FY17 Personal Investment Fund Return +27%

FY17 Personal Investment Fund Return +27%

Stocks & Shares ISA Fund

I opened my investment ISA fund in July 2016 so it makes sense to review my performance objectively, analyse my trades and reflect on my decisions.

The fund enjoyed a CAGR of 27%.

Just to put things into perspective, it’d take about 17 years to grow £10,000 into £1 million at that kind of growth rate. Quite motivating when you think about it like that.

Ignore the media narrative

My first investments were Apple, Berkshire Hathaway, Goldman Sachs and General Motors in July 2016. Pretty concentrated on the USA you may think. Well this opening ensemble had greater strategic depth which still plays a role in my allocation of capital today. Firstly, and you may have forgotten already, the US was unloved last year – the media thought that the US would collapse if Trump became president.

I did not predict the trump rally, however, I did think investors were missing a trick by avoiding US equities. Secondly, my goal was to convert my GBP savings into USD earnings due to BREXIT. I entered my positions around GBP/USD $1.33 expecting a drop to circa $1.20. I reaped my reward with that speculation.

Sell at fair value

I implemented and maintained my value based investment strategy this year and haven’t diverged. Apple had become seriously undervalued so I started buying Apple before Buffett announced he was snapping it up (that was quite the compliment by the way, Mr Buffett). I calculated intrinsic value between $125-$146 back then. The media were bashing Apple and comparing them to Blackberry or Nokia but as I noted here, google trends showed otherwise. It’s the only company I have retained out of the four.

US banks were the least loved out of all US equites so, unphased, I purchased Goldman Sachs. I bought at $160 and sold at my estimated fair value of $227. This provided a 51% return, dividends and currency gains included. I sold before the peak but the chart below shows that it has hovered around fair value since March. I wasn’t expecting a fair return so quickly, I was actually hedging against investment rates. It has pleased me that I am able to make the difficult sell decisions. I haven’t been carried away in the market stampedes yet.

Goldman Sachs 2 Year share Price fund
Goldman Sachs 2 Year share Price – ISA FUND

Find a Gem or two

I discovered Taptica just as my US investments reached fair value in February. You can read all about that opportunity here. My conviction led me to sell my US positions and load up on Taptica. Taptica generates it’s earnings in USD so it also maintains my bearish position against UK plc.

I was anticipating a very strong earnings rally. It paid off and returned 30% in seven days. I then halved my position in Taptica and invested a portion into payment processor Paysafe (recently sold after the Blackstone takeover offer for a 25% gain).

I continue to hold Taptica despite it reaching fair value based on last years results. It’s hard to justify selling because of its growth potential and shareholder friendly management team. The shares have increased 100% since I entered at £2.00. This allows me some wiggle room if things turn sour.

Value stocks don’t always go up

I had been lucky that everything I’d invested in showed positive price action as soon as I entered. This lulled me into a false sense of security and so I invested in Hurricane at its high. I wrote about Hurricane here.

Retrospectively it was silly move. The national news plastered Hurricane in all corners of the UK. My dad actually mentioned it in passing – I should have known better. It had become inflated to the point that management needed to destroy shareholder value to gain the EPS funding.

Luckily I saw this as a risky speculation from the beginning and I only invested 6% of my fund into this. I’m down 37% on Hurricane but I still believe in it’s valuation and management have significantly de-risked the proposition by retaining 100% ownership. I’ve since picked a few more shares up at 31p. I continue to hold knowing that I could double my money or lose it all.

Value > Diversification

Value is presently a difficult thing to locate in the large cap universe so I continue to hold small/medium caps with exception to Apple. There are many companies which I would certainly purchase at the right price but I will not diversify to the detriment of value. Time is on my side to diversify into larger and more stable companies in future.

I have therefore invested in exciting opportunities which include North Midland Construction, a turnaround opportunity, BOFI and Softbank (speculation). I will write about these companies in separate posts in future.

Going forward

My portfolio is trading at a circa 50% discount to fair value which gives me a large margin of safety. Risks are building around interest rate rises and general credit levels in the UK but stocks remain competitive.

In February Buffet said “Measured against interest rates, stocks actually are on the cheap side compared to historic valuations”. I tend to agree. Everyone is falsely focusing on the record Shiller PE ratio which doesn’t take this key component of investor returns into consideration. If anything, the environment is ripe for a melt up where markets rally to levels of excess.

Either way, it’s been a fruitful and educational year.

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