Do you really want to invest in the AIM market?

Is the AIM market really the route to a quick buck? Is it the route to heartache? What sort of rollercoaster does it give? The aim of this story is to show what it is like, and so you can follow along – how would you react, and how would you cope? Well…. Join me on the journey and see what you think at these points and what you would do! I should warn you this has turned into quite a long post!

Risk is one of the main factors that people think about when investing – how much risk are you willing to take to grow your future wealth? I have a healthy appetite for it, as you can tell from some of my self-select investments. Whilst I like to adhere to Mr. Buffets golden 2 rules (#1 Never lose money, #2 Never forget #1) – I can’t resist a bit of fun and I guess you would call it gambling in the junior market.

The AIM market is much less strict in terms of reporting standards than the main FTSE, and also has some added benefits for Inheritance Tax. This means you can get some much smaller companies, with much bigger risk profiles. There can be a lot of money to be made in the AIM market (think ASOS), however the most likely outcome is loss – 72% of all companies lost investors money, and even more shockingly in more than 30% of the cases, investors lost 95% of their funds.

So what is it really like to invest in an AIM stock? Firstly – this is not about encouraging you to do this – you really should stick to passive trackers. If you really want to do it, set yourself a budget and use that. When it’s gone, it’s gone- don’t top it up, don’t add in, just accept that it wasn’t for you. I really would not recommend this route for most people….

Now I have been very lucky – I currently hold slightly more than my original “limit” – having already cashed in 1.5 times the original amount, so yes I am biased and I like it. I am also under no illusion, this is not me being an expert stock picker, or having an “edge”, it was luck. 1 stock has gone nowhere in years, one has taken 3 years but has done very well, one did very well in a matter of months, but again, I repeat, it’s luck.

So, join me in the experience, and see, when would you have sold out?

The Highland Gold Mining (HGM) Experience

So I first purchased HGM back in later 2013, and it did indeed look great – see the nice shiny curve going upwards below. Up nearly 10% in a matter of days?  I should sell out and cash in – just think 10% every month, hell I could retire in a few years!

I AM AN INVESTING GOD!

Wait… no I am mortal. Hmmm. It’s starting to slope downwards, not to worry I am ahead of my original purchase.

hgm1

So it’s not too bad, I am still up on my investment, and I will have some dividends coming through, so this investing lark isn’t that hard. This investing lark is easy – take a random stock, buy some and enjoy it…

So this isn’t too hard… it’s making me rich.. but let’s see what happens if we extend a few more days – what happens next type of thing.

hgm2

Hmm, ok this isn’t so good, the price is below what I paid for it… and by about the 10% that made me think I was a legend. Well that’s not a problem – you expect some volatility, I believe in the company and it will get back to where I bought in at in no time. This is just a minor blip right? I can cope with losing 10% – stocks always go up so it will come good.

I know – I will buy some more! I’ll add the equivalent of 50% of my original purchase amount in, and even better, it’s at a lower price so I won’t be sitting on such a big loss – genius! What could possibly go wrong – I can buy even more of this great company at an even lower price (don’t mention Northern Rock….)

hgm3

You can even see the big slump in my average price there, so I have narrowed my loss, and what’s more when it goes back up I will have an even bigger profit! All this within a month, what a rollercoaster! What a positively great idea – by throwing more money at a losing investment I can reduce my total loss…

Ask yourself this – what would you have done? Your gamble is down 10% – would you have sold out, bought more, or sat tight? This is an important question to ask yourself, as part of knowing how you cope with the ups and downs. At least with a tracker you aren’t going to lose all your money (short of a zombie apocalypse).

So how did the rest of 2013 pan out for HGM? As you can see below – I spent most of it at a loss – ending the year down just over 10%. It doesn’t make comfortable viewing.

hgm4

So what would 2014 hold for my holding in HGM? Would I suddenly find myself very wealthy, a significant step towards FIRE, or would I have lost my money?

For most of the year, it was a pretty “nothing”, apart from a spike in April, it was hovering around what I paid – combined with the dividends paid out I wasn’t going to grumble. Looking back at the time I was wishing I had sold at that peak, think of the cash I would have had.

hgm5

Ok, so not the end of the world and up a little bit, along with some good solid dividends this isn’t so bad after all.

And then – slam! Down over 20% on my purchase price again – if I had put a stop loss in at the standard 20%, then I would have sold out and lost a fair chunk of change.

hmg6

So what to do? A major drop of 20+%, a large hit on my portfolio compared to just a tracker fund. Did I sell out? You guessed it – no. I bought more. My first tranche almost doubled my original stake. The price then dropped further. Did I lose my “bottle”? No. I of course bought even more – about 65% of my original purchase. It proceeded to drop further. I bought another 30% of my original purchase value. You can see the constant drop below – chasing the lower price.

hmg7

This was seriously beginning to test even my appetite for risk. It continued to drop even further – down to almost 50% of my original purchase level. So of course, I bought more.

At this stage, I had purchased a huge number of shares (into 5 figures), and spent a fair whack of my investment money on it (many thousands of pounds).

hmg8

Just look at the end of graph – down almost 50% on my original investment. Would you have sold out, cut your losses and run?

I held on – the dividend yield was at this price over 10% so I continued to tell myself to hang on, collect the dividends, and wait.

So for 12 months I sat and tried to ignore what my portfolio showed next to HGM – a thumping great loss. Again, comforting myself with the dividends coming in, and sticking with my belief that they would come back up… eventually.

hmg9

I very nearly bought more when it was at about 25p a share (a huge loss on the total investment), but given how much I had already put into it, I decided not to, after all I had already put in a significant amount of cash. Looking back now, do I wish I had? Of course, with hindsight it would have been great, but not with the amount I had put in already. I was heartened by the fact the price was starting to go back up to what I had bought at.

So for the best part of 2 years I was mainly on a loss – not a comfortable position to be in, but I held firm (or was it that I was just stupid?). Well, the first half of 2016 was suddenly looking absolutely great! See that huge tick up there? Was now the time to sell out and lock in a good profit (more than 50% profit on the original total cost).

Would you have finally taken the money and run, happy to at last make a profit? Would you buy more as it is going in the right direction?

hmg10

I held on for what it’s worth.

So how does the story end?

Well, for me it ended well.

Up until the 20th January, you can see the graph below. Just look at that uptick in 2016. Why did it go up? There was positive news in terms of ongoing mining activity, although there was a fatality at one of their mines.

hmg11

So this month was actually a fairly active one for my portfolio overall. I sold two tranches (totaling just over 60% of my holdings) in January ’17.

I still hold a good slug of HGM shares – the value of which is greater than my entire investment, but the cost of which was a fraction of its value. All told, I have taken more than double my money out, and still have more than my total investment, so all in all more than tripled my money – one of the reasons my portfolio did so well this year.

Did I time the sales perfectly? No.Since the sale, have I looked back and wished I had timed it better? Yes. Since the sales it has still gone shooting up and down, so looking back I am glad I did liquidate a large portion of it. I am sure in the future I will look back and either be glad I did or sorry I did, depending on the share price, I think that’s just my nature.

So, now you have had the chance to see how I experienced some AIM investing – does this put you off? Would you have sold out early on at a 20% loss, given up and gone for a tracker? Run to the safety of cash under the mattress? Let me know!

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How I measure my returns

Ask anyone how they are doing on their returns, and they will be able to give you a startlingly accurate number, however it’s impossible to accurately compare these numbers unless you understand exactly how people arrive at them.

The best I have heard in terms of returns, was someone quoting in excess of 1,000% returns – something not even the greatest investors have ever been able to achieve, so how was this mortal able to do this, and if he was getting these returns, why on earth was he still working?! On digging deeper it turns out that he calculated this by looking at each of the purchases he made, and their return, and adding the total up. He only needed to have a portfolio of 10 shares all go up by 10% to make a 100% return. Sometimes I really do worry about the human race, especially when these are supposed to be educated people!

I know some out there use excel’s XIRR function, or unitise their portfolios to enable them to get a very granular level of tracking, but for me I am just a little too lazy for that! So my approach is:

  1. Take the value of that particular portfolio / asset at the start of the measuring period (be it month or year). As an example, lets say £10,000 of the period of a year
  2. Any contributions / additions made during the period (including any fee costs such as IFA cost or trading fees) are added to the starting value of the portfolio / asset. For the example, lets say we added £1,200 over the year (£100 per month goes in regardless of charges)
  3. Take the value of the portfolio / asset at the end of the measuring period. For this example lets say £12,000
  4. To calculate the performance, it’s simply the difference between the end and start value divided by the starting value. In this case, (12000-11200)/11200 – which gives a portfolio return of just over 7%

This isn’t strictly a fair measure, as the £100 added (and assumed invested) in the first month will have longer to generate a return than the £100 added in the last month, which will probably do nothing in reality. If anything this means I probably report a lower return than I actually achieve for any portfolio I add to during the reporting period, but to be honest, I am happy with that – it’s another element of contingency for me. If I report I average 5% and my calculations and predictions are based on that, but in reality the proper number is 6% then it means I will just get there faster, I don’t think I can complain at that!

One thing to flag here, if you haven’t already spotted it, is of course that this means on months where I get a bunch of dividends paid out I should get a very good bonus return.

To then benchmark it, I simply take the change in the FTSE-100, 250, All Share, DOW and S&P500 – all excluding dividends – and track how they progressed over the same period (excluding dividends, so somewhat biased).

My somewhat insane and nonsensical aim is to beat all of them. For most people this would make absolutely no sense – why not just go for the World Tracker or something or pick a specific area. I go for all on a number of grounds. Firstly, by collecting data on all of them I can see their overall performance over time which may influence my decision on trackers in the future. Secondly, if I beat all of them consistently then I am going to be a seriously happy bunny. If they all beat me consistently I will tell myself it’s time to go for just trackers!

Performance to date

So I am now doing a monthly update on performance across all of the different wrapper portfolios (I say wrappers, as I have 3 portfolios in one wrapper which will make it harder, each also having a different objective). I also track based on a financial year to make calculation of contributions etc. easier for my simple little brain.

So far, year on year I have done ok, some better than others. I will continue to reflect the performance on both the monthly updates and also on the yearly appraisal!

So how have the previous years been for me? Well, that will follow this years review I will do a retrospective and see, across all the channels, where I am.

How do you measure your returns, or do you even track the performance?

2016 Stock Purchases

So at last, the final “nail” in the coffin to bring my portfolio into the full public eye (well apart from January update that is in progress!).

A very quiet year was 2016 on the purchasing side – a number of expenses meant I couldn’t save as hard as I would have liked, but such is life…

Just after the Brexit vote, when everything was going to pot, I decided to do my usual timing of the market – something you should definitely not do! I’ve been meaning to add to my trackers with a FTSE-250 tracker simply because I don’t have much exposure. Simple home bias has led me to add this one in, and it will continue to help diversify my ownership. I would expect over time that my exposure on this tracker will increase, and was chosen as a non Vanguard to help diversify from Vanguard as well. There really isn’t much to add to this other than that! I will add more en the price is lower.

Add at the right price

2015 Stock and Fund Purchases

Investment Trust Purchase – WPCT

So yes, I bought into the hype of the largest IPO for an Investment Trust in years. This really is a fire and forget one to see what happens over the years. I particularly like the fee structure they use – if they don’t make money they don’t earn any. Given I, as with many others, are against a lot of the Financial Services charges, I thought I should put my money where my mouth is, so I did buy in. I am toying with topping up my holdings further so I can earn more than £10 in dividends as this means that I can then keep the portfolio growing by reinvesting the dividends (my brokers minimum reinvestment is £10) to see how it performs. I will add some more once I have a suitable level of cash and the right balance in the overall portfolio.

I will get around to adding more at some point.

Investment Trust Purchase – SMT

Ok, so who here hasn’t heard of SMT? They are one of those ITs that have been going for years and always provided good returns (future returns are no guide etc…), so I thought I would try a mini experiment. I purchased some, and some more in 2016 as well, and I automatically reinvest the dividends in more shares in them.  To date I am doing quite well with them, lets see how they go over another 5 to 10 years. I will continue to buy more of them in the Go T’ Pub portfolio when I start it I expect. For now, I will continue to add in and lets see how it grows over time – and of course always reinvesting the dividends.

I will continue to add to the portfolio over time.

Stock Purchase – BLT

So I knew I was light on the mining / commodities side, and there seemed to be a lot of negative sentiment to the big miners, so I took the plunge and bought in when it was low. Ok I didn’t time it perfectly and buy right at the bottom, but since then it has gone up considerably from what I have paid but the dividends are continuing to pop in. I will probably sell out when things get a bit higher and take the profits, and look to put the money to better use somewhere else. The dividend yield isn’t great at the minute, although it will generate 30p a share in 2017 is the plan, however with the mining disaster they had in South America last year there are still some unknowns here. At the minute it’s doing well, and I will keep it for now.

Hold

Stock Purchase – PAF

So, another one of my gambles, combining my other two – mining and Africa – what could possibly go wrong?!

From memory I think I saw a report on them so I dug in a little to find out what it was all about, and decided I would take a small punt on them. I bought in at 6.5p which turned out to be almost perfectly timed at the bottom, and just in time to also collect the December dividend – result! 3 months after purchasing I sold out 50% of my original stake, as it had doubled in value, so in effect the money in there is now all free money. I had my original investment back. Right now I am holding on, collected the December dividend again in 2016. Given how far it’s gone up, I am considering selling out and banking the profit – if I sell at the right point I will have trebled my original investment, so lets see. Either way, my free money in the shares is throwing off more free money – how cool is that?!

Hold

Tracker Purchase – VHYL

So, I decided it was time to remove some of the volatility in my portfolio and start adding some trackers as well to try and balance things out. I also topped up heavily in 2016 when my broker had a “trade ETFs for free” month – I was able to buy some on a weekly basis at zero commission. Thank you very much!  Not only is it throwing out some reasonably sized regular little dividends, but the price has climbed as well. I have a problem buying more at the current valuation as its up so far on what I paid for it. Yes, this is me trying to time the market. No, I shouldn’t be doing it – but I do. Naughty me.  I did add further to my holdings after TD recently put an offer of £1 trading costs. I suspect this will be a drag on the portfolio in terms of performance given its only tracking, but will add some to the dividends as well as some good diversification in the portfolio.

Add at the right price

2014 Stock and Fund Purchases

Stock Purchase – MRW

I’ve had had my eye on MRW for some time, prior to the start of the supermarket wars, in particular given the large scale of their land bank meant their share,s based on land values at the time, should be worth £3 a share never mind the added bonus of throwing in a retail business. Ok, so they aren’t as low as they once were which I guess is something, but still some way off the recovery. In recent months they have put in some good progress in terms of profitability, market share etc. (depending on who you read / believe). The tie up with Amazon as well may help them get through the lack of online presence. They are ok, but not great for the overall health of my portfolio, however they are still throwing out some dividends. I expect I will hold onto them for a while, until I see a compelling reason to sell them out, or find something better. They have made a good solid progress over the last year which is very positive for the portfolio!

Hold.

Stock Purchase – BOD

Ok maybe I should really put this down as Gamble, but anyway – I think a casino may be safer!

You thought HGM was high risk? You ain’t seen nothing yet… although there is something quite cool at owning over 100,000 shares in a company 🙂

I’ve averaged paying just under 1.7p per share. I topped up twice in 2014, and further in 2015, buying down each time (remember the lesson folks?). I stopped buying more when it was at 0.8p a share which I am sorry about, but I stuck to my guns of being over exposed to high risk as it was. They don’t pay any dividend so this is a pure play gamble on them finding a good diamond deposit at some point. It’s one of those that is either going to be my stake is completely wiped out (where my mind is for strength), or will make a damn fine return (my hope). If nothing else it’s quite comical, and there is something about seeing that many shares in one company. Who knows, they may get bought out by a bigger company, I can dream right? It doesn’t take a lot to swing up and down, and hopefully this will give me some positive returns (it’s just about in positive territory at the time of writing). Who knows!

For now the update has been positive from the CEO, but then it would be – let’s see what happens with the ongoing work they are doing in the drilling.

Hold

Stock Purchase – Barc

I’ve actually traded in and out of Barclays quite a lot over the years, and its usually done not too badly especially as they tend to stick within some fairly tight bounds. At the minute its just above what I paid for at the time of writing. I do think longer term that they will find a way to get back up there, and hopefully restart a decent dividend scheme again, and so I am holding out for that for now. I think a lot will depend on where it is in the price swing and where my portfolio is in the balance, and I will add or remove accordingly, otherwise I will continue to collect the relatively small dividend.

Hold.

Stock Purchase – HSBA

Noticing a pattern on the financial side here?! So given how far they had fallen from their price pre-2008, and their exposure to the Far East, I thought I would use this as some diversification, and also topped up my holdings in them in 2015. They are continuing to churn out dividends on a quarterly basis (which I like), although nothing spectacular. They are now starting to tick up quite nicely – the question as always is at what point do I take profits?

Hold.

Early Retirement goes Mainstream!

So one of my guilty “non FI” habits is my subscription to Moneyweek. I enjoy reading it and get a lot of useful information from it, and also the regular property porn part (so far I think only once have they had things that would be considered realistic – but I love looking at private islands and so forth!).

In addition they also provide some useful suggestions on the wine side, so I won’t complain.

Today is a pretty short post, but going through it I caught a section titled “Want to retire in your 30s? Here’s how to do it”. Obviously I can’t copy and paste it in here as it is part of a subscription – but if you are already a subscriber, then you can access the full details here but they cover Jacob and his approach. They rightly call out the extreme lengths that require it, but also give a link to his book. Whilst I don’t think Moneyweek is particularly aimed at the masses, it’s great to see some publicity starting and showing that it is possible. They also call out the great Monevator site as well so seems the visibility is getting higher, which has to be a good thing!

2013 Stock and Fund purchases

Stock Purchase – RDSB

Another regular in most of the funds, high yields etc. for a good solid payer. As with BP there are some long term concerns about if they can actually afford to pay their current dividends (at present Shell do not have enough free cash flow to cover their dividends), but are banking on a rise in the price of oil to get back to profitability. For me its a nice steady payer, although not rising which is annoying, but as long as it keeps firing into the pool of dividend returns, I am ok for now. I also topped up my holdings in both 2015 and 2016. With the takeover of BG (which I also used to hold) this increased my holdings further so is now one of my larger holdings.

I will continue to hold

Stock Purchase – RMG

So I tucked in on the IPO for this, and was lucky that I didn’t get too greedy and ask for too many, so I got an allocation. I watched the share price soar up to about £6, but I didn’t sell, I held on. I’ve reinvested the dividends for a couple of years (reflected in the average price) as I think long term this should give reasonable returns despite some of the challenges. Whilst letters are diminishing (apart from junk mail!), parcels are only going to get higher, and they have the backbone infrastructure in place. They do have some modernisation to do which is a challenge for them.  Short of a major overhaul to the way parcels are distributed, for me now its a hold. Will Amazon get the licence to use drones, who knows. For now the regular and increasing dividend I will hang on for.

Again, I will continue to hold.

Stock Purchase – HGM

One of the ones you have all been waiting for!

My first major foray into the AIM market, and what could possibly go wrong with a Russian gold mining company?! I did a fair bit of digging through the accounts that were available which gave a reasonable, but risky, ok to investigate further. I also found out that both Putin and Abramovich are shareholders, and it was helped more recently by a commitment from Putin to extend credit to the company. I topped up multiple times in 2013 and 2014 whilst the price was low (it didn’t occur to me that it would go bust) – committing another cardinal sin of doubling down. Now I don’t recommend this for most people (if any!). I must have spent over a year sitting with a paper 50% loss on my original stake as the share price languished around the 40p mark (prior to increasing my holdings). The way I got through was to look at the dividend I was receiving. It’s paid out consistently reasonable amounts, and last time they doubled the dividend so I got just over 5p a share – and plans to maintain this. My challenge is when to sell, and I don’t know. I should maybe have sold some when they hit 160p, but I didn’t. I guess as long as they still pay out a good dividend that is above the trackers payout, then I will keep the money in them. I did actually top slice off some of my holdings recently and take a significant profit to reinvest in other shares. As it stands, it is pretty much joint largest holding in my ISA EVEN NOW, and the combination of the recent top slice and dividends means I have taken out more money than I put in originally, the additional money still in shares is pure profit. Scary!

I will continue to hold.