Profit from Equity Investments

Is it possible in today's markets?

Warren Buffett. Who is he you may ask? He is possibly the greatest investor in the world of the last 50 years, is personally reputed to be worth $62 billion, runs Berkshire Hathaway Investments and invests in businesses that have good long term credentials.

Here are some of his tips to investing and what they mean to you.

  • Profit from folly but do not participate in it
  • If a business does well, the stock eventually follows
  • Favourite holding period is forever
  • The investor of today does not profit from yesterday’s growth
  • Reinvest your profits
  • Be willing to be different
  • Don't suck your thumb – be decisive
  • I don't look to jump over 7 foot bars; I look around for 1 foot bars that I can step over
  • Most people get interested in stocks when everybody else is. The time to get interested is when nobody else is.

I could go on and on. These tips alone certainly give us a guide to the man and his philosophy of investing: invest long term in quality investments and don’t look for instant returns.

How should the average mortal investor interpret these tips?

Nobody expects the public to look at the intrinsic value of companies and decide whether to invest or not in the way Warren Buffet would.

Whilst some will undoubtedly try (perhaps less successfully), the vast majority would rather use a professional, collective fund manager to make the right investment decisions on their behalf.

This in itself doesn’t of course completely rule out risk.

Volatile Stock Market ConditionsAt the best of times, investing in the markets for growth and income can be seen as a risky adventure. This risk is heightened even more in today’s market conditions where billions of pounds are being wiped out in a single day’s trading.

Picking funds and fund managers purely on the basis that they did well last year or the year before may well also lead to disastrous results. So too could jumping ship from one fund to another on the basis of fear, losses incurred or even short term profits.

Riding out the storm

Remember one of Warren Buffet’s tips…Reinvest your profits.

You can’t do that unless you have profit from growth – a valuable commodity in today’s uncertain world.

It’s at times like these where shrewd investment management comes to bear and there are indeed some funds out there that provide a port in a storm.

Two such funds that continue to deliver year in year out are Miton’s Specials Situations Fund and Strategic Portfolio A Fund*.

Before we go any further, this is not an advert for Miton’s funds or even a particular fund manager!

It’s purely to pick out a fund manager who looks at value like Warren Buffet. Someone who sees opportunities where others are floundering and who have, perhaps, continued to make the wrong decisions since 2007.

Miton Specials Situations Fund – The Figures**

Year

Growth

2007 11.2%
2008 7.3%
2009 5.0%
2010 8.3%
2011 3.06% (year to date)

It doesn’t take a rocket scientist to see steady growth achieved year in year Condition of the World Economyout from Martin Gray, the fund manager.

Martin’s approach looks at the fundamentals and real value. He also determines the fund’s spread of assets on the back of his macro view of the world.

He has been concerned for some time about the world economy and, as a result, has stuck to his cautious style management where others have got burnt being too optimistic.

He sees no end in sight to the financial crisis but does point out that there is money to be made.

For example, he recently made a 15% return by buying the Singapore Dollar in the last 18 months. With 40% return over the last 5 years the figures do not lie.

Miton’s Strategic Portfolio A Fund – The Figures**

Year

Growth

2007 5.7%
2008 14.7%
2009 0.0%
2010 9.5%
2011 -0.3% (year to date)

In running this fund, Martin Gray effectively invests in other funds, making it a fund of funds.

Again a successful time has been had with an annualised return of 5.54% over the last 5 years.

It’s a slow burner but deceptively effective in making profits and growth with a low level of volatility. Bearing in mind the FTSE 100 has declined by approximately 20% in the last 6 months, a figure of -0.3% is a tremendous result.

In conclusion

Investing in the markets should only be considered if you’re prepared to invest for the medium to long term ie for 5 or more years.

“It is only when the tide goes out do you discover who has been swimming naked” – Warren Buffet

 

Article by Mike Rawson
Independent Financial Adviser (IFA)
Legal & Medical Investments
October 2011

* The funds mentioned are just a snapshot of what may or may not be invested based on an individual's attitude to risk and objectives. Please note that past performance is not a reliable indicator of future results.
** Source: Morningstar www.morningstar.co.uk 8th October 2011

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