S&S ISA critique please?

jem16

A_Flock_Of_Sheep wrote: »

Well my "worse job" landed me gains of just shy of £4000 over four months so I am not complaining about my efforts.

Reminds me a bit of the two Ronnies sketch when the novice squash player thrashes the more seasoned!

You hit it lucky, that's all.

The main problem with such an off-the-cuff remark is that new investors get the idea that they can be just as lucky. They then come on here to complain and say they will never invest again as they had lost thousands.

A_Flock_Of_Sheep

jem16 wrote: »

You hit it lucky, that's all.

The main problem with such an off-the-cuff remark is that new investors get the idea that they can be just as lucky. They then come on here to complain and say they will never invest again as they had lost thousands.

You got it in one. All investors that experience a profit "Hit It Lucky". The stock market and investing is after all a great big casino.

And they only "lose" thousands if they cash in their loss and then choose never to invest again.

Even the ever peddled Vanguard Life Strategy funds can make someone lose thousands if there is a drop and the person bails.

jem16

A_Flock_Of_Sheep wrote: »

And they only "lose" thousands if they cash in their loss and then choose never to invest again.

Even the ever peddled Vanguard Life Strategy funds can make someone lose thousands if there is a drop and the person bails.

Unfortunately you just "don't get it" do you?

Many people who invest above their risk profile don't wait for their funds to recover. They panic at the first loss and pull out, never to invest again.

bowlhead99

A_Flock_Of_Sheep wrote: »

You got it in one. All investors that experience a profit "Hit It Lucky". The stock market and investing is after all a great big casino.

I think you fundamentally misunderstand why investing is a casino and from what perspective you should look at it.

If you play blackack or roulette or craps at a casino you will have ups and downs but your expectation is negative. The casino operator will make money if he has a big enough bankroll because the odds are in his favour. He does not need to be 'lucky' he just needs to play the game for long enough for the results to be broadly in line with the probability of them occuring, and avoid running any games where the volatility of results could bankrupt him or severerly deplete his ability to take part in other money-making, odds-in-his-favour games through lack of bankroll.

When you buy investment funds, you are buying the casino's side of the table, not the tourist's. Over time, the average balanced portfolio makes money, because businesses selected by active fund managers tend to be profitable and/or growing businesses (two factors on the checklist for most fund managers when selecting the businesses) and likewise if you invest in an index you are looking at sizeable businesses which make money and grow with the global economy.

The alternative is taking zero investment risk (like having your cash under the mattress or in a bank account where you might get back in real terms less than you put in). That approach is like owning a casino but never taking any bets because you fear the customer might win. Sure he might win from you here and there, and he might win big, but if the game is played for long enough and you avoid letting him play any game with a massive variance of results, you should avoid going bust (or depleting your assets to such an extent that you can no longer afford to bankroll a varied portfolio of games).

So, whether you are the owner of the casino business or an investor in a sensibly-constructed portfolio of shares, no real luck is required. You just need to play the game long enough, not overcommit yourself, and avoid taking rash decisions. It might be popular to blame the bankers and governments for all one's "bad luck"and to consider those people who 'win' at investing to be "lucky" but the reality is, you make your own luck.

And they only "lose" thousands if they cash in their loss and then choose never to invest again.

. Being sufficiently down from your start position can make your position irretreivable. If, at a casino, a punter wins 70% of the casino's bankroll, the casino is in trouble even before the punter has cashed out and left the building, because its remaining bankroll is not sufficient to support the same broad spread of games and logically speaking it should retreat and only offer the safest games, or run a very serious risk of ruin. Unfortunately it is hard to make back a 70% loss, as it requires a 233% gain, and safe investments do not typically do that.

So, imho, talking about how you were easily able to make a few pounds by buying unsuitable investments and getting away with it with good luck, is not hepful for a typical new investor who might think they can also get away with it, and it should not be implied that getting a fair return average market return for the risk taken over a suitably long investment period period is driven by 'hitting it lucky". Argubly I suppose you need to avoid bad luck and excessively volatile assets, but there is a subtle difference.

On the subject of unbalanced single-company shares, I notice your list no longer has HYC in it which you you said bought a couple of weeks ago.

Did you dump it just to collect a one week 10% rise in the price, or did you forget to add it into the list perhaps?

A_Flock_Of_Sheep

bowlhead99 wrote: »

I think you fundamentally misunderstand why investing is a casino and from what perspective you should look at it.

If you play blackack or roulette or craps at a casino you will have ups and downs but your expectation is negative. The casino operator will make money if he has a big enough bankroll because the odds are in his favour. He does not need to be 'lucky' he just needs to play the game for long enough for the results to be broadly in line with the probability of them occuring, and avoid running any games where the volatility of results could bankrupt him or severerly deplete his ability to take part in other money-making, odds-in-his-favour games through lack of bankroll.

When you buy investment funds, you are buying the casino's side of the table, not the tourist's. Over time, the average balanced portfolio makes money, because businesses selected by active fund managers tend to be profitable and/or growing businesses (two factors on the checklist for most fund managers when selecting the businesses) and likewise if you invest in an index you are looking at sizeable businesses which make money and grow with the global economy.

The alternative is taking zero investment risk (like having your cash under the mattress or in a bank account where you might get back in real terms less than you put in). That approach is like owning a casino but never taking any bets because you fear the customer might win. Sure he might win from you here and there, and he might win big, but if the game is played for long enough and you avoid letting him play any game with a massive variance of results, you should avoid going bust (or depleting your assets to such an extent that you can no longer afford to bankroll a varied portfolio of games).

So, whether you are the owner of the casino business or an investor in a sensibly-constructed portfolio of shares, no real luck is required. You just need to play the game long enough, not overcommit yourself, and avoid taking rash decisions. It might be popular to blame the bankers and governments for all one's "bad luck"and to consider those people who 'win' at investing to be "lucky" but the reality is, you make your own luck.

. Being sufficiently down from your start position can make your position irretreivable. If, at a casino, a punter wins 70% of the casino's bankroll, the casino is in trouble even before the punter has cashed out and left the building, because its remaining bankroll is not sufficient to support the same broad spread of games and logically speaking it should retreat and only offer the safest games, or run a very serious risk of ruin. Unfortunately it is hard to make back a 70% loss, as it requires a 233% gain, and safe investments do not typically do that.

So, imho, talking about how you were easily able to make a few pounds by buying unsuitable investments and getting away with it with good luck, is not hepful for a typical new investor who might think they can also get away with it, and it should not be implied that getting a fair return average market return for the risk taken over a suitably long investment period period is driven by 'hitting it lucky". Argubly I suppose you need to avoid bad luck and excessively volatile assets, but there is a subtle difference.

On the subject of unbalanced single-company shares, I notice your list no longer has HYC in it which you you said bought a couple of weeks ago.

Did you dump it just to collect a one week 10% rise in the price, or did you forget to add it into the list perhaps?

You are quite correct in your spotting that Hyder Consulting plc is no longer on the list. As advised by the Sheepdog (my Gentleman Friend) my shares along with his were sold and therefore didn't appear on my list. My paper certificate shares are being looked into as well. All apart from Santander are in my Late Husband's name. So yes both of us did benefit from a gain in Hyder. But on balance my EDIN has dropped and showing a loss. Some you win some you lose.

Edit - By the way Bowlhead that is a very awesome explanation about the casino, funds and risks - much respect and thank you

cornburn

Wow, just thought I'd check in on this to see if there'd been any responses - wasn't expecting 2 pages!! Thanks everybody.

To clear up some of the points raised:

I currently have £60+k saved elsewhere, so this total in S&S makes up about a third of my total savings. I'm 30, no debts and small mortgage so am happy to increase my S&S amount each year using my ISA allowance until I have half in S&S and half in cash elsewhere. I've maxed out my ISA allowance on S&S, and so no longer have a cash ISA as while the rates are so low it makes sense to me to take some risk.

I have no plans for the money at present, so whatever I'm putting in should be staying there for at least 5 years and hopefully more. Having said that I do want to keep it accessible rather than locking any up in a pension.

The funds in the portfolio I chose just through my own research, with no particular rhyme or reason, other than I liked what I read.

The stocks in BMW and UBNT were both purchased as I have first hand experiences of both companies and think they will both do very well over the next 5 years. I was actually down to put £5k into UBNT but Hargreaves Lansdown didn't process my US tax form quickly enough and by the time they did the stocks had rocketed more than 30%. I intend to put some more into these at some point if they dip below $15.

The Tesco stocks were a ridiculous choice, which I almost sold out on at the latest peak and didn't, and now owe me about £250. As soon as these get past break even point I'll be bailing out as I don't like the business, they were bought in to try and get something relatively stable that paid a dividend as a bonus.

Basically I'm looking to spread myself out a little and not have to spend any great amount of time keeping an eye on what's up and down all the time. I'm happy with medium/high risk as long as it's watered down a bit and is a calculated risk.

In short I seem to have got a bit carried away I think and it's got in a bit of a mess (and is now £800 down!). I'm happy to ride the peaks and troughs rather than constantly play around with it, so really am looking for some advice on:

-Where to put the £6k + £2k from Tesco to spread myself out a bit. EM have been mentioned, but would I be better of sticking it all in a Vanguard fund to add a bit of stability?

-Whether it's worth getting rid of anything in there while prices are low to stock up on something else that's even lower?

Thanks all for your help so far, I'll keep a better eye on this thread now I know how quick you are at typing!!!

Yorkie1

pamistocks is about the 6th username for the same spammer. Please click the spam button.

cornburn

Nobody? So much activity and then nothing? I think a fund which covers an area I haven't got covered so far might be best - possibly America or Africa?

bowlhead99

cornburn wrote: »

Nobody? So much activity and then nothing? I think a fund which covers an area I haven't got covered so far might be best - possibly America or Africa?

As mentioned by grizzly, Ark welder and others, what is right for one person is not necessarily right for another. So it's hard to say what would work well for you.

Of course you are right, a fund that covers an area that you haven't got covered might be best - because unless you think what you are already in are the absolute certain best things to be invested in, you could benefit from diversification. And I mentioned in my first post there are lots of areas you haven't got covered. It's still not clear what you are really looking for. Example, you say 'possibly America or Africa'? Africa has potential gains but is high risk. America is probably lower risk but appears relatively more expensive. Europe and Japan are not even suggestions. Is that because you have considered them and don't want them, or haven't thought of them?

So, North America. Japan. Europe. That's most of the world equity markets right there and would be traditional places to add, but you haven't yet. You could do it with multiple regional funds (to counterbalance the regions you already have), or other people would suggest a global fund or two. A random example of a global investment trust I quite like is Scottish Mortgage Investment Trust from Baillie Gifford. But at the moment its not going to give you massive coverage of Japan or Europe, and current major holdings include Amazon, Baidu, Apple, Google, Tencent etc which you probably have coverage of in your tech fund. Scottish Mortgage is the exact opposite of Vanguard which you mention, as it's picking and choosing stocks which it likes rather than having a complete general spread of the biggest companies around. There are lots of approaches to building a global equities fund.

Also conspicuous by its absence is everything emerging markets outside Asia. You mention perhaps Africa. But you also say you are "happy with medium/high risk as long as it's watered down". An Africa fund would be high to very high risk, but I suppose it's "watered down" if you only hold a bit of it with a broader portfolio around it. Though as mentioned your portfolio is not particularly broad or balanced.

Starting from scratch and looking for some kind of higher risk exposure I would have just used a general emerging markets fund or investment trust that is not constrained to one specific part of the world or another. Between Latin America, China, Emerging SE Asia, Emerging Europe, Russia, Indian Subcontinent there are lots of things to invest in. Again there are different approaches, from the ones that invest in big companies in the regions to the more niche ones which seek out smaller companies, and the regional diversification and target company size affects volatility.

Then as mentioned, all bond markets. Just because you have 50 years plus of you life left to live, doesn't mean you need to be 100% equities because it can be handy to have some protection against equity downsides to allow you to buy more equities when they're cheaper. As someone with "60k saved elsewhere" you are probably OK. But if the 60k isn't all inside an ISA wrapper, remember you can hold shares outside an ISA (with no more tax to pay on dividends for a low rate taxpayer and a useful annual CGT allowance to use) while using the S&S ISA to hold bonds and avoid any tax bill on the interest they generate.

Commodities? Real estate? Infrastructure? Alternatives?

As mentioned, there are plenty of gaps you could try to fill. You ask if it worth selling anything in particular to buy something that has gone down more? I suppose the things out there which have been getting cheaper by the day (at least within the last few weeks) have been emerging markets and gold/natural resources specialists. Whether you want to dive out of your trusty IPHI or Old Mutual UK equity funds or indeed anything else, to try and catch a cheap EM fund is up to you. There might be better jumping off points in a few months or years. There might never.

My own view is that IPHI is not going to beat a good EM fund in the long long term, but it has certainly done well as QE money has been printed and bond yields are low and everyone is scrambling for some sort of reliable income elsewhere. Whether that is sustainable, and whether you want a dividend paying home country income fund rather than an overseas growth fund or anything in between, we all decide for ourselves.

Historically UK bluechip high income funds have done better in downturns than emerging markets and resource / commodity funds, and a lot worse in upturns. What will we have more of in the next 2 years or 20 years? Nobody knows for sure. The other certainty is that in 20 years, everything you're currently holding will look cheap (apart from the individual companies which might have imploded) so there's no reason to sell anything if you don't want to. But everything you don't sell is going to restrict space in your portfolio that could have been used to create a better balance. If a balance is what you want.

Finally, you say

The Tesco stocks were a ridiculous choice, which I almost sold out on at the latest peak and didn't, and now owe me about £250. As soon as these get past break even point I'll be bailing out as I don't like the business, they were bought in to try and get something relatively stable that paid a dividend as a bonus.

!!!!!!. You are holding a stock whose business or business model you don't like and which has lost you money. You are sitting there waiting for it to go up to some arbitrary break even point so you can get out. What if that never happens? Do you think there's some people in the Tesco boardroom or investor relations department, or a cavalcade of institutional investment managers meeting their mates at the London Stock Exchange thinking, "right, we need to do a bit of this, and we need to do a bit of that, and don't forget to give cornburn back his 250 quid so he can move on, and then we should do this..."

Investing 101:
1) Don't buy individual shares unless you are doing it as part of some specific plan and you have devoured the financials and the charts and every bit of news that can affect the future share price prospects, and on balance believe it is a better risk/reward mix for your needs than buying any one of the 2000 other UK stocks or 3000+ UK and global funds.

2) If you accidentally buy, or fail to sell, a stock, or market conditions change or the company announces something and you are left with something you don't really want: read (1) again and pretend you don't currently own it. Would you buy today, a company which you don't like, just to see if you can make 250 quid on it? Of course not.

I know someone who maxed his and wife's annual ISA on a US equities fund in the dotcom boom of 1999. It took until the market peak of May 2013 to get back to the start price. Granted it had a particularly bad time of it in the dotcom era and the credit crunch and was not a cheap fund or the best option for what he wanted to do - he knew nothing about investments and simply bought because it was going up and was very happy with it for a few months before it tanked.

He shouldn't have bought it in the first place, but the guy was stubborn and felt he could not sell or diversify until he had 'made back' his losses on the same stupid nag. Yes it got there, and frankly what goes down does often go back up, given enough time. But if you don't like Tesco, and you don't think it's at a compelling price to buy more of it (because for example, despite your hatred for it as a business, you might feel it's prospects are undervalued by the market), SELL IT.

For what it's worth I bought some Tesco shortly after Warren Buffet topped up, at 3.34 last Jan and 3.12 last March. I think its prospects are sound and it has stayed above 3 quid while touching 3.80 at one point and kept paying me dividends along the way. So, I am up rather than down.

But it will not be a victory if I sell at a profit nor a defeat if I sell at a loss. Nobody is judging me or giving me a score out of ten. The eventual sell will be because either I need the cash and my portfolio would be better without it, or I don't need the cash and my portfolio would be better without it. Not because it has reached, or failed to reach, an arbitrary break even point.

Totton

Two funds I quite like at the moment which may offer something different for you are Ruffer Equity & General and Odey Absolute UK, note that the Odey fund is shortly due to lose the UK part and become Global. If looking for Africa etc, then a read of the report on Templeton Emerging Markets may be worthwhile, last time I looked they were focusing more on frontier markets but I'm not sure now is a great time for being too adventurous :-)