CASE STUDY How to invest: The big lessons learned from a stock-picking journey

The big lessons learned from a stock-picking journey

Robert explains his post-global financial crisis journey that started with a £300 stake in EasyJet

It was in the months following the global financial crisis that Robert started becoming interested in the stock market. In a graduate IT job with Barclays (BARC) based in Canary Wharf, he’d had a front row seat during the teeth of the financial shock, but he has developed his own stocks-only DIY investment style during the decade-plus since.

In this article we talk through how he goes about identifying potential investments, discuss some of the stocks in his portfolio, and why he has been thinking about buying his first ETF recently.

SCHOOL OF HARD KNOCKS

‘I knew nothing about investing, and that was a real wake-up call,’ Robert says of the financial markets meltdown of 2008 and 2009. ‘I knew someone who worked at Lehman Brothers and saw dozens of people walk out the door carry their things in boxes.’

Around this time, Robert relied on cash ISAs for a home for his savings. He’d spoken to work mates who had put a few grand into banking stocks – Lloyds (LLOY) and Barclays and others – but thought that sounded far too risky, he says.

‘I knew cash ISAs were a [virtually] risk-free way to grow my money,’ he says but over the following months he started to read more about investing and the stock market. ‘I started subscribing to the hard copy of Shares magazine around 2009 and began reading various bulletin boards, like ADVFN (AFN:AIM),’ he says. ‘They were places I could get ideas.’

His interest was ‘spurred’ when he finally plucked up the courage to make his first investment – £300 in budget airline EasyJet (EZJ). ‘I remember my pulse racing,’ Robert says. ‘It felt like a lot of money at the time and seeing the shares lose the price of a sandwich made me feel very nervous.’

We all start somewhere and Robert accepted that mistakes would be made along the way. ‘You massively learn from the investing school of hard knocks,’ he says, and he did, talking through a few early experiences.

‘I thought PV Crystalox Solar was going to be future-proofed,’ he says of the former solar panels supplier. The company was a FTSE 250 constituent for several years, then the Chinese massively scaled industry supply and panel prices crashed, leading

the company to eventually sell its businesses, return remaining cash to investors and delist from the market.’

IT infrastructure business Micro Focus (MCRO) was another example of Robert’s sometimes painful introduction to share buying. ‘I’d bought a small number of shares, then the next day it had a profit warning,’ he says. Sheer dumb luck, or the absence of it, can sometimes hurt.

Robert put himself on a steep learning curve that continues to this day. He has built-up a small investment library, including titles like Rodney Hobson’s Shares Made Simple, the Financial Times’ Interpreting Financial Accounts, and the 1949 Benjamin Graham classic, The Intelligent Investor, widely acclaimed to be ‘the’ book about value investing.

He has also read several books on technical analysis, although charting is not a big part of how Robert works.

‘I don’t have enough time to study company accounts properly – I’m not a financial analyst,’ but he has found certain websites to be very useful. ‘I have a Stockopedia subscription and I use Sharepad for my main day to day stock analysis,’ he says.

He also enjoys heading out to investment evenings and company presentations, where he can gain information on companies, ‘with a few beers and sandwiches thrown in.’ ’Fourteen years on, I like to think that I’ve got a fairly good idea of where the companies I buy are heading,’ Robert says.

At 40, Robert has a long runway ahead of him so he can afford to take a long-term view, which to him means 10 years-plus.

Despite a hard 2022 for all investors, Robert has stayed largely invested and he says that most of his available cash is currently deployed, unlike some. ‘I’m on an investment Whatsapp group and it’s gone very quiet this year,’ he says.

WHATS IN THE PORTFOLIO

Robert’s portfolio is loaded with consumer-facing stocks, and he explains that this is not an accident, saying the ability to ‘feel and see’ what’s going on is ‘important to me.’

For example, he admits to having become a big fan of the stores and subscriptions model of Hotel Chocolat (HOTC:AIM), and felt an opportunity had

Robert's stock-only portfolio

Company

Associated British Foods Fuller, Smith & Turner Goodwin Headlam Hotel Chocolat Imperial Brands Macfarlane Marks & Spencer MPAC Sanderson Design SCS Seraphine Vertu Motors JD Wetherspoon Walt Disney*

Market cap (£m)

12,279 290 249 236 227 19,217 164 2,438 48 83 53 6 173 646 164,876

Table: Shares magazine • Source: Shares magazine, investor's own records. *Walt Disney in $m

become available this year after the share price fell from more than 500p to nearly 100p. His first share purchase was at 115p, he says, and there have been others around the 110p to 120p range.

Robert accepts that there are short-term risks with consumer budgets under pressure this festive season, and he says he wouldn’t be surprised if the company warned on profits over the next few months, but he is willing to take that chance for what he believes is a longer-term opportunity.

In a similar vein, Robert has a lot of respect for the expansion job done by Tim Martin and the JD Wetherspoon (JDW) pubs group he founded years ago. ‘I think it shouldn’t do too bad during a costof-living crisis, with its loyal customer base and budget-friendly pricing,’ he says.

‘Associated British Foods (ABF) takes pride of place in my portfolio,’ says Robert. He sees high-quality earnings in tea brand Twinnings, for example, while he believes that Primark ‘always beats the high street, and it’s now online’.

‘It’s the only holding in my SIPP, everything else is held in an investment ISA,’ says Robert.

Robert remains a big fan of smaller companies, with the likes of floor coverings firm Headlam (HEAD) and packaging equipment maker MPAC (MPAC:AIM) backed, the latter a new holding. ‘It’s a small position in MPAC acquired a few weeks ago, giving me a stake but also time to do more thorough research to decide if I want to increase my exposure,’ says Robert, explaining how he often approaches new names.

‘You can 10-bag with the right small caps,’ says Robert, even if that often doesn’t happen.

Robert isn’t very interested in funds at the moment, saying ‘I try to do it myself, which forces me to learn,’ he says. This may change in time as he gets older, and he says he’d consider something like Terry Smith’s Fundsmith Equity (B41YBW7) if and when that changes.

There is one caveat to this preference for individual stocks over funds. ‘I have recently been looking at buying a low-cost ETF to get exposure to the US market,’ he says, and identified the Vanguard S&P 500 ETF (VUSA). But he didn’t pull the trigger, choosing to use the funds to move to a new home instead.

‘I’m relatively young and can take a few knocks,’ says Robert philosophically.

DISCLAIMER: Please note, we do not provide financial advice in case study articles and we are unable to comment on the suitability of the subject’s investments. Individuals who are unsure about the suitability of investments should consult a suitably qualified financial adviser. Past performance is not a guide to future performance and some investments need to be held for the long term. Tax treatment depends on your individual circumstances and rules may change. ISA and pension rules apply. The author (Steven Frazer) has a personal investment in Fundsmith referenced in this article.

By Steven Frazer News Editor