Angel investing (1): 10 top tips for a virgin

Sooner or later, it happens.

Maybe your superstar young colleague quits his (it is almost always his, not her) well-paid job, to start his own company. And gently lets it be known he is raising a bit of money, with tax breaks….

Maybe you have just had your biggest yet annual bonus, and the tax consequences are making you sick. Your mate at work mentions a startup he is putting money into, which “reduces his income tax bill”. So you google ‘investments that reduce your income tax bill’….

Maybe your mate’s boy wonder kid is setting up his second business, and in the first one your mate made five times his money, so presumably on his second time around he’ll make even more….

Maybe you have been reading the weekend papers columns about angel investing….

Maybe your IFA has suggested if you don’t like VCT funds, you could consider EIS funds….

Or maybe you’ve sold a business, and not very long after some of those great characters you hired are starting to branch out on their own. They wouldn’t mind some help, and that money you made wouldn’t have been all possible without these folks, so it’s only right to put a bit of it back to work in their hands….

Sooner or later, an angel investing opportunity will cross your door. After all, you’re financially savvy, you’re in the London eco-system, and you are intellectually curious.

I first started angel investing almost twenty years ago. I have made a number of angel investments since then. I’ve made some mistakes, and I’ve had some successes.

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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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