Stockmarket Investing. Again.

You may remember that a couple of years I stuck my £5,000 savings into shares. They went up. Then shot down. I panicked and sold with a loss of £1,460.58.

I concluded that my biggest mistake was to ignore a good friend who told me to have a diversified portfolio. I had 80% of my money in one company, 20% in another.

My other mistake was investing at the top of a stock market rally – investing when they were overpriced as opposed to underpriced.

And perhaps another mistake was investing money I couldn’t afford to lose – this was my only savings.

Two Years Later…

That was in 2018. When I started at M&S in July 2019, I was finally in a position where I could save money on a regular basis. Yet I remained hesitant about investing – I was convinced that we were at the peak of the stock-market boom.

I dabbled a bit, mostly in M&S shares but also a handful of others, more or less broke even when I sold everything in January – around the time of Coronavirus. I am not going to claim this is why I sold my minimal holdings, however I was convinced that a fall in share prices was coming one way or another. And unlike in 2008, this time I had savings. This time I was ready.

My strategy

Only invest what I can afford to lose. I figured that my money for being on call is almost like free money – perfect example being this week where I had one call out on Sunday afternoon, and that was a false alarm. So I decided to invest this plus £100-200 a month. I save cash also, unless I spend a lot of money.

Don’t invest all at once. I calculated a sum of money to invest from when I started at M&S, yet I didn’t invest it all when the stock-market started falling. I invested a little when it dropped to 6,200. More at 5,500. More at 5,000. More now it is back up to 5,700.

I’ve invested less than half my original intended pot – my feeling was that the stock-market would fall further than 5,000, and even though it has rallied somewhat in the last 2-3 weeks, I remain concerned that it may fall further. If it falls further, then I have greater opportunities, if it stays around 5,700 or rises further, then I will hopefully still be investing in good companies.

Invest in a wide range of companies. One of my mistakes the first time was just to invest in technology-related companies. Especially given that I invested on a hunch having read about them in The Economist, thinking I was some kind of genius. I am not.

This time I have invested in a mixture, including retailers, oil companies, banks, pharmaceutical companies. I will go into more detail later.

Invest in different levels of risk. I’m not going to pretend that I fully understand the balance sheets of the companies I invest in, but I do know that airlines are high risk right now – and companies like pharmaceuticals and electricity providers are low risk.

I am investing in a mixture of both – the hope that the high risk ones will not go bankrupt and in years to come bring me huge profits, and also the expectation that more stable and necessary companies will maybe rise steadily, and also pay annual dividends. Again I go into more detail later.

Keep a watchlist. I have created a watchlist on Yahoo Finance – yes I have actually found a reason to use Yahoo – of companies that I would like to invest in and the price that I am willing to do so.

Importantly, I have also set a price at which I’d sell at, to remove myself from greed. As Warren Buffet said, we should be “fearful when others are greedy and greedy when others are fearful”.

My Investments

So starting with the riskiest ones. Cineworld and Carnival. Nobody is going to either a cinema or boarding a cruise any time soon. Highly risky and neither company is certain to exist at the end of this current crisis. But they have solid brands and if they do make it through, I should at a minimum double my money – given that I have bought at circa 20% of their value one year ago.

Then there are the somewhat risky ones, namely banks. My judgement is that this crisis will not sink any of the major banks as they are far more capitalised than they once were and the fear of a 2008-repeat has driven their prices down further than they should have. I’ve bought shares in Lloyds – down 21% since, and Barclays, up 2% since.

Oil. The major oil companies have taken a hammering as has the oil price. Yet companies like Shell and BP have their hands in much of the chain, BP also has a sizeable renewable energy component to it. They also pay dividends, and according to Yahoo Finance, this is slated to be around 10%. Like it or not, oil isn’t going anywhere yet and I want to have the money to buy a house before I retire. The BP share price hasn’t been this low since 1995.

Stable companies which are required – crisis or no crisis, such as Sage for accounting software, Unilever for things like cleaning products, Reckitt Benckiser so people can buy Dettol to inject, Hikma Pharmaceuticals and GSK – people still need drugs to keep them alive, Aviva for insurance. I’m not expecting to make huge sums out of these, but I am expecting them to be stable companies and hopefully pay dividends, though maybe not all will in 2020. So far, all up since I bought, some in the 20% range.

Then some vastly oversold companies which I really don’t understand why. Drax’s share price fell by around 70% at one point, yet people need electricity. ASOS similarly. Both up by 64% and 91% respectively since I bought them, and ASOS still seems way under-priced. Though I’m hedging my bets for now.

Finally, M&S. Yeah an emotional purchase and down 45% since I bought them.

Next?

I have plenty on my watchlist and am trying to research a few companies every week – not all I fancy, for example house builders I am just not interested in right now.

The super risky one I am considering is Capita. WH Smith and Halfords look very underpriced to me, but could also fall further – so I’m still considering them.

I’m considering more stable companies such as National Grid and Prudential, more for dividend potential than anything else.

I feel that I should also have some tech companies in my portfolio, especially given that we are now quickly moving to doing much more online – but haven’t worked out what yet.

If you are interested in investing, you can join up with Freetrade – they don’t take a commission so there is no cost other than the tiny amount of stamp duty you’ll need to pay on each investment – so no harm in buying just £10 of shares in a company. FYI I am an investor in Freetrade.

And if you are a friend of mine reading, a good friend (possibly your friend too) has started up a Facebook group to discuss investing – get in touch and I’ll invite you.

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