Investor Views: Taking a Warren Buffett Approach

Retired investor Malcolm Wright doesn’t need an income from his equity portfolio. He is still invested for growth, but is considering his options

Emma Simon 6 July, 2016 | 11:40AM

Malcolm Wright, a retired GP, has built up a significant portfolio of investment trusts and direct shareholdings over more than 30 years using tax-free wrappers; ISAs and SIPPs. But he says the most difficult bit of investing is knowing when to sell.

“I am a very bad seller. I’ve held shares that have increased significantly in value and have failed to take profits. But I’ve also failed to sell shares that appear to be in terminal decline.”

As he points out, while a certain amount of volatility is to be expected, there are occasions when a price decline is more marked. Wright admits that if he has failed to sell a holding at the optimum time he has invariably kept this stock in his portfolio – even if it might be worth a fraction of what he paid for it.

Buy and Hold for the Long Term

Despite the difficulty of market timing the value of Wright’s portfolio has grown substantially.

“I’ve taken what I think is the Warren Buffett approach, in that I’ve invested for the long term, accumulating different shareholdings. Some may not have grown much, some may have lost money, but many have increased by significant margins. This has helped the value of my investments grow.”

Despite being 70, Wright says he does not primarily invest for income. As a retired GP, who also lectured at Cambridge University, he has an index-linked pension, which offers a guaranteed inflation adjusted income. This he says covers the lion’s share of his living expenses.

“I am in the enviable position in that we don’t really need to generate a significant amount of money from my investments,” he admits. “But this does raise the question what exactly am I investing for? It’s one of the first questions any adviser asks.”

Wright says his main investment objective today is to ensure there are sufficient funds to provide his wife with a decent standing of living should he die first. He also hopes to pass on some of these funds to his children.

“I tend to look at a 10-year horizon. Hopefully the trusts and shares I’ve invested in will grow over this period.” At this point, he says he may consider moving into less risky assets - although this will involve selling some long-standing holdings.

Witan: A Better Investment Trust

Many of these long-standing holdings are investment trusts. Wright says one of his preferred holdings Witan (WTAN).

“This has done remarkably well for me over the years,” he says. “It always seems to be able to produce a positive return over longer periods, however choppy the markets.”

The trust has a five-star rating from Morningstar, and the managers Andrew Bell and James Hart have a coveted Silver medal rating.

David Holder, an analyst at Morningstar says: “Witan Investment Trust is a solid choice for investors seeking core global equity exposure. The process of transition from largely passive to active management has been successfully implemented, and the resultant strategy is now established and executed to good effect for investors.”

Wright is also a fan of Bronze Rated Scottish American Trust (SCAM) also known as “Saints Trust” currently managed by Baillie Gifford. Despite the name, this trust has a global remit, and is not just focused on the US market.

Holder adds: “The emphasis here is on the provision of a high and rising real level of income and in that regard the fund has met its objective - paying a rising dividend for over 35 years.” Morningstar says Dominic Neary, who runs the trust is an experienced manager who has been at the helm since 2014.

“The fund has lagged its FTSE All World benchmark over Baillie Gifford’s tenure but is more generally in line with its peer group,” Holder adds.

Despite not being primarily focused on income, Wright also holds Finsbury Growth & Income Trust (FGT) which has also delivered a stellar performance in recent years. This trust has a much prized gold medal rating, reflecting Morningstar’s confidence in its manager, Nick Train, to continue to outperform.

Analysts at Morningstar describe Train as “experienced, talented, and pragmatic” and points out he can draw on three decades of experience.

She adds: “Train’s process is thorough and well-proven over a number of market cycles—another reason for our conviction. It’s an approach that’s been applied consistently and results in a concentrated list of stocks.”

Wright says he reads various financial publication and will research potential investments online before buying. As well as investment trusts he’s also dabbled in ETFs more recently. “I like the fact that they allow you to diversify and hold a range of individual shares, but like investment trusts the cost of investing is still low. This can make a different to overall returns over time.”

“I Hold A Full House Of Banking Stocks”

Alongside these collective holdings he also invests in companies directly. This includes many large blue chip shares as well as some smaller companies.

Wright says he holds all the UK banks. These took a battering in the last financial crisis, but he chose not to sell at this point. Some shares such as Lloyds (LLOY) and Barclays (BARC) have recovered some of the ground lost in 2009, although values have been hit again following the EU Referendum.

He says: “I’ve never sold in a panic when markets fell, and I’m not about to start now.  I’ve held onto these banking shares through the financial crisis, when the regular dividends dried up. If I didn’t sell then, it doesn’t make sense to do so now.”

Wright says he was lucky to not be relying on these dividends. “I’ve got friends who bought these shares because they were dull but reliable, and paid a steady income. A lot of people were hit hard when the financial crisis hit. We were lucky in that we didn’t need this money to pay day-to-day living expenses, so could simply hold on and wait for the recovery.”

He says he does sometimes use periods of market turbulence as a buying opportunity. “I also manage an ISA for my daughter, so may look to buy shares or trusts if prices fall. However, I find I am a lot more risk averse on her behalf. She’s investing on a 20-year plus timescale, but I find I worry more about the decisions I’m taking.”

What funds are in your ISA or SIPP? What have been your most successful investments to date? If you'd like to feature in Investment Views and tell us about your investment strategy please contact the Editorial team on UKEditorial@morningstar.com

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Barclays PLC156.36 GBP0.00
Finsbury Growth & Income Ord889.03 GBP-0.56
Lloyds Banking Group PLC59.50 GBP0.00
Scottish American Ord384.01 GBP-0.52
Witan Ord1,046.06 GBP-0.75

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk

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