This text appeared in DIY Investor Magazine back in August 2017 and there is a link to that article on the Homepage of this Website. However, I think there is some useful stuff in here for Readers so I wanted to add it to the Blog Archive.
HOW LONG HAVE YOU BEEN A DIY INVESTOR?
I started mucking around with Stocks back in the Dotcom Boom days in about late 1999 - exactly the wrong time to be doing it !! Wow, what a baptism of fire that was - I got lucky with a few but lost some ridiculous amounts of Money on some very poor choices (thankfully after all these years I know a lot better now !!).
I probably made every single mistake that is possible although I made maybe one decent decision - I did at least Diversify my Portfolio and I bought lots of Funds in a spread of things like US Stocks, Japanese Stocks, Tech Funds (oh dear, right at the top of the Boom), Bond Funds, Health Funds, and some Cash - the simple truth is that this was my saving grace and if I had not done this I would probably have lost near 75% of my Money but in the event from the time I put the Money in to the Low in 2003, I probably lost about 35% - which was obviously still horrific. OK, maybe I made one more good decision - after this utter disaster, rather than giving up (I honestly think this is the worst thing you can do - there really is no better way to make money than by Investing in Equities over time and Compounding the Returns - people who give up and then just leave their money as Cash or go through the mill on letting out Property etc. are hugely missing out) as many of my mates did, I realised that a major factor in my abysmal performance was that I was utterly over confident and the simple truth was that I didn’t have the foggiest idea what I was doing.
I then learnt about people like Warren Buffet, Jim Slater, Ken Fisher, Peter Lynch, Ben Graham etc. and I started to read loads of books and start to really get a grip on what I was doing. I also followed David Linton avidly for his Charting prowess and learnt so much from him and other Technical Analysts. I have always subscribed to Investors Chronicle which I really love and I see Shares Mag quite often which is a quality read. I subscribe to ShareScope which is excellent and I recently upgraded to SharePad as well - mainly because I can access it using my Tablet. I am a big fan of Robbie Burns, the Naked Trader, and I particularly like the way he mixes Fundamentals with Charts and he is a genius at ‘Cutting out the Noise’ and the Psychology side of Investing - this is something I have put much more emphasis on in recent years and I have written a lot about how our Brains affect our Investing Performance in recent months.
I ‘retired’ 9 years ago at the ripe old age of 44 and the first few years I spent refining my approach and reading lots of books and stuff. However, I am a fairly inactive Investor and I found I had a lot of time on my hands and I started to get bored - so about 3 years ago I started doing my Website www.wheeliedealer.weebly.com and I am pretty active on Twitter as @WheelieDealer.
WHAT TYPE OF INVESTOR ARE YOU?
‘Investor’ is exactly how I pigeonhole myself rather than being a ‘Trader’ although of course my ‘name’ is rather misleading !! (hey, it had a nice ring to it and I am a huge fan of Mike Brewer and Ed China). I look to buy Stocks which I think will rise over time and my Holding Period can be anything from a few months to many, many years. In fact, I still hold the Framlington Health Unit Trust which I bought back in 1999 - it has been excellent and I like Health as a theme going forwards. As you may have figured out, I am remarkably patient and my default stance is ‘do nothing’ (panicking and being a ‘Forced Seller‘ is another huge mistake that people make I reckon).
Whatever I buy it must fit within my Portfolio and ‘make sense’ in that context. I hold about 40 Stocks in my ‘Trading ISA’ (oh gawd, another inappropriately named thing) - the ‘WD40’ and I have an ‘Income Portfolio’ which has 12 Stocks in it. I like to buy Stocks across the size spectrum from FTSE100 right down to tiny AIM Shares although I tend to stick above £50m Market Cap really. I like to have Stocks from a mix of Sectors although for some bizarre reason I have got myself rather over exposed to Retail Stocks - although apart from FCCN which is a pain, I am very happy with the ones I hold.
I look to get 10% Return on my Portfolio each year which I think is a good balance of Risk and Time/Effort - I sort of created my Approach back when I was working and the demands of a Full Time Job sort of forced me into this fairly inactive style - but in many ways I think it is a huge positive and I suspect a big error many Newbies make is to trade far too often - all you are doing is making your Broker rich with Dealing Commissions !! However, I then Leverage up this Return using Spreadbets - so my Overall Returns are probably nearer 15% Per Year on average. I do a ‘mirrored’ Portfolio using Spreadbets which replicates my usual Portfolio but of course it is much more efficient in terms of capital.
I use Hedging via Index Shorts to try to limit Downside when Markets get in a bit of a mood - however, in recent years 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 get me started on Bitcoin !!)
WHAT ARE YOUR KEY CONSIDERATIONS WHEN MAKING AN INVESTMENT?
My focus is very much on the Business itself - I want to be buying into a Company that is more than likely to grow in coming Years or perhaps for my Income Portfolio I am more focused on sustainability of the Dividend and I want to see some steady growth. As I mentioned earlier, any new Stock must make sense within the context of my overall Portfolio and I don’t want to get ‘out of balance’ which increases Risk.
I size my Positions to my judgement of their likely Volatility so my Largest Positions tend to be in FTSE100 Stocks and the tiny AIM Stocks might only get 2% of my Total Exposure (including Spreadbet Longs) although if a Stock does well I will ‘Push the Position’ by buying more but if something gets really too big and starts to look over-valued etc., then I will TopChop to reduce my Risk. Risk Management is a big thing for me and I think it is one of the areas where Investors/Traders make their biggest errors and it is something that is rarely written about in a practical way.
Valuation is another bee in my bonnet - it amazes me how few people seem to understand basic stuff like Forward P/E, PEG, Dividend Yield, Discount/Premium to NAV, etc. - I am pretty sure this is an area that gives me an ‘edge’ - simply because most people totally ignore it. I am addicted to Charts - I want to buy Stocks in Uptrends or perhaps after a 50/200 Day Moving Average Golden Cross or on a Breakout of a Resistance Level or suchlike - again I suspect most people take little notice of such things and there is a clear edge to be had here.
There are certain Sectors I tend to avoid these days like Mining, Biotech, and anything Loss Making - experience has taught me that these kind of ‘Long Shot’ plays rarely work out and ideally they are best traded short term not held as so called ‘Investments’. In addition, it is probably unwise to use Leverage on such high risk plays.
ISA OR PENSION?
This is a weird one because many people would plump for Pension straightaway. However, I am a huge fan of ISAs (especially now that you can shove £20k in them every year) and the simple fact is that because I have never had a Pension, I have been able to max my ISA over the years when I was working and this enabled me to Retire early. If I had put my dosh into a Pension, ok, I would have got the Tax Relief upfront (but you pay Tax when your money is taken out) but I would not have been able to retire until at least 11 years after I actually did. Heck, I would still be 3 years from Retirement and extremely depressed I would imagine !!
Another great thing about ISAs is that they are much more ‘visible’ and people are much more on the ball with regards to what they have invested in them. This means that Governments are probably less likely to mess with ISA rules whereas you are at their mercy with regard to Pensions - the goal posts could easily get moved on you as the WASPI women have found out to their cost.
So, if I was starting out again, I would max my ISA first each year and if I have anything left over, I would shove that in a Pension.
WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS?
Perhaps a slightly surprising one for my ‘Best’ Investment but I contend that sometimes it is not just about raw Returns on an Asset but also its Risk and function within your overall Portfolio. Right back in 1999 when I started investing I put a chunk of my money, probably about 20%, into a Prudential ‘With Profits’ Fund. These things got a very bad press because they were the vehicle which was often part of an Endowment Mortgage and was linked to the final paying off of the House Loan but in my case it was a Standalone Product and it has been an excellent buy.
It plays a critical part in my Portfolio because it is very much Low Risk and yet still manages to return around 4% a Year Compounded - this is way better than Cash and it is also very stable and easy to cash in when there is trouble. The beauty is that by having something like this as a ‘Core’ to your Portfolio, you can take higher Risk on other things like Stocks and Leverage, knowing that you are always given an element of ‘safety’ by the With Profits Bond. After all these years 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.
On the slightly more exciting side, probably one of my best ever Stocks was Anglesey Mining AYM where I bought some at 4p and they soared to about 60p where I sold - however, although that chunk was superb I bought other chunks at around 20p so the gain wasn’t quite so exciting overall but still it was a big winner for me. Of course, one of the downsides of this was that I then got over confident with Small Miners and thought I could do no wrong and proceeded to lose plenty on other Stocks of a similar ilk !! My view on these is that they are more for short holding periods and should not be seen as investments.
In more recent times I have done really well on Trifast TRI (around 500% up I think), Boohoo.com BOO (up about 400% roughly) and Tristel TSTL has been a biggy (at least 250%). To be honest though, I tend to not worry too much about the individual Investments that make up my Portfolio - what really matters is how the Overall Portfolio performs year in/year out (and is it enabling me to live my relaxing lifestyle?!!) One thing that unites most of my Big Winners is that they often start out badly but at some point I manage to Average Down at a really good price and this boosts my Returns hugely. For example, on BOO I first bought at around 60p and then they put out a Profit Warning and the Shares tanked but I then bought a load more at around 25p and a bit higher (around 40p I think) - now they are up at 233p. When you invest in Quality Stocks (not the sort of AIM Junk speculative dreams) it seems to often be the case that when they have a hiccup, things get sorted out and the Shares then become a Recovery Play - it is a high risk strategy to Average Down and never something to do without proper consideration, but once the Company is trading well again it is a very valuable technique.
On the duffer side, it is a no-brainer. Back in 2000 or so I put an absurd amount of money into Just Group (’Butt Ugly Martians’ Cartoons) and did every mistake known to man. I think overall when it went bang I blew about £14k - that taught me an important lesson about putting far too much money into high risk, speculative, dream Stocks (and how important it is to ignore the nonsense on Bulletin Boards !!).
WHAT ADVICE WOULD YOU GIVE TO ANYONE CONSIDERING SELF-DIRECTED INVESTING FOR THE FIRST TIME?
That’s actually quite a hard question to answer because there are so many factors to consider. Starting off the first thing is to decide whether or not to invest in Funds or Individual Stocks but however you go about it, it is vital to diversify and spread risk. If I just stick to the Stocks side of things for now, then I would say it is critical to learn about how to Value a Company - the boring stuff like P/E Ratios and NAVs etc. So many people pay lip service to this but I think it is something that can definitely give an edge. The other critical thing to stress is how important it is to realise that this is a game where the Tortoises tend to do very well but the Hares have mixed Results - setting sensible and realistic Annual Returns (around 10% is reasonable) and controlling Risk is the way to go. So many New Investors go badly wrong because they target crazy Returns (‘Get Rick Quick’) and in reality they just rack up loads of losses. The key to the game is compounding good returns over the years, if you are Young when you start then you have a huge advantage. Oh, and Patience Pays……
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