Mark North cashed in most of his equity holdings last year, ahead of the market turbulence.
Mark, who lives in London and is hoping to buy a property with his partner, was concerned that markets looked “toppy” and didn’t want to see his carefully saved house deposit vanish in a stock market crash.
Of course, as the experts say, “timing the market” is nigh on impossible and markets continued to climb even after Mark sold his shares at the back end of 2019. He says: “I didn’t liquidate my holdings at the top of the market, but I was happy with the gains I had made and thought it made sense to protect the money we were hoping to put down for a deposit.”
The decision has proved, in hindsight, to be a smart one given the major stock market sell-offs seen this year. However, Mark’s house purchase fell through so he has not yet been able to put his cash into action.
He adds: “After the sale fell through in January, I was considering moving some of the money back into the market, but I read a report about the potential economic impact of a coronavirus pandemic so I held back.”
Drip-Feeding Money into the Market
Mark started investing small amounts again in March, after share prices fell dramatically on news of the economic lockdowns across Europe and the US. It seemed an opportunity to buy good quality companies at a relatively low price, he says.
“When I cashed in my portfolio it was worth more than £125,000. I have only moved about a quarter of this back into the market though, as it’s likely I will need the balance for a house deposit at some point in the future, and think the markets may remain volatile for some time to come,” Mark explains.
Living in London, where the average property price is more than £483,000 according to latest figures, Mark wants a “sizeable chunk” for a deposit. However, he was also made redundant at the start of the Covid-19 crisis. While he has since found another job, he is concerned this change in circumstances may mean it takes longer to get a mortgage.
Mark, 29, is a keen investor who bought his first shares – in National Grid – when he was just 16 after reading a stock tip in the newspaper. The week after he bought the shares they fell 5%, he recalls: “I got nervous and sold at a loss and then told myself I needed to understand the stock market before I went back there!”
Since then Mark, a software engineer, has tried to learn more about investing by reading websites and magazines, and enjoys researching companies and funds to get investment ideas. He tries to make use of tax-efficient investments and, as well as contributing to a workplace pension, funnels a large portion of his salary into a self-invested personal pension (Sipp) with AJ Bell.
How I Pick Investments
His investment portfolio is a mixture of direct company holdings, investment trusts and index tracker funds. While he used to favour large-cap companies paying good dividends, he has since tried to add more diversification.
“That strategy was a bit risky in the end and I lost out by investing in Rolls-Royce (RR.). I bought the shares on a profit warning, trying to catch a falling knife, and got burned pretty badly,” he explains. “It taught me to steer away from companies going through major upheavals and those with serious financial issues.”
Now the lion’s share of his portfolio is in exchange traded funds (ETFs) such as the iShares Nasdaq 100 ETF, with only around 10% of his money in individual shares. While these can seem a bit more of a gamble, Mark enjoys doing the research and this is where he has made some of his best gains.
One of his best investments was in Burford Capital (BUR), the finance company that providing litigation finance, insurance and risk transfer. He first invested in the company when shares were trading at around £2.30 and sold for around £18 a share. Shares have since fallen back to around £5.
Other investments that have proved profitable include that have delivered good returns for him include Strix Group (KETL) , Moneysupermarket.com Group (MONY) and real estate investment trust Tritax Big Box (BBOX).
Strix manufactures patent-protected kettle safety controls, which are patent protected and is a leader in its field. Mark says: “I’ve been buying and selling Strix since it floated in 2017. I initially bought it at 129p per share when it had a price/earnings ratio of 11 and a yield of nearly 6%.”
By the end of the last year it had a share price of around 200p, and while it was not immune to March’s sell-off, shares have since recovered.
Money Supermarket is a more recent addition to Mark’s portfolio. He bought the shares in this year’s sell-off at 229p and they have since climbed to 325p. He adds: “The shares yield more than 5% and this is a company that seems to make a lot of cash, has great profit margins and no debt.”
When it comes to choosing these shares, Mark focuses on companies that are priced below average and are generating lots of cash, looking at key metrics, such as the PE and dividend yield.
He adds: “I used to build cashflow models but didn’t like the amount of assumptions you had to build into the model and the time it took. I think the main thing though is that the story needs to make sense. If I understand what the business does, why it’s currently trading cheaply and what the plan of action is to get it back to profitability, then I’ll be buying.”
