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How I invest: Turning £350,000 into £1.7 million
Roland has only been looking after his own investments for around eight years, but he has already turned £350,000 into £1.7 million.
This includes an injection of £100,000 after a defined benefit pension was transferred into his SIPP (self-invested pension). The performance equates to an 18% compound annual return per year. He has subsequently had to give £700,000 to his former wife as part of a divorce settlement.
Roland has been managing his own investments since his career in corporate finance came to a halt before he turned 50. He was fortunate enough to have accumulated savings and a pension worth £350,000.
He has earned a Master’s in Finance from the London Business School and has taught MBA (Master’s in Business Administration) programmes but had never managed money professionally before taking control of his own investments.
Leading a quiet life, working out every day, doing some gardening and reading maths books, Roland has put in place an investment plan with the goal of maximising the value his investments over the next 20 years.
He puts enough cash into a building society account ‘to live off happily for the next two-to-three years’ and everything else including nearly 100% of his pension has been invested into shares.
Acknowledging that shares can be risky in the short term, Roland takes a longer-term view, believing his share portfolio will outperform cash and bonds over that time frame.
Roland says he has been ‘pleasantly surprised’ from the investment gains he has achieved over the past eight years which have exceeded his expectations as well as his annual expenditures.
He keeps tabs of the value of his savings plus investments and over the time their combined value has gone up slightly.
Roland admits he isn’t skilled enough to value individual shares but relies on his instincts to assess a company’s long-term prospects. He looks at the investor relation sections of corporate websites and analyses share purchases and disposals by company directors.
Essentially, he is looking for sensible management which is committed and executing a focused strategy.
An example which worked in his favour is ventilation products company Volution (FAN) where Roland increased his holding after visiting the website. The share price has risen by 206% in the past 12 months, according to data from Google.
At the other end of the spectrum is infrastructure software company Micro Focus International (MCRO) which Roland believed to be unconvincing, saying the website was ‘full of empty cliches and convinced me management didn’t have the faintest plan to recover’. Shares in Micro Focus are up by 35% over the past 12 months but down 79% on a five-year basis, according to Google.
Roland says there are two ways that he can make money from shares. He comments: ‘One is by buying a share you hope is under-priced, the other is by holding a share while the company creates value over time. I believe in the second method though it can be hard to maintain this discipline.’
His investment approach is based on two principles; first, keep costs low by trading infrequently and taking a long-term view; second, diversify as much as possible, holding over 100 stocks.
BIG BELIEVER IN THE UK
To get exposure to overseas investments Roland buys exchange-traded funds which provide diversified assess typically at a lower cost than actively managed funds. His biggest overseas exposure is to Japan, but he also has investments exposed to Vietnam, Australia, South Africa and Canada.
The largest portion of his investments is held in UK shares because Roland says he is a ‘great believer’ in the UK market. ‘The UK has an excellent, stable political system, a Rolls Royce legal system, and an intelligent, creative, honest population.’
To add some spice and further diversification Roland puts around a quarter of his portfolio into AIM-listed shares in what he calls his ‘cowboy portfolio’.
For many years Roland avoided the AIM market because of a bad experience while working in a professional capacity for an AIM company.
He remarks: ‘When I saw what had been said to investors to persuade them to invest, I was horrified. I was also surprised that the corporate governance rules allowed it.’
Shareholders subsequently lost all their money in the company, which wasn’t a small business according to Roland.
Roland finds investment ideas by reading specialist finance publications including Shares magazine. Occasionally he spends time researching companies in a particular sector and chooses a few to invest in based on several factors including research and development spend.
The keen investor also likes to ‘keep his eyes open’ for possible investment opportunities. A few years ago, he heard about a privately-owned cyber-security company called Darktrace (DARK) at a conference and after having a coffee with the speaker decided it might be a good investment should it ever join the stock market.
He subsequently invested in Darktrace when it eventually became a listed business, having floated on the London Stock Exchange in April 2021.
BEST AND WORST INVESTMENTS
A friend of Roland’s who is passionate about the electric vehicle market and spends hours studying it every day decided to invest all his savings in US electric car maker Tesla and says he made ‘a fortune’.
Roland followed his friend into Tesla’s shares, making a 1,000% return.
Explaining his decision Roland says: ‘This was for me a gamble and I only make small gambles, so I only spent about 1% of my pension on Tesla shares.’
His worst investment was small cap healthcare firm Nestor which lost 90% of its value on the same day that he bought the shares.
DEFINED BENEFIT PENSION TRANSFER ISSUES
Roland had a difficult time transferring a defined benefit pension to a SIPP (self-invested person pension) so he could manage his own funds. He was required by legislation to use a financial adviser because the value was greater than £30,000.
There are certain risks attached to swapping a guaranteed pension for an unknown one because you effectively take on the investment risk, but Roland took the view that for him, at least, the benefits outweighed the risks.
One adviser quoted a price of £1,500 but after commencing work informed Roland that the rules had become more complicated, and they couldn’t complete the work for the agreed price.
After spending a year looking for an alternative Roland went back to the same adviser and said he was willing to pay a higher price, but they explained the rules had become even more complicated and refused to do the work.
Roland then appointed a local adviser for a similar fee, but near the end of the process the individual refused to proceed unless they could manage Roland’s funds or he paid a higher fee, which he said was outrageous and at odds with what was agreed.
Meanwhile the defined benefit offers lapsed, and Roland had to wait another year.
There is a silver lining in the story because once he did get the transfer done, the last offer was ‘significantly higher and I ended up doing ok,’ explains Roland.
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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.