20Aug 2016

My Investment Journey Part 6: to 2012 Post Financial Crisis by Stock Whittler (@dosh100)

Businessman at Fork in the Road

The recovery of the FTSE 100 from its March 2009 low of 3500 continued at a reasonable pace reaching 5800 in April 2010 a fairly remarkable increase of 63% in the major indices in little over a year. Some sectors were just going phenomenally well and in particular, house builders were simply rocketing. The likes of Barratt Developments, Taylor Wimpy that had seen a 95% fall in its value over the financial crisis had regained a significant portion of their loss but were still some 80% down from their pre-financial crisis share price; a real measure of the rout that had occurred in some sectors. I wish I had invested in more house builders at the time but unfortunately had only invested in one, the partly bombed out AIM listed Telford homes in 2009 which were doing well enough over this period and in the construction sector another love-hate stock Costain. Is it not strange that somehow we all have a share or so in our portfolio who’s figures and outlook say the right things yet continually frustrate and disappoint in terms of stock price appreciation. Yet we have that almost certain knowledge that should we sell the stock it will immediately appreciate in value.Picture

my investment approach as we began our recovery from the lows on 2009. I found myself becoming more cautious than at any other time during my investing career and holding a far greater percentage of unproductive cash in my portfolio than pre-2008 I would have envisaged. To my mind, I had had my luck, possibly my degree of good fortune in terms of exiting both the 2000 & 2008 market routs with appreciably more money than I had in 1997 & 2003, the productive years before the two collapses. Whilst I exited on both occasions with worthwhile profits, of course, they were way off the high of the paper profits at the pre-fall respective peaks. Would my luck hold in future in wondered?

In my day job, I had a meeting with my Director early in early 2010 to explain my plan to leave the comfort of employment and do something else. I wanted to be as fair as I could and inform them 12 months in advance of my intention to leave the pastime of full-time employment. As it turned out there was a touch more negotiation in the wind and my eventual departure came about some 21 months later rather than the planned 12 months. I was fairly relaxed about the situation as I wanted to be as fair as I possibly could to a company that had been such a big part of my life. Where does this fit within my investment journey? Well, it was always my plan to become something of a full time investor whilst enjoying the comfort of a good company pension and also the final 21 months of employment meant that I could invest a ridiculously high percentage of my salary in my AVC pot; 40% tax gift at best and why not take it!

During the period 2009 to 2012 a fair proportion of my investments could I suppose be described as the safe type; Astra Zeneca, AMEC, Aberdeen Asset Management, BP, Centrica, National Grid, ITV, Tate & Lyle, CSR & SKY. Well, I should say supposedly I mean after the experiences with the likes of Barclays and Northern Rock, in reality, what was safe? Certainly, BP started to look a little less than safe when news broke of the problems in the Gulf of Mexico with their rig Deepwater Horizon. To me, things looked pretty bad and my mind went straight to the potential environmental impact that the incident may have and the mauling that BP could get from US litigation: in a quick decision I sold way before the eventual bottom of the share price plunge. I had over the years developed the approach that if something really does look wrong with a share, then just don’t sit on your hands but consider the risks and potential further downside. Once sold, there is always the option to purchase again.
The overall portfolio was ticking along well enough but I did start to feel a little envious of a mate who was doing really nicely in oilers. Now for whatever reason exploration oil companies or indeed any natural resource exploration business had never really been my thing, just not the speculative stuff I felt comfortable with I suppose an element of greed persuaded me to take a couple of small positions in Gulf Keystone Petroleum and Rockhopper Exploration. Immediately I bought then I felt out of my comfort zone: what the heck was I doing buying two popular and massively ramped bulletin board darlings; one stock in unstable Iraq and one working in the inhospitable deep water off the Falkland Isles. Well maybe these exploitation companies were not that bad after all as both share prices started to appreciate fairly rapidly; was this to be a touch of excitement to spice up my portfolio?

When the news of the Fukushima disaster broke the uranium exploration companies were hit very badly. Taking my mind off my trusted fundamentals, I reasoned that this uranium crash was surely only going to be temporary after all unless we used uranium wisely the lights around the world would simply go out at some time in the future. I decided to speculate a very small amount of my portfolio on a couple of uranium exploitation companies listed on the Australian market.

This mixed bag of punts into resource exploration stocks did not improve my overall portfolio performance; I made a small profit from the oilers but the uranium punts made fairly small yet annoying losses. Whilst I did not consider myself as a hugely successful investor, I was doing fairly decently yet one thing I seemed to have in common with many investors, even some well known successful UK investors that I greatly admire, was the inbuilt ability to occasionally abandon investment principles and have that wayward punt. I could understand it with myself as I had the suppressed gambler inside of me, the chap from earlier years who had spent hours at the bookies searching for the ultimate Yankee; yet why did really smart investors with incredibly sound financial backgrounds occasionally drift off course and have a punt?
Around this time, probably 2010, I had been reading a couple of books covering the subject of FOREX trading and whilst accepting the risks involved, decided to allocate a few £k to the venture. This I would not really describe as a punt as I had a well worked out a financial management plan. I realised from the material I had been reading that the key was managing risk and indeed only risking a small percentage of your allocated FOREX dedicated post on each individual trade. To my amazement after a few months I was considerably ahead; I had latched onto the reasonable length trends of some currency pairs and in particular had success in trading the GBP/NZD, not the most widely traded currency pair but certainly one that worked for me. The trouble was that I was reading so many articles about the high risk of currency trading that I eventually decided that it was best to get out whilst in very good profit and in truth never returned to that investment area but maybe one day!

I continued to invest in the more sensible fundamental companies at the time; buying solid growth business such as Staffline Recruitment, purchasing more SDL and Fisher. I also started to search for trending shares, ones with a predictable way moving and bouncing over time between support and resistance. One particular gem in this area that served me well was the incredibly predictable Morrison supermarket whose price bounced off support and resistance every few months for several years.

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For a couple of years after leaving employment, I spent time travelling around the globe. A couple of winters taking the slow route to Australia and an equally slow route back were really enjoyable. I was armed with my laptop in order to keep tabs on my investments and of course follow my football club which I was greatly missing; a serious downside to escaping winter. Listening to football commentary at about 3o’clock in the morning in Pert or Adelaide is not really that relaxing on reflection but that’s addiction!

So, more steps had been taken on the lifelong investment path. Had I learnt any more lessons to add to this that I listed in part 4 of my journey? Well yes:
*Maybe the greatest one was from now on to really shut my ears to market noise. Here I am not talking about the obvious “head for the exit” events such as BP in the Gulf of Mexico but the continuous clatter of the experts in all forms of media. From 2012 I stopped listening to the hugely entertaining Wake Up To Money, cancelled my subscription to Investors Chronicle and never read another newspaper article by some part time journalist recommending or denouncing a stock. The likes of Investors Chronicle had been fine during formative years but now just seemed to be full of distracting noise and no longer served any purpose in my investment world.

*I would simply focus on good quality data doing my own research, following company news etc. In fact, I made a change to my data library when I replaced Company REFS with Stockopedia which offered a more dynamic view of the markets. My reference materials were now Sharescope, Sharelockholmes and Stockopedia: yes forever a glutton for raw data.

*Another change was the gradual movement of an increasingly significant number of my investments into what I started to call my universe. This universe would consist of stocks that had passed my stringent screens and been whittled down to a manageable number for detailed investigation. In January 2016 I wrote a blog article creating an investment universe.

Perhaps the hardest lesson to apply would be to totally stop having a punt on a stock; suppressing that lurking gambler inside of me. That one would prove difficult: the journey continues.

Article written by @dosh100

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