. . . for my kids. . . and good friends

My investment strategy

What follows is probably a load of self-justificatory nonsense. On the other hand I seriously believe there are some important (if expensive) lessons here. It all began with a pot of money, liberated from under-performing pension policies dating back over thirty years.  

The first step was sensible -- two-thirds into low-fee index-tracker funds, using a kind of massaged averaging technique, buying more when I thought the price was low. Not only has this brought peace of mind, but also rather good profits.

Stage two, where I would demonstrate my money-making talent, is where things fell apart. Or perhaps I've just been unlucky!!

Encouragingly, it went rather well to start with. As a beginner, I successfully spotted under-performing or unfairly unfashionable stocks and jumped in, with what I took to be professional decisiveness. On the other hand I was quite timid, so the returns were not life-changing. De La Rue and the wrong-paper scandal = great buying opportunity; BP's environmental disaster, a classic case of an over-sold stock. I bought well but much more significantly I found that I had the sense to sell well too.

The result, lots of over-confidence. But again, and thank goodness, rather timid over-confidence. And here's an important lesson; a bit like Geoffrey Boycott's cricket advice -- take off another two wickets and see what the score looks like then? In my case, imagine the price of your fully researched, carefully appraised and selected stock halves. Do you still have the funds and balls to double your investment and so reduce your purchase price?

I've done it with Genel, an oil exploration company operating mostly in Kurdistan. It came to market at 1000p a share and seemed good value. Over time it lurched downwards as investors got worried. I bought more and sold some later, so I now have my initial holding again, but at a price of 760p a share not 1000p.

So there's a second lesson here; don't be afraid to sell as well as buy. I can stick the tracker-funds in a drawer and leave them to rise slowly over the years. This is not a good idea with volatile individual shares in a high-risk field. Here you need to watch and understand what's happening, getting out as well as in.   If you haven't the time and interest then just don't do it.

The third, rather painful lesson for a novice investor, is never, never, never chase a share price upwards. You should have bought when it was cheap! So the fourth lesson is do your research, be deeply sceptical of all your sources of information and analysis, work out a dispassionate strategy and then stick to it, while adjusting for changes in facts, not sentiments.

I cannot (yet!) claim to have been massively successful (though the tracker funds have done well!). However I can honestly say that so far my losses are only on paper and I can reasonably hope to be in the blue well before I need to sell.

Right now, Lloyds Bank is back to within 1p of the average price I paid for my small holding. Once it bursts through the 48p barrier I'll be out and away. I still believe there's lots of potential, but I know nothing about banks and bank stocks so what on earth am I doing in there?

For some reason I've chosen in the last year or so to 'specialise' in oil exploration stocks. My 'rational' argument is that with interest rates so low, it makes sense to take a 'gamble' on something that can increase in value 10x, as long as you (me that is) choose carefully and spread your risk quite widely -- six or so stocks.

You can reassure yourself by looking at the rapidly improving collection and interpretation of seismic data. You can turn up at AGMs, ask apparently well-informed questions and weigh up the answers. You can frequent bulletin-boards, assess who to take seriously and make well-received interventions.

Well it's been fun. And it gives the impression (to me at least) that I've learned something . . . about myself as much as anything else. And my losses are all on paper! But almost without exception at the moment they are losses. Yes, yes it's a risk-off time. Watch them all motor again when risk is back on!

I guess the final lesson is not to lose your nerve. Oil is in demand and despite US fracking etc, it will be for many many years. Worldwide demand is there. Prices will rise. Less economic fields will become money-spinners. We'll all be OK.

However, it's not a bad idea to be aware that finding oil (or condensate) is the relatively easy bit. Being able to exploit it is important and that needs money, knowledge, contacts and luck. Another big lesson. The whole business is a lot more complicated than it seemed to be a year or so ago. 


Last Updated on Saturday, 15 December 2012 23:39  


0 #7 Chris 2012-12-18 16:42
For your children, they must take full responsibility for any and all investments. They must become an expert in the market sector(s) they wish to invest into. This means a lot of hard work, over many years. They must observe and make their own minds up, inspite of advice offered. They must consider the geo-political and financial markets that drive the stock markets. Do not (on the whole) trust brokers, for me it is like going to a casino and giving my money to a gambler who looks good.

I just repeat again. HARD WORK. There is no such thing as an easy dollar.
0 #6 Tudor 2012-12-18 06:34
FROM PAUL -- Another Investment Student Taught a valuable
lesson by FOGL

Read your blog today, found via FOGL forum. I and a couple of colleagues are in a similar position. Patience is a virtue and we can be very virtuous whilst waiting for prices to come back to previous levels.

Obviously only our selves to blame most eggs in one basket... For me my paper loss is all the actual gains I made from similar albeit less risky investments. Had some fun and celebrations on the way though.

I also agree that Lloyds is a longer term way to fix losses, but like you what do I know about banks other than a hunch.
0 #5 johnnygibber 2012-12-17 12:57
Hi - One piece of advice - find stocks that pay a regular divi (eg.Shell, greggs) and just keep reinvesting that money in DRIP.

I've got models that show over 10/20 yrs SP is almost irrelevant.
0 #4 Tudor 2012-12-17 11:25
Hi there, I found your blog from the CHAR board on iii. I'm new to investing and was wondering about how, in general, people research a stock before investing? Do you have a specific list of things to look at? Company fundamentals (cash, assets, quality of BoD), planned prospects, geopolitical risk .etc? Everyone on iii always says DYOR, but as a complete newbie its tough to know where to start with properly researching a stock.
0 #3 Mark 2012-12-15 23:09
My analogy is that investing is like learning to ride a motorbike; you learn quick enough when you start falling off (or losing money..)

Never avg up. Take a position with ~1/4 of the money you'd want to invest in the company; a company with good assets, cash, prospects and BoD. Hopefully you would have invested at the bottom, but in reality you wouldn't have. If the share price goes up..congrats, but don't fucking avg up. Either top slice and wait for a retrace or just sit on your hands. Personally, I like to see the share price go down; if I've done the research then I can truely pick up some bargain prices; avg down using the remaining ~1/2. Consider yourself lucky that you've been lucky enough to have been given this opportunity to top up. Keep the other 1/4 for when the shit really hits the fan.

I never post on BBs, but they are good for ascertaining general sentiment; a huge exponent of the AIM sector
+1 #2 Tudor 2012-12-15 19:38
thanks for this G53,
and apologies for the delay in replying and also for the technical "issue" that put my name on top of your comment!
You're only a 'complet idiot' if you're playing with more money than you can afford to lose.
The problem is that for you and me, the BBs are like stumbling into one of those 19th century dens of thieves, where we have no option but to rely on the words of the few 'inmates' who seem a bit more approachable. The words and the debate are all very seductive. But surprise, surprise, we lose money; either because we get over-excited and chase the price upwards; or we get freaked and sell, even when the bad news was predictable.
Neither you nor I can ever compete with the short-term traders. All we can do is learn how to assess the potential of a particular company, buy when we think it's cheap and then be prepared to wait. I've revised this approach a bit since I started, because of the volatility of the AIM market (and the stuff I've just been mentioning. . . ramping and deramping etc). I still buy for the long-term but if a price really looks very good, then I'll sell and take a profit. If it drops very low then I may buy a bit more.
So if you're confident you bought Argos at the right price for the right reason just wait for it to come good. If you look at FOGL now and think it's really good value (money in the bank etc) then get back in.
The difficult bit is that you need to keep an eye on what's happening, but not get sucked back in to monitoring every twitch of the price!
There are two web-sites here that I find useful:
* http://www.investegate.co.uk/ which will notify you of RNS announcements
* http://www.iii.co.uk/ where you can set up email alerts if your share passess a certain price

I hope this is some help. I'm a novice like you and have no great successes to validate my approach yet; but I haven't lost any money for real so far! and I've seriously enjoyed learning more about oil exploration. I reckon even my paper losses are less than the fees I would have paid to financial services 'operators' if I'd left my investments with them to 'manage'.
0 #1 Tudor 2012-12-15 13:15
This is the very first time I have communicated with anyone about my 'investments'. i am a novice and I 'invested' in FOGL last Feb and managed to get out just in time without making a serious loss. I read the bb's every day and often get irritated by what is written. However, I decided to get back inti the FI and bought some Argos shares in the belief that because their seismics seem very good someone will farm in and then drill. Because of what happened to FOGL I would like your opinion on ARG and would it be worth holding next year to see what happens. I know you don't have a crystal ball and cannot predict what would happen. i just don't want to be a complete idiot.
If you have time to reply - thank you.
Best wishes

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