Investment strategy review

I recently read an article from a fellow blogger regarding their portfolio where they looked at their actual behaviour vs their published strategy. In a similar manner to myself, this investor believes in buying long-term value plays, buying for income and holding for the long term. I’ve followed their blog for several years and have been interested to note that they seem to have a vastly more complex (and significantly more valuable) portfolio than my own. For example, their market updates quote returns across multiple markets (including US and Australia) and they also seem to make bets on the foreign exchange markets which is something I’ve never looked at.

You could broadly split their policy into a propensity for diversification, minimisation of costs, a preference for liquid investments and income producing assets, and a certain level of attention paid to tax implications (although no ‘unusual’ accounting methods to cheat the system). So in many ways, not entirely dissimilar to my own preferences and likely one of the many reasons I enjoy reading their blog so much.

As a bit of a personal finance nut, I accept enjoy looking at finances and building spreadsheets and reports far more than the average person walking along the street probably does. Having said that, I think it’s the only responsible course of action. Regardless of whether you track monthly returns and actively manage your investments, I believe an integral part of being responsible for yourself is managing your finances. Knowing how much you spend, on what and when, and saving for the future are all essential steps to take as we move away from the family home and learn to stand on our own two feet.

After reading this blogger’s review of their own actions vs strategy, I was unsurprised to note that they had largely kept to their stated intentions and was inspired to undertake a similar review of my own strategy.

My Review

An article I wrote in 2018 sums up my strategy in six key points;

1. Keep costs low
2. Invest for the long-term
3. Don’t be greedy
4. Diversify
5. Prefer active management over passive tracking
6. Generate an income

Of these, I’m pleased to note that I’ve largely kept to all elements. My total portfolio costs are around 1.25% (down from around 1.75% at the time the original article was written) and overall I invest far more than I sell (around £10,000 invested to £1000 sold). I’ve also been fairly disciplined with my holdings, only opening a single short-term position in a non-dividend paying stock that I closed out within six months for a 40% profit.

One item I was interested to note was my definition a ‘non-greedy’ return (5% capital gains plus 4% dividend yield). I’d actually largely ignored this since it was written and have found that 5% capital gains should really be 5% annualised – at minimum I’d consider anything less than 15% over the course of a holding to be pretty much a waste of time as most of my positions are held for several years.

One area I’m weaker on than I expected is culling the weaker holdings. Earlier this year I wrote about selling Centrica which was one of my original holdings and I certainly have a few more positions that are on my hit list at the moment. Two of these are suffering from lack of investment rigour at the time of purchase – with hindsight they’ve turned out to be thoroughly mediocre companies. Not awful, just nothing special and not really what I’m looking for an investment.

Another is a well-run company that’s performed as expected (actually slightly better) but which I again, I misunderstood at purchase. Finally, there is one company I invested in which I bought for it’s balance sheet without really concentrating on the industry. Since purchase, it’s slid around 15% and then recovered to settle around 10% down excluding dividends. Over time, I’m fairly confident it will return a profit but with hindsight it’s not been the strongest investment I’ve ever made.

In addition to this, there is another key criteria to my strategy that I failed to consider – the enjoyment factor. Running my portfolio takes a considerable amount of time and effort between research, management, analysis and reporting. I find this time and effort to be a worthy investment as I gain understanding and enjoyment from it but should this change it would likely change my ability to actively manage the portfolio as I currently do.

Ultimately, I find reviewing my performance to be a rewarding and useful experience. After all, designing a strategy is only of any use if you not only follow it but also monitor its performance over the long-term.