Chris Brown's work in IT and cloud computing has led him to invest heavily in this area and this has so far proved to be a profitable move, with his Sipp portfolio up by 45% in just under three years.
Chris, who moved to the UK from Brisbane, Australia in 2013, invests in a mix of funds and direct shareholdings, and it is these tech-focused shares that have added significant gains to his overall portfolio.
However Chris admits that his initial forays into the world of investing were not as successful.
“My first investment was the purchase of a mining explorer, listed on the Australian stock exchange. I had recently moved to the UK and was contracting as an IT consultant. I had no kids at this point, minimal outgoings and as a result spare cash.
“I always wanted to day trade, and this was the perfect opportunity to do so. The typical advice is only to invest money you can afford to lose, but this led me to focus on my investment strategy, rather that focusing on profits.”
He says this experience was not particularly positive. “On one dark day in October 2013 after a share I was holding when into a trading halt, I was forced to sell other holdings after the three-day settlement expired, and took a loss of $20,000 Australian dollars.
“Although I subsequently recovered these loses, I found this period to be the most stressful of my life and am far happier to have a more passive approach to investing now.”
Chris stopped day trading at the start of 2014. After this he did not invest for a number of years, before opening a Sipp in 2017.
Long-Term Approach
His goal is now firmly on longer-term saving, with a view to providing an income in retirement, as he is now in his mid-30s, and as a self-employed software developer he does not have a workplace pension.
Chris, who now has two children and is engaged to his partner, says this is his only investment, aside from his Australian pension fund. The couple also own their property in Manchester, and Chris is also trying to overpay on the mortgage, as well as contribute to his investments.
When it comes to his Sipp investments, Chris uses funds to diversify. Sometimes if he is interested in a certain stock, he invests in it via a fund that holds this company.
Chris uses online tools, magazines review and recommendations from friends to select funds. “I am looking at a combination of previous performance, dividend frequency and the fundamentals of the fund.”
Chris says: “I’ve tried to follow Warren Buffett’s recommendation to only invest in a business you truly understand, and to ignore the noise of the markets and short-term volatility and focus on available value instead.”
Tech Gains
Following this advice Chris still invests in shares directly, but these tend to be in the sector that he has worked in for years and understands.
“For example I use cloud technologies and am still really bullish about this as an area of growth, so I’ve invested in companies like Alibaba, Amazon and Microsoft.”
Chris has seen strong gains on all these holdings: with Amazon (AMZN), for example, up by 92% since he invested and Microsoft (MSFT) up by 139%.
The online retailing giant Amazon has a three-star rating from Morningstar, which means that it is fairly valued. It says: “Amazon's disruption of the retail industry is well documented, but it continues to find ways to evolve. Its operational efficiency, network effect, and a brand intangible asset give its marketplaces sustainable competitive advantages that few, if any, traditional retailers can match.”
Although Morningstar say there is a high degree of uncertainty about this share, it points out that it has a wide economic moat. It adds: “The combination of competitive pricing, unparalleled logistics capabilities and speed, and high-level customer service makes Amazon an increasingly vital distribution channel for consumer brands (especially in light of Covid-19 operating restrictions hindering physical retailers).
“Amazon owns one of the wider economic moats in the consumer sector and is likely to reshape retail, digital media, enterprise software, and other categories for years to come.”
Alibaba (BABA) – sometimes dubbed ‘the Chinese Amazon’ – is now listed on the New York Stock Exchange. It also has a three star rating from Morningstar, which says: “Alibaba is a big data-centric conglomerate, with transaction data from its marketplaces, financial services, and logistics businesses allowing it to move into cloud computing, media/entertainment, and online-to-offline services.
“We think a strong network effect allows leading e-commerce players to extend into other growth avenues, and nowhere is that more evident than Alibaba.” Again Morningstar rates the company as having a wide economic moat.
Cash Weighting Increased
Aside from these tech and computing companies, Chris says another good performer in his Sipp has been the financial services provider AJ Bell (AJB).
He says: “The company offered a discount to existing customers during their IPO. This was an easy investment decision for me: it is a company I know and use, they have strong proven management and make good use of technology. This ticks most of my selection criteria.”
Since investing Chris has seen gains of 171% on his initial investment.
Despite strong gains from equities Chris has more recently increased the cash holdings within his portfolio. He says: “Before the coronavirus I held no cash and had around 70% of my money in direct shareholdings, and 30% in funds.
“Now I hold approximately 20% in cash, 60% in shares and 20% in funds. I’m holding cash not just to be less exposed to the volatile market, but more to be in a position to invest in opportunities as a result of it.”
