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Investor Views: Why I’ve Switched from Bitcoin to Banking Shares

Student investor Kieran West has shifted his investment strategy to income-focused investments after dabbling in cryptocurrencies

Emma Simon 26 June, 2019 | 11:42AM

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While most students will see money from part-time jobs and student loans disappear on rent, books and going out, 21-year-old Keieran West uses some of these funds to invest in his Lifetime Isa (Lisa).

Kieran is studying at university and also has a part-time job working in a pharmacy. But the student opened the account to help him save for his first home. Investors who are under 40 can put up to £4,000 a year in a Lifetime Isa, and the government will pay a 25% top-up on contributions made during that tax year.

Aside from his Lifetime ISA — which is invested in stocks and shares — Kieran also has a some cash savings and a general investment trading account. He says: “In many ways this is to gain some knowledge about investing while I’m young and not managing a very large amount of money. Hopefully this will be of use later in life, when it will be more important to have a good understanding of how to invest and where I want to put my money.”

Kieran has already learned a considerable amount in the two years or so that he has been investing. One of the first crucial lessons was that trading in currencies can be volatile, and rapid gains from cryptocurrencies can soon disappear into losses.

He admits he initially got “carried away” with trading on these cryptocurrencies: “As a result I decided to step back and not invest at all for about six months. However, I have been investing again for around a year.

“Initially I started investing just to try and maximise the return on my money. But now I do get some enjoyment from researching various companies and looking for investment opportunities.”

Although he has only been invested in stocks and shares for a relatively short period of time, he has seen some reasonable returns. “My initial investment strategy was to go for names I knew and felt had large growth potential," Kieran explains, "But since then my outlook has changed and I have started to look for stable dividend payers with potential growth.

“I still look for some non-dividend paying stocks with growth, however I do not look at companies with market caps of around a few billion or less.”

Three of the better performing stocks in his portfolio have been Lloyds Banking Group (LLOY), British American Tobacco (BATS) and 3M (MMM). Lloyds Banking Group has a four-star rating from Morningstar. Its shares are currently trading at 56.7p, well below its "fair value" estimate of 76p, according to Morningstar analysts, who say the share has a high uncertainty rating and a narrow economic moat.

Morningstar analyst Derya Guzel describes Lloyds as a “pure UK banking play” and remains optimistic about its prospects going forward. “After its massive restructuring, which started in 2011, the bank emerged as a low-risk domestic retail and commercial bank. While the current economic and political outlook, mainly driven by the United Kingdom's decision to leave the European Union, could affect its operations more than others, we believe Lloyds can weather any short-term volatility.”

British American Tobacco has a five-star rating — with its current share price of 2811p being significantly below its "fair value estimate" of 4500p. The cigarette manufacturer has a wide economic moat, according to Morningstar analysts, who point out that the company is well-placed to benefit from the “seismic” shift to e-cigarettes.

3M is a diversified tech company, that manufactures a range of industrial and consumer products. It is listed on the New York Stock Exchange. It has a four-star rating form Morningstar analysts, who say: “We think of 3M as a GDP-plus business. In 3M’s case, the ‘plus’ is a testament to the value-additive nature of the company's products, churned out by its virtually inimitable research and development platform. Unlike many diversified industrials companies, 3M has committed to leveraging innovation across its disparate businesses, making it worth more than the sum of its parts.”

Kieran tends to invest through his trading account first, where it is cheaper to buy and sell stocks. When he has a more sizeable sum he will deposit this in his Lifetime Isa, which is held with AJ Bell. While not all of his investments have showed gains since he invested, but he appreciates this is over a fairly short time scale.

West says: “I started investing last year, which was towards a stock market peak, so a few shares have dipped since then.” For example, he invested in TransEnterix, a medical device company that is involved in the development and commercialisation of robotic assisted surgical systems. The stock was successful for a period of time but then “tanked” badly.

Other companies which have performed poorly include Nasdaq-listed Take-Two Interactive Software (TTWO), and the four-star rated Activision Blizzard (ATVI) - one of the world’s largest third-party video games publishers. The latter owns a number of well known game franchises including Call of Duty and World of Warcraft. Although its share price fell back in the last few months of 2018, it has made impressive gains for investors over the past seven years.

Kieran says: “My strategy has changed and I’m now less keen on speculative stocks, opting for larger cap stocks instead. I have also taken a preference to dividend paying stocks due to them typically seeming more stable in value to non-payers.”

He says wider economic uncertainties also remain an issue. “Brexit has been a concern of mine, and it did stop me investing in British stocks for a while. However, I now think negativity has been priced in, and I am starting to look at UK stocks again.”

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
3M Co171.88 USD0.56
Activision Blizzard Inc53.44 USD1.40
British American Tobacco PLC2,852.00 GBX-1.66
Lloyds Banking Group PLC59.17 GBX0.82
Take-Two Interactive Software Inc123.82 USD1.24

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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