Just as a refresher; this article is the third and last in the brief series “Is The Stock Market For Matt”?
Now my relative Matt, not his real name but as I said in part 1, I protect his anonymity buy calling him Matt simply because the silly so and so keeps a fair sized chunk of spare cash around the house under the mattress if you like; so he is Matt Tress.
Anyway Matt has the usual bank accounts etc. but with interest rates as they are he feels why bother just leaving money in the bank as the current rate of return although risk free, is just so very poor.
So six months back I sat down with Matt and devised a phantom portfolio where his spare £15000 would be invested in six value stocks paying tolerable to good dividends and in my judgement having an acceptable risk as the stocks are all lowly rated being a touch unloved but by and large sound businesses.
Today six months after the start of this exercise, Matt still has his £15000 which has of course not gone anywhere apart from a little nibbling at the edges by that annoying little mouse called inflation. Let’s have a look at the performance of that £15000 had it been invested in equal £2500 amounts in the companies in the phantom portfolio whose dealings were sown in part 1 & part 2. Note I do need to say at this stage that at the time of construction of Matt’s phantom portfolio I held positions in all six companies; so walking the talk if you like such American expressions.
The table below gives the progress Matt would have made over the six month period and it shows a total return of about 12% equal to an annual return of 24% and that includes £456 in dividends or as a %, 3% over the six month period. Had Matt invested that money in a bank he would have had a top end return of well under £100 over that six months. Had he invested in the FTSE All Share, which has performed quite well, he would have made around 4.5%; still fairly attractive. How does Matt feel about that tempting but definitely not guaranteed return? Well, to be honest he is impressed and slightly kicking himself for not taking the plunge but don’t kick yourself Matt, that’s life.
How does this compare to the FTSE AS Total return:
Now as I don’t give advice on share purchases, can you imagine the phone calls from Matt late at night if things go wrong, it’s really up to Matt to decide how to enter the world of stock market investing. He does not yet have what he feels is the expertise to select individual shares and certainly not the time to monitor RNS progress for companies yet he really wants to make a start.
Matt than asks about these things called unit trusts and investment trusts and comments that I benchmark my portfolio performance against three of these, Fundsmith, Marlborough Special Situations and Henderson Smaller Companies Investment Trust. After a discussion about track record, the managers involved and fees, Matt decides that this is for him and will now invest £5000 in each of these three with a view to the long term and happily tells me that he will only look at progress monthly. Now with funds and investment trusts that is one bit of advice I was happy to give Matt as there is simply no point in looking more frequently and getting the negative or positive feeling as the funds move with each day. I can almost guarantee that the negative feeling of loss will outweigh the exhilaration of gain so why give yourself that pain?
So in the end I feel quite comforted that Matt has decided to try and make his cash work for him and I am of the opinion that as long as he takes a long term view, say 5-10 years, he will do well. Strange you know, over the years I have made some of my best returns from attractive companies by simply sitting on my hand and doing little else but reinvesting the dividends.
Happy investing Matt!
Welcome to my Blog Page - I hope you find my whittling on to be of some interest. I am a private investor who is happy to share thoughts on the market and individual stocks. Please remember that I am definitely not offering tips or investment advice.