2019 – The best of times, The worst of times

2019 – The best of times, The worst of times

Happy New Year (or end of old year, depending on pixel time)!

I was looking forward to writing this article and singing about what has been my best year so far in my investing history, but then I realised that I did not know the portfolio value a year ago, at 31 December 2018. Not to mention that after Simon’s write up, and looking at Twitter (post my election embargo), my performance is rather pedestrian!

I didn’t get valuation statements for 31 December 2018 and I did not see the value in creating it myself – there is no value added, other than perhaps making me feel a little better, because I am pretty sure I was down from 31 October 18 to 31 December 18.

Performance for the year

Without much further ado, lets get to it:

Returns to 31 December 2019 – there are still a couple of hours to go!!

Return from   31 Oct 18     31 Jan 19     30 Apr 19     31 Jul 19     31 Oct 19

ISA                       17%                 21%              13%                 11%               8%

LISA                    30%                28%             25%                13%               12%

Other                   30%                25%             15%                -1%                 2%

Total                    20%                22%             14%                9%                  7%

My benchmark, to the extent I have one is the FTSE All Share total return and the returns are presented below (source: uk.investing.com).

FTSE AS             13%                  15%             7%                 4%                   6%

I try to run a balanced portfolio:

  • approx 30 individual holdings;
  • don’t like to trade or transact – 26 trades from April 2019 to year end;
  • bias towards value/quality/income;
  • like to sleep easy!

The ISA and LISA are the stock picking portfolios, whereas “Other” is a smorgasbord of low risk ETFs and a limited number of punt stocks – I try to keep the income within the tax free portfolios.

I have started using the LISA over the ISA because I need retirement savings and the 25% from the government is hard to get elsewhere, even with my fabulous year – rest assured I do not add government bonuses to my performance.

I also invest my wife’s ISA (not shown above) and for some reason all my 2019 stinkers (REDD, BUR, IMB) are in that portfolio – she has said she wants more funds as opposed to single stocks, which I understand is a polite way of sacking me!!

Then again, in 2019, I also started writing for Cube – win some, lose some.

Feeling smug!

I could stop there and smile to myself, but this game is about learning and the above belies a lot of strange activity.

Indeed, the purpose of showing the table above is to demonstrate what has been a rather bewildering year in terms of performance, with some real ups and downs.

Why I did OK?

My style is generally quite defensive with a common sense slant.

If I remember correctly, I sold some of the cyclical holdings in Q318 and also purchased US treasuries at the back end of 2018. In addition, I brought forward my ISA/LISA contributions and purchased an all world ETF in Jan 2019.

The sales at Q3 18 are more luck than judgement – they are all now trading above where I sold them, but I think the reinvestments have outperformed the sales, having gone into more UK sensitive sectors.

I have also been willing to top up these holdings, especially where I have conviction and the primary factor has been geopolitics – (LGEN, PRU, RFX).

I guess some credit is deserved for putting extra money to work (being less panicked than others) and for the US Treasuries purchase (at a time when the FED was tightening).

A shift towards quality has made me a better investor.

One of the major changes in my style that has taken place over the last year and maybe a little longer, is focussing less on the value and more on the quality.

This does not mean to say I don’t care about value – I would suggest, for long term returns, it is the only thing that matters! I do however care a lot less about the price itself.

The portfolio has benefited – previously, I would not have bought into stocks at 52 week highs or I would have ruled companies out on the basis of a single factor such as PE > 15x. Stocks that get a mention: GAW, GOCO, QTX, RMV

Better discipline

The punt portfolio [SOS, LTG (sold at 115p), LOOP, SPE, PET (bought in 2013 ~14p, sold ~8p)] has broken even just about, but this is where discipline has helped.

My biggest all time stinkers have to be Monitise and Fastjet – the reason they turned out to be such stinkers is that I doubled down on them (twice no less!) – I think they have cost me 20% of my current portfolio value!

Fortunately, this time round, I have been more disciplined and not added to losing positions – interestingly enough, at the time of purchase I had most confidence in LOOP and SPE.

Some stinkers

I am happy with the portfolio performance overall, but I think it could have been substantially better.

Firstly the elephants in the wife’s portfolio:

REDD – this is a long term holding and I have held since 2013 at a purchase price about 37p, having traded in and out. The initial weakness was due to loss of a customer – customer concentration goes with the territory for this stock. I thought about selling multiple times and sold a piece at 178p – I did not sell the rest because the price was 170p instead of 178p. I’ve not had a chance to look into the merger in detail, but it is a cash generative business paying healthy dividends.

This one is potentially on the chopping block – will need to analyse the merger with Northgate, but I think this de-risks, strengthens management and potentially one to retain for the income.

IMB – Have held since 2017 and dividends have helped but not when you are down nigh on 50%. There is a fair amount of regulatory risk in my portfolio (sold 888 with the latest regulatory threat), but I have faith in the tobacco sector.

Firstly, they are good at lobbying, secondly the healthcare sector (which likes smokers) is good at lobbying, thirdly their cash generation is astounding and a focus on balance sheet will improve debt. CBD is a potential blue sky opportunity as well. In the meantime, we have a high sustainable yield (which is to say, even after a cut it will be a high yield)

BUR – This was a company I did not fully understand or to put it another way, I accepted an element of “black box”. I saw the price rise really high before I had a position and then it pulled back. An institutional placing was done at slightly above my purchase price and I thought the Saudi deal meant they were transitioning to an asset manager as opposed to only using their only balance sheet.

In hindsight, my reasoning wasn’t good enough here.

VOD – Have held this a while and again the yield is attractive, but doesn’t help much when you are down 30% on the capital. Quite frankly, this is and has been on the chopping block throughout 2019 but I have not acted – and sadly the only reason I can think of keeping it is that I don’t want to realise that loss.

TED – Here is a fall from grace if ever I have seen one. I gave them the benefit of the doubt at the first scandal but on February 27th, they announced a profit warning and alluded to certain “issues”. Reading back on it, it is nota  surprise they had an issue with inventory. Sold for 1765p (purchase price ~2350). Actually I am quite happy about this one – it could have been a lot worse! I acted as I saw best, not based on the colors on the portfolio.

BON – Remember them? Remnants of deep value. Many stocks are cheap for a good reason. The yield does not help one bit when it comes to capital destruction.

The lessons

  • Don’t sweat the small stuff

Not recent, but I remember wanting to transfer my holding in DGE from Other to ISA, but it made sense to do this as a sale and purchase. I sold at ~£26.50 – I could not get a buy in at less than that, so I am still waiting – since my penny pinching, it has rallied some 30% and also paid another 5% in dividends.

  • Value matters

In the world of TINA and forever stocks, I read the end of year update by Hussman Funds yesterday – useful in bringing me back down to earth following a good year.

  • Price is a signal

This is one I struggle with, but I need to pay more attention to it. Momentum persists (to the upside and downside), so I should not be reticent with stocks hitting new highs (the price signal is positive). For a downtrend, the price signal is negative. I should pay attention to negative tones in the director report (another signal) and I should be more respectful of the price action – especially when punting!

Treating price as the vagaries of a manic depressive Mr Market is incorrect and quite frankly does a great dis-service to the many people and machines trading the price.

  • Purchase / First observed price is irrelevant

I need to improve on my sell discipline. I am invariably a reluctant seller but anchoring onto the purchase price to avoid sale or addition and the same for the watchlist has cost me plenty in lost opportunities. It has sometimes saved me too, but I dare say the losses outweigh the gains.

  • Don’t follow the institutional price, especially on a falling knife

BUR and LOOP were bought because I was getting in below the recent institutional placing price. I expected they knew what they were doing.

  • Don’t add to punts

My view with punts is you buy – hopefully they multi-bag, but I mentally write down my holding to zero as soon as I purchase. I am still debating this topic – not whether to add, but when to sell.

I have lost faith in the thesis for LOOP, but am not down 100% – should I sell (risk the regret if it goes on to multi bag) or hold on at or near zero (the mental value) – selling would in theory realise a mental profit, but sadly neither my brain nor finance work that way!

Finally…

Thank you for reading this and my other articles in 2019 – I hope you have found them informative and interesting.

Thanks to Graham for the sterling editorial work and all the other writers for the great content.

All the very best for 2020!

For the pub quiz – the best performing investment over the last decade has been [X] with a return of [X]% (answers in comments section – will provide answer in comments on 5th January).

 

If you enjoyed this article, please consider rewarding the author and supporting this website by purchasing Gold Membership. Thank you!

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