Since getting into the business of bringing shares to your attention, it has been frustrating not to have a platform to suggest opportune moments in which to sell — when the stocks I have mentioned either take off, inviting profits to be taken, or drop without hope of recovery.
This frustration brings into focus the pros and cons of active investment. It’s a principle sanctified by Warren Buffett, the ‘Sage of Omaha’, that you should pick good stocks and then hold them for the long term — conveniently forgetting good stocks can go bad and that what may be long term for some is too long for many, including this veteran, even though I’m younger than the blessed Warren.
Recognising our failures is never easy, hence we tend to be better buyers than sellers. We watch shares gently fall below our buying price and shut our eyes believing sooner or later things will improve. But really all stocks should be looked at regularly to see if the reasons for the original ‘buy’ decision are still valid.
I remember a wise City colleague, now living in Monaco and featuring in the Sunday Times Rich List, telling me long ago that knowing when to sell is more important than what you buy. His fortune may be smaller than Buffett’s, but with the advice offered by both in mind, let’s look again at some of the stocks mentioned in these pages: are they keepers, or should we have sold them by now?
We started in October 2015 with an article which explained how to spot recovery potential in bombed-out stocks. That portfolio today is up by 67 per cent — but if we had sold at the top of each share’s range we could have made 131 per cent.
Similarly our selection of specialist investment trusts and natural resources stocks for Sipp investors in March 2016 has been successful — up nearly 50 per cent, though selling at the top would have raised that to 70 per cent. Both cases, arguably, favour the Monaco school of active selling, though you would have to be extraordinarily smart to have picked the top, or close to it, in every case.
This time last year, we recalled the old market saw ‘Sell in May and go away’ — but chose instead to buy more stocks. These would have returned 39 per cent so far, and again selling at the top could have added another 20 per cent. But one of them, housebuilder Henry Boot, has only recently hit its high, and my feeling is that this group of stocks still has a future. So let’s call it a vote for the Omaha school of passive holding.
Our October 2016 pick of energy stocks has been less successful: as a group, our half-dozen are down by 11 per cent, though selling at their highs would have improved that to a 15 per cent positive return. Among them, Drax and Centrica have had their prospects dented by political uncertainty. Overall, if you bought this portfolio I suggest you take the Monaco approach: don’t persevere in the blind hope all will be well in the end.
In November 2016 we looked at medical and pharma stocks. Overall this selection is showing a 15 per cent return, boosted by the strong performance of Ergomed and Allergy Therapeutics plus steady progress for Smith & Nephew. Selling at highs might have doubled the return, but within only a six-month timeframe, that would be a trading (rather than investing) approach which might be too quick even for a Monaco speedboat owner.
Lastly, our infrastructure picks two months ago are up 21 per cent, a takeover of W.S. Atkins at a 50 per cent premium having brought a pleasant bonus. Again, it’s too soon to think about selling.
In conclusion, here’s my Monaco-style guide for the game of stock-picking: sell any share that has gone up 50 per cent in a six-month period, unless you have a good reason not to. And here again are my 2015-16 picks (of which I hold those marked *), and what I’d do with them now…
|PRICE WHEN PICKED||PRICE ON 19 MAY 2017||SHOULD WE HAVE SOLD?||SELL/HOLD/BUY MORE?|
|Intl Bio. Trust||425p||564p||–||HOLD|
|Polar Cap Tech Trust||552p||972p||–||SELL|
|Orocobre*||Can $2.35||Can $3.29||YES||BUY|
|Leclanché||Sw Fr 2.11||Sw Fr 2.50||–||HOLD|
|Gilead||US $76.50||US $64.50||YES||HOLD|
|Smith & Nephew||1,077p||1,327p||–||HOLD|
|IntelGenX||Can $0.92||Can $1.04||–||BUY|