What a year it has been for investors — and it’s not quite over yet. Two political shocks that rocked global stock markets, a floundering pound, some sporting success and a sparkling tonic alternately battered and boosted your humble correspondent’s modest portfolio.
In the past 12 months there have been more surprises and bigger returns than in any year since I began running my own retirement savings in 2013.
Back then, when leaving another newspaper and taking a quarter of a century’s pension savings with me, I allowed myself five years to see whether DIY fund management might work.
This could be of interest to a wider circle of people than my wife and son now that no one is forced to buy an annuity — a guaranteed income for life — with their pension fund and everyone can keep some or all of their retirement savings invested. That is a task that should not be taken lightly because, as pointed out here from time to time, the FTSE 100 index of Britain’s biggest shares has fallen by about 50% twice so far this century, and may do so again.
Anyone thinking of “drawing down” an income from their pension must consider carefully what such shocking setbacks might mean for their life savings when they no longer have any earnings with which to make good their losses. Unlike younger investors, who might take short-term punts in the hope of “shooting the lights out”, investing for retirement means aiming for long-term capital preservation and sustainable income.
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That’s why I call my collection of Isas, pensions and venture capital trusts my “forever fund”, because it is intended to see me out (however long that might take).
The good news is, it ain’t going too badly so far. My total return during 2016 has been just over 18%, net of all costs and including dividends. That is nearly a tenth higher than the FTSE 100 year-to-date performance, again including dividends.
Helpful decisions included holding about a third of my fund in dollar and euro-denominated shares, before Brexit assailed sterling and boosted the value of foreign shares. For example, Adidas, the German sports goods company, is now my second-most valuable holding, having doubled in price since I first invested in July of 2014. Back then I paid the equivalent of £49.13 to buy shares that now trade at £120.96, and I have recently topped up this stake. Considering football shirts sell for £50 but might cost a fraction of that to produce, it seemed a good racket to buy into — even though this global brand was out of favour with City analysts at the time.
A similar contrarian view paid off at the burger chain McDonald’s, which is now the fourth-biggest holding in my fund. Most brokers feel they are far too grand to be seen dead in such an establishment, but I noticed the branches were always full when I began buying at the equivalent of £57.35 in July 2014. By the start of this year McDonald’s was priced at £80, and it closed at £98.73 on Friday — and the shares still pay dividend income of more than 3.1% of the current share price.
Closer to home, top place in my forever fund, by value, continues to be taken by the tonic maker Fever-Tree. The shares cost 210p when I first invested and tipped them in March 2015. They began this year at £5.91 but closed at £10.85 on Friday.
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It’s only fair to admit that I had no idea they would do so well. Once again, it wasn’t rocket science that guided me to this share, simply personal experience. I noticed how fond my wife and her friends were of what I initially regarded as overpriced pop — before discovering how much better its natural ingredients taste than the artificial stuff at the somewhat jaded market leader.
Since then British Airways, Marks & Spencer and many other high-profile companies have caught the Fever-Tree bug. I can’t resist adding that when I took some tax-free profits by selling at £6 this year, a senior colleague said: “You have puffed that one enough already.”
This just goes to show how difficult it is to know when a trend is about to end or has further to go. Lest that sound smug, now would be a good time to confess to a couple of clangers and self-inflicted setbacks. I was bonkers to buy British Land on the day of the referendum result, topping up a long-standing holding at £6.04, and equally stupid to sell Sky at £9.53 in April. The stock continued to fall before a takeover bid was accepted at £10.75 a share last week. Neither share now features in my forever fund and both may illustrate the danger of overtrading — or acting in haste when it might be wiser to follow the Yorkshire dictum: “If in doubt, do nowt.”
All I can plead in mitigation is that the news flow this year has been relentless and, when your life savings are at stake, masterly inaction is not as easy as it seems.
It was also a financial mistake to sell the armaments group BAE in September at £5.32, before rising military tension and the intervention of US president-elect Donald Trump pushed up the price.
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However, as explained here at the time, the reason I sold was horror at BAE’s role in what is happening in Syria and Yemen: I would rather have nothing to do with either.
More positively, taking a long-term view and resisting short-term temptations to end the pain of falling commodity prices paid off. BHP Billiton is one of the biggest miners in the world but had fallen into a multi-year bear market, beginning this year at £7.36 a share. By last week,that had soared to £13.04.
But, as repeatedly pointed out, this column makes no claim to have a crystal ball; it is merely the personal account of one investor attempting to avoid poverty in old age. So far, just past the halfway stage in the five years I allowed myself to experiment with DIY fund management, the rewards have justified the risks.
Claws out for bearish RBS
Perennial pessimism is the easiest way to simulate wisdom about stock markets but it ain’t the way to make money. Take, for example, the remarkably gloomy “sell everything” note issued at the start of this year by RBS.
After nearly going bust when the financial crisis began eight years ago, RBS survived only because the good old taxpayer bailed it out. So perhaps it could be forgiven for fearing the worst.
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City wags said RBS had become an abbreviation for “really bearish on shares” (rather than Royal Bank of Scotland) after it claimed: “This all looks similar to 2008. This is about return of capital, not return on capital.”
No wonder its apocalyptic analysis was widely reported as stock markets got off to a shaky start. The FTSE 100 began this year trading at 6,242, finished its first day at 6,093 and had slumped to 5,536 by February 11.
Brokers are bullish by nature because they are in the business of selling stock. But the RBS note was the most bearish I have seen since, long ago, one analysis of a dubious share was headed “Can’t recommend a purchase” before its author was sacked for his thinly veiled acronym.
Here and now, anyone who put their faith in RBS and sold everything must regret doing so. The FTSE 100 index stood at 5,912 at the close of business on January 8, when the bank issued its sell note. Since then, the Footsie has soared by nearly 1,000 points to close at 7,012 on Friday.
However, there were some stocks it made sense to dump. For example, RBS shares fetched 284p on January 8 but only 228p last week. So much for the wisdom of the pessimists...
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http://www.twitter.com/iancowie Read a breakdown of Ian Cowie’s ‘forever’ fund