Picture supply: The Motley Idiot
Billionaire investor Warren Buffett famously mentioned: “The first rule of an investment is don’t lose money. And the second rule is don’t forget the first rule.” Being sincere, I’ve by no means fairly obtained it.
Anyone who buys particular person shares absolutely has to simply accept they’ll lose cash in some unspecified time in the future. No one – not even Buffett – can ship a 100% strike fee.
He nonetheless has an vital level although. Earning money from investing solely will get tougher in case you rack up losses. So I used to be pleasantly shocked to take a look at my Self-Invested Private Pension (SIPP), which I began populating a yr in the past.
Winners and losers
My SIPP comprises 25 completely different investments. The overwhelming majority are FTSE 100 blue-chips, plus a handful of small- and medium-sized UK firms. And right here’s the factor. Solely 4 have ‘lost’ cash thus far. The remaining 21 are all within the black.
I reckon that’s a fairly first rate hit fee. However there’s one thing else. My 4 fallers have dropped by solely a tiny quantity. Phoenix Group Holdings is down 4.34%, Diageo 1.81%, GSK (LSE: GSK) 1.68% and the India Capital Development Funding Belief 0.97%.
They’re amongst my most up-to-date purchases too. I solely purchased pharmaceutical group GSK on 4 March. That’s lower than two months in the past, which isn’t any timescale by which to guage any inventory.
I picked GSK as a result of it appeared low cost, buying and selling at 10 instances earnings, after a bumpy few years for its shares. I knew the corporate was in turnaround mode, as CEO Emma Walmsley battled to spice up its medication pipeline, and I additionally knew it wasn’t fairly there but.
Like all of my inventory purchases, I’m keen to provide GSK 5 years or extra to show it’s price. It’s delivered a string of profitable trials currently, however creating new medication is a tough course of, and I’m not anticipating immediate glory from this one. Nonetheless, I don’t count on to lose cash on GSK, over time.
One thing else encourages me. My prime 4 performers have made much more than my backside 4 misplaced.
Personal fairness specialist 3i Group is my greatest success, up 40.79% since I began constructing my stake final August. Costain Group (37.68%), Simply Group (25.53%) and Lloyds Banking Group (21.08%) have additionally performed nicely.
It might not final, after all
I’m no Buffett, so what did I do proper? I’ve provide you with three solutions.
I didn’t take too many probabilities. I assumed I had a comparatively high-risk tolerance however when it got here to it, I didn’t. None of my inventory picks have been more likely to shoot the lights out. Whereas some have been risky – Glencore was down 20% at one level however has since recovered – I did my greatest to comply with Buffett rule primary.
I focused low cost shares. As an alternative of chasing momentum, I search for low cost, out-of-favour shares buying and selling at low valuations of round six or seven instances earnings. This hopefully provides them extra scope to develop and reduces draw back danger.
I obtained my timing proper. Inevitably, luck comes into it. I’m penning this with the FTSE 100 at an all-time excessive. That helps. I’m not getting carried away with my early success.
Total, I’m up round 15% in a yr. A few huge losers would have knocked a gap in that. So Buffett’s rule holds good. Now let’s hope my luck holds.
