Annual Roundup 31/12/2011

Well, an interesting year, financially, for both the world and yours truly. My own progression from employment to early retirement went as planned, but I did not foresee the economic problems that caused what seemed to be an incipent recovery just a year ago to stall. Inevitably, these have taken the shine off my hopes for steadily rising net worth. Overall, I think I am about £12k down on the projection I made at the beginning of the year.

Last December, it seemed reasonable to me to expect that remaining problems in the Eurozone would get sorted by effective political action, as to some extent they had been in 2010. As 2011 unfolded, however, it became clear that no amount of financial squirming was going to allow the weaker nations to escape from the vice-like grip of debt and now, as a result, we seem to be on the verge of a new banking crisis.

On the month, Sterling continued to rise from €1.1644 to €1.1973 but fell slightly from $1.5598 to $1.5598, showing the weakness of the Euro. UK 10 year gilt redemption yields fell again from 2.15% to 1.82%, marking a record in recent times. Gold is now well off its recent highs at $1574 per ounce. Brent Crude fell back from $110.10 to $107.56  per barrel, as did copper from $7905 to $7569 per tonne. The Baltic Dry Index fell from 1862 to 1738. Overall, the FTSE100 changed little from 5552.29 to 5572.28 and the FTSE250 from 10307.32 to 10102.90.

On a yearly perspective, most of these figures represent a deterioration in expectations for growth and prosperity. Many stock markets, including those in emerging economies, have performed poorly (Shanghai SSE Composite is down 21%). I don't have the figures to hand, but it is interesting to see that the USA has been one of the best performers, having powered ahead in the last three months.

In the UK, we have had a problem with inflation over and above the falling consumer confidence and rising unemployment that has occurred in most western countries. There is a certain feeling of misery and unfairness about, but at least it's not as bad as in Greece.

Equity Portfolio (-13.56% on year, FTSE all share -6.69%)
The general downward trend this year, coupled with my unrealistic expectations for some "growth" stocks have put me into sacking territory as far as being investment director of Salis Grano Mega Holdings is concerned. After leaving work in the Summer, I decided to buy shares in two tranches: one in July, one in August. The latter was a reasonable call, but the former one has done a certain amount of damage. But, hey, it could have been worse. Overall, I was fairly restrained and I still have over 50% in cash, despite a little more buying in October/November. There are tempting high yield stocks out there to which I could add, like Aviva or British Land (Don't do it! Don't do it!)  but they all have significant downside potential.

I expect still to be a net buyer in 2012, but I am suspicious of the current FTSE100 5200-5600 "stability" range of the last three months. I am really in the process now of building up a long term portfolio of companies that I hope will maintain or increase dividend payments over the next 10-20 years. Probably, I already have well over half of the ones I would like, but often I don't have sufficient quantity of shares in each. Mainly, therefore, I shall be buying more of the shares that I already own. I don't expect these companies to make large capital gains, especially in what may be the low growth environment of the future. Equally, I don't want to lose by seeing a gentle capital decline wipe out a reasonable dividend income. Accordingly, I must try to make sure that I do not overpay.

As an example, take GlaxoSmithKline (GSK). Currently, this is 2.4% of my portfolio and I'd like it to be more like 4%. I don't think it is going to get there under its own steam, unless we have a catastrophic bear market and defensives reign supreme. So, I should buy more, but I'm already in at £11.79 and now it's £14.71, a 25% rise in two years. Nice, but it has run ahead on expectations and the long term prospects for big pharma are not too rosy; but nor are they dismal, if I can get more at the right price and the company management is agile. I can't get good value now, so I shall just have to wait.

With the continued uncertainties in Europe there is still scope for some shocks, not mention wider geopolitical upsets. I reckon some significant market dips are possible before 2012 is out, perhaps to the tune of 10-20%. Economic fundamentals may be quite good in some parts of the corporate sector, but they are not going to drive sentiment for some time yet. I don't have a problem with the idea that we may even be at the start of a bull market, but I think it may be weak and choppy, even after several years, so I think some regard must be had for timing. Not in trying to buy up everything at the bottom, of course, but in general pacing and waiting for convenient falls.

Monthly Roundup 3/12/2011

Yet another see-saw month. Another boost for equities, this time from central banks. Some good employment news from the USA, has temporarily reversed market gloom, but everyone knows that the fundamental Eurozone problems remain and are not being addressed. In addition, recent news from China has been downbeat. How long can the markets remain irrational? A long time probably.

On the month, Sterling rose from €1.1394  to €1.1644 but fell from $1.6130 to $1.5598, reflecting once again its piggy in the middle status. UK 10 year gilt redemption yields fell from 2.55% to 2.15%, some good news for the Treasury. Gold climbed a bit more to $1747 per ounce. Brent Crude future barely moved from $110.05 to $110.10 per barrel, while copper fell back slightly from $8000 to $7905 per tonne. The Baltic Dry Index fell from 2013 to 1862. Overall, the FTSE100 fell from 5702.24 to 5552.29 and the FTSE250 from 10773.07 to 10307.32, but this featured strong recent recoveries from mid-month lows.

Equity Portfolio (-11.55% on year, FTSE all share -6.74%)
Oh dear, my equities trend is not looking good and I am seriously underperforming the FTSE all share, owing, no doubt to my Bad Portfolio as outlined in my last post. I'll just have to take this on the chin, of course, but I can take some comfort from the fact that I do have a brace of good dividend shares as well. Barring a widespread full year profits collapse, entirely possible but not, as yet, likely, these should hold up.

Although I have cash to spend and would very much like to spend it, I have resisted all temptation this month. There are shares I would like buy or buy more of , such as some of the defensives (e.g. Diageo, National Grid, Tesco, Unilever), but I feel they are just too pricey. Equally, there are others I would not mind acquiring more of, such as some of the insurers, but the yields look simply too attractive and I fear having more exposure to Eurozone chaos in that sector.

At present, I need that circa 5000 FTSE100 buying signal to be tempted.