Taste the difference

letspretendforaminute

Conviction buy?

I have played the stock market with £49k of old pensions from 2012 and it’s current value (SIPP HL) is £113k with no additional contributions. A large proportion of that (20%) is now held in Sainsbury’s shares and as a traditionally defensive stock I’m considering going all in (100%), adding £250 a month (£312 gross) plus compounding at £8,750 (~3,500 shares) per annum.

Current company pension (diversified) employee/employer contributions of £1,000 per month.

My reasoning is that many people invest in their own companies via share saver schemes and build substantial equity/risk in one stock. My confidence in the leadership team, home retail acquisition and my belief that Sainsbury’s will still be around in 25-100 years time unless something drastic happens to the economy then all bets are off.

Theoretically, this could be £300k in twenty years time for what is beer money?!!

Thoughts please?

jimjames

Thoughts? Not a great idea. Have you seen what happened to Tesco share price over the last 5 years? 20% in one share is still high but at least gives diversification on the other 80%.

Plenty of people had money in their company shares but ask those working for RBS, Halifax or other companies if that was a great idea!

Peelerfart

Wow! That's some serious faith in mog the cat.
49k, beer money? We move in different circles my friend.

letspretendforaminute

Diversification recently left me with a hefty loss. I bought 10,000 CLLN at £1.97 which at the time equated to 20% of my portfolio and that left me nursing a £14,000 wound. I was trying to move away from the punts for yield and supposedly safer blue chips and appreciated accounting scandals can and do happen frequently. Tesco (in my eyes) has always been a dog of a company, from a shoppers perspective. I really only invest in what I use/like. At roughly the same time I bought into SSE, Britvic and also hold IQE and Record Currency Management.

letspretendforaminute

£49,000 isn’t beer money.

I never got carried away with buying/living in the biggest house I could afford so was fortunate to pay off our modest house within 15 years and before 40. With that cost out the way and modest expenditure day to day, £250 a month won’t affect my simple lifestyle.

bowlhead99

letspretendforaminute wrote: »

My reasoning is that many people invest in their own companies via share saver schemes and build substantial equity/risk in one stock.

They do indeed. However, "my rationale for investing is that a lot of people put most/all their eggs in one basket and invest a large portion of their wealth in their own employer and sometimes they get rich from it" is not a sound reason to do it.

Employees of Lloyds, RBS and dare I say Tesco (share price 386p in 2013, 186p today) got mightily stung when their pile of "free money" went pop, even though the companies are still running today and the people might still have their jobs. Ditto any with stock in Enron, Woolworths, Bradford & Bingley, Northern Rock, HMV etc ; the stock doesn't exist now.

The trick with employer shares is that the can often be a pretty much one way bet to acquire them - e.g. discounted sharesave scheme, free matching shares with tax perks etc, which can be very lucrative - BUT at some point the shares become yours free and clear and able to be sold -the special deal you got when buying them is no longer in effect, and the risks you take are the exact same as everyone else in the stock market.

Really at that point you should take your money and invest in a broader basket of stocks that can still make great returns over the long term but won't have the potential risk of going up or down by 5% per day, or dropping 50% or 80% or 100% in a really bad year.

So, some people invest in sharesave shares and keep them all, but that's not the smartest move. Doing the £250pm or whatever via a subsidised or share option scheme is fine as an alternative to buying two pints a day down your local. However, once it's matured with a positive result, that's when you've "beaten the market" thanks to a useful scheme, and you have several thousands of pounds in your hand to do what you like with, including investing wisely. Investing wisely doesn't usually mean keep sticking it into the company you rely on for employment and are already investing in through a new sharesave scheme, because if times are tough they could be triply tough for you as your existing shares and new shares and job prospects all crash together. Some people don't heed the warnings and get very unlucky, even though there are others that get very lucky.

You haven't actually mentioned if you are a Sainsbury employee - I assumed that but you don't actually say you are - just someone who had "played the stock market" and got lucky with the positive price movements of SBRY in his pension. Are you just suggesting keeping buying that company at £250 a month just because some people with discounted sharesave schemes also do £250pm so it must be fine? That seems like you misunderstand the fact that they get to buy them cheap or at reduced risk using employer-sponsored schemes, not available to the rest of us.

Theoretically, this could be £300k in twenty years time for what is beer money?!!

If you presume that Sainsbury might just perform the same as any average multi billion pound blue chip company over the next 20 years, it could have a long term compound return of, say, 7% a year. Compounded for 20 years, each pound turns into £3.90. Not bad, but to get £300k out at that rate of return you might need to put £77k in, which is only "beer money" if you buy your beer from an expensive pub and order it in 3000-gallon mugs.

Thoughts please?

You were talking about maybe getting a nice big £300k pot, not bad for beer money. But the beer money is what you started with. What you are implying you have now is something like £8750 in the stock? £8750 is not beer money it's a good chunk of cash that can buy very meaningful things. If you assess your assets in terms of what they once cost you to get rather than what cash they could be exchanged for today - you will misprice the risks you take and over- or under-value the returns you get.

letspretendforaminute

I’m not a Sainsbury’s employee. I work for an unlisted private equity company with no such scheme.

I hold 12,500 shares in Sainsbury’s currently and without dividends (£1,500) my unrealised paper loss here is £2,500. That’s nothing in the grand scheme of things and I agree with you luck has been on my side. It’s very rare for an amateur to ‘beat the market’ and I doubt I’d be able to outperform. I’d make a personal contribution of £250 a month plus the expected dividends for the whole £8,750. I have other CIH savings held in a Vanguard FTSE fund with very low charges, currently yielding 2.7%.

AnotherJoe

I could think of many better bets if you want to make a punt for 10-20 years, than a low margin business confined to one economy and squeezed by new entrants and new business models.

brasso

letspretendforaminute wrote: »

Thoughts please?

My thought is that it’s a bad idea. If you want to simplify your investing life, that’s fine — don’t we all? But if you want to sink everything in one investment, much better to go for a diversified fund like Fundsmith or one of the VLS funds that constantly rebalance and spread the risk across geographies, sectors and asset classes.

darkidoe

bowlhead99 wrote: »

The trick with employer shares is that the can often be a pretty much one way bet to acquire them - e.g. discounted sharesave scheme, free matching shares with tax perks etc, which can be very lucrative - BUT at some point the shares become yours free and clear and able to sold -the special deal you got when buying them is no longer in effect, and the risks you take are the exact same as everyone else in the stock market..

Interesting loophole. I have never thought about it that way before. :T

grey_gym_sock

have you looked at sainsbury's level of debt? i expect (most of) their shops will still be around after a few decades, but if they have too much debt, then the company could go bust, the shares become worthless, and the bondholders end up owning the business.

no company (at least, no trading company - as opposed to a diversified investment company with no debt) is so safe that it can't go bust for sure.

is your motivation that you want to invest in boring, steady companies? or that you want the possibility of spectacular returns? i'm not quite clear.

if you want boring-but-steady, you need to diversify across many boring companies. either do it yourself, or via a fund which is run with a suitable investment philosophy.

if you want possible spectacular returns, you could put a bit in something highly diversified but potentially high-return, such as vanguard global value factor ETF (VVAL). or in an emerging markets fund. or whatever.

either way, there's no good reason not to diversify properly.