A long-term private investor shares his sensible approach to investing.
Many wealthy investors have made a lot of money from small caps and today's Fool is no different.
But unlike previous investors featured in this series, the vast bulk of his fortune is invested in what many would perceive as more "sensible" and certainly safer investments.
And Robert -- a.k.a. "Skegbyhouse" on the Fool's discussion boards -- has a few salutary lessons, particularly for investors still relatively new to the game.
Robert is a farmer by trade, so he isn't an out and out professional full-time investor. But the amount he has invested is still larger than many full-timers.
The stolid nature of his main profession didn't stop him getting swept off his feet by the easy stock market money to be made during the 1999-2000 tech-boom.
He had started investing in the early 90s, buying a few blue-chips and "started watching their share prices daily on Teletext, expecting them to start rising immediately, as novices tend to do," he says.
The tech-boom & unmerited profits
As he became more interested, Robert read Jim Slater's book "The Zulu Principle" and became convinced by the "PEG" concept. Then came the dotcom boom in which Robert says he "made an absolute fortune through no merit on my part at all."
For a couple of years, he put his farm and other business interests on "maintenance only management," and "bought and sold shares like there was no tomorrow, living in front of my computer".
But he was wise enough to realise he had made a lot of money from following what were fundamentally flawed investment theories. This left Robert with no confidence in his own judgement. "I simply stayed in cash for years, dipping back in only for long enough to get fleeced by the cowboys who ruined Zero Dividend Preference shares," he says.
Back in with his feet on the ground
Around five years ago, he resumed his investing in earnest, buying what are mainly more grounded, sensible investments. His portfolio is "mainly solid stuff with low-ish P/E, and good cash flow, as evidenced by a decent dividend." He accepts a modest short-term return but generally expects a re-rating in the longer term, saying: "In an environment of low interest rates, a growing company with a high dividend can only remain this cheap whilst investor confidence is low. When things stabilise, as they must eventually, I expect the P/E of the FTSE 100 to go up from about 9 times to at least halfway towards the 19 times it achieved in 2000."
Despite this feet-on-the-ground approach, Robert isn't averse to the odd mega small-cap punt of around 10% of his portfolio. Though he's quick to point out: "I'm rubbish at these; witness my very large losses over the years on Universe Group (LSE: UNG), despite the fact that I knew the management and the company strategy well."
Importantly, this is a man who is wise enough to know what he doesn't know: "I have made a lot of money out of investing in shares. I believe this has had very little to do with investment acuity, more with pure luck. I also believe this to be true of many others who would not agree.
"In the long run the stock market is like a casino that pays out, perhaps, 7% on investors' bets, so on average, everyone beats the house, so long as they keep the costs down."
Like many of us, Robert is increasingly impressed with the quality of analysis on The Motley Fool, saying: "The standard of posts has become so high that many of we older posters have been overtaken and are restricted to making the odd comment from the side-lines."
Let's hope he posts more about his investments, but until then here's where the current Skegbyhouse money sits:
iShares are exchange traded funds that track different indexes and commodities. Robert's largest single investment is in the iShares FTSE 100 (LSE: ISF), which yields just under 4% and tracks the main UK index at a low cost.
He buys a few whenever the market dips significantly, hoping to beat the FTSE 100 index over time, saying: "There are no insiders to an index so all investors start off equal; including institutions. My 'buy when others are fearful' strategy is easy to apply."
2. Bank preference shares
Next on Robert's list are various bank preference shares including Nat West 9% preference shares (NWBD), Lloyds Banking Group 9.75% non-cum irredeemable prefs (LLPD) and Lloyds Enhanced Capital Notes (ECNs).
"I class all these as one since they are all high-yielding bank issuances that will either come very good or crash badly," he says. "The market sees high risk; I don't, so the yield and future re-rating should offer a decent return in the long term."
At last a small cap; at number three is land and property developer Inland (LSE: INL), recently covered by yours truly.
Robert has met Inland's management and likes and trusts them. He points out that the FD has been buying a lot of shares and the company is very reluctant to raise cash by dilutive rights issues.
4. A bunch of blue chips
Next on the list are a bunch of blue-chips, namely Vodafone (LSE: VOD), Aviva (LSE: AV), AstraZeneca (LSE: AZN), Tesco (LSE: TSCO), National Grid (LSE: NG) BAE Systems (LSE: BA) and others.
Robert lumps these together as each has a story to convince him that their prospects are good for slowly increasing profits and dividends over the long term. He thinks each will benefit from the generalised market re-rating he anticipates.
5. A bunch of small caps
And finally, Robert holds bunch of small caps in which he has small holdings, including Judges Scientific (LSE: JDG),Idox (LSE: IDOX), ENK (LSE: ENK) and Newmark Security (LSE: NWT).
"These vary from absolute disasters to very good, representing perhaps 10% of my portfolio. They're there simply to remind me of the cluelessness which has always typified my decision-making at the individual company level."
I think we all know that feeling! So what do you think of Robert's investment strategy? Is he destined for further glory, or should he concentrate on the farm? And if you're a long-time Fool that would like to take part in this series, send an email to the Foolish Editors at firstname.lastname@example.org
> Read more articles in this series
> David owns shares in Inland, Aviva and AstraZeneca. The Motley Fool owns shares in AstraZeneca and Tesco.
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