‘You can get rich slowly or get poor quickly’; if you go in with the mind-set that you need to make loads of money quickly, you’ll likely do the exact opposite’
Our latest Q&A is in conversation with Chriss McGlone-Atkinson – aka the British Investor – a man that is creating quite a following via his website and on social media
Chriss currently works full time in IT, as Network Manager in a large primary academy in Hampshire; when we caught up with him recently he told DIY Investor: ‘Working as an educator with primary-age children is extremely rewarding, and every day is different!
I first began to get interested in the stock market in my early 20’s (about a decade ago), picking up a copy of ‘The Neatest Little Guide to Stock Market Investing’ by Jason Kelly.
The book outlined basic ratios (P/E, P/B, etc) as well as providing information about famous investors such as Warren Buffett, Benjamin Graham and Peter Lynch. Immediately I began to appreciate the mathematical aspect of it all. From there I moved onto ‘The Intelligent Investor’ and studying Buffett and never looked back!
Because of this, I would put myself more on the quantitative side of the fence, with a particular interest in the area of valuation.
I am an avid reader of books on finance and investing, though unfortunately the list of books on my Amazon wish list grows faster than I can read them! Alongside books, I listen to a number of business and investing podcasts each week, which have been invaluable in my financial education.
In the summer of 2016 I also began my own site, www.thebritishinvestor.com, where I write weekly articles on investing and businesses that I find interesting. I’ve always liked the phrase ‘the best way to learn something is to teach it’, so it seemed logical to me to try to offer something for others to read. I must say, it’s been far more successful than I’d ever hoped, and has allowed me to have some fantastic conversations with other investors.
I’m also active on Twitter @BritishInvestor, which has become the core platform for my investing interests.
HOW LONG HAVE YOU BEEN A DIY INVESTOR?
I began investing around six years ago, though I had very little money to do so. The first significant step on my journey began when I was left some money in a will. At that time I was a regular reader of The Motley Fool’s UK message boards, specifically the ‘high-yield portfolio’ section. I’m quite pleased to say that my first significant investments were in dividend paying, blue chip UK equities like Royal Dutch Shell and Vodafone. I liked the idea of owning a portfolio that paid out decent and growing dividends.
Sadly I fell victim to one of the behavioural traits common to novice investors: Boredom; by design, a high yield portfolio should be held for the long-term, and yet here I was in this exciting new world sat around not doing anything.
‘you can get rich slowly or get poor quickly’
I then made my second mistake: Getting sucked into the promise of riches in small-cap oil exploration companies; fortunately I grew out of this quite quickly, and even made a little money on Tethys Petroleum around Christmas-time (I managed to buy my wife some lovely earrings with the proceeds).
It’s hard to say what happened between then and now. I carried on reading about successful investors and books about investing, and over time began to formulate an investing methodology, which I am continuing to adapt and refine today.
I began investing a far larger sum of money in August 2015, and to date it has been a remarkable success (up 55% as of October 2017). On my website I list my holdings, and publish quarterly updates on the performance of the portfolio.
WHAT TYPE OF INVESTOR ARE YOU?
In terms of time frame, I would easily class myself as a long-term investor. Warren Buffett is noted for saying ‘our favourite holding period is forever’, which is something I can definitely identify with.
Because of this, I try to ensure I do as much due diligence as possible before making an investment. I think it also helps that I have a demanding day job, which restricts my ability to meddle with my portfolio and become my own worst enemy!
‘above all, never stop learning’
I will usually make, at most, half a dozen trades in a year, and do not use stop losses. In the two years I have been investing, I have held positions that have fallen by 30%+ and have since recovered.
Because of the time I take in conducting my initial investigation, I will usually only sell if the circumstances of the business have changed for the worse and I believe the long-term prospects of the company have declined.
WHAT ARE YOUR KEY CONSIDERATIONS WHEN MAKING AN INVESTMENT?
I feel as though the more you learn, the more you are able to simplify your investing methodology. I also feel it becomes easier to quickly identify opportunities that match your investing style. I have no problem immediately dismissing 90%+ of businesses if they don’t fit with how I invest, because I don’t think it’s necessary to have an opinion on every company you see.
I will usually identify opportunities by running a screen across different markets. There are fundamental requirements I set on this screen. I look for companies with little to no debt, whose current assets cover current liabilities (preferably with cash holdings). I also look for companies with consistently decent returns on invested capital, which serves as a measure of quality.
In terms of valuation, I am learning to be less restrictive in terms of the metrics of a company. In an ideal world, I would want to invest in a quality business trading at a reasonable valuation. However, quality seldom comes cheap. That being said, I’m not sure I’d ever feel comfortable paying 90-times earnings for a company, simply because of the expectation required of it. If growth so much as stutters, a business can be punished quite severely.
Once a potential investment has been identified, I like to spend a few hours reading up on the business itself. I will usually read at least the last five years’ annual reports to get a measure of the progress of the company, as well as ten years of financial data (if it’s available). Last, but not least, I like to undertake a discounted cash flow exercise to model a range of potential growth outcomes going into the future. This helps me get a handle on the price of a business relative to the cash it generates.
ISA OR PENSION?
Working in the public sector I pay into a pretty decent pension; however with pension deficits being what they are I am not taking this for granted.
I therefore use ISA’s to invest, with a view to growing capital. The way I see it, I have a good 30+ years before I retire, so my investing time frame allows me to be a little more adventurous.
WHAT HAVE BEEN YOUR BEST AND WORST INVESTMENTS?
In terms of pure return, toiletries and fragrances manufacturer Creightons PLC is currently my best performing holding, currently up around 400%. I firmly believe the company has a bright future ahead of it as well.
‘You have to think about the opportunity cost of waiting for a business to recover’
Regarding worst investment, I would have to say Gattaca PLC. From the minute I bought it, it just went down and down, and unfortunately I held for far longer than I should have. I ended up selling with a 53% loss. I was still in the mind-set that if I held long enough, the price would recover and I would end up with a satisfactory return. However simple mathematics tells you that the price would have to double just to get back to break-even.
Oddly, I’d probably say this was also one of my best investments in terms of education. I learnt two main things from this. Firstly, a company in a steady price decline is unlikely to improve in the short to medium term. Secondly, it’s not necessary to make your money back on the same investment. Sell up, and put that money to better use. You have to think about the opportunity cost of waiting for a business to recover.
WHAT ADVICE WOULD YOU
GIVE TO ANYONE CONSIDERING SELF-DIRECTED INVESTING FOR THE FIRST TIME?
I can only speak in terms of my limited experience, but the first thing I would say is to expect to make mistakes and lose money in the beginning. Far better to do this when you have less money available to lose. Common investing mistakes are well publicised, but some you just have to live through to come out the other side.
I currently invest purely in equities and ETFs, so can’t speak on the subject of funds. I would suggest that if you have the time and the interest, investing in individual stocks can be very rewarding both financially and intellectually. Obviously the returns are nice, but more than anything I have enjoyed the academic challenge of individual stock selection. If this isn’t for you, I’d stick to putting your money into funds. Just watch those fees, as they can eat up returns.
For someone interested in building their own portfolio, I think it’s essential to work out what type of investor you are and what type of investments you are drawn to and understand. Never invest in anything you don’t understand, and never buy something just because someone else recommended it. Read a lot, educate yourself and give yourself the time to begin to develop a framework. Understand that this is not a ‘get rich quick’ kind of thing. I wrote on Twitter recently that ‘you can get rich slowly or get poor quickly’. If you go in with the mind-set that you need to make loads of money quickly, you’ll likely do the exact opposite.
Above all, never stop learning.