Portfolio update

Hi all,

Here is the latest update on my Portfolio. 2010 year to date(as at 7th june), my share Portfolio is down 0.9% on a like for like basis, if you include cash and look at my total Portfolio, the loss is 0.5%. This is ignoring income. The FTSE 100 is down 5.3% at its current value of 5115, so at the moment although my Portfolio has not risen so far this year, at least I have not lost much. At least the income continues to come in from my defensive high yield investments which will help “average up” my low income on cash.

Aviva is doing well since I bought at £3.05 as per the blog, up 7%. My water stocks are the strongest performers, Severn Trent and Untied Utilities are up 12% so far this year. RBS is my best performer up 45% YTD.

My worst investment so far in 2010 is BP (down 26% YTD). However at the start of the oil spill, I was underweight in BP, only 2% of the Portfolio. This was because they were rising very fast and I was worried about oil prices falling in a stock market correction, hurting BP. However it was a 1/1000 event, the deep water oil spill, that has caused the dramatic decline in the price. As we have headed lower, I bought at 5.70 thinking the leak would be capped quickly. Unfortunately things got a lot worse. As the price continued to collapse, I have added more at £5 and £4.20. This has brought my weighting in BP, to a hefty 5%, the maximum allocation I will risk in one investment.

My simple approach is to buy when others are fearful, hence the increased risk taken on BP. I don’t understand why people wait till the market is doing really well and start buying shares. I might buy too early but the fear of missing out is too great for me, to wait.

On my general strategy, overall I am still cautious and still overweight in defensive income shares but still have growth shares and funds for the longer term. I am worried about a further pull back in the stock markets but will continue to invest into this dip, for the long term.

The dangers of going against the herd

Well I have to hold my hands up here and admit that my BP investment has not gone to plan. Going against the herd can often be very risky but also lucrative over the long term. BP is now down 36% from its peak just before this oil crisis.




However I still believe that this investment can come good. I have therefore averaged down on BP again at £4.20. I would have rather waited for the March 09 bear market low of £4 or even £3.68 which was the Lehman Oct 08 low. If we get towards £3.68, I will have to consider one more entry, as I believe by this point, bidders will be circling BP. There are already rumours Shell and Exxon will be tempted to swallow BP.

This has now become quite a big bet that BP can still turn the situation around, cap the leak and continue to pay its high level of dividends, despite the huge costs of the cleanup.

But the key rule as ever is not to risk too much on one investment. Good performers such as AstraZeneca, Severn Trent and United Utilities, are offsetting the current weakness of BP in my Portfolio.

But just remember this; the key to making money in stocks is not to get scared out of them. Many people have sold out of the stock market through fear, just at the time when it’s better to be adding good quality shares to your portfolio. I can guarantee that if this market starts to recover again, all the analysts will come out saying buy shares, after they have gone up 10%!