Steve Markus started investing 20 years ago after being frustrated by the returns on funds suggested by an adviser. He says: “I felt I could do better.”
Rather than buy funds, Markus, who lives in Chesterfield with his wife and dog Sid, has focused instead on individual shareholdings. He says: “Initially my aim was simply to build some financial resources. But as I continued to invest the goal was to retire early, and develop a sustainable means of funding that retirement.
“My wife still works part-time but I gave up formal work in 2005 to concentrate on these investments.”
Previously, 58-year-old Markus worked in IT and management consultancy. He says: “The income from the portfolio is now more than sufficient to cover my annual living expenses without compromising our lifestyle.”
As well as enabling him to stop work his investments have also helped buy a property for one of the couple’s sons. Markus says: “We were able to give him most of the purchase price. Hopefully we will be doing the same for our other son in a year or so.”
Final Salary Boost to Come
Markus has two smaller final salary pensions, which will pay out when his 60. His main investments are through his SIPP, which he holds with AJ Bell, and his ISA account. Alongside these he also has a non-ISA account which has considerable capital gains to be realised. “I’m gradually realising some of these gains and transferring the proceeds into the relevant ISA. It’s my aim to have all my holdings within tax-efficient SIPPs and ISAs,” he says.
Most Profitable Investments?
Some of his most profitable investments have been in smaller companies. “One of my most successful investments has been Renew Holding (RNWH).” This engineering and construction company is listed on the AIM market.
Markus originally bought tranches in this company when shares were priced between 40p and 80p, around the time of the financial crisis. “I have been taking profits from the holding over several years to realise capital gains tax. My more recently sale was as 475p earlier this year.”
According to Morningstar data, the total return from this share has been almost 40% over the past five years.
He adds: “Another successful investment was XP Power (XPP) which I bought at 200p per share, again after the financial crisis. I took some profits as it gained value very rapidly, but have since been re-buying. My most recent purchase was at around £14. The share price is now standing at £34.88.”
Morningstar statistics show that shareholders in this company have enjoyed phenomenal returns in recent years. Over the past year alone shareholders have enjoyed a 102% return on their money. And over both five and 10 years, XP Power shares have delivered total returns in excess of 30% a year, every year.
Stocks Which have Failed to Deliver
Markus says he typically holds shares in around 30 companies in his portfolio. Not all of them have seen such spectacular returns. He says one of his more disappointing holdings of late has been Carillion (CLLN) — the integrated support services company.
Back in 2015 Carillion shares were trading at a peak of 367p according to Morningstar, before gradually declining to 192p by June 2017. But during this month, shares plummeted to less than 50p following a profit warning.
In the last three months the shares have lost 61% of their value and are currently trading at 16.5p, according to Morningstar data.
Markus says: “I could see when I invested that there was potential for problems to occur. But I should have sold before they issued a profit warning this summer.
“Ultimately, I did sell shortly after this, for around 113p per share, so it could have been worse. The loss was also mitigated by the fact I had held Carillion for a long time and had received significant dividends on this shareholding.
“But this was still a sizeable and unwelcome loss, and one which I could easily have avoided by following my first instinct to sell.
“I will usually only sell a share on a warning if I fell that the situation is irretrievable.” Markus says the further collapse in share price has helped him validate the decision to sell when he did, and not to hold on for a recovery.
Keeping an Eye on Potential Investments
Markus does not use a formal screening processes for shares and prefers to keep his portfolio to a manageable size, only adding when he sells out of a position.
“However I monitor a significant number of shares of around 100 on my watchlist,” he says. “I look for a number of characteristics: growth in earnings, a sustainable dividend, cash conversion and generation, return on capital, and the nature of the business.
“I also look at debt and sustainability of debt repayment, including the pension deficit, when evaluating shares for the portfolio.”
Markus adds that he does not invest in gambling or tobacco companies on principle, and holds very little from the retail sector. This latter is more of a judgement on future potential.
He adds: “I currently have around 20% of my ISA portfolio in cash, and will use it whether on general market dips or if I see the opportunity to add an individual stock.
“For example Barclays recently downgraded Vesuvius (VSVS). This is thinly traded and the downgrade hit the price quite hard, so I added to my existing holding at 519p. Previously I had sold half my holding in this company after its results at 610p.”
