Well, things had been chugging along well enough since the Iraq invasion back in early 2003 and by the end of 2007, the portfolio was looking in a very healthy state. I was really enjoying my investment life almost more so than my professional life. I was employed by an excellent company, essentially the same company for over thirty years. I had grown within that company, my career flourished and I had in truth been far more successful than my humble ambitions ever warranted. However, as with all big companies, there is forever a need of the various CEO’s to own a cultural change within a business. In truth, many such changes are simply the previous sets just repackaged and delivered by another group of consultants. Now I am not saying this is necessarily something that would put anybody off within a business but in my case, I felt like I had been on the roundabout too long and the desire to jump through the same or similar hoops was simply diminishing. I decided that I needed to accelerate my AVC contributions vastly and laid a plan to retire early from science no later than 2011 and become essentially a full-time investor. Heavens, just think I could still b employed in what is still honestly a wonderful company but I just do not miss the performing tricks part of company culture one bit.
Well, the plan was set in place and the finances carefully arranged; the stock market had been kind to me but as we reached the end of 2007 a few little dark clouds started to appear on the distant horizon; namely chatter about banks in the USA made loans to citizens that were unlikely to be paid. The area of main concern was sub-prime mortgages if effect the banks were making loans to people who did not stand a realistic chance of coping with that loan. Alfie, a colleague who dabbled in shares and was rather like an Italian version of Private Frazer from Dad’s Army, came bounding into my office to tell me “toxic debt mate, I tell you it’s really bad, really bad”: what is it this toxic debt stuff Alf, I asked, “don’t know mate, but I tell you it is really bad” replied Alfie. That conversation was typical of the time as we rapidly entered a period when everybody used the term toxic debt and fast became a financial expert. However, in common with all experts associated with the financial world at the time, nobody really had a clue about what was wrong, who it affected or indeed the eventual magnitude of that effect.
One of the first UK banks to have the jitters was Northern Rock. Foolishly to me at the time it looked a bargain and I added a few into my ISA only to sell them nine days later for a 30% loss after the news reported massive queues of customers wanting to withdraw their cash from the bank despite the government pledge to guarantee savings up to £80k . Had I waited a short while longer, my loss would have been greater than 85%; decisive swift action or luck, I don’t know but at least my loss had been limited. It felt like a Groundhog Day moment, "Déjà vu all over again", surely the market declining pattern of early 2000 was not about to be repeated; no, surely not!
Feeling I had been in this place before, I quickly went on a massive selling spree getting rid of just about everything within my portfolio and turning to the relative safety of cash. My portfolio had taken a battering and a significant portion of my paper profits made over that four year period 2003 to 2007, had been reduced but at least I would live to fight another day. I watched from the sidelines as the FTSE once again relentlessly ground its way down to its comfort zone of 3500. The bottom was eventually found in March 2009. However, even as we hit the bottom of the market, it seemed that the world was doomed as pockets of the nasty toxic debt stuff continued to be discovered all around the globe within all sorts of financial institutions.
Once again I felt that I had been relatively fortunate compared to some. Indeed good old Alfie, the very man who preached how bad things were with toxic debts 12 months ago, came to see me with a tale that completely threw me. It turned out that Alfie’s parents had invested just about just about all of their “comfort in later life funds” into Lloyds bank shares and were now feeling quite understandably frantic; they were both in their 60’s. Why, I wondered, had Alfie the man who was going on about toxic debt some 12 months ago not had that discussion with his parents?
There were other horror stories about at the time such as investors who had taken up significant positions in small companies and finding that they were just unable to sell them with any degree of ease. In effect they were taking severe hits as spreads widened and market maker showed reluctance to anything but small batches of stock; overall 2008 was a very unpleasant time and a time that just drained the confidence from many an investor.
Personally, I vowed that I would never again include banks within my portfolio. To this day, I just wonder how the banks and other financial institutions could have behaved in such an irresponsible and stupid way to create the catalyst for a world recession. I had just been exposed to my second really serious bear market/recession, there had been previous relatively minor downturns earlier in my investment life but nothing like the 2000 and 2008 downturn which saw the FTSE 100 & FTSE 250 just about half on each occasion: character building stuff you might think but I could do without it.
My friend Bob, the one with unflappable loyalty to his technology stocks that eventually became penny shares, had decided that he would now only invest in an area he understood; that being utility companies and in particular water companies. As it turned out this was a wise decision by Bob. Water companies although not immune to the global downturn paid very good dividends, had a captive customer base and the need for the product, water, would never go away as you can’t live without it. In effect, Bob had found his investment universe, an area he felt totally comfortable with and had some expertise within.
My leave the rat race plan was still intact albeit a little bruised. The AVC contributions were increased further and I was determined to stick with the plan to eventually become a full-time investor. I was sitting on a comfortable cash pile in my ISA and trading accounts but physiologically felt a little damaged after those two severe bear markets. However, little did I know that we were about to enter a golden period for investment as the world gradually awoke from its financial crises nightmare.
I gently started to move some cash back into the markets buying mainly liquid stocks such as Astra Zeneca, Aberdeen Asset Management, BP, Centrica, National Grid, ITV, Tate & Lyle, CSR, Costain, the return to old favourites James Fisher, GSK, Green King (how could I desert my Abbot), plus other FTSE 250 companies. Additionally, I took some more risky positions in a few smaller companies: Character Gp, Goals Soccer Centres, Harvey Nash.
As the clock ticked it’s was to midnight on the last day of 2009 I reflected on how things looked some ten years earlier on new year’s eve 1999; two almighty stock market recessions and a lot had been learnt on my part as an investor. Was this investment lark really worthwhile? Would this steady group of stocks now within my portfolio be sufficiently safe to get the wheels going on the portfolio again I wondered? Well as we headed toward the end of 2010 the signs were looking fairly optimistic but who knows what the future holds; for sure Mystic Meg had hardly developed a reputation for being successful over many years in predicting the future: without a crystal ball, what chance did I have?
The journey continues!
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.