2018 review

Another year of feverish trading activity has drawn to a close.

I sold Plus 500 on January 4th at £11.61.  Not my best trade ever, it briefly hit £20 in August - but then finished the year at £13.70.  I made no other trades during the year.

My results for the year were, in various currencies:

• In GBP up 5%.  FTSE 100 was down ~8% after taking dividends into account.
• In USD down 1%.  S&P 500 was down ~4%.
• In NOK up 2%.  OBX was down ~2%.

Not too bad.  But if I'd sold Plus 500 at it's peak I would have done twice as well in GBP terms.

At the end of the year Berkshire Hathaway is over 81% of my share portfolio, the rest in Natwest Preference Shares.  I don't have any plans to sell either of those.  I have money on the sidelines that I may invest if anything catches my eye as being particularly cheap and attractive.

Plus 500 - sold

Only 4 days into 2018 and here's my second post of the year.  Goodness, what a contrast to 2017.

A positive trading update led Plus500's share price to bounce about 30%.  I was already coming to the conclusion that I didn't really want to own this business for the long term, so this seemed like a good time to sell - which I just did, at £11.61.

Why sell?

• Their business seems to rely on pulling in new customers and making money out of them, before they decide that actually gambling on CFDs is a mug's game.  That doesn't seem very nice.
• As a company that basically preys on idiots they seem a ripe target for onerous regulation.
• Given the rapid turnover of customers I'm concerned that their position is vulnerable - I suspect they don't have a core of high-spending customers they can rely on year-in-year-out, they need to keep replenishing their customer base.

Why might this be a mistake?

• They still look cheap, particularly given the recent trading update, with a forecast P/E of only 8-9.  They could easily double or treble from here if they keep growing and shrugging off regulatory attention.
• They have a very high return on equity, so can grow without using lots of cash.
• So they have very strong free cashflow.
• And they use that for lots of dividends and share buybacks, not blowing it on silly acquisitions.

So not an obvious decision by any means.

2017

One blog post in 2017 - my annual review of 2016.  I didn't buy or sell any shares.  I've invested in some funds (KLP Emerging Markets), and perhaps I should treat those the same as shares - after all, I recorded my ETF investments in the past, and there's little functional difference between a unit trust and an ETF - but I've decided not to.  It's my blog, after all: I get to decide.

In sterling terms my shares were up 21% over the course of the year vs ~11% for the FTSE 100.  In USD I was up about 33% vs ~22% for the S&P 500.  In NOK I was up 27% vs ~18% for the Oslo Bors All-Share.  So I outperformed to the tune of 9-11%.

My biggest holding, Berkshire Hathaway, broadly matched the S&P 500 and FTSE 100.  Natwest Preference Shares had a good year, climbing to £1.72 from £1.36 at the start of the year, and paying the usual 9p in dividends, for a total return of 33%.  But the real star of my 3-share portfolio was Plus 500 Ltd, climbing from £3.96 to £9.08, paying 89 cents in dividends, and as a result returning 155% in total.

What will 2018 bring?  I think Plus 500 are looking fairly valued, and they face various regulatory and operational risks, so if I may sell them to lock in my profit.  Natwest Preference Shares are now yielding just over 5%, so no longer obviously cheap, but I have no immediate urge to sell, since I don't have any obvious place to reinvest the proceeds.  I expect to continue holding Berkshire Hathaway unless stockmarkets spiral to yet giddier heights and I opt to switch into cash in anticipation of a crash - shares are already on pretty outrageous valuations, but so are all the alternative asset classes.

At the end of 2017 my portfolio comprises:
- 73% Berkshire Hathaway
- 21% Natwest Preference Shares
- 5% Plus 500 Ltd

2016

2016 has drawn to a close, and it's time for a quick portfolio review.

During the year I:

• Sold F.W.Thorpe, at an overall profit of 73%.
• Sold my iShares corporate bonds (just a place to park cash, they paid 3-4% per year).
• Moved to a Norwegian broker.
• Invested in some dull funds, which I haven't bothered to report here.
• Bought a very small number of Plus 500 shares at the end of the year, after their share price plunged precipitously.

I continue to hold Berkshire Hathaway and Natwest Preference Shares, as I have done for several years.

The story of the year is all about currency movement.  In sterling terms I'm up 27.5% over the year.  In US$ it's a mere 7%.  And in the currency I care about most, NOK, it's only 4%.  I should be thankful I'm even in profit at all - with half my portfolio in sterling-denominated fixed income investments I was not well-placed for Brexit.  Thankfully Berkshire Hathaway rode to the rescue - up 25% in USD terms and almost 50% in sterling.

As a result of all that, Berkshire are now more than 75% of my portfolio.  That's OK, I think my money is safe there.

What will 2017 bring?  I may make some small trades, but it's likely to just be playing around the edges.  I don't plan to sell BRK-B or NWBD.  If the market plunges then I may invest some new cash, but it would need to look significantly cheaper than it does now.

Comparing myself to the FTSE 100 seems increasingly pointless, but for the record I beat it handily: http://www.ftse.com/products/indices/uk reports the FTSE 100's total return was 19%.  A more realistic comparison now is to compare my US$ return with the MSCI World index (with reinvested dividends).  That returned 8.15% in 2016, according to http://www.indexq.org/index/MSG001.php, so I slightly underperformed.

Plus 500

Yesterday I made a (very) small punt on Plus 500 at 373.25p.  I already thought they looked interesting at 750p a couple of months ago, and now at half the price I couldn't resist.

They are basically a betting site dressed up as an investment firm - they provide Contracts For Differences (CFDs) that allow punters to speculate on a variety of shares, indices, forex, etc..  They pull people in with similar incentives to betting sites - for instance a joining bonus that can only be cashed out after a certain number of trades.

 What's driven the share price lower is:

• The founders cashing out some of their investment.
• Announcements from various financial regulators that they are looking to crack down on CFD providers.

This announcement from the FCA is the one that really spooked the market: FCA 6 Dec News

Plus 500 acknowledged that this would have an impact on their business: FCA Update

So why would I want to invest?  Well:

• The FCA only covers 20% of their revenue.  Other regulators are also cracking down, but Plus 500 are not particularly tied to one geography - they've demonstrated their ability to attract customers worldwide.  Surely the whole world won't follow suit?
• They're now on a P/E ratio of 5, so there's a lot of downside priced in.
• The business is fundamentally attractive, apart from regulatory scrutiny - return on equity is north of 50%, pre-tax profit margin is about 50%.  Profit flows through into cash and gets paid in dividends, there's little capital required to grow the business.

Even if revenue shrinks substantially I think Plus 500 can still be very profitable, and therefore they are well-placed to weather the regulatory storm ahead.

Tedious portfolio maintenance

I'm having to close my UK brokerage account and open one in Norway.  I've taken the opportunity to clear the decks:

• I'm transferring my Berkshire Hathaway and Natwest Preference shares to the new account - happy to continue holding those.
• I've sold my IS15 corporate bond ETF - this was just somewhere to park my cash and make a small return while waiting for a better opportunity, but once my cash is in Norway I can offset it against my mortgage instead.
• I've sold F W Thorpe.  It was a small investment, it's done well, but I think the shares are fairly priced and it's an OK time to sell.

I sold IS15 at £106.40 and TFW at £2.32.

The downside of having a brokerage in Norway is that it's much less efficient to invest in UK shares - there will be forex costs for each trade (and even for receiving dividends).  On the plus side I think it means my trades will be automatically reported to the taxman, so it will save me a lot of tedious form-filling at the end of each year.  As a result I may start trading a little more frequently again.

Review of 2015

I've been very boring over the last 12 months.  I made one purchase, way back in January, buying a small number of shares in F.W.Thorpe, a British lighting manufacturer. At least I made it a good one - they rose from 136p to 241p over the year, paying a dividend of 3.6p along the way. I also sold my BP shares at 403p for a small profit, worried about what the sliding oil price would mean for them.  They now stand at 354p, so I can count both transactions a success.  Other than that I've sat on my backside and done nothing.

Overall my portfolio has ended up in the black over the year, but only just - up 0.6% (a capital loss of 1.6% outweighed by dividends).  I marginally beat the FTSE 100.

Here's how my shares have done:

• F.W.Thorpe was the star performed with 81%.
• NatWest Preference shares did well with 8.6%.
• IS15 made 1.8%.
• BP fell 2% in January before I sold it.
• Berkshire Hathaway bring up the rear with a loss of 7.6%.

Sadly I have 10 times as much invested in Berkshire Hathaway as I do in F.W.Thorpe - if the positions were reversed I'd have made 28% this year.