A good friend told me recently that a £1 accumulator bet on a Brexit vote, a Trump victory and Leicester City winning the Premier League would have realised a princely £4.5m. I repeat this to make the point that New Year predictions, while interesting reading, are as likely to be wrong as right, hardly better than tossing a coin. I am reminded of the old joke that economic forecasters were invented to make weather forecasters look good.
These days, thankfully, I am rarely asked the pointless question: “What do you forecast the FTSE index to be this time next year?” I eschew macro forecasting, always focusing on individual listed companies. While 2016 was a historically momentous year with the EU referendum and the US presidential election, it was a steady, unspectacular year on the investment front for me. My combined holdings — Isa and non-Isa — delivered 16 per cent capital appreciation as compared to 18 per cent growth in 2015, both excluding dividends.
Many investors will have done much better, particularly those with mining or commodity stocks — sectors which I avoid because of their inherent volatility. My approach also differs in that I am a convinced long-term holder, trading infrequently. In addition, many of my holdings have now grown to a size where they are not easily marketable — indeed they should almost be classified as “trade investments” rather than “current assets” in my personal balance sheet.
As always the key to portfolio success is in avoiding the losses. In 2016 I had only one modest realised loss — shipping company Braemar — where I was spared serious bloodshed by activating my 20 per cent stop loss rule, selling at 350p on a depressing trading statement, having bought at well over 400p. It is currently 280p. Of my 18 serious holdings only two were negative over the year, business services Christie being the worst performer, down 35 per cent. I still believe them to be fundamentally undervalued. Time will tell.
Eleven holdings appreciated more than 10 per cent. My largest holding, flavours and fragrances supplier Treatt, grew 52 per cent, with a clutch of others rising more than 30 per cent: James Fisher, Lok’n Store, Tarsus, FW Thorpe and Quarto. As most of these trade internationally they were beneficiaries of sterling’s post-Brexit decline, along with other holdings such as Air Partner, Gooch & Housego, Nichols, PZ Cussons and UDG Healthcare, which appreciated more modestly. My five remaining holdings, Charles Taylor, Concurrent Technologies, Park Group, Vianet, and VP all finished the year relatively unchanged, plus or minus less than 10 per cent.
Sadly, there were no takeover bids for me during 2016, unlike my younger daughter who held water utility Dee Valley and palm oil plantation owner MP Evans, both of which I held many years ago. (The latter bid was rejected by shareholders and later lapsed).
I acquired three relatively small new holdings: telecoms ancillary services IPO Cerillion, pleasingly showing 50 per cent appreciation; fishing tackle retailer Fishing Republic (because I am an angler); and ventilation products manufacture Titon. The latter is an old friend which I held for many years, finally giving up as profits steadily declined.
More recently they have been on a recovery trend, fully backed by hard assets, are cash-rich and have a well-covered, growing dividend. Indeed, while one will never find the stock market holy grail, a cash-rich balance sheet is the next best thing, splendidly demonstrated over the years by the likes of James Halstead and the aforementioned Nichols and FW Thorpe. I have always placed a premium on good dividend payers looking for year-on-year regular increases, especially so within my Isa where the compounding effect of a reinvested tax-free dividend can be quite spectacular over time.
Most of my serious holdings usefully increased their 2016 payouts, with nearly half recording double-digit growth. Of the disappointments, PZ Cussons’ nominal increase was understandable given their difficult time in Nigeria, but although yielding a current 5 per cent it is surely time for Vianet to tweak upward given its comfortable cash position. Of the three new purchases, Cerillion has started paying dividends and should progressively increase them; Titon raised its by 17 per cent; and only Fishing Republic chose not to offer a dividend. Like fishing itself, considerable patience is called for.
So, looking to 2017, I make no predictions. Nobody has a clue (the government included) how Brexit negotiations will end and all one can say about a Trump presidency is that his administration is more likely to be pro-business, whereas Hillary Clinton’s would have been unquestionably more pro-welfare had she won.
No doubt many unexpected events will occur. As always I will play it long, remain fully equity invested and hope that the proven management of my strong, conservative, profitable PLCs will continue to deliver.
John Lee is an active private investor and author of “How to Make a Million — Slowly”. He is a shareholder in all the companies indicated.
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