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).
But 2019 was a particularly weird year for me because I took the decision at the start of the year that with all the Brexit worries I didn’t want to take much Risk, and as a result I Hedged my Portfolio in a big way and as things turned out, this cost me a lot of upside as the Hedges dragged. I have written/spoken about this a lot and it has been a very useful exercise and following this in future I intend to do what I have called ‘Smart’ Hedging but perhaps a better word is ‘Dynamic’ Hedging. This blog gives a bit of background if you read the start of it and I am sure that as time goes on you will see me deploying ‘Dynamic’ Hedging to get a proper sense of what I am up to. The essence is that I need iron firm discipline !!
Anyway, as much as I was a bit frustrated to lose out on upside, by the time the Year closed out I actually had made a lot of Money in actual Pound Note terms and that of course makes me very happy – particularly because I don’t think I was exposed to very much Risk and also because I was extremely lazy and as you can see on my ‘Trades’ page, I didn’t do many Transactions at all. This has had another useful side-effect in that it has really made me reappraise my Approach and in future I intend to be extremely circumspect about placing Buy or Sell Trades and I want to have a default of not doing very much at all. I suspect many Private Investors could boost their Returns (and do a lot less hard work !!) and lower Risk by trading less – it has amazed me how many Trades some people who see themselves as Long-term Investors have been doing – the Costs must be immense.
Another side effect of my travails with Hedging has been to hugely sharpen up my Chart reading skills and as a result I think there is a lot of opportunity for me to do more Index Trades on both the Long and Short tack with a view to both Hedging (Dynamically !!) and also going Long to boost my overall Returns but with controlled Risk and using Spreadbets. I have also considered using CFDs (Contracts for Difference) and maybe in time I will re-energise my CFD Account and give them a go. My expectation is to be doing many Long Trades on Indexes during 2020 and I will do them fairly small initially until I get more confident (or give up in disgust !!) and I expect to hold for fairly short periods in the region of a couple of weeks or something. My Weekend Charts Blogs will cover a lot of this no doubt and all Trades will be mentioned on Twitter as they happen and I will update the ‘Trades’ page as I go along. Should be fun and I am really looking forwards to cracking on with this.
The other thing that stood out in 2019 was that my Income Portfolio has had yet another strong year – in fact, I think it is the best since I started doing it about 5 years ago. This has emphasised to me the validity of this kind of Dividend Income focused approach and I have no doubt that in future I will be diverting more of my Wealth into this direction. As always, I will follow the normal format of my ‘Scores on the Doors’ blogs and there will be a full and detailed section on the Income Portfolio and all other stuff.
In practice my Hedging activities are really like an ‘Overlay’ which sits above my Stock Portfolios and it means that the Portfolios themselves are untouched and I don’t Sell stuff if I think the Markets are going to get wobbly but I Hedge instead. If you go to the ‘Category’ ‘Hedging’ on the ‘Educational Blogs’ page on WD1 then you can find loads of stuff I have written about Hedging and I see it as an extremely useful approach and I have been obsessed by it in recent years because it is obvious that after the longest Bull Market in history, we are due some sort of kicking in coming years. OK, we might keep going up for ages yet but I can be pretty sure that in the next 30 years in which I hope to still be investing (that means you might have another 30 years of my scribbling to suffer !!), there will be many Years where my Dynamic Hedging ‘Skills’ get tested to the full.
Because the Hedges are an overlay, the Performance of my individual Share Accounts is extremely interesting and I will include full details on each of these as per normal. So, I better get on with it……..
Overall ‘Stockmarket’ Portfolio Performance
Most of my Investments are now exposed to the Stockmarket in one form or another, although the Money I have in the Prudential ‘With Profits’ Bond is sort of a mixture as I will cover later in this blog. On this basis, and not including the Prudential Bond, my Portfolio was up 9% from January 1st 2019 to December 31st 2019. That Return is after my many screw ups on Hedging as well.
However, as always with such things there is some nuance to this. Part of the Overall Return derives from Leveraged Investments and as a result the Return on Capital Employed (i.e. the Return on the Money I had on January 1st 2019) is different from the Return on Exposure to Market Instruments. I will probably cover this a bit more in the section on Spreadbetting but the figure of being up 9% is based on the Capital Employed whereas the Return on Exposure is probably more like 7% but I have not worked this out with any particular diligence and of course it must be appreciated that the Exposure is quite a nebulous concept and varies all through the year as Spreadbets are opened and closed etc. At the end of the day, it is the Return on Capital that I see as the important one so up 9% is the figure I like (and it just so happens to be the bigger number !!).
Trading ISA Portfolio (the WD40)
The bulk of my Money sits in this Portfolio and obviously how this performs has a significant impact on my Overall Returns and I am quite pleased with how it performed – especially when you consider a few caveats and excuses that I am going to throw in shortly !!
The WD40 was up 23% for the year and obviously I am very happy with this. However, I think the following points need to be considered to see why this performance was pretty decent:
If you skip over to the ‘Portfolios’ page on this Website (WD1) then you can see the full list of what I hold in the WD40.
Overseas Unit Trusts
I am using last year’s ‘Scores on the Doors 2018’ as an inspirational template for writing this one (see, I even read my own blogs !!) and last year there was a section on my ‘Overseas Unit Trusts’. Anyway, I just want to clarify that I sold out of all of my remaining Unit Trusts at the end of 2018 and I replaced them by buying some Worldwide Healthcare Trust WWH and some Polar Capital Technology Trust PCT and both of these sit in the WD40 and I brought them into my ISA Wrapper, but I also reduced the size (see the ‘Trades’ page).
Next year I will most likely not include this Section in the ‘Scores on the Doors 2020’ (you can look forwards to that one !!).
I have been eager to write this section because I am so amazed how my Income Portfolio did for 2019 but also because I think I have been running it now for about 7 years, and the performance has been pretty decent when you consider how little Risk I take on and how inactive it is.
For 2019 my Income Portfolio was up 19% which is of course a huge Return especially when you consider that it is quite low Risk and I probably did as little as one Sell Trade when I sold out of KCOM after a Takeover Bid and then I remember buying into Vodafone VOD in 2 chunks as a replacement (again all of this is on the ‘Portfolios’ page and the ‘Trades’ page). I might have traded a bit more but if so it was barely anything (I have a hunch I bought more igIndex IGG at some point) and this really brings home the concept of how well a Portfolio can do if you structure it well and you choose the Stocks you hold extremely carefully.
I can’t resist doing this and I am now going to look back at previous ‘Scores on the Doors’ blogs to see how the Income Portfolio has done over the years…..
(brief pause and some rustling, and the rattle of cheap plastic keyboard keys….)
Unfortunately having now looked back at those blogs it is clear that for the years 2013, 2014, 2015, 2016 I have not recorded exactly how it did and this is presumably because I was adding more Money as I went along so the Return for each year was quite skewed. As an aside, I understand that you can use the Microsoft Excel ‘XIRR’ function to track Returns when you are adding Money in at different times of the year, but I didn’t do that and to be honest I can’t be bothered !!
Anyway, for the last 3 years (2017 to 2019) the Performance has been Up 5.6%, Up 3% and Up 19%. Against the Total Money I have invested (and no fresh Cash has gone in since the end of 2016), it is up 54% on the £38,670 I have put in. It will be nice to get a few more years done and to see how it performs going forwards.
The ScreenShot below (if you click on it then it should grow larger so you can see some detail) is of my actual iWeb Sharedealing ISA Account (I have used Microsoft Paint to splodge out my Account Number !!) shows the Stocks I hold in the Income Portfolio and you can see the relative proportions. Note how Royal Mail Group RMG has been a pain but because it is quite small in terms of relative position size, it has not hurt the Portfolio too much. Primary Health Properties PHP has been amazing since I bought it and AstraZeneca AZN had a really good year and also Telecom Plus TEP contributed a lot.
Overall I am happy with the Holdings although RMG is the biggest question mark. However, my intention over time is to keep growing this Portfolio and I would like to take it up from just 12 Holdings to 15. However, I am in no rush to do this and when I have Cash to splash, I will also consider buying more of Stocks I already have if I think there is Value to be had. GlaxoSmithkline GSK strikes me as good value currently.
Oh, I nearly forgot to mention, this ScreenShot does not show another £2000 Cash which I took out for Personal Cashflow reasons and I will put it back into the Account once I am in the mood to buy something and I have sufficient Funds. The way I tend to do things is to wait for the Cash to build up from Dividend Payments and if I sell something (that doesn’t happen much) and ideally I would like to have about £3000 before I act (if you buy with too little an amount then you can run up unnecessary Dealing Fees. For interest, in the WD40 I usually try to buy at least 1% of the Portfolio Value as a Minimum Deal Size but often I buy more). You might be able to see at the top that the Account holds £803 so I don’t need much more Dividend Cash to drip in before I have £3000 and I will lob the other £2000 back in. It is one of the beauties of the Chancellor increasing the ISA Limit you are allowed to put in each year to £20,000, because it means I can take a bit of Cash in and out without really impacting my ISA Benefits. Sadly I don’t make enough Cash outside of my ISAs to be able to put in £20,000 every year but the advantage is that I don’t pay a lot of Income Tax !!
Needless to say, if you go back to the ‘Scores on the Doors 2018’ and previous years, you can compare these Numbers in the Account and see how the Holdings have changed.
***PLEASE NOTE - I had some technical issues when I first published this blog and the images were not really clear enough. Anyway, there was obviously a time issue because I have had to sort the problem on the 18th January 2020 and the Screenshots below are from that date so they have changed a little bit since 31st December but I have not bought or sold anything in that time. Note the Cash in the Account has gone up a bit from Dividend Cash received in the time since 31st December and there is another ££2000 to add to this as I mentioned elsewhere. I now have enough to buy something so the search will begin soon !! ***
In the 2 ScreenShots below I have provided you lovely Readers (I can’t believe you have got this far and are still breathing) with the full list of the Dividends I received in 2019 and note there is a bit of overlap but I am sure Humans of your intellectual caliber can spot what is going on here !!
All these Dividends added up amount to £2402 which was 3% up on the figure from 2018. As a Return on the Starting Value on 1st January 2019 that was 4.8% Dividend Yield. My Target is to receive 5% Dividend each year so I was a little bit behind that although I am not overly upset by it. I was definitely sat on Cash a bit during the year and could perhaps have been a bit more ‘diligent’ in terms of getting my Money earning Dividend Payments. It is a difficult one because to some extent I think there is a trade-off between getting the Cash in and working and being a bit more patient in bad times but being able to buy Stocks at very good Prices (and therefore with larger Dividend Yields), which I also see as a Risk Reduction exercise. I am mulling over a potential blog on this very subject and the ins and outs.
Another drag on my Dividend Yield for the Overall Portfolio was because some Stocks had done so well and as they rise clearly the Dividend Yield falls. It is another quandary really and as much as I want to be getting near my 5% Dividend Yield Target, it seems a bit silly to sell a great Stock too early just because the Yield has dropped a lot. Clearly AZN gives me exactly this problem and at the time of writing this, AZN is on a Forward Dividend Yield of about 3% which is a lot below my Target. I probably would not buy a Stock for my Income Portfolio if it just had 3% Dividend Yield but as something I hold I see it a bit differently and am happy to pick up the Capital Gains as the momentum takes AZN higher. OK, I might need to TopChop the position at some point during 2019 if it keeps going up.
Against the Money I initially put into my Income Portfolio, the Dividend Yield was 6.2% but rather more worryingly, the Dividend Yield on the Value at the end of 2019 was just 4%. This suggests that I am going to really struggle to hit my 5% Target in 2020 and I will need to think about this.
The performance of my Spreadbet Account has been hugely impacted by the Hedges I had running and therefore the true picture is quite distorted. My Spreadbet Portfolio to an extent is a ‘mirror’ of the Shares I hold in my Normal Trading ISA and my Income Portfolio; although that is the theory but in practice whereas I have about 52 Normal Share Positions in total, I probably have far fewer Long Spreadbets on Stocks – I suspect it is around 35 (I could count them but it doesn’t seem the best use of my time because it is the principle that I am really trying to highlight here).
Again for time reasons I have not dug into the Performance of these Long Spreadbets on Stocks but I suspect they actually did very well (my Normal Stocks did well so that should have been largely reflected in the mirror of the Spreadbets). To an extent such gains on my Stock Spreadbets would have offset some damage to my Spreadbet Account from the drag of the Index Hedges, but there was a huge imbalance so the Spreadbet Account suffered a lot.
A side-effect of a Spreadbet Portfolio is that when things go your way and you are ‘winning’, it results in huge Cash Generation which is obviously very pleasant (this is due to the Leveraged nature). However, things go the other way when you are ‘losing’ and as a result I had to move Cash from other places to cover the Losses I was running up (think Nick Leeson on a small scale !!). Therefore the final result for my Spreadbet Account was a hugely negative figure and very variable depending upon how much Cash I had available in the Account and how much was used as Margin Deposit.
As it happens, when you compare the Losses against the Starting Equity (the Cash Available plus my Margin Deposit) on the Account, it ended up Down 38% but it varied hugely during the year. In fact, as I write this in early 2020, I have had a stunning start to the new year and my Spreadbet Account is up 13% already (after just 10 days !!) and that shows how the Leverage hugely distorts things and it wouldn’t take much damage to my Portfolio for that 13% gain to be wiped out very fast.
I won’t say much more about this but for Readers who have little understanding of how Spreadbets and other Leveraged Accounts work, this Blog Series will probably help (this is Part 7 – there are links at the bottom of it to the other earlier bits):
My Mate’s Unit Trust Portfolio
If you go to the ‘Funds’ Page of my Websites which sits on WD2 ((there is a Button on the Homepage of this main Website), you will see an Example Portfolio there which I run with a mate. This year that Portfolio was up 14% which is ok but of course nothing special. With Markets around the World so buoyant, I am a bit disappointed by this although it is not far off our Target Annual Return of 10%.
From memory there were no changes to the Portfolio during 2018 (or 2017 and 2016 for that matter !!) and without doubt there is some rebalancing needed now - in particular some of the US focused Funds will have done well and I think it is wise to trim these positions. I need my friend to calculate the current Percentage splits across her Holdings and we can then work out how to rebalance back towards the ‘Model’ Weightings that we started off with (and with some tweaks no doubt, like increasing the Cash proportion - this gives ‘Safety’ as opposed to Bonds which are pretty sub-optimal at offsetting falls in Stocks).
Over the years this Portfolio of Funds has performed very well and for people who want Low Risk, Low Effort, Long Term exposure to the Stockmarket, then going down the Funds route makes a lot of sense - although I would stress the need for Diversification and also it is best to use Investment Trusts rather than Unit Trusts - see my ‘Funds’ page on the WD2 Website (there is a Button on the Homepage of this main Website) for more on this.
Another Mate’s SIPP Portfolio
This friend pretty much just copies my Trades but scales them down to suit her Portfolio size. Last year it was up 22.3% which isn’t too shabby and she is pleased how things turned out, especially as I didn’t bother her too much with her actually having to place many Trades !! Her Portfolio is pretty much a mirror image of mine although there are quite a few weighting differences and for some strange reason she holds Rolls Royce RR., which I sold ages ago. Also, I recently bought Hotel Chocolat HOTC and she was very busy at work and forgot to buy some - she missed out a lot on that one !! This however is very much in line with the performance of my Portfolios.
Prudential ‘With Profits’ Bond
Please note, for ease of producing this Blog, I have copied and pasted a lot of the Text below in this Section and just tweaked it a bit. Sorry if it rings bells with you from when you read it last year (and the year before that !!)
My Pru ’With Profits’ bond is up 5% on the Year which is not particularly amazing although of course it hammers the kind of Return you could get on Cash and to my mind it seems to have very similar ‘safety’ attributes to something like Cash. However, when you consider the lack of effort and with a very low Risk level it is pretty impressive. It is even more impressive when you consider that it was up 7% in 2017 and up 8% in 2018 - that is really decent.
Note that last year I wrote the following chunk of text – and it looks like I called it spot on:
‘Having said that, I doubt the amount it gains in 2019 will be as good because they assign the ‘Bonus’ each year depending on how the overall Fund did and I suspect it found life tough like most of us did. In addition, 8% is the best Year I have ever had on it I think.’
Having said that, something else changed with my Pru Account this year because they stopped sending me an Envelope in April which they had done for about 19 years, and now I have to logon to an Online Valuation and Account Management thing. I did this some days ago to work out the 5% gain for 2019 but note that the Date of recording the Account Valuation has therefore changed from something like the previous March 31st to December 31st (bringing it into line with all my other Accounts with Shares and suchlike). As a result, part of the seemingly low performance could be due to a shorter ‘Year’ and for 2020 I might end up getting an extremely good performance. I could look into it but to be honest I have better things to spend my time on and it will all come out in the wash.
I have about 15% of all my Wealth in it and it really is a ‘Core Holding’ and it adds yet more of the Diversification that I so adore. 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 20 years and it is pretty steady and solid. It came under some slight pressure during the Credit Crunch in 2009 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 that one was rubbish - the Pru one is defo the best. When I started Investing seriously in 1999 or so, this was probably my only good decision !! (and that was a lucky accident because my Parents used to invest in it…..)
Over 2019 I spent the princely sum of £17,706 on my ‘Living Expenses’ which was 4% up on the amount I blew in 2018 and still remarkably similar to the kind of figure I have been spending for each of the last 10 years that I have been ‘Retired’.
I am very aware that several of my ongoing Expenses like Broadband, Electricity and Gas, Water Bill, Sky TV, etc. etc. have risen quite a bit and I really ought to address these and see if I can get them reduced - we shall see but of course a higher Charge now than I need to pay simply gets added to next year and following years and compounds the problem - I really must see what I can do to attend to this. I have actually dealt with my Broadband in recent days and will be paying a bit less in 2020 and 2021 and also have managed to get much faster speeds. This is partly because I was paying for Voice Calls that I never use.
Following a Motorcycle Accident in 1998 (blimey, 21+ years has whizzed by in a flash !!) I am Paraplegic (paralysed from the Chest down in my case) and as a result I live in a Housing Association Bungalow on which I have an ‘Assured Tenancy for life’ and this suits me really well because if anything goes wrong then I just make a phone call and they fix it. Anyway, my Rent amounted to £6,438 which is up about 40 quid on the amount I paid in Rent last year.
I suspect many Readers will have paid off their Mortgages on their main residence or be getting near to it. If I had no Rent to pay (although of course House ownership would have a lot of costs like Plumbing and repair & maintenance issues), then I could probably live on a lot less than I do.
I wrote the next Paragraph in 2019 but since that I have just bought a 2010 MX5 2.0 Powershift to replace the BMW Z3, but the running costs will probably be similar to the Z3 anyway (if you fancy a nice cheap Z3 then give me a shout):
‘I also run 2 Cars although I don’t drive either of them all that much (I probably do about 4000 Miles a Year across the pair of them) and I could easily save money by getting rid of one of these, although I don’t think they really cost all that much in Servicing, Insurance and Tax etc. (note on my new Seat Leon Cupra I don’t pay any Car Tax because it is registered as a ‘Disabled Vehicle’ - with 290 BHP !! However, the Car Tax on the Z3 has been crawling up every year and it is getting near the point where it is more than my Insurance which is bonkers really but the 2.2 litre 6 Cylinder Motor is seen as being a polluting gas-guzzler). One great thing about getting my new Cupra is that because everything on it is new, I might get a grace period where I do not spend much money on it for things like Tyres, Brakes, Exhaust etc etc. (i.e. the wearable items of a typical car) and I think it has a 2 year warranty so I should be only spending on a Service once a year and shoving Petrol in it - I don’t even need an MOT for a few years which is sweet.’
I wrote the text below in the SOD Blog for 2018 - it pretty much still applies:
“Note also that my Subscriptions to Investors Chronicle and SharePad come out of this ‘Spending’ figure - and these probably amount to £450-£500 ish, but I see these as essential Living Expenses !!
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 and health problems for me) and I don’t smoke or anything like that but I suspect if I really tried I could get my Living Expenses down to around £8000 or a bit less (plus Rent on top obviously). Fortunately I don’t need to obsess about getting my Expenses down but of course there is no point in wasting Money and what I don’t spend can be Invested which just makes my Life easier in the future. I keep thinking I spend far too much on Sky TV - this is an area where I do need to focus my attention and in a few months I might shift all my TV as well to BT.”
Something else I must add is that this year (2019) I had a few ‘One-offs’ like a new TV, a new Laptop and a new Tablet and stuff. These probably amounted to around £750 but to a large extent, these kinds of ‘One-offs’ are probably recurring in one form or another during most years. Let’s be honest, there is always some type of technology or household appliance etc. that packs up.
2019 turned out a very strange year for me because the drag from the Hedges wiped out a huge chunk of the gains on my Stocks. However, despite this I actually enjoyed the year from an Investing viewpoint and I ended up on 31st December 2019 a lot wealthier than I was on 31st December 2018 – and, more importantly, I have now had 10 years of ‘Retirement’.
I really can’t moan too much.
Especially when I reflect that I think I learnt a huge amount about Hedging and how to read the Index Charts and going forwards I feel very well placed to be able to take on whatever the Markets chuck my way. I also take the view that I made a decent chunk of Wealth last year without actually taking on much Risk and I certainly cannot be accused of having worked hard. In fact, I think I was impressively lazy and inactive (rumours were rife during the year about me being spotted in various Pubs around Windsor) with my Portfolios – and that in itself has made me think hard and deep about how tinkering with my Stocks in the past has probably not helped my overall Returns.
Another intriguing thought to leave you with is that I don’t use Stoplosses yet it strikes me that the kind of Returns I am getting are not hugely different to that of people who do use Stops. I take the view that they are important and essential for Short-term Trading but for Long-term Investing they just don’t seem to help that much – especially if you are really lazy like me. I am pretty sure that the ‘Diminishing Problem’ effect actually means that the small number of underperforming Stocks I hold at any one time, has little overall impact on the total Portfolio Returns and in the majority of instances, providing I hold Quality Stocks, ones that get into trouble for a while often turn out to be huge Winners in the long-run. After all, that is how I ‘found’ MPAC, which I had already held as Molins MLIN.
Here is a link to ‘The Diminishing Problem’ blogs that I wrote a while ago (there is a link at the top of it to Part 1):
Well, that’s it for another year and fingers crossed we get a decent run in 2020 – at the time of writing we have had a stunning couple of weeks but we know how quickly the tide can turn.
Best of Luck for 2020 and may the Market Gods be on your side,
PS. We just released a new TPI Podcast and we have another recorded and ‘in the can’ which should be released soon.
Welcome to my Educational Blog Page - I have another 'Stocks & Markets' Blog Page which you can access via a Button on the top of the Homepage.
Please see the Full Range of Book Ideas in Wheelie's Bookshop.