What to do on a 'failing' portfolio?

[jaystath]

Hello,

I am currently looking for some advice on what my next steps could/should be when considering investing.

I understand that only I can make the best advice, but I am looking for what some of you, more experienced investors, might recommend doing.

I have approximately £60k in ISAs that I would be willing to invest. I would be looking to use the money to buy a house in about 5 years.

I currently have £1900 not invested with HL, and a ‘portfolio’ of £4,800 from several years ago.

My current split is the following (along with total +/- since held);

Vanguard LifeStrategy 80% Equity (+40%)
AV (+13%)
Fundsmith Equity (+6%)
JET (-83%)
WJG (-80%)
VOD (-40%)
PAY (-15%)
IFSL Marlborough Nano-Cap Growth (-24%)
Fidelity Sustainable MoneyBuilder Income (4%)

As you can see, I probably haven’t made the best investment decisions (depiste doing what I considered as appropriate research).

I have looked at the HL ‘Wealth shortlist’, but I do not just think picking 3 or 4 of those is necessarily the way to go.

Any advice would be really appreciated.

[DrFfybes]

First thing would be to look at a LISA for some of it if you are intending to use it to buy your first home - you get a 20% uplift from the govt straight away.

Otherwise it is all kind of 'up tp you' - I went from managed funds to 'choosing my own losers but without the charges' to 'ITs' to trackers, as gradually I realised my decision making was not great.

At the moment we are having houseworks done which has eaten somewhat more of our cash reserves than anticipated (Nine quid plus VAT for ONE valley tile, and we need how many??) So given the market highs I've gradually cashed in quite a lot of unsheltered stuff and used the last couple of years CGT allowance, so I'm holing fire investing the new ISA and SIPP payments as I expect things to drop back a bit more until the geopolitical situation settles.

Then back to VEVE and BRKB.

Paul

[Gerry557]

If you are looking to buy a house have you considered what might happen if the market collapses just before you intend to buy?

LISAs is good advice should you start building cash?

I dont know how not to pick losers. If they pay a dividend you could consider averaging down or put in stop losses.

[GoSeigen]

Sorry but don't average down and don't use stop losses.

Why not?

Averaging down builds a larger position in the stock you have mis-bought. You bought the stock to make money. Instead you lost money. So you made a mistake. Now you're going to compound it by doing the same again? I try not to do this anymore. I only "average down" after a LOOONG time has passed (e.g. two years or more) or a BIIIG fall (e.g. 50%) has happened -- and then I do it cautiously and gradually, building on success, not further failure.

Stop-losses are misnamed. They really should be called "guarantee-losses". If you sell a position after the market has fallen a certain amount you are selling into a weak market not a strong market. Shares inevitably go up and down. A lot. So why keep selling every time they dip down? Instead I use limit orders, I only sell when the price has risen to a certain level. The price goes up and down inevitably. So why not sell when it's reached a nice high point?



What do I do with losing positions? I don't like losing positions; I don't really know what to do with them, but I have certain rules:

-don't compound the problem by buying more. At a minimum just leave the losing positions alone and focus on other stuff.

-if I can bear it, and I accept my original choice was maybe wrong, then sell 40% of the position. Re-invest the 40% in something else. If I'm a decent investor and learning then the 40% might do as well or even a bit better in the new position. The remaining 60% will appreciate too if the original position magically recovers. And I will lose less then if I'd kept 100% if it continues underperforming.**

-If I feel my original thesis was correct and want to buy more despite the losses I'll only do so if: a) the price has fallen massively or b) enough time has passed to put the share in a new uptrend; and I will add cautiously until the thesis is confirmed. (This could take years.)



Touching on the fact you wish to buy a house in 5 years, I would pay plenty of attention to the risk of your portfolio. Sorry to say this but it should be low risk if you are relying on it to get that house. You need a sizeable position in cash and/or bonds to reduce the duration (technical term--look it up) of your equity component. Ideally you should increase the cash share as your deadline approaches. When choosing what to move to cash I'd sell the most expensive in terms of fees, the riskiest (longest duration or crappiest) and the losers. Hold on to the better quality stuff. Put the proceeds into the various ISAs others have suggested.


Good luck.


GS

(**)This point brings to mind the famous game (the Monty Hall Problem) with the three boxes. Should you swap your guess when an empty box is revealed? Yes! Because you now have more information than when you made your first choice. Same with investing: make your choice; if the market gives you the info that it was wrong then switch; if it tells you that you were right then stick or add.

[Adamski]

Agree investing in a LISA is good advice for a first time buyer. With a 5 year time frame, I'd build cash at the best interest rates I can find covered by the FSCS bank protection (4-5% with no risk). I'm also invested in Vanguard LifeStrategy. Bonds, gold and silver usually stay stable during stock market crashes, although not always. Like many on here started with a stock portfolio and moved over time to trackers. Cheers, Adam

[csearle]

Welcome to The Lemon Fool. I feel that five years is pretty much short term as far as equity investment is concerned. Short term the market is as likely to go down as up.

Chris

[vand]

I would suggest to draw up an investment policy that governs what you allow yourself to invest in, and how much, and I would further suggest to hold the core of your portfolio in a passive strategy and then allow yourself a certain amount for self-picked stocks and funds if you still need to stratch that itch.

I limit myself to 40% in individual stocks, 20% in active funds, and 40% in passive. Honestly though, I would suggest that most people should probably be 80% passive or higher. It may be boring to just accept that mostly, the market does a better job than you, but "Do No Harm" should be the overriding mantra.


Fully agree with GoSeigen on the "don't average down" advice. Averaging down is a bulletproof and recommended strategy if you are indexing, but turns to bad advice on a single stock - the bottom can always be zero on any individual stock. Indeed, the most common outcome for any stock on the market is to, eventually, go to zero. Of course its never that simple because a certain amount of movement is to expected in any stock's price, but you should not average down if you view the company's fundamentals have worsened from your intial investment thesis

[Lootman]

don't average down and don't use stop losses.

Neither is always true.

One of my biggest gainers is the direct result of buying more as a share price declined. Obviously it comes with risk as a share can go to zero. But in this case it was a "best of breed" company in a sector that is becoming ever more important, and it just seemed clear to me that it would turn around at some point. And so it happened after I had accumulated a fair sized position.

As for stop and limit orders, I use them a lot. In fact stop losses are a good way to trim losers before things get too bad. Likewise limit orders can get you into or out of a position at the price you want, or not at all.

And if you sell options then you are effectively getting paid to have outstanding stop and limit orders anyway.

[GeoffF100]

I have approximately £60k in ISAs that I would be willing to invest. I would be looking to use the money to buy a house in about 5 years.

In that case, I would stay out of the stock market. We could easily have a bad 5 years given the current valuations. "Appropriate research" does not help unless you know more than the collective wisdom of the professionals, or have access to important information that they do not (which is illegal). Buying HL's recommended funds is not a good idea either. HL does not know which active funds will do well, and neither does anyone else. You would have done better with a global tracker.

[tjh290633]

Fully agree with GoSeigen on the "don't average down" advice. Averaging down is a bulletproof and recommended strategy if you are indexing, but turns to bad advice on a single stock - the bottom can always be zero on any individual stock. Indeed, the most common outcome for any stock on the market is to, eventually, go to zero. Of course its never that simple because a certain amount of movement is to expected in any stock's price, but you should not average down if you view the company's fundamentals have worsened from your intial investment thesis

Just one comment on the "Don't average down" advice. If you look at how the prices of your shares vary over the course of the year, you will find that some rise and some fall. One year's winners may be next year's losers and vice versa. I've posted on this in the past and it is a regular phenomenon. Not every share, of course, but quite a few. By using this effect when you are reinvesting dividends, you can improve the performance of your portfolio. You can increase the dividends received and you can enhance capital growth. You will probably find the relevant posts in the forum Portfolio Management and Review if you go back in time a little.

TJH

[Gerry557]

I also think you need to define " a falling portfolio" cos mine falls hundreds of times per trading day. You can watch it live going up and down.

So what timescale and percentage are you talking. I tend to record my accounts weekly including how the shares have performed and any dividends.

This week was a peak which isn't surprising as the markets have been on the up. Dividends are currently being held in the pot waiting for a better time to re invest.

So I will be waiting for the sell in May or next market downturn. That not to say if something takes my fancy I might bite. Buy the dips etc.

I think the yearly low was around mid February. The PF was off around 7% at one point. That might have been exaggerated by me not recording a couple of buys correctly at the time but now corrected.

You can also look at some trends such as ULVR. It often dips early spring so if you think you need more keep an eye out etc.

If the worst comes to the worst just be a lucky investor or invest a lot of time in the market.

[vand]

Fully agree with GoSeigen on the "don't average down" advice. Averaging down is a bulletproof and recommended strategy if you are indexing, but turns to bad advice on a single stock - the bottom can always be zero on any individual stock. Indeed, the most common outcome for any stock on the market is to, eventually, go to zero. Of course its never that simple because a certain amount of movement is to expected in any stock's price, but you should not average down if you view the company's fundamentals have worsened from your intial investment thesis

Just one comment on the "Don't average down" advice. If you look at how the prices of your shares vary over the course of the year, you will find that some rise and some fall. One year's winners may be next year's losers and vice versa. I've posted on this in the past and it is a regular phenomenon. Not every share, of course, but quite a few. By using this effect when you are reinvesting dividends, you can improve the performance of your portfolio. You can increase the dividends received and you can enhance capital growth. You will probably find the relevant posts in the forum Portfolio Management and Review if you go back in time a little.

TJH

Averaging down is ok, desirable even, if the fundamentals don't change. However you also need risk management rules to protect yourself against the possibility that your investments thesis is wrong and to stop you throwing good money after bad if it really is a dud and eventually ends up going to zero. Nobody is so good at stock picking they they pick winners every time.

There is a this guy Ozbourne Foreman on YouTube who went all in on Boohoo stock and just kept buying more all the way down. No discipline, no accumulation strategy or risk management, just stubborn refusal to admit he backed a dud -- and all defended under the "average down" strategy. Maybe it will turn around for him, but the opportunity cost has been massive, and the feeling that must gnaw away each day is enough to destroy any faith in the investment process.

[tjh290633]

Fully agree with GoSeigen on the "don't average down" advice. Averaging down is a bulletproof and recommended strategy if you are indexing, but turns to bad advice on a single stock - the bottom can always be zero on any individual stock. Indeed, the most common outcome for any stock on the market is to, eventually, go to zero. Of course its never that simple because a certain amount of movement is to expected in any stock's price, but you should not average down if you view the company's fundamentals have worsened from your intial investment thesis

Just one comment on the "Don't average down" advice. If you look at how the prices of your shares vary over the course of the year, you will find that some rise and some fall. One year's winners may be next year's losers and vice versa. I've posted on this in the past and it is a regular phenomenon. Not every share, of course, but quite a few. By using this effect when you are reinvesting dividends, you can improve the performance of your portfolio. You can increase the dividends received and you can enhance capital growth. You will probably find the relevant posts in the forum Portfolio Management and Review if you go back in time a little.

TJH

I have found one of the posts concerning year on year changes in SP. SEE viewtopic.php?p=372871&sid=532340e0d62f7b1dc8444b79081a8511#p372871 for examples up to 2020. I'm fairly sure there have been some more recently, but they may be in another forum.

TJH

[GoSeigen]

Fully agree with GoSeigen on the "don't average down" advice. Averaging down is a bulletproof and recommended strategy if you are indexing, but turns to bad advice on a single stock - the bottom can always be zero on any individual stock. Indeed, the most common outcome for any stock on the market is to, eventually, go to zero. Of course its never that simple because a certain amount of movement is to expected in any stock's price, but you should not average down if you view the company's fundamentals have worsened from your intial investment thesis

Just one comment on the "Don't average down" advice. If you look at how the prices of your shares vary over the course of the year, you will find that some rise and some fall. One year's winners may be next year's losers and vice versa. I've posted on this in the past and it is a regular phenomenon. Not every share, of course, but quite a few. By using this effect when you are reinvesting dividends, you can improve the performance of your portfolio. You can increase the dividends received and you can enhance capital growth. You will probably find the relevant posts in the forum Portfolio Management and Review if you go back in time a little.

TJH

But this is not what I mean by averaging down and I don't think it's what other people mean either. I would call what TJH is talking about "buying the dips". To me averaging down is where you purchase a share in the expectation of positive returns but after a while find yourself sitting on losses instead of gains. You then buy another tranche and your returns get worse still, and then you carry on purchasing with the idea that you are "lowering your average price".

This is fundamentally different to buying the dips. Just for starters, you average down in a falling-knife scenario or a secular / long-term bear trend. OTOH you buy the dips in a bull market: each time you add to your holding your returns get better, not worse. I've no objection to people buying the dips, actually that's what I hope to achieve, though it's not easy so I seldom achieve it.

GS

[GoSeigen]

I also think you need to define " a falling portfolio"

I think you need to read the thread subject carefully -- it was failing portfolio, not falling portfolio.

GS

[Gerry557]

I also think you need to define " a falling portfolio"

I think you need to read the thread subject carefully -- it was failing portfolio, not falling portfolio.

GS

I've booked specsavers for tomorrow

[Bubblesofearth]

But this is not what I mean by averaging down and I don't think it's what other people mean either. I would call what TJH is talking about "buying the dips". To me averaging down is where you purchase a share in the expectation of positive returns but after a while find yourself sitting on losses instead of gains. You then buy another tranche and your returns get worse still, and then you carry on purchasing with the idea that you are "lowering your average price".

This is fundamentally different to buying the dips. Just for starters, you average down in a falling-knife scenario or a secular / long-term bear trend. OTOH you buy the dips in a bull market: each time you add to your holding your returns get better, not worse. I've no objection to people buying the dips, actually that's what I hope to achieve, though it's not easy so I seldom achieve it.

GS

Bull and bear markets only exist in hindsight.

BoE

[GoSeigen]

But this is not what I mean by averaging down and I don't think it's what other people mean either. I would call what TJH is talking about "buying the dips". To me averaging down is where you purchase a share in the expectation of positive returns but after a while find yourself sitting on losses instead of gains. You then buy another tranche and your returns get worse still, and then you carry on purchasing with the idea that you are "lowering your average price".

This is fundamentally different to buying the dips. Just for starters, you average down in a falling-knife scenario or a secular / long-term bear trend. OTOH you buy the dips in a bull market: each time you add to your holding your returns get better, not worse. I've no objection to people buying the dips, actually that's what I hope to achieve, though it's not easy so I seldom achieve it.

GS

Bull and bear markets only exist in hindsight.

BoE

LOL

[Arborbridge]

The discussion about buying the dips haunts most of us. A dip can turn into a continuously falling share - and then we are in the sunk cost trap.
The trick, or luck, comes in distinguishing between the two and I've been moderately hopeless at it over the years. That's why I tend to stick with the bigger companies who, by and large, survive and grow. It was not much comfort for the buyers of RBS when they lost 80% of their investment, but at least it survived: in contrast those who bought a smaller company - eg Carillion - would have been totally wiped out.

It's nice to buy the dips in an uptrend, but when that trend reverses, there's not way of telling how serious the reverse will be.

Arb.

[Lootman]

But this is not what I mean by averaging down and I don't think it's what other people mean either. I would call what TJH is talking about "buying the dips". To me averaging down is where you purchase a share in the expectation of positive returns but after a while find yourself sitting on losses instead of gains. You then buy another tranche and your returns get worse still, and then you carry on purchasing with the idea that you are "lowering your average price".

This is fundamentally different to buying the dips. Just for starters, you average down in a falling-knife scenario or a secular / long-term bear trend. OTOH you buy the dips in a bull market: each time you add to your holding your returns get better, not worse. I've no objection to people buying the dips, actually that's what I hope to achieve, though it's not easy so I seldom achieve it.

The discussion about buying the dips haunts most of us. A dip can turn into a continuously falling share - and then we are in the sunk cost trap.

The trick, or luck, comes in distinguishing between the two and I've been moderately hopeless at it over the years. That's why I tend to stick with the bigger companies who, by and large, survive and grow. It was not much comfort for the buyers of RBS when they lost 80% of their investment, but at least it survived: in contrast those who bought a smaller company - eg Carillion - would have been totally wiped out.

It's nice to buy the dips in an uptrend, but when that trend reverses, there's not way of telling how serious the reverse will be.

Yes, I am not sure how helpful GS's distinction between buying dips and buying shares that are falling really is. They both look the same on the way down, so how do know a dipper from a faller ahead of time?

He might as well advise to buy only shares that are going to go up in the future!