Year End Review – Better than Expected

As I have published in previous years, here is a review of my own stock market portfolio performance in the calendar year 2020. I’ll repeat what I said last year to warn readers that I write this is for the education of those new to investing because I have no doubt that some experienced investors will have done a lot better than me, while some may have done worse.

One feels wary of publishing such data because when you have a good year you appear to be a clever dick with an inflated ego, while in a bad year you look a fool. Consistency is not applauded on social media. But here’s a summary of my portfolio performance which turned out to be a lot better than expected earlier in the year.  Total return including dividends was up 10.7% which I consider a very good result bearing in mind that the FTSE All-Share was down 12.5% which I use as my benchmark (the latter figure does not include dividends though). It was helped by having significant US holdings and technology company holdings via investment trusts and funds. Dividends received were down by about 17% as many companies reduced their dividends or cut them altogether.

It was partly a good year because I had no bad failures but when you have a large number of holdings, as I do, then there are always one or two disappointments. The worst loss was on trading in the shares of 4Imprint (FOUR). This is an AIM listed seller of promotional products, mainly in the USA. In March I was reducing my stock market holdings, particularly in those companies that were being badly affected by the pandemic or seemed likely to be. The share price of FOUR was 3480p at the start of the year and I sold a large proportion of my holding at about 1390p (i.e. near its bottom). The share price has since recovered to 2565p so that’s a good example of the volatility of small cap stocks when everyone wants to get out, or how it is foolish to exit prematurely when the news appears bad. I chose not to buy back into the shares of FOUR but instead chose other companies, particularly investment trusts that had moved to high discounts. That partly compensated but not altogether.

My holdings in investment trusts focused on technology or US markets did particularly well such as Polar Capital Technology (PCT) – share price up 43% during the year, Scottish Mortgage (SMT) – share price up 107%, or Fundsmith Equity Fund – share price up 19%.

I avoided big FTSE-100 companies such as banks, insurance companies, pharmaceuticals and retailers which was all to the good, although I did make money on miners BHP Group (BHP) and Rio Tinto (RIO). Only minor aberration was a punt on AstraZeneca (AZN) which I rapidly exited.

My portfolio also includes some Venture Capital Trusts (VCTs) which would have generated a less good overall return because they tend to be vehicles for turning capital into tax free dividends. As usual they mainly showed small capital losses although two VCTs focused on AIM stocks (Amati and Unicorn) did relatively well for the second year running so the overall result was a small capital profit. My own AIM portfolio holdings were a very mixed bunch with technology companies showing a good profit but others showing losses as small caps generally fell out of favour. I analyse in detail the profits and losses on all my individual holdings during the year so as to try to learn from my mistakes. But last year was dominated by a rush to safe havens and into stocks that might benefit from the epidemic so it undermined my previous choices and required some rapid portfolio re-allocations during the year.

What will happen in the coming year for stock markets? I have no idea and simply prefer to buy good companies and hold them for as long as it makes sense to do so. But certainly the discounts, or premiums, on investment trusts in popular sectors seem to suggest some optimism for the future when surely western economies are going to be severely damaged. Meanwhile Governments are borrowing in a very big way to keep their economies afloat (or printing money to do so) while taxes are surely to rise to cover the cost of the pandemic. The stock market has become detached apparently from the real-world economy which cannot bode well for the future. But that’s not necessarily a basis for making decisions about stock market investment where investors have longer time horizons and still expect the epidemic to be under control this year.

But some things may permanently change as we have become used to doing more on-line shopping, working from home, travelling less and getting our education on-line. Those are the trends that one should follow I suggest. Plus of course the movement to improve the environment and halt global warming which is requiring substantial changes to the UK and other economies. But one has to be very careful about enthusiasm for “hot” market sectors – they often turn out to be flashes in the pan.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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