to figure out what the hell is going on (don’t worry, you will always feel like that, even after 20+ years with the Markets forever throwing up new tricks and challenges) and getting drowned in the sheer Wall of Noise that just bombards us. It is by no means a Blog subject I have not written about before and I intend to include Links at the bottom to several related Blogs on the subject which should help understanding (oh boll*x, the US have just scored a second goal……).
A continuing mantra you will hear and read from me is around the value that talking to other experienced Private Investors and Traders can provide. In addition, I find this is widely under-appreciated and it is probably the biggest source of Learning that I undertake these days. Indeed, undertaking the TPI Podcasts venture and being able to discuss countless aspects of Investing with someone as talented and successful as @Conkers3 is a huge help to my thinking with regards to how I go about things.
This can be on different levels - probably the main focus for me is to hear the techniques and methods other Investors use and these discussions bring ideas for potential ways in which I can tweak how I go about things in order to improve my Results. On another level, and probably of less interest to me, are the views of other Investors with regards to which Stocks they are invested in and what their take on certain Stocks is. Of course this can be hugely dangerous because it is immensely ‘Noisy’ Information and I won’t just listen to any old Tom, Dick or Fred and there are only a limited group of Investors who I do take notice of on particular Stocks and I perk my Ears up when they give an opinion. Screening out less useful opinions is of course difficult and it is only over time with experience that you can find out who is worth listening to and who just adds to your Noise levels - yet again a situation where there are few alternatives (if any) to actually going through the motions and doing your ‘time’ in the Markets.
I figured that title would attract a huge Readership to this Blog - I nearly went with ‘Free Bitcoins’ as I thought that would drive devourers of Reading Material on the Web utterly insane with their frenzy to take advantage of such an appealing offer.
I nearly went with something along the lines of ‘Actresses and Bishops’ because that tends to draw a big Readership also but I didn’t think I could stretch what seems to be the dull subject of Dividends that far. I also know that a small chunk of Readers are under 18 so I need to keep it clean (ish).
I have actually stolen the title from my mate Cappy (@SmallCappy on Twitter) who always comes up with this term when we mention the wonderful phenomenon of nature that is the humble Dividend Payment. He has nailed it with such a description and I am fully onboard with his use of this term and I shamelessly pinch it whenever I can (you should have copyrighted it when you had the chance, mate !!).
This is the Final Part of a Series of Blogs - if this is the first time you have been unlucky enough to find this Series then Links to the earlier Parts are at the bottom of this one if you scroll down.
I am hoping that I have done these Blogs in a way which Readers can makes sense of and will enable them to think about how to go about such Index Trading themselves if the urge takes hold. You can use ETFs like XUKS (a way of Shorting the FTSE100 that you buy and sell like a Share. To go Long on the FTSE100 you could use something like ISF I think - you will need to check this) instead of Spreadbets and of course things like CFDs will give a similar result (but these come with Tax disadvantages when compared to Spreadbets). But it goes without saying (but I will say it anyway !!) if you do fancy having a go you must be extremely careful and start with a Practice Account perhaps or at least start with very low Position Sizes - don’t go betting £1000 a Point on the FTSE100 on your first Trade !! (that would be equivalent to about £7.2m of Exposure by the way !!!).
Before I finish the Blog Series off, I just want to stress the following Key Points:
This is the Final Bit of a Series of Blogs on this Subject which have been very highly praised (up until this one anyway which might be a total let-down) and if you have not read the others there are links to them here:
Stage 6 - 2018 Onwards - Where next?
I can only write this Section with the thinking I currently have with regards to how my future Learning is going to pan out and to focus on the elements that I am putting my efforts into as we speak or things that I have made a conscious decision to address in the near future. As Readers may have realised from what I have written so far in this Blog Series, there have been several times in my Investing Career where I have flatlined or been unable to instantly find a new direction - but as things turned out something always came up and re-invigorated my motivation and drive to keep on Learning and, more importantly, improving.
With what I have just written in mind, here is my current thinking on where my Learning Efforts are going to be focused in coming years, but I am sure the reality will diverge from this somewhat:
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