Michael Betts, who is now 70, started investing in his mid-twenties. Initially he says this was through a couple of endowment plans and pensions. But over the past decade he has built up a portfolio of ETFs, investment trusts and direct shareholdings.
He says: “I started investing because it was clear long ago that it would be impossible to live comfortably on the state pension alone, and that I needed to invest to ensure a comfortable financially-secure retirement, and a worthwhile inheritance for my family.”
His investments have helped secure his retirement, he says, but have also enabled him to help his two daughters get on the property ladder themselves.
He says: “They are now living independently except for the occasional hand out from the Bank of Mum and Dad, to help with big ticket items, like buying a home, or getting married.”
Betts is now retired, although he is still a substantial shareholder and a non-executive director of the consultancy business which he helped found in 1993.
When it comes to his investments, most of his holdings are in a SIPP, held with AJ Bell, and a Stocks and Shares ISA. But he also holds some Cash ISAs, and a mortgage-free property in North London. Betts bought this back in 1979 as a family home, and he and his wife still live there.
Microsoft Leads the Pack
Betts says that some of his best investments – aside from his property – have been in shares. The shares that have delivered the best returns for him include US technology giant Microsoft Corp (MSFT), engineering company Renew Holdings (RNWH) and private equity investment trust, 3i (III).
Betts says that since he has invested in Microsoft he has seen the value of these shares increase by 480% – without including the value of his dividends.
Microsoft has a three-star rating from Morningstar analysts, who estimate it is currently trading just below its fair value estimate of $125 per share.
Morningstar analyst Dan Romanoff points out that the outlook for the established technology player looks good.
He says: “Since taking over as chief executive in 2014, Satya Nadella has reinvented Microsoft into a cloud leader.
“Most obviously, Microsoft has become one of two public cloud providers that can deliver a wide variety of platform-as-a-service and infrastructure-as-a-service solutions at scale.
“Additionally, Microsoft has accelerated the transition from a traditional perpetual license model to a subscription model. Lastly, Microsoft exited the low-growth, low-margin mobile handset business and is increasingly cloud-driven even in gaming. These factors have combined to drive a more focused company that offers impressive double-digit revenue growth with high and expanding margins.”
Morningstar believes that Microsoft is a blue-chip technology stock that offers approximately 15% earnings per share growth in the comping years. Morningstar maintains that Microsoft has a wide moat, or large competitive advantage.
His holdings in Renew and 3i have been equally impressive. During the period he has held these, the share price of Renew has increased by 376%, while his holding in 3i has gained 278%.
The investment trust 3i has a four-star rating from Morningstar, which says that this investment company aims to provide investors with quoted access to private equity and infrastructure returns. Currently 3i’s main focus is on making quoted and unquoted equity and/ or debt investments in business and fund in Europe, Asia and the Americas.
Reading Between the Lines
When it comes to buying shares, Betts says he tries to dig deeper and get more information that the basics that are provided in standard company reports and accounts.
He says: “I don’t necessarily trust what company chief executives says publicly about current performance and future prospects. I try to read between the lines, and will also take into account what is being said and report in the media and various investments forums.”
Betts adds that he has tried to ensure his portfolio remains well diversified, across different sectors and markets.
“I also try to ensure that every investment generates both consistent returns on capital employed towards the top end of the sector, while also paying decent dividends that are well-covered by earnings.”
Betts looks to invest in businesses with strong brands and strong positions in their sector, which gives them a clear competitive advantage.
He adds: “I try look at underlying trends and avoid investing in businesses or markets which I don’t know or understand. Investing is a medium- to long-term game so I don’t worry about short short-term events or cycles, over which I have no influence or control.”
Not all of his investments have delivered the same returns as companies like Microsoft. For example, his investment in Vodafone Group (VOD) has fallen 57%, while his holding in Standard Life Aberdeen (SLA) is down 52%. However he says both continue to pay reasonable dividends so he is not selling at present.
Vodafone has a five-star rating from Morningstar, which means that it is significantly undervalued. Morningstar’s senior equity analyst Allan Nichols says: “Vodafone is successfully transitioning from one of the world’s largest wireless-only telecom firms to a diversified operator offering converged mobile and fixed-line services in many markets. We think this is an important transition, as Europe is rapidly moving into a converged world.”
However it says the company has a narrow moat, or slim competitive advantage, but points out that shares are currently trading significantly below Morningstar’s fair value estimate of 250p, and is currently trading around 140p.
Betts says that now he is retired he tends to invest lump sums, rather than on a monthly basis. “I am mainly reinvesting dividends from shares, and any surplus cash from the private businesses in which I still hold a substantial stake.”
