My more recent successes have been in special situations and in investments related to gold and tangible assets generally. But by chance – and because I began investing in the middle of the mid-1980s boom in small company shares – some of my best investments were also my earliest ones. I could have included a range of companies here, including Hanson, SAC International (now part of Ricardo), Clyde Petroleum, BAT, Eldridge Pope and Jennings, but the ones listed below are those that stick in my mind. Even the successes contain useful lessons.
Gain: 432 per cent in seven months
My best success in this early period came from a share known then as Control Securities. This was at that time a small property company based in Wales, little more than a shell. At about the time I bought the shares it had become the vehicle for the ambitious Ugandan Asian Virani family.
Led by Nazmu Virani, who later served a prison sentence for his involvement in the BCCI affair, the family injected some property interests into the business and turned the company into a glamour stock by means of frenetic property trading and later through diversification into the leisure sector.
As well as legions of devoted fans among the Ugandan Asian community, the Viranis had good connections in the property market, as evidenced by the number of property luminaries attending a family wedding bash at the Dorchester around that time. A colleague of mine had met Nazmu Virani shortly after this process began and became very excited about the prospects for the company.
I decided to put some of my own money into the shares and bought in at an average price of 19p a share, eventually selling the holding at 101p in September 1987 for a substantial profit after only seven months. Sadly, Control never really saw these levels again. The climate worsened for property trading, and a later foray into the shares ended in a small loss.
Lesson: Don't try to repeat the experience with the same share. It rarely works.
Gain: 389 per cent in eight months
One problem I have always had has been a tendency to sell promising situations too early. That wasn't the case with Control Securities, where my timing was (for once) near-perfect. But the antithesis, though profitable, was with a company called Whitegate Leisure. Its name was later changed to Northern Leisure and it has long since merged with Luminar, itself a company that has experienced problems recently.
Whitegate was set up by a former First Leisure executive to develop interests in discotheques and bowling alleys, but had expanded too fast in the run-up to the 1991 recession and subsequently ran into problems. It was a chance meeting with the management that brought this company to my attention, in the immediate aftermath of the exchange-rate mechanism (ERM) debacle.
The company had a very highly geared balance sheet, but interest rates were clearly coming down – a factor that could not fail to benefit a business with so much variable-rate debt, and the signs were that the new management team had a firm grip on the business. I bought shares at 9p. Over a period of less than six months the shares rose to the 30s and I sold out in two stages, more than doubling my money. The sting in the tail is that the shares went spiralling up from there and the company was eventually taken over by Luminar. Had I held on and sold at the eventual peak, my holding would have risen more than 20-fold.
Lesson: If a share doubles quickly, sell half so the remaining holding is 'in for nothing'.
Best gain: 97 per cent in 56 months
Gold and shares in gold have been a part of my portfolio since August 2002, when I purchased a small holding in the Merrill Lynch (now BlackRock) Gold & General fund in my Isa account. I have subsequently added to this holding and it has grown to be a sizeable constituent of my portfolio.
From 2005 onwards I also bought Krugerrands and other gold bullion coins when gold was at prices ranging from $400 (£242.57) to $600 an ounce, partly as an alternative to holding cash in a money market account earning low rates of interest, and partly because I believed bullion was cheap.
While this proved to be the case, as with some of my other investments I sold too early. Around a third of my bullion coin holdings were sold in late 2008 and the remainder in March 2010. While it might have been better to wait to sell, since I have retained a sizeable chunk of my exposure to gold through my holding in Gold & General – even at the peak of my bullion holdings the fund represented over two-thirds of my total exposure to the metal – in a strategic sense the decision was probably satisfactory.
Another reason I sold when I did was related to booking my profits in bullion before the end of the tax year in order to take advantage of some carried-forward tax losses. For these reasons, I view it as a rational decision even though the gold price at the time of writing was $1,500 an ounce.
Lesson: There is more than one way of getting and keeping exposure to an appreciating asset.
Noble Investments (UK)
Gain: 342 per cent in 42 months
Noble Investments is a listed rare coin and stamp dealer run by former investment banker Ian Goldbart. The company began life in 2004 with the acquisition of Mr Goldbart's extensive coin collection by shell company Saltmark, together with the acquisition of Chelsea Coins, a long established dealer.
A subsequent much larger acquisition of renowned numismatic firm AH Baldwin cemented the company's position. I bought shares in the company in the early stages of its formation at around 35p, subsequently selling a few years later at around 155p.
The investment here was an adjunct to my own ventures into coin collecting. One attraction of Noble was that in acquiring Baldwin it gained, not only a freehold property in the West End of London, but also sizeable stock, the value of which – even now – is barely recognised by the market. Recent results showed that the company is still growing strongly and it's one of this year's .
My involvement with the company is not at an end, however, since I buy coins for my own collection through them and I also have an ongoing holding in Avarae Global Coins, a listed investment fund investing in rare coins and managed by Noble – a holding also showing me a substantial profit. This is an example of personal contacts and knowledge of a market – in this case rare coins – allowing one to make highly profitable investment decisions. The price dropped sharply after I sold, but has since recovered, more or less to my earlier selling price.
Lesson: Invest in a market you know, and get in as early as you can.
THE BAD AND THE UGLY
Most of the investments that follow did badly. For the most part, they became disasters because they were bought for the wrong reasons, or because mistakes were made in monitoring them. It shows that, however longstanding an investor you might be, elementary errors can still creep in – and turn out to be costly. You have been warned.
FTSE 100 Index put
Loss: 53 per cent in three months
Buying an at-the-money 'footsie' put option at a time when the market had been unduly strong seemed like a 'no-brainer'. It went badly wrong and generated a sizeable four-figure loss. I could put this down to a simple market misjudgment. But it was not helped by inattention and the fact that a chunk of the loss occurred when I was out of the country on business and therefore unable to monitor the position properly. It should have been closed before I left for the airport, and it cured me of ever trading in options again.
Lesson: Don't leave leveraged trades open when you cannot monitor them.
Loss: 61 per cent in 22 months
Claimar was an instance of one of the fallacies of investing, which is that an ostensibly high growth market with demographic trends in its favour will prove a profitable home for money. In this case, the demographic forces behind demand for care home places is obvious and would, you might think, augur well for those providing such services to private individuals and local authorities.
Claimar was a listed company that had previously been a solid family business and, having bought shares at around the 90p mark in late 2006, I watched them move up to around 170p. That was, however, the best level they reached and it subsequently became clear that local authorities were squeezing margins and growth was unlikely to be as fast as had been promised.
Then the finance director resigned and the shares dropped sharply. I should have sold then, and could have exited with a small loss. Instead I made the mistake, having heard reassuring noises from the company, of adding to my holding at around 60p before recognising reality in the mid-30s and cutting my losses. The company was taken over in 2009 at 39p.
Lesson: If the finance director resigns unexpectedly, sell without further ado.
'Because I began investing in the middle of the mid-1980s boom in small company shares – some of my best investments were also my earliest ones'
Loss: 57 per cent in four months
Like the two previous examples, this disaster came about by ignoring my own advice. Losses should be cut promptly before they get too large. The loss in eVestment (an internet incubator) happened quickly at around the time of the debacle in technology stocks. This was a hefty four-figure loss run up in a matter of weeks. In buying the shares at 20p, I imagined I was close to the bottom, but the shares quickly halved from my purchase price.
Averaging down to reduce the book cost to around 16p only compounded the error. eVestment at the time seemed a very solid business for the long term, but enough was enough. Eventually, if I remember correctly, the business became one of the constituent parts of Evolution Securities.
Lesson: Averaging down rarely works as intended.
Loss: 18 per cent in two weeks
I have never had much luck investing in the oil majors, partly because of price volatility. A venture into BP ahead of the ERM debacle went very sour and resulted in a hefty loss. Had I only held my nerve and continued to hold the stock the profits would have been substantial.
I repeated the error at around the time of the Gulf of Mexico oil spill in 2010, buying at around 435p at what I thought was somewhere close to the bottom, and then in short order: going on holiday, watching the price fall, losing my nerve and selling out at around 350p. While the price went down to a low close to 300p, it subsequently recovered and if I had had the courage of my convictions I could have booked a modest profit by holding on.
Lesson: When circumstances change, reassess the situation, but keep your nerve.
Treasury 5% 2004
Total return: 37.5 per cent in five years
I bought this iconic gilt-edged stock significantly below par in the late 1990s. As I recall, it then stood on a redemption yield in excess of 6 per cent. This was part of a wholesale move I had made into fixed income in both my pension fund and my personal portfolio in the latter stages of the internet boom.
What is important about this holding is that it was the centrepiece of my portfolio from the late 1990s almost through to its maturity in 2004. In 2002 I held gilts in two, seven and 10-year maturities as well as extensive holdings in corporate bonds through my individual savings account (Isa) portfolio. I always viewed the Treasury 5% 2004 – my first major gilt-edged holding and the one I held for longest – as my insurance against doing anything rash.
While the holding itself did not make a massive profit in capital terms, I benefited from several years of income from it and avoided, for the most part, being sucked into equities in a major way. I eventually switched it into index-linked gilts before re-entering the equity market in late 2003.
Lesson: Gilts bought below par yielding 5 per cent or more earn their keep.
Loss: 40 per cent in three months
One of the biggest losses I incurred in the 1987 crash was in a company called Inoco. This was then a small shell company being used as a vehicle by one-time 1960s and 1970s entrepreneur David Rowland. It was tipped by a work colleague, whose reading of the market was usually very sound indeed, and I bought without really being too aware of what the company did, perhaps as a result of overconfidence bearing in mind the sizeable profits I had previously made in the market.
As an aside, Rowland's son was one of the leading lights in the internet incubator Jellyworks, which enjoyed a brief stock market flowering at the time of the internet boom in late 1999 and early 2000.
I cut my losses in Inoco after the 1987 crash, taking a hefty four-figure loss.
Lesson: Never blindly follow a tip, however impeccable the source.