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Investor Views: Investing in Banks and Mining Shares

Private investor Tony Evans has discovered the ups and downs of investing in individual shares

Emma Simon 20 September, 2017 | 10:54AM

Gold bars

Tony Evans, a self-employed film extra in his 50s, has been investing for almost 20 years. Like many investors, one of his main savings goals is to ensure he has enough money for retirement.

But he is also interested in building up a rainy day fund that he can use for other purposes. At the moment he is hoping to make enough from his investments to buy a new electric car.

Evans’ first experience of investing came after his mother acquired some Bradford & Bingley shares when the building society demutualised in 1999.

This has certainly demonstrated both the upside and potential risks of investing in individual shares. They initially rose in value over a few years from a float price of 240p to a high of 520p per share, before collapsing completely in the wake of the financial crash. Shortly before the B&B was nationalised in 2008, the shares were trading at just 20p.

But these ups and downs did not put Evans off investing, or buying shares of financial companies. Indeed, one of his better holdings in recent years has been in the insurer Legal & General (LGEN): “This has been a pretty sound investment for me, although the price was quite high when I bought it.”

In the last year alone shares in this insurance company have risen by 27.8% according to Morningstar - this compares with a 12% rise in the FTSE 100 over the same period.

Investing in Mining Shares

Another strong holding has been his investment in Glencore (GLEN). He bought shares in the Anglo-Swiss mining giant in October 2015, at 137p per share. After the share price rose Evans cashed in his gains the following year, selling the shares at 171p each. However, he is aware he may have sold too early. Evan says: “Although I made a good return on these shares I would have doubled my money if I had held on for longer.”

Morningstar equity analysts give Glencore a one-star rating, which means its shares are significantly overvalued: at 343p, the share price of the company is currently trading above its ‘fair value’ estimate of 105p. Morningstar says the company does not have an economic moat, meaning it has no strong competitive advantage against rivals.

Matthew Hodge, a senior analyst at Morningstar, says: “Demand for gold jewellery in China and India has plummeted in recent years, dragging global demand to its lowest level in seven years. But despite this massive decline in the largest single source of gold demand prices have proved resilient, largely due to strong investor demand.

“Most gold miners we cover trade in line with our fair value estimates, which are based on long-term models. That said, shares would likely come under considerable near-term pressure if gold market dynamics play out as we expect. Amid the last round of ETF gold selling in 2013, gold miner stocks plunged 50% to 70%.”

This is not the only mining stock Evans has bought in recent years: he is also invested in Fresnillo (FRES), which is involved in the exploration for and development of gold and silver mines in Mexico.

Buying into this share “was a lesson in volatility”, with the shares having a big daily trading range.

This is certainly clear looking at the long-term performance of this company. According to figures from Morningstar, Fresnillo shares have fallen 3.7% over five years, but have risen 23% over three years. During the last 12 months though the shares have fallen again, and are down 10%; over the same period the FTSE 100 has posted a 12% gain.

He also made reasonable gains in Ashtead (AHT), which provides industrial and construction equipment for rent. Evans bought shares in the company in 2014 at 820p. After selling up, the shares have since risen to £17.85. Evans says: “Perhaps a useful lesson is that sometimes it can pay to hang on.”

Evans invests in these shares through his self-invested personal pension (SIPP), which he holds with AJ Bell. He makes monthly investments into the SIPP and will add additional lump sum payments from time to time.

“I have a number of ways of selecting shares for my portfolio. Sometimes I will read recommendations, then do some more research on stocks that particularly appeal. Other times I will buy a stock in a sector I do not have, to further diversify my holdings.”

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
Ashtead Group PLC1,906.00 GBX1.06-
Fresnillo PLC1,389.00 GBX0.29-
Glencore PLC382.90 GBX0.83
Legal & General Group PLC268.10 GBX0.00-
About Author Emma Simon

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