Current Share Positions

This article should convey to the reader my thought processes when deciding which companies to invest in. I am very happy for readers to critically analyse my methods. I am well aware that many will only consider this article to only be relevant at the time that it was written but I would disagree, suggesting that the lessons from my successes and mistakes are always true in investing. I hope the article is informative to others about what people should and shouldn't do in investing:


Reasoning for declaring my positions

I have recently written a couple of posts on investing such as Warren Buffett's Stock Formula and on Value Investing and felt it was time to declare my own portfolio. The reason why I am willing to declare my modest share portfolio is because I want readers to learn from me. I am sure that I have made mistakes, but I have had some successes too. I encourage all readers to read my portfolio carefully and the reasoning behind each purchase. This article does not contain shares that I have bought and sold in the past, only my current portfolio. Please comment on the post using the comments box below. All opinions are encouraged. I hope that this post will become a forum for ideas. All people of varying investor experience should comment. All shares were bought in the UK stock-market but I hope the logic still applies to investors in most economically developed countries.


Current Share Positions

My current Portfolio
The table on the right contains an up to date breakdown of my current portfolio. I will talk about each (group of) purchase(s) separately:

  • BT Group PLC: I invested in BT in October 2011. After looking closely at the financials using  Value Investing I felt that BT was an attractive option especially considering that it is establishing itself as a market leader in the telecommunications services industry. At the time the price was very attractive and I have no intentions of selling my position any time soon.
  • Aviva PLC: I have two positions in Aviva. The first position was the first investment I ever made in January 2011. I had read a lot about Aviva, tipped as a hot buy for 2011. I was swept along by the hype. I quickly bought a relatively (for me at the time) sizable position in the Company without properly checking the financials. After my 'expert' purchase I watched as my shares increase in value to about 475 pence and then skydive down as the Japanese Earthquake shook the pennies out of my investment Eurozone Crisis took hold of what was left and squeezed the life out of it. I couldn't understand what had gone wrong. I thought that I had made an expert purchase. In the Summer of 2011 I decided to actually check the finances and found that Aviva was by coincidence quite a robust company with a healthy, 7% dividend. I decided to try to average down and bought some more shares. I believe this to have been a sensible purchase as I was buying near the bottom of Aviva's dip and have since seen a decent recovery. As I continue to hold Aviva I wonder when I will sell. This is something I really need to consider but for now I will enjoy the large dividends.
  • Lonhro PLC: I believe this to be the biggest mistake I have made so far in my 'investing career'. I bought in January 2012 due to a tip from a friend back in 2011 when the price was at 20 pence. I don't know what made me invest. I had some spare cash and was too lazy to do the proper research. I figured that the share price was relatively low and that I wanted to diversify into mining anyway. I did not do the proper research required. Whilst I haven't been punished yet for this mistake, I probably shouldn't hang around too long to find out what will happen.
  • Banking (Barclays, RBS, Lloyds): These were all purchases made in August 2011 at the height of the Eurozone Crisis. When everyone was running from the banks I was taking Buffet's advice and was "greedy whilst the market was scared". I checked the financials on Barclays using  Value Investing and found the shares to be undervalued based on the 2010 Annual Report's Balance Sheet. I have decided to re-evaluate the companies finances when the shares reach 300 pence. As you can see I have made a very healthy return on my investment. As for the other two banks, admittedly these are punts. However, the logic was and still is as follows. The UK Government has invested heavily in RBS and Lloyds. I cannot foresee a future when the Government will let these two banks collapse. Whilst the banks are still making loses I view them as 'safe' investments and with dividends to (supposedly) be paid out in 2013 I actually think that I could see a happy return on my investment if I am patient enough.


Strengths and weaknesses of my Portfolio

Strengths:

  • I believe that Barclays and BT were very good buys and I hope to see even larger future returns on these purchases
  • It is clear to me that using  Value Investing works as shown by the fact that I used this technique when picking my winners
  • I believe that my timing on the Banking shares was correct
  • My portfolio is making an overall profit of about 12% (see the chart below)
Weaknesses:

  • I relied too much on news and tips. These were big mistakes and I need to check the financials for myself from an objective viewpoint
  • I didn't put enough capital into my obvious winners when I had the chance
  • There isn't much diversification in sectors or countries
  • There isn't a large number of companies in the portfolio

Snapshot of my Share Portfolio since mid January


Future changes and aims


  • I need to diversify my current Portfolio by buying shares on different stock exchanges or at least by purchasing multinational firms
  • I need to sell my position in Lonhro
  • Priority in future is to check the financials for myself
  • Ignore tips and news
  • Find more large dividend paying stocks
I hope readers have learnt a little from my portfolio. Please comment below. What is good/bad about my portfolio? What else do I need to take into consideration when picking stocks?
If you've got an opinion I want to hear it.

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Warren Buffett's Stock Formula

The purpose of this article is to inform its readers about the Investment Philosophies of Warren Buffett and Charlie Munger, one of the greatest investment partnerships in the history of investing. I hope to explain the simple ideas portrayed in the video (interview with Charlie Munger; below) in an effort to help readers use the ideas in their own investment decisions:


Stock Formula Video

I recently wrote articles on Benjamin Graham, the mentor and teacher of the great investor Warren Buffett, and on how to Value Invest, established by this partnership. Following these articles I felt the need to outline the philosophies of Buffet and Munger, the partnership that turned Berkshire Hathaway into a $50 billion business. The video contains an interview with Charlie Munger explaining four simple principles used in the investment decisions of himself and Buffett.
Interestingly, Buffett has noted in the past that one of the reasons people aren't able to replicate his success is because, ironically, people think that investing has to be complicated. Munger and Buffett demonstrate that good stock picking does not have to be a difficult process.


The four steps to a good investment:


  1. Understand the business - It is very clear that you should never invest in anything that you don't fully understand. This is why Buffett and Munger never followed the trend of the dotcom boom in the late 90s, investing in Web based companies. The partnership stuck to businesses that they actually understood. If you can't explain to another person exactly what it is about the business that attracted you to investing in it, then you do not understand your investment. This means that you would never invest based on a suggestion or tip from someone else as investing requires fully understanding, YOURSELF, not just going on what someone else has said.
  2. Sustainable Competitive Advantages - Investing in a business that is doing well currently, is relatively easy. Investing in a business that will continue to do well in the future is hard. Buffett explains that you should be willing to hold the company for an infinite time horizon. This requires finding a business that invests a reasonable amount in R&D, keeping itself ahead of the competition through its innovation rather than through forced barriers to entry. Buffett and Munger look for business that have a long track record of paying increasing dividends over a decade or more. This demonstrates a business that has established itself into a market and is a business that makes its investors more money in the long run.
  3. Able and Trustworthy Managers - Check the track record of Managers. Who did they work for before? How did they do? How many shares do the managers own in a business? Read the Chairman's Letter in an Annual Report carefully. It can reveal how the company is really doing.
  4. Bargain Price (Margin of Safety) - As Munger puts it, even if you find a great business, you don't want to pay any more than you have to for it.  Getting a fair price that offers a margin of safety on your investment is important. My previous post on Value Investing should help explain how to make sure you are giving yourself a large enough margin of safety by buying undervalued shares.
As you can see the four steps to picking great stocks are fairly straightforward. However, they require a large amount of patience and a cool-head to be calm and considered in your own conviction. I believe that these are the attributes of a great investor and I shall write more about these in a future post.

Is making a good investment really this simple? What experiences have you had that would support these ideas or suggest otherwise?

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Value Investing

This post is meant to give its readers a basic understanding of value investing. Some of the information was inspired by a book (The Great Investors, by Glen Arnold). Clicking on the picture below will download a spreadsheet that the reader can use to help make investment decisions based on value investing. I hope the reader finds the following post interesting.


Value Investing: The Background

In a previous post I wrote about the great investor, Benjamin Graham. In his books, 'Security Analysis' and 'The Intelligent Investor' (two books that are highly recommended reading), Graham outlined his theory about Value Investing .
The beauty of Value Investing is that you don't need to be a maths genius to use it to analyse stocks and shares. All you need to be able to do is to use simple basic addition and subtraction and to be able to interpret the numbers from a company balance sheet.
To gain the most from this post, I urge you to click on the picture opposite or download my free spreadsheet and follow along when necessary.


What is Value Investing?

A simple explanation of Value Investing in 8 easy steps:

  1. Download the annual report of the company of interest. This can usually be found on the companies website.
  2. Look at the relevant Quantitative Elements: Take all the current assets of the company and scale down each asset accordingly (see next section on using the spreadsheet)
  3. Deduct all liabilities (no scaling required) giving you a Net Current Asset Valuation
  4. Divide this number by the number of shares the company has issued giving you a Net Current Asset Value per share
  5. If this Net Current Asset Value per share is lower than the current company share price then the Quantitative elements of the company suggest that the share is undervalued
  6. Check the Qualitative elements of a business: It's management, stability, and prospects. Read the CEO's letter and ask people who work for the company about these elements
  7. Don't forget Additional Elements: Time, Patience and Diversification
  8. If the share in question passes all the previous stages then take some of your savings and buy the share!!!
Congratulations you are now a fully qualified Value Investor.


How does the Value Investing table works?

A simple explanation of my Value investing table in 3 easy steps:

  1. Download the spreadsheet
  2. Plug in the data found from a companies balance sheet on each relevant section. The relevant sections are as follows (the percentage that the spreadsheet actually uses of each section is in brackets-this scales the various assets): Cash (100%), Receivables (80%), Inventories (66.6%), and Fixed and miscellaneous assets (15%). Include 100% of all liabilities, number of company shares and current share price
  3. The spreadsheet will automatically tell you if the share is undervalued in the Quantitative sense, you will need to perform stages 6 to 8 yourself
I have included a basic example of valuing Barclays PLC at the time that I first created Barclays. Please do not take it as a share tip as the numbers have changed now.

With the help of my spreadsheet you should now all be able to Value Invest. Good luck. Let me know how it goes. What companies did you find undervalued? Is Value Investing the best way to make an intelligent investment decision? Have you thought of other ways that you could assess the non-Quantitative elements of a company?

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an e-mail (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Benjamin Graham: Value Investing

An article that looks at the life of the great investor Benjamin Graham and how his ideas can be utilized in your own investments. I will follow this with another post on how to Value Invest like Benjamin Graham:

Benjamin Graham: Who?


For those of you who haven't heard of Benjamin Graham, you've definitely heard about his influences. Benjamin Graham was essentially the creator of Value Investing and many investment ideas that we still use today. Value Investing used the idea of working out the net asset valuation per share and determining whether the current share price was a fair reflection of that. Graham's ideas on Value Investing is something I will write about in an upcoming post. Graham's books 'Security Analysis' and 'The Intelligent Investor' are still regarded today as some of the greatest investment books around. Graham is famous for having been a big influence on the ideas and investing strategies of the great Warren Buffett.


Benjamin Graham: Early years

Benjamin Graham was born in 1894 in London but moved to the US when he was one. After Graham's father died and in the stock market crash of 1907, his mother lost almost all the family's wealth through speculating in shares. Graham was an extremely gifted student, however upon graduation from the University of Columbia in 1914, and despite being offered  three teaching places, Graham chose to work on Wall Street.

Benjamin Graham: Making his mark

After making partner Graham decided to join a few of his former classmates to form the Graham Corporation in 1923 where salaries included a percentage of the profits made from trading shares. After a disagreement about his pay (Graham considered that he should be paid not by a salary, but by a portion of profit), Graham left to form the Benjamin Graham Joint Account in which Graham was paid via a percentage of the companies profits based on a sliding scale (20%-50%). Graham provided the $400,000 capital which in six years he turned into $2.5 million.
Along with a law graduate, Jerome Newman, Graham transformed the Benjamin Graham join Account into the companies: the Graham-Newman Corporation and Newman & Graham. Through these companies Graham developed his investment philosophy, accurately valuing and buying undervalued shares.
Everything was a learning experience for Graham. Even in the great crash of 1929-1932, when Graham lost 70 percent of his wealth he still used this as a time to learn from his mistakes. In 1933, with $375,000 he began to rebuild. Armed with his new knowledge he retired in 1956 with a track record of 20% return per year.


Benjamin Graham: What we can learn?

  • Stick to your goals by incentivising yourself, for Graham this was through his salary being linked to the companies profits
  • Don't take downfalls too personally
  • Learn from your mistakes
  • Value Investing has a track record of success when implemented properly
Whilst Graham only amassed a wealth of £3,000,000 by his death, he is in my opinion one of the greatest investors of all time. There is much we can learn from his life and ideas. Lookout for my upcoming post on Graham's Value Investing technique.

What do you think? Who is the greatest investor of all time and why?

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Multimillionaire Secrets - Breakdown


I previously published a guest post from Nick from Step Away From The Mall Blog on the 7 secrets of self-made millionaires. Here follows my analysis of his post.


  1. Decide to Be a Multimillionaire: I believe this to be the most important step to becoming a millionaire and I believe that it is no coincidence that it is first on the list. Very few multimillionaires find it falls on their lap. Even those playing the lottery have decided that they want to be a multimillionaire or else they wouldn't have bothered buying a ticket. This step is more than just buying a lottery ticket and hoping. Instead your focus should be on the goal and you should believe yourself capable of achieving it.
  2. Get Rid of Poverty Thinking: Poverty thinking for me is having negative thoughts about yourself, believing that you don't have the ability to make a fortune. Just because someone else has had ideas to make a lot of money in the past does not exclude you from having your own ideas now to make a fortune. To use an economics term, becoming a multimillionaire is not a "zero-sum game", that is, one person's gain to not equate to another person's loss.
  3. Treat it Like a Duty: Money is not the root of all evil, however greed can be a dangerous vice. Money should be a means to an end, not the end in itself. Nick told us "Don't be motivated just by money but by something bigger". He asks us what our reasons are for becoming a multimillionaire. I would go one step further and ask you to write it down. Look at your list of reasons each day once you get up. Have the bigger picture in mind. 
  4. Surround Yourself with Multimillionaires: Nick reminds us of the theory that "you'll make within 20% of your 5 closest friends". We can learn from our friends and together we can all grow in wealth, knowledge and friendship. I am not advocating that you get rid of your current friends and only look for rich friends. Instead I urge you to take a look at your close friends. Would they be supportive of your goals or would they challenge you and make the road to becoming a multimillionaire a bumpy one? If it is the latter you will have to learn to ignore the sorts of comments that could deter you from your goals. Educate yourself about the lives of those who have become multimillionaires before. These will be your mentors. Allow their advise to guide you.
  5. Work Like a Millionaire: Nick quotes that, "The wealthy know time is more valuable than money itself, so they hire people for things they're not good at or aren't a productive use of their time, such as household chores."  Delegation is the key. You need time to see your family and friends. However, when it comes to work all your energies should be focused towards completing the tasks of the day.
  6. Shift Focus from Spending to Investing: CashFLOW is King. You need to create multiple income streams from things like Dividends, profits from a business and Rental income etc. The idea is to stop working for your money and get your money working for you. It's such a simple idea and yet it is absolutely crucial to becoming a multimillionaire.
  7. Create Multiple Flows of Income: Essentially this is much like tip 6 except that it emphasises diversity (this is a topic that I will cover in the future as I believe it to be a very important one). There's a reason why there's an old saying, "don't put all your eggs in one basket". You two should follow this advise and have multiple income streams. 
Do you think we can add anything to this list?

Once again a big thank you to Nick at Step Away From The Mall Blog for allowing me the chance to post his article on my blog.


Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Group Theory in Action: ISA Millionaires

A more in depth look at how a group of people could come together to top-up one person's ISA allowance and the benefits that that would give to all those involved.

Brief Background

In my previous post about Group Theory I argued for greater collaboration between groups of people and I explained how this would benefit all those involved. Two examples of areas where sharing financial resources would help was getting on the property ladder and using full ISA allowances. I wanted to explain further my thoughts behind how  a group could collaborate to top up an ISA allowance.

Benefits

Working together for mutual benefits
Wouldn't it be great if in 20-25 years time your family had a large pot of money with which you could withdraw from to put a deposit on a house, pay for a wedding or other celebration or just withdraw an income from. "Impossible!" you might respond, "not on my income!" you might retort, "ridiculous!" you might sneer. These responses are misguided. With a little patience, trust and understanding your family or a group of close friends could have a pot worth over £1,000,000 generating an annual income of 50-70k.

Preliminary Reading

For a quick explanation of how ISAs work and how to become an ISA millionaire read my previous post Become an ISA Millionaire. One of the biggest problems with becoming an ISA millionaire is a person's lack of ability to save. This can be solved with Group Theory as we shall very quickly find out. To fully understand this post, I will be making references to an excel spreadsheet that you can quickly download by clicking on the picture above.

Group Mentality

Instead of trying to save for yourself (and your partner) take a step back and think about a bigger picture.
Find a group of people that you can trust. They could be close family or friends. In my example (spreadsheet) I have six close family members (persons A to F) who have grouped together. At least one of the members of the group is married, for arguments sake we will say that person A is married to someone outside of the group. The group works together to top-up to the maximum person A and his/her partners joint ISA couples allowance, £21,360. To do this each member of the group and their partner each has to produce £3,560 savings per year (if both work then this is only £1,780 each). This works out at £296.67 saved each month per member and their partner (about £148.50 if both work). As you can see the amount a person has to save is substantially reduced.
In my example I have assumed that the family has invested in the stock-market, yielding an annual return of about 7% per year (after inflation). After 22 years the family has built up the pot to well over £1,000,000. Hereafter, the pot of money could be moved into high dividend yielding shares or else part of the capital could be sold each time someone wants to take a out a portion of the money. The idea would be to help future family members (children) to put a deposit on a house or help pay for family weddings. Alternatively each member of the group could withdraw an income of over £10,000 a year depending on the rates of return or else simply build the pot even more until such a time that the members decide to retire and dissolve the pot.

Reasoning

Some of you may be wondering why shouldn't you just continue to save in your own time by yourself? There are several reasons why this may work better:

1. Group motivation - you are encouraged to save more, especially if you have a contractual agreement
2. Save Less, quicker - your monthly savings are a lot lower than had you attempted to build such a pot by yourself. Of course you're not entitled to all of it, but read on.
3. Compounding - the compounding effect is greater as a group especially if you are reinvesting your dividends. You can buy a lot more stocks and shares very early on (more than if you had invested by yourself) releasing a greater compounding effect earlier on.

There is no reason why being in a scheme such as this should prevent you from saving extra money elsewhere and topping up your own ISAs. As for couple A, there could be an agreement built into the contract about extra savings that they make allowing them the usage of other group members excess ISA allowances.
Obviously, for any of this to work there needs to be carefully worded contractual agreements written up by a lawyer. These would include clauses on: amount to be paid each month, who to pay, when and how can people withdraw (how often and how much), what if someone can't pay and finally what if person A wants to invest extra money into ISAs.

Clearly there is much to think about. Would you invest in a group scheme like this? What other problems can you find with this scheme? Can you think of a better and more profitable way to boost your savings by working as a group? All comments welcomed and encouraged.

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Group Theory

A theory on how working as a group when it comes to financial resources could be mutually beneficial to all and some examples of this.

Hunter-Gatherer Origins

The human  race has always depended on each other. Back in the stone-age, society depended on the compliance between hunters and gatherers to share resources. Since then society has built up a complex system  of production and trade. It is because of this interdepence that society has thrived.
Interestingly, society does not deliberately work together to achieve in this way. The great Economist and thinker Adam Smith once said, that it is not from the benevolence of the butcher, brewer or baker that we expect out dinner, but from their regard to their own self-interest.

Smith hit the nail on the head. We work together because it benefits ourselves. If we have just met and I grow bananas and you grow apples it is not through our mutual admiration, charity, love or friendship for each other that encourages us to trade. It is simply through our own selfish needs. I want to spice up my fruit-eating life and I do this by offering some of my awesome bananas for some of your apples. Smith refers to an "invisible hand" that works in the economy guiding us to produce together all the things we need. If it did not work like this then you would need to have all the skills yourself: imagine you are a carpenter, blacksmith, forager, hunter, farmer, electrician, businessman, clown, entertainer etc all rolled into one. Not only would this be a bizzare sight to witness (send me a picture of yourself in all your work clothes) but it would mean that you wouldn't be any good at any of these jobs. It is because we specialise in one or two things and then come together to trade that TOGETHER, we thrive.

Selfish Finance

I been developing a theory that we are selfish with our money. By this, I don't mean that we don't give enough charity (this is a separate issue). What I mean is that unlike the hunter-gatherers we don't (in general) pool our financial resources together in a selfish attempt to benefit oneself. Of course there are some people who have figured out the benefits of working together financially. Occasionally there are groups of friends that play the lottery together or go into business together. But, what I am talking about is a little bit different.
Currently in the UK it is very difficult for a first time buyer to get onto the property ladder. However, imagine if you got together with another couple or a few friends to collect the deposit together and pay off the mortgage as quickly as possible together. Before you start complaining, I realise its not ideal, especially if you want your own privacy, bring up kids etc, but hear me out. You and your partner have grouped together with another couple to buy a two bedroom house. That's now 4 income's and 4 sets of savings funding one mortgage. Your monthly mortgage outgoings will be smaller than had you just bought a house for yourself and your partner. This means that you can save a lot more a lot quicker and after a few years, hopefully incomes, savings and house prices will have increased allowing you to all sell the house together and move into your respective homes.
Another application of this group theory could be to top up any tax-free allowances for your savings (in the UK this would be ISAs). Instead of 4 individuals struggling to save, imagine the possibilities of a group of people coming together to save together. A person whose savings per year exceed his ISA allowance could top-up somebody else's ISA allowance, for a small fee, benefiting both parties. I will write up a post on an efficient application of group theory to ISAs in the near future. Lookout for it.


Food for Thought

To make Group Theory viable you would have to write up secure contracts covering all possibilities, particularly in the case of housing (when can someone sell, for instance). Clearly, the whole process relies in part, on trust, so the first thing to do is to find someone that you trust enough to come together to share financial responsibilities and resources. Nevertheless, pooling financial resources should, in theory, through the "invisible hand", be mutually beneficial to all those involved.

What do you think? Is there any validity to group theory? Are there any other applications where group theory would be mutually beneficial?

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Disclaimer

Information on this site is not appropriate for the purposes of making a decision for carrying out a transaction or trade nor does it provide any form of advice (investment, tax or legal) amounting to investment advice, or make any recommendations regarding particular financial instruments, investments, or products.
Always seek advice of a competent financial advisor with any questions you may have regarding a financial matter