June 2019/Q2 review

We live in extraordinary markets. Time for a quarterly look back at my portfolio.

What’s been going on?

In the last three months:

  • Theresa May has finally thrown in the towel. Her replacement, either BoJo or Mr Hunt the Culture Minister, will take over on 22 July, barring upset. This follows a European parliamentary election, in which nothing very surprising occurred.
  • Huawei has been in the news a lot. As has Mr Trump.
  • The conservatives won an Australian election, against the odds.
  • Neil Woodford, a person in the UK, suffered a run from depositors.

The markets

June saw some of the most benign market movements I can remember. I don’t have a clear sense of why. Here’s the outcome for the month:

Taking a slightly longer view than one month, one of the most notable features of Q2 was the fall in the pound from $1.31 to $1.26, on the back of UK political nonsense. Equities rose in April, fell in May, and more than recovered in June; FTSE moved in Q2 from about 7279 to 7426, and S&P 500 from about 2830 to about 2930. Bonds rose much more smoothly, up over 2%.

My portfolio

The June market movement, weighted for my target allocation, was up 4.0% (with FX pretty much flat). My portfolio rose by almost exactly this.

What’s extraordinary about this year so far is that markets, as a whole (as weighted by my allocation), have risen over 15%. In six months. These returns are pretty extraordinary. But you wouldn’t catch it in the mainstream media, what with the Woodford/etc woes to read about instead.

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Doubling: party!

A startup I used to know for had ‘doubling parties’. Every time the business doubled in size, there was a party. For the first party they had a glass of prosecco per person… by the 7th or 8th party, the bash was a pretty major affair.

The big picture I cling on to on my investing journey is Doubling. I want my portfolio to double as fast, and as many times, as possible.

Closely connected to Doubling is the Rule of 70 (strictly, 72). The Rule of 70 is mental shorthand for doubling: it says that if you compound growth of X% per period, you will double in 70/X periods. I.e. if you grow at 7% per year, you will double in 10 years. More to the point, if you grow at 10% per year, you will double in 7 years.

I started my rigorous portfolio tracking at the beginning of 2013. I unitise my portfolio, so I am tracking ‘underlying’ growth, stripping out deposits and withdrawals. One question I’ve been keen to answer is: how long will it take me to achieve my first Double?

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I’ve paid for my Dream Home – in less than 4 years

With all the Neil Woodford news at the moment, you could have missed the fact that world equity markets are up over 12% so far this year. In GBP, at least. This rising tide has taken me over an important high water mark – my portfolio has recovered to where it was at before I raided it to buy the Dream Home.

For those of you who missed the whole stressful saga, I bought my Dream Home, on a whim, in December 2015/January 2016. To make this more complicated, I ended up funding the purchase very significantly through a margin loan – basically a loan secured on my equity portfolio, rather than a loan secured on the property.

Buying the Dream Home needed me to sell almost half my investment portfolio. I was doing this in the middle of a minor market correction (global equities were 15% off their peak), which felt like a very painful time to sell. In the end, by borrowing over £2m I was able to keep £2m+ invested that I would otherwise have sold.

In those first few weeks after I completed I was pretty exposed. If the market had dropped 30% I would have been panicking. Fortunately, as hindsight shows, it turned out very differently; world equities are up almost 60% since then. Brexit has ‘helped’ here, because the sharp fall in the GBP after the June 2016 referendum meant my (mostly overseas) investments sharply gained versus my margin loan; this is not easy to see in the graph but it is there if you look closely.

With a combination of my investment returns, some liquidity windfalls, my net position (of the liquid investment portfolio, which ignores properties, illiquid holdings, etc) is up around 90% since my Dream Home purchase. I’ve paid down over half the margin loan, and my leverage now is at a very modest level that carries (I believe) very low risk. Thanks to this leverage, in fact my total gross holdings are now bigger than ever before. My net position isn’t quite at record levels, but it is well within the margin of error – and ahead of September 2015, a few weeks before the fateful Dream Home decision.

As an aside, the rental income I’ve received from the old house (which has become an investment asset, albeit not one that I include within my investment portfolio on this blog) has not been a big factor here, because in practice I’ve used those funds to both pay for the old house costs, as well as fund the significant running costs of the Dream Home.

I didn’t anticipate recovering my investment portfolio in under 4 years, without selling the old home. It feels good to know that my money can work so hard in such a short time. So, time to buy another one? Dream on!