Stress from Success

Posted on 10 January 2014 by Douglas Chadwick

A number of subscribers have expressed concern about how well their self administered portfolios have performed in 2013. Yes, I do mean concern. They are suffering anxiety attacks over their success. In the future will it reduce at the same speed as which it has grown? Should they play safe and lock in their gains by going to cash? My answer would be an emphatic NO.  I would advise them to consider a quotation by Jessie Livermore. He said “They say you never grow poor from taking profits. No, you don`t, but neither do you grow rich taking a four point profit in a rising market. Where I should have made twenty thousand dollars I only made two thousand. That was what being too conservative can do for you.” In Saltydog language I would put it slightly simpler. At the moment we are rising up a ladder and you do not know how long the ladder is and how far up the ladder you are standing. Only the numbers in the future will reveal that truth. So, stay on the ladder until it tips into a snake and then accept a loss at that stage but not before. Remember trying to predict the top and bottom of an investment cycle is a mugs game. A more useful occupation might be to review the performance of the funds in your portfolio. If it is anything like my own it will need pruning. This year`s success will have come from some of your funds but not all. You will have money invested in funds that were in performing sectors in the past but which have now gone off the boil. There are better places for this money to be currently invested. Don`t collect funds, you are not a stamp collector! In the last year, subscribers to Saltydog have enjoyed gains of anywhere between ten and twenty percent, depending on their aversion to risk. This compares extremely well with Building Society returns of around 3% and Annuity rates of around 5%-7%. They have achieved these returns because they are active investors who have access to a continuous supply of fund and sector performance numbers. This has allowed them to move their investments with the ebb and flow of the fund sectors. So why would you not continue with this same philosophy and enjoy today`s life and excitement in the UK small companies, UK Income and Targeted Absolute Return sectors.  Stay alert and Good Luck for 2014.