I have been reflecting on my criteria for investing my savings and how they have changed over the years. To begin with I was a pure stock picker, choosing companies on the advice of friends, relations and a stockbroker. I then had a eureka moment when I realised that it would be more rational to give my money to a manager who would invest it in a collective fund. I just chose the wrong firm. They had a blue-blooded name which they did not live up to.
Although I sacked that manager I persevered with switching out of individual stocks into managed funds. It took a while for me to cotton on to the advantages of Investment Trusts over Unit Trusts and to look at the discount/premium for the former.
The position now is that I have holdings in ten individual companies. The worst has lost 40% and the best has an unrealised gain of 660%. There have been a few ups and a lot of downs along the way and my general conclusion is that it is too risky to self-select and too restrictive, in the sense that I cannot as an individual easily buy stocks on overseas markets or spread my risk with my small portfolio.
I have an unnecessarily large number of managed funds, of which four are Unit Trusts, three Venture Capital Trusts, one a hedge fund in the Cayman Islands and fourteen are Investment Trusts. I intend to rationalise the herd of ITs when I can in a tax efficient way. Quite a few of them are basically doing the same thing, are not conviction investors and are virtual tracker funds. If I wanted that I should have bought a few trackers.
My most recent strategic tweaks are to monitor the countries and sectors in which these funds invest and as importantly to find out who the fund managers are. This started when I got to know Bruce Stout (Murray International) through articles in the press and Charles Plowden through his re-invention of Monks. I have become a reader of the monthly and quarterly reports that most ITs publish online.
It would be a mistake to think that these old names in the Investment Trust business trundle along without changing – they do change and it’s good to keep an eye on them. Recently the venerable Alliance Trust, an old holding of mine, has decided to buy back their own shares to narrow their discount (good) and to appoint external fund managers to invest their funds (probably bad). They are going to give the money to people some of whom are already investing my money.
My investment philosophy has the advantage of being cheap but not unduly risky. My biggest exposure is to Indonesia, where plantation company MP Evans operates, and I have much too small an exposure to bonds. I am skewed to the Far East, North America and Emerging Markets. Effectively I am largely invested in US Dollars but I do not hedge this exposure. However you invest your savings, it is worth thinking about what your aims are and how much risk you are prepared to take to achieve them.
I am an ignoramus on all this. So I wd appreciate a note from you on a seeming oddity. You buy into a managed fund becaue you trust it to spread and hedge risks. I can see why you might further increase security by having two or three such baskets for your eggs. But I don’t see the logic of then complicating things by having lots and lots of baskets, as you seem to have. Doesn’t your multi-basket strategy merely give you the headache of worrying over all of them? A secondary, if I may. At the margins, why worry about tax efficiency? I think you are quite centrist in your politics. I imagine you are a proud tax-payer. So wouldn’t there be a logic in prioritising yr gross (pre-tax) return and your security (your peace of mind) and then being tolerably relaxed, and even smug, that you have been open-handed with the Army and the NHS and the DCMS? Just asking.
You are spot on about my having too many ITs and I intend to rectify this. I do not agree with you about paying tax. I would prefer to direct any spare money to charities of my choice rather than give it to the taxman to spend.
I suspect CB is rightly worrying about Capital Gains, a pernicious tax that prevents proper management of a portfolio such as his. When you want to exit a stock with a profit you have to match it with a loss if you have exceeded your annual allowance otherwise you take a 40% hair cut on the gain. It should be abolished except perhaps on second homes whilst we have a housing shortage.
I hope CB will keep us advised from time to time on the remaking of his portfolio.
CGT is one strand, another is that while those earning in excess of £150,000 a year pay top rate tax at 45%, those earning between £100,000 and £121,200 pay 60%. I freely concede that there are other anomalies that work in favour of the tax payer. Anecdotally, a friend of mine had her tax rate on Capital Gains reduced to 10% by then Chancellor Gordon Brown. He intended to benefit small business owners but it was an unintended help to company directors with shares in their business in the City.
Allow me to say again that if a brave electorally-cavalier government were to slash the rate for those with really high incomes they would scoop the fiscal jackpot. Instead the middle earners have to pay the government’s bills.