Seasoned investor Michael has ridden the ups and down of the stock market with aplomb since he first bought shares in BT Group (BT.A) almost 40 years ago.

In this article we discover how he thinks about the process and just as importantly how he enjoys weighing a company’s future prospects.

DO YOUR OWN RESEARCH

‘Ahead of the privatisation of BT in 1984, I taught myself about markets by reading, conversing with colleagues and, when the time came, by writing cheques’, says 69-year-old Michael.

‘Writing a cheque separates a conversation from a commitment, according to Warren Buffett. I was committed. When at each new offering my colleagues cashed in their shares for a quick profit,
I held. I became an investor.’

Riding the mid-1980s bull market enabled him to double his money and ‘flattered a newcomer’s ego’, he admits.

By sheer coincidence, the need to pay school fees saw Michael liquidate his portfolio a month in September 1987, a month before Black Monday, which brought markets tumbling down.

After the collapse of Lehman Brothers and the bailout of the bankers, he read everything he could about what he calls ‘the high-tech ordnance that had done the damage – derivatives, swaps and CDOs in mad matrices of casino bets’.

Among the best books on the crisis he recommends House of Cards by William Cohan, The Big Short by Michael Lewis and Fool’s Gold by Gillian Tett.

HOW I INVEST

Fast forward to 2021, and after a long career in broadcasting Michael was retired and in the comfortable position of having spare money
to invest.

‘Many retired people enjoy this luxury but suffer from a painful type of constipation called risk-aversion’, he observes. However, the ultra-low rates on cash deposits rejuvenated his interest in markets.

He transferred £100,000 from an ISA and allocated it across three platforms (the tables show the portfolios held on each platform). ‘I decided to buy only shares, ETFs and funds. No bonds – too dull,’ he confides.

He invested between £2,000 and £8,000 in each position, with the aim of achieving ‘a mix of sound fundamentals, chunky yields, the prospect of steady growth over five to 10 years and a peppering of risk’.

Generally speaking Michael looks for companies with longevity and more good years than bad years, but where there are bad years they need to be easy to explain. Ideally investee companies shouldn’t have too much debt or lots of unallocated cash. Firms with well-known brands are ‘reassuring’.

His main aim in investing is beat the rates available on cash, which historically stocks have done over the long term, although with inflation rising sharply in the short term that job is harder than it was.

‘Now that inflation stalks the streets again it must be factored into expectations. It’s important to understand the pros and cons of inflation. In normal times, I don’t think it’s fanciful to look for 5% over inflation’, he concludes.

Michael has two other key considerations when it comes to investing. First, a stock or fund has to fit his future vision for a sector or for society as a whole. ‘Investing – as opposed to trading – is futurology. What will the world be like in five years? In 20 years? Investing is using your brain, then your imagination.’

He is currently considering future mobility and is running the slide rule over the iShares Electric Vehicle & Driving Technology ETF (ECAR). His second criteria is, it should be fun. ‘My goal is
to have fun. The adventure of futurology is the only game in town and I have thoroughly enjoyed it so far.’

BE PHILOSOPHICAL AND THINK LONG TERM

Markets have tumbled this year, but Michael isn’t overly concerned. ‘I’m philosophical. Good investments are generally those made for sound reasons, but markets can be skittish. John Maynard Keynes put it beautifully: “The market can remain irrational for longer than you can remain solvent.”

‘Therefore, it’s essential you limit your exposure to money you can afford to lose. It shouldn’t be rainy-day money – or the school fees fund.’

He believes in investing for the long term, ‘the durability and resilience and ultimately in the honesty of markets’, he says. ‘The market is honest in a way that no politician can afford to be.’

Each stock in his portfolio was bought for a reason. Aside from the yield, oil giant BP (BP.) – which is up 12% since purchase – appealed because ‘sustainable energy is an aspiration rather than a reality’.

The company has ‘one foot in the fossil-fueled past and the other trouser leg tentatively rolled up, in the sea of a greener future’.

Drinks maker Diageo (DGE), which is down 3% since purchase, was added because, as Michael observes since the dawn of history human beings have enjoyed a tipple, purely and simply.

Pharmaceutical firm AstraZeneca (AZN), Michael’s best performer to date with a gain of 27%, was chosen because of its role in saving lives during the pandemic.

‘Covid pandemic focused my mind on healthcare and the issue of an ageing population’, he says. His holding in Fidelity Sustainable Global Healthcare (BJVDYK8) has also done well, up 9% since purchase.

He is sticking with his losers, as he likes both stocks for the long term. Convenience chain Greggs (GRG) may be down 3% but ‘their food-on-the-go is affordable and making your own bento box every morning just isn’t the British way’, says Michael.

His holding in EasyJet (EZJ), which is down 58% since purchase, is less comfortable but he is unconcerned and has recently added very cheaply to my position.

‘People love getting on planes and turbulence is temporary. Also, I’m in the lucky position of being on board for the long haul’, he adds.

Finally, regarding the recent tumult in the gilt market and the panic-selling of assets by defined benefit pension funds, Michael has some advice for trustees.

‘In 2002, I became a trustee of my company’s final salary pension scheme. My 11 years on the board ended when I retired. Pension trusteeship proved to be a fascinating education in a complex aspect of investing.

‘I am astonished that pension trustees should be playing with fire – liability-driven investment funds – rather than simply keeping 2-3% of the fund in cash.’

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.

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