City of London Investment Trust vs. FTSE 100

[PrefInvestor]

Hi Pref,

Having a high dividend yield but losing far more than that through a big drop in the share price is not something thats acceptable to me. If any investment of mine falls to a 10% or more loss in Total Return terms then I typically sell and invest elsewhere - unless the drop is in line with whats happening everywhere else in the market. If everything is down 10% then obviously I dont sell everything, only stand-out poor performers.

I read the above with interest as I wondered whether people had some trigger whereby they would sell their investment and move on. Is this something you review on a continuous basis or as part of a annual or bi-annual review and do you apply to just ITs or single shares as well?

Brendan

Hi Brendan, This is just something that I do personally. My investment spreadsheet calculates total return and if this falls into 10% loss (or worse) then I will review the investment to see if I think I should sell, average down or hold a while longer to see if the situation is going to improve. My spreadsheet warns me if any of my investments have exceeded this threshold and I will review them either immediately or no more than a few days later (as to do otherwise might permit a further worsening of the situation). If the drop is due to a general market fall then I will typically hold and take no further action, but will continue to monitor it.

I personally believe that capital preservation is very important and losing a large capital sum to a failed stock or investment pick is something I try very hard to avoid. To complement this strategy I also limit my maximum holding size in any investment as a further way of minimising any such losses. I am convinced that these techniques have saved me money on the likes on INTU, VOD, CNA, BT and quite a few other holdings which would have otherwise incurred much larger losses.

The technique offers no guarantee of success though, for example I recently baled on NRR which has since recovered well. However I believe losing a bit of money in such situations is infinitely preferable to getting stuck in a VOD or a CNA where its easy to get in a position where you are down big time and are left just hoping that the stock will recover and developing deepening losses as you go.

We must all find our own way when investing though, there are no easy answers - or we would all be rich !.

ATB

Pref

PS These techniques are analagous to the sort of techniques that you use when trading ie a) dont bet too much and b) always have a stop loss. Thats essentially what Im doing with my investments.

[bjmarren]

Hi Pref,

Thanks for providing more detail of what you do and why. I started my HYP at the end of 2016 and had 14 shares by late 2017. However, I realised that the classic PYAD HYP was not for me and used dividends and new money to buy 2 ITs. I've also recently started selling some of the original HYP shares with the intention of moving the funds into other ITs. A lot of my original HYP shares are showing large paper losses and so where I can, I'm disposing of a share which has a positive total return (Glaxo) together with a share that has a more or less equal negative total return (British Land). This way it provides me with enough funds to consider a full weighting in a new IT, which is what I'm currently pondering over. I'll continue to do this where I can, but having more shares showing a paper negative total return than positive, I'll have to bide my time. I'll also probably hold on to some of the individual shares which I like.

I like the system you use and you say "We must all find our own way when investing". Not focusing enough on capital preservation was a big mistake on my part and is something I need to address.

Cheers!

Brendan

[PrefInvestor]

Hi Brendan, Glad you found it interesting, but as I said no guarantees of success !. Many other “fools” (especially HYPers) have been critical, and they are 100% entitled to their own opinion. I have tried HYPing (sort of) and know that it’s not for me.

ATB

Pref