Wednesday 17 June 2015

Investing by Numbers (Portfolio Sale)

After weeks in the investing doldrums, it's nice to wake up in the morning and see something happening with the DIY Income Investor portfolio: one of the bigger holdings has shot up by around 8%!

The new strategy of buying more Exchange Traded Funds (currently 43% of the  portfolio) is working in one sense: not a lot of attention is required - but not in another: the price trends are slow (and at the moment not all that favourable, it has to be said).

So a bit of positive 'market action' has cheered me up a bit.

The big riser today is Berkeley Group (LSE:BKG), with the publication of its latest Annual Accounts. The profits of this up-market house builder are reported to have shot up in 2014 and their management have reiterated its very investor-friendly dividend policy.

I bought a bunch in early September 2014  and then topped up later in the month when the price sagged for no obvious reason - producing a compelling 7.8% yield, although I couldn't understand the reason for it at the time.

My 'sell' signal - for those readers who do not already know this by heart - is when the capital gain exceeds five times the forecast annual income. I have this set up in my portfolio spreadsheet, which I can update automatically at the click of a button. Today the indicator for BKG hit 5.5, telling me that it is OK to take a profit now. (I'm not saying that the price won't go up further - just that I allow myself to sell; otherwise I have to keep on holding.)

Selling these two fairly big holdings today (in different family accounts) has yielded a profit of around 40% in about 9 months - a performance I wish I could achieve more regularly!

This purchase and sale is almost a 'textbook' example of what the DIY Income Investor portfolio is all about: using high yield as an initial indicator for finding good companies (or fixed-income securities) when their prices are depressed (and thus their yields are high) and selling them when the price recovers.

Almost as simple as painting by numbers....

[Sale price: average ~£34]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. That's an interesting sell rule:

    "when the capital gain exceeds five times the forecast annual income"

    I guess you also look at the current yield? If the yield is still good then you keep holding, but if not then you might sell?

    I've always found it interesting that more people don't think of dividends as a lever to propel capital gains. With high yields you not only get a better income, but also a "floor" under the share price and an attractive carrot dangling in the face of other investors, hopefully compelling them to buy the shares and bid the price up.

    It's a win/win if ever there was one, although not quite as easy as painting by numbers!

    1. That's right - I think yield is a great signal, although you have to be a little careful not to buy a 'disaster-waiting-to-happen'.

      The main reason I have this rule is that it is - unfortunately - human nature to want to sell 'too soon' and this helps me to hold on for longer. For all I know, I may be selling too soon (although I note that BKG are nearly 3% down today!) - but that rule seems to suit me.

    2. Your sell signal is very useful. I also add the rate of capital gain - if it is too steep it is probably "hype". INFINIS (INF1) did 10% in the three weeks I owned them - time for a quick exit. Shares like BKG have a certain (rare) characteristic - last year they were the runt of the litter (as you would say "for no good reason") - Why would the "mansion tax" bother the stupidly rich anyway?

      We need more work on chaos corner - beating my loss aversion is really hard HUNTSWORTH did 10% today but it still "owes me" . Anglo Pacific, Braemar and even SHELL or EMDV ETF fall into the same (time to walk away) category.

      Let's hope there will be some wounded stragglers worth bagging after the "Greek Exit"

  2. An excellent result in 9 months! The house builders are certainly having quite a run still. It doesn't look like it has come to an end yet either!

    I still have no builder in my portfolio. I am often tempted but I can't decide how far along the cycle we are. In the meantime, there are plenty of other companies which catch my fancy. But hopefully sometime I will feel ready to add one!

  3. Hi DIY, what do you think of RDSB, yielding 6.5% almost. You can include GSK, BP, BHP also to shares yielding much higher than historic norms. BHP only yielded 4% during the recent global crisis, now its > 6%.