JPMorgan Natural Resources -48% down but still hanging on

Thrugelmir

bowlhead99 wrote: »

As it happens, JPM was the biggest loss, double the UK Micro loss. It is only a paper loss. Going on the volatility of the other funds it would not be unusual if it happened again next year or if it totally reversed next year. Anything can happen to specialist holdings.

Thought that JPM took a large hit on London Mining going into administration as this holding represented a significant proportion of the fund. LM was itself a casualty of the fall in the price of iron ore.

TakeCareOfThePennies_2

bowlhead99 wrote: »

Of course, TakeCareOfThePennies is really smart, so he would have bailed on the JPM fund after 6 months when it hit -20% and the writing was on the wall. Jabba watched his £520 in JPM turn into £430 over the year which makes him a laughable investor because it will now take ages to get his original £1000 back and then a profit on top. Do I have that right, TCOTP?

You have it right that I'm smart, yes.

There is very little point using your portfolio to subsidise poorly performing investments, you have to know when to cut your losses.

And for all the words you write in your posts bowlhead99, I think you're ignoring the most important three, "Sell With Regret". I would much rather sell 20% down and easily make the money back over a couple of years, than be sitting there 60% down with no prospect of any sort of real recovery for over a decade.

Its all very well trying to sound smart and talking about the overall portfolio and averaging-down. But I think you know full well it's not that simple, but just like a politician, you're avoiding the other three-quarters of the story because it doesn't suit your debating stance !

Now, I am really and truly done with this thread bowlhead99, so please don't waste your keyboard time composing another War & Peace post.

jabbahut40

Hi All,


Just logged on and noticed a huge number of responses to my thread. Thanks for all the responses. Very interesting reading!


As a bit of background I held JPM NR in both my S&S ISA and SIPP. I bailed out of JPM NR in the S&S ISA after losing -20% but decided to keep the SIPP as I thought that NR is a good long term bet. Since then the price has continued to tumble. In hindsight I believe I learned a few (*Hard*) lessons.


1. Too much of my portfolio (>10%) was in a single high risk specialist fund and I was blinded by the previous good run of this fund in the past
2. I didn't keep an eye on my investments until late and had achieved more than -50% reduction in price


I am now at the point were my "potential losses" in JPM NR are too great to swallow and I'll probably stick it out and chalk this down as the price I paid to learn these lessons. On the plus side the rest of my SIPP has performed pretty well over the last few years so its not all bad.


Fund
21.1% portfolio CF Woodford Equity Income Class Z - Acc (GBP) 10.48% gain
16.6% portfolio Schroder US Mid Cap Fund Class Z - Acc (GBP) 76.66% gain
14.4% portfolio First State Asia Pacific Leaders Class B - Acc (GBP) 63.12% gain
14.1% portfolio Jupiter European Class I - Accumulation (GBP) 8.17% gain
10.3% portfolio Fidelity Emerging Markets Class W - Acc (GBP) 13.70% gain
10.3% portfolio Fidelity UK Smaller Companies - Class A - Acc (GBP) 50.21% gain
06.7% portfolio JPMorgan Natural Resources Class C - Acc (GBP) -55.88% loss
06.5% portfolio Legg Mason ClearBridge US Aggr Growth Class X - Acc(USD) 16.70% gain


Thanks,


Jabba

MARTYM8`

I have started to invest in this fund in the last 3-4 months - just dripping in sums via monthly savings.

Maybe it will go lower - but looking long term given the rising world population/depleting resources I might suggest it might be a good long term investment. Unlike many frothy stock market investments commodities are at least real and tangible and someone will always need them.

masonic

MARTYM8` wrote: »

Maybe it will go lower - but looking long term given the rising world population/depleting resources I might suggest it might be a good long term investment. Unlike many frothy stock market investments commodities are at least real and tangible and someone will always need them.

This fund primarily invests in the shares of companies involved with commodities, so you are not investing directly in real and tangible commodities if you select this fund.

MARTYM8`

masonic wrote: »

This fund primarily invests in the shares of companies involved with commodities, so you are not investing directly in real and tangible commodities if you select this fund.

Yes - I appreciate that but presumablytheir performance will be linked to the strength of that sector or industry.

masonic

MARTYM8` wrote: »

Yes - I appreciate that but presumablytheir performance will be linked to the strength of that sector or industry.

Yes, it will be linked, as the companies' profits will be affected by the price of the commodities that they are associated with, but they will also be linked to other factors as well.

One could draw analogies with a 'bricks and mortar' property fund vs a fund that invests in the shares of property companies, or a gold ETF vs. a fund that invests in gold mining companies. Performance can be quite different, so it's important to understand exactly what it is you are holding.

bowlhead99

zolablue25 wrote: »

This is where a rebalancing strategy requires cohones of steel!

Not really. JPM Natural Resources is a highly specialist, sector-specific fund. So, most people who invest in equities across all sectors and all geographies and other asset classes too (bonds, real estate, alternatives) would struggle to justify putting any more than 5% into it.

Let's say you decided that you thought, based on the long term prospects for the planet. that you wanted to put about 5% of your portfolio into this fund and you also wanted to put 5% into a specialist fund for healthcare/biotech, for the same reason. A simple tilt to your portfolio, overlaid onto your more generalist selection of international large and small companies in developing and emerging markets in all industry sectors - which would already include some bio and some resources but perhaps not enough for you. You could just as easily have decided the tilt would be to other specialists like technology or elderly care homes or whatever floats your boat.

So anyway, in your £100k retirement portfolio you invest £5k of JPM Natural Resources and £5k of Biotech Growth Trust or Axa Framlington Biotech. And the other £90k is mixed equities and bonds and real estate from all around the world.

Having done this in April 2014 you check back in April 2015. The £5k JPM lost 20% so is now £4k. The £5k Biotech grew dramatically and is now £9k. The other £90k grew nicely (some bits like the American tech firms doing better than others like the Russian miners and oilers, and the equities doing better than the bonds, etc etc), and is now £102k. So you have a portfolio that has grown to £115k from £100k.

You look at your exposure. You wanted a dedicated 5% allocation to Natural Resources, but now you only have 3.5%. You wanted a dedicated 5% allocation to Biotech but now you have an 8%.

The obvious thing to do, to move your allocations back closer in line with your long term plan, is to sell about £3k of Biotech which is way higher than target. You should probably put about half of this liberated cash into the Resources fund if you don't have a good reason why your dedicated exposure to Resources should now be a becoming-inconsequential 3-4% of your portfolio instead of the 5% as planned.

After adjusting those two holdings you'll have some free cash left over to put into your other generalist holdings. If they are proper multi-asset holdings then most of the money will be going into bonds or real estate rather than equities which outperformed. Within the equities most of it would probably be going more into emerging markets and smallcaps which underperformed rather than USA and largecaps which outperformed.

I don't see that any of that requires cojones of steel. I mean, the dispassionate 'sticking to the plan' means you'll have now invested £6k+ into a JPM fund which is only worth about £5k. If it happens another year or two running, perhaps you'll have invested £8k+ into a JPM fund which is still only worth £5k. But you don't need to wince. You are following a plan which said that long term you wanted a 5% dedicated exposure to the area of natural resources because it was a good sector to be in on a 10-20 year view. After only 3 years it would be a bit early to say your whole investing thesis is invalid.

Of course what it might be telling you, if you can't handle losing £1k a year in any one £5k fund on your £100k portfolio, is that you do not really have the risk tolerance to be putting 5% of your portfolio in specialist, sector-specific funds. Maybe 3% in the specialists is more what you would have wanted, if you had known how volatile such specialist funds could be. So once you have learned that lesson, maybe trim back your specialist exposure to two or three funds of no more than 3% each and have the other 90-95% of your portfolio in more mainstream investments.

If you changed your overall exposure targets as a result of the lessons learned, you don't need to keep adding to the JPM fund - let it fall to 3% and just keep it there. But you would want to make sure you also sold your bio funds or tech funds or whatever down to the 3% level too. Otherwise you will be crying again when they drop 60% in a year and you realise your cojones are aluminium and not steel.


If you were TakeCareOfThePennies you would have followed a stop-loss theory and exited the sector entirely because of concerns that you might not be properly on track and in profit until the later part of your 10-20 year view. So you'd just give up on the sector and come back and pile in when it is booming again. You'd revisit your view of what sectors to be in on a long term view, every few minutes, and each year you would be following a plan from last week rather than the plan from last year. I guess that works for some people.

Others just buy the index. Others have a slow and steady approach to asset allocation but shift it over different parts of the global economic cycle. Many ways to skin a cat. They will all be 'winners' over certain cherry-picked timescales.

bowlhead99

MARTYM8` wrote: »

masonic wrote: »

MARTYM8` wrote: »

Unlike many frothy stock market investments commodities are at least real and tangible and someone will always need them.

This fund primarily invests in the shares of companies involved with commodities, so you are not investing directly in real and tangible commodities if you select this fund.

Yes - I appreciate that but presumablytheir performance will be linked to the strength of that sector or industry.

Yes, someone will always need companies to dig things out of the ground.

Someone will always need companies to conduct medical research, look after their health
Someone will always need something transported
Someone will always need energy
Someone will always need a utilities infrastructure
Someone will always need things manufactured
Someone will always need things bought and sold
Someone will always need financial services
Someone will always need business support services
Someone will always need education and entertainment
Someone will always need hardware and software developing, tech and innovation
Someone will always need physical premises to house their manufacturing or logistics or sales, or as homes for residents

ALL of those things are needed. So sure, you can invest in a dedicated resources fund because people will always need resources. But they also need everything else.

If you invest in the 600 companies in the UK FTSE All-Share index, $3 billion market capitalisation, you'll see that by market value the companies listed here are 6-7% basic resources and chemicals, 12% oil and gas.

If you look wider, to the 3000 companies in the FTSE All-World index, $38 billion market capitalisation 5% basic resources and chemicals, 7% oil and gas.

So, however you choose to allocate your capital between UK-listed and global equities, whatever sort of funds you invest in, you will be taking a not inconsiderable exposure to the companies involved with mining and processing these 'basic building blocks' - and a much larger exposure to companies doing all the other stuff that happens in the world.

That doesn't imply you should specifically seek out a fund that specialises in investing in companies that dig up and process these building blocks, or a fund that avoids them. You will get an exposure either way. Of course, there's nothing fundamentally wrong with putting £100 a month into a fund that exclusively focuses in natural resources, as long as you are satisfied that you are also investing in funds that focus on other things too and you are not overexposed to problems in the mining industry, energy prices, changing local or global industrial demand for materials, etc etc.

Now we have seen a strong resources boom AND a resources slump in relatively recent history, people can look at 15-year charts and see that there will always be ups and downs which could be quite lucrative or quite painful, and being involved in the mining and processing of minerals is not at all a one way trip to riches or to disaster.

The key thing NOT to do is look at a 3-5 year chart and say "it looks expensive" or "it looks cheap" or "it's going up too fast I must pile in", or "it's going down too fast I must jump off". Any investment is a long term commitment and is not supposed to outperform every other investment (or cash) in any specific year.

TakeCareOfThePennies_2

jabbahut40,

I wasn't going to come back to this thread, but just because you posted, I will say just four very brief things.

Resources are called deep-cyclicals for good reason.

Yes this was a learning experience for you, but we all continue learning as investors, its a never ending learning process. Learning when to sell is the hardest lesson of all.

Yes if I were in the unfortunate position of being in your shoes (i.e. 60% down having missed opportunity to sell earlier), I would likely come to the same conclusion and "probably stick it out", assuming you've got time on your side and can afford to loose more before bailing out.

Be weary of people telling you to average down losses. As David Einhorn once said “What do you call a stock that’s down 90%? A stock that was down 80% and then got cut in half.”. In other words, only losers average losers. The trend is your friend.

Best of luck in your future investing endeavours jabbahut40 !