I’ve disappointed myself by doing very little blogging I’ve done this year, which is a particular crime given there has been so much material! Part of the reason I started this blog was to serve as some sort of historical record for myself and anyone else who might be interested. In the year of the Coronavirus Pandemic, Brexit being finalised, and wildly fluctuating markets this is a crying shame, it must be one of few years from the 2020’s that will show up in history lessons. I will try and summarise a few of more thoughts for the year now:
One thing that has interested me about the Coronavirus pandemic has been that it has been a good demonstration of how resilient humans and our systems are. No one could have seriously predicted a world where millions are working from home and never socialising in public places and avoiding loved ones. By and large, we have got on with it fairly well. Imagine if this virus had occurred 20 years ago before we had all the connectivity options we have today. I think I must have had 90 minutes or less of work connectivity problems all throughout the year, which is remarkable! There has also been no rioting or really large scale disobedience, although I think part of the reason for that is that government economic support programmes have been so generous, and there has been little enforcement on those who choose to break the lockdowns.
The virus has also shown up well recognised human behavioural weaknesses. Many people would agree with the fact various health restrictions that have been imposed, such as limiting social contact with families. For example, at various times in the UK, we have had the “rule of 6” which limits humans in any one social gathering to that number. But so many people I know have broken the rules in little ways and tried to justify it, not being able to recognise that if everyone behaves in that way then the virus will continue to spread (as it has). When I light heartedly challenge them on the logic of the exception they have granted themselves, intelligent people often refuse to admit that their individual breaking of the rules is an issue. The other behavioural error I have noticed is that people need rules to anchor themselves in some way. People find it hard to just govern themselves and set limits for themselves. For example, most people would say it is a bad idea to go on holiday when there is a virus in circulation, but millions did and many justified this by saying “it was within the rules”. Why not just be more conservative than the rules and stay at home? When invited to a gathering of six people, why not just politely decline?
We are now in a situation where it appears the solution – a vaccine – is with us, although it will take several months to get rolled out sufficiently to make a difference. While that is no time at all in the context of history, I predict that the next few months will feel very chaotic as the population relaxes. It is also clear what the rules are if you have been vaccinated? Are you still restricted from doing all the things that the unvaccinated cannot do?
So what about me?
First, I did nothing to sell holdings or hedge my portfolio as the seriousness of the virus became evident. Many large and small investors did and it was kind of obvious for a few weeks that that was sensible, if anyone had watched the events unfolding in Bergamo, Italy and though rationally for a bit. So that was an error and especially so given that my largest holding is an airline engine manufacturer! There is buy and hold and there is sheer bloody mindedness.
Like many people I was about 35% to 40% down as the nadir of the market falls and that is a serious hit, whoever you are. I felt a bit unwell as I thought about all of the things I had earmarked for my portfolio, namely a house deposit and a comfortable retirement! That’s the problem with equity investing. Even if you do well over time, you will have moments when everything seems to have been pointless and it’s easy to panic.
I didn’t panic, but I didn’t really act either. Surely I should have done something with my 12% Rolls Royce holdings as it lost c80% of value!
Anyway, markets came back and I’m perhaps 10% down, which feels like 50% up even though I’m aware I’m lagging lots of investors. The important thing is that I have lived to fight another day and perhaps next year could be a good one for me.
One interesting thing is that I had three holdings, which I stated I held as a hedge against market volatility. Berkshire Hathway has done very little year on year, although I too am disappointed that Warren wasn’t able to shoot his elephant guns as stocks sold off. It has then lagged on the way back up but- hey – there’s no permanent loss. IG Group did well as expected. Given I had no clue that the cause of the volatility would be a virus induced lockdown leaving people with time on my hands, I could never have predicated IG’s boom in users but, whatever.
My third holding was Crystal Amber, which is a smallcap activist fund, with concentrated holdings. This has been an absolute disaster and a classic case of someone trying to be too clever. Because the fund uses index puts to hedge the portfolio I assumed that this was well would give me downside protection but how wrong I was! What I totally ignored was that that in a sharp recession and market sell off, a portfolio of rubbish is going to be far harder hit than the market and this proved to the case. It has become clear that the manager is unable to generate high alpha and the fund now trades at a large discount to NAV, given high fees.
As my portfolio has come back, and things have returned to some semblance of financial normality, I’ve decided to put some roots down and have bought a house. Consequently, there will be big changes in my portfolio as I’m selling approx. 20% of it to fund the deposit.
As a world free of virus worries appears to be tantalisingly close, I have no doubt there is good money still to be made in the market in 2021. I suspect there will also be a lot lost at some point because certain sectors look extremely bubbly. I am going to continue to try and invest with an eye to not losing money, with a 6% targeted rate of return, although I hope for quite a bit more.
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