You are confusing being right with being reckless

PAUL GIBBONS' PORTFOLIO

LAST TRADES:

Swapped Balfour Beatty for Carillion

Added to SXX

Added to Centrica

WATCHLIST

I have 90 shares on my watchlist but I prefer to add to existing holdings rather than diversify further.

Ben Yearsley, Charles Stanley Direct, says:

Your portfolio strikes me as rather good if you just look at the names in the portfolio, without looking at the value of each holding. There are perhaps a few too many stocks (24) - but only a few - and a good balance of large and mid-cap names. If you are looking at individual shares you need lots of time to monitor them and look out for newsflow, 20 is at the top end of what I think can be monitored without it turning into a full-time job.

It is only when you look at the value of each holding that your portfolio starts to look unbalanced. I take your point about wanting significant exposure if you are right about a share, but really, 100,000 Gulf Keystone shares? There is being right and there is being reckless. If you are correct in your assumptions, you will make an awful lot of money; but that is a big gamble to take.

You have avoided banks altogether (apart from your Bradford & Bingley loss), which is wise - they've done well of late but are subject to a lot of risk. You have avoided certain other sectors, too, for example technology, travel & leisure and real estate.

Fair enough - those are cyclical sectors and you seem to prize income and stability in the majority of your holdings. But perhaps you should consider some of the solid names in those sectors, in the interests of better diversification - for example, Whitbread in T&L (both Costa Coffee and Premier Inn growing nicely, dividend up 12 per cent at last results to reflect that, so although the yield is only just over 2 per cent it'll get better).

Another to consider is Arm Holdings, which looks pricey at 50-odd times earnings, but is still good value if the rapid growth of recent years can be maintained for the rest of the decade, as we expect, thanks to the so-called "fifth wave" of change in computer use (mobile, affordable, multipurpose devices with the data streams to service them - Facebook, apps, etc).

You may be a bit disappointed with how your oil and mining holdings have done lately, but should keep faith - they have lagged behind the overall market this year over worries about their future capital expenditure requirements, but we think that's overdone and in mining in particular there is a new generation of CEOs who know that their predecessor paid the price for giving rise to those worries and are determined not to make the same mistake. Many are now focusing on shareholders' returns, ie dividend payments.

I often look at readers' portfolios and suggest collective investments, ie unit trusts and investment trusts. However, the reason I do this is because most investors don't have a well-diversified portfolio of shares or even a watchlist for future purchases.

You are doing what every investor should do if they want to invest solely in shares. A good spread of size and sector is needed, with at least 20 shares, so stock specific risk isn't too high. I also like the fact that you have a watchlist of ones to consider - a good approach is always to review your portfolio and if there are better ideas you don't already own, weed out the weakest or your lowest conviction ones.

As I said earlier, the main issue with this portfolio is the unbalanced value of some of the holdings - I do think you are being slightly reckless with Gulf Keystone - you may be right about it, but what if you are wrong? I always think an investor should consider the downside.

Keith Bowman, equity analyst, Hargreaves Lansdown says:

There are a number of aspects to your investment approach that we commend. Acquiring investments for the long term and purchasing those investments within tax-free wrappers such as Isas and Sipps both, we believe, provide positives.

Legendary investor Warren Buffett once said: "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."

Furthermore, the long-term compounding effect of dividend payments is also a factor that many investors in their early years - chasing capital appreciation - regularly overlook. One hundred pounds invested in equities at the end of 1899 would be worth just £168 in real (inflation adjusted) terms at the end of 2012 without the reinvestment of dividend income, but with dividend reinvestment, the portfolio would have grown to £24,184 (source: Barclays Equity Gilt Study 2013).

Of the selection of companies currently held, dividend payments appear to have been considered, with dividend yields on many shares, such as Vodafone and GlaxoSmithKline, still attractive in the current low interest rate environment. Integrated oil companies such as BP and Royal Dutch Shell provide core income-generating investments, while you also hold defensive companies, given a still challenging economic backdrop, including utility companies, food producers and retailing businesses and even an undertaking business.

Less favourably, a number of 100 per cent losses have been suffered, while the standout investment is a holding in a high-risk oil and gas exploration company (Gulf Keystone Petroleum). While a degree of conviction is necessary in any investment, this we believe needs to be balanced against the management of risk.

Unfortunately, the opposite of conviction can be denial. Discipline, potentially involving the use of stop-losses, and an ability to cut your losers and run your winners remain equally worthy traits. As famous investor George Soros once said: "I'm only rich because I know when I'm wrong… I basically have survived by recognising my mistakes."

That said, the jury is still out on Gulf Keystone. The group plans to move its share listing to the main market, while the company owns a 40 per cent stake in the Ber Bahr-1 exploration well on the Ber Bahr block in the Kurdistan Region of Iraq, for which operator and 40 per cent joint owner Genel Energy has recently announced a commercial oil discovery. While the shares should be regarded as high-risk and any opportunity to reduce this oversized holding should not be missed, consensus analyst opinion is currently positive in tone (buy).

Your desire to "have fun" - noted as an investment objective - generates concern. Although trying to inject a degree of enjoyment into any activity is necessary and understandable, investing for your own future and retirement is arguably a serious business. An accumulated pension pot may eventually prove to be an individual's most valuable asset. Investors seeking predominantly fun - fun which for this reader does appear to have proved expensive - might consider joining or even starting an investment club, where fun can hopefully be had debating and selecting investments, potentially on a much smaller scale, with other club members on behalf of the investment club.

Finally we note your intention to move your Gulf Keystone shares from Sipps to Isas. While Gulf's management intention to move from its current Alternative Investment Market (Aim) listing to a main stock market listing will make it possible to hold the company's shares in an Isa, current Sipp rules mean that no monies can currently be withdrawn from a Sipp until age 55, while shareholdings cannot be transferred out. However, given sufficient free funds in an Isa, and allowing for dealing fees, the shares could be sold in the Sipp and repurchased in the Isa.