2022 What a year that was

This review is as much for me as for any readers who stumble across it. I also egotistically like to think it acts as a more accessible legacy for my heirs than the chaotic set of Tweets I've hitherto used to lay out my thinking. I've found it not only cathartic but useful to write a whole document which isn't something I do much of any more since retiring.

TLDR

What I got right

Not buying a Lambo after 2021
Reducing debt exposure as interest rates looked set to rise
Spent 89 nights in our new camper van trying to YOLO
Sat on hands for the most part

What I got wrong

Should've sliced more PE gains from 2021
Shouldn't have banked on the BoE not daring to raise rates
Should've scaled into all my adds and taken longer on averaging down
Shouldn't have added to RE

Review

I started 2022 at pretty much an ATH with total AUM across our portfolios at around £1 550 000. And yes, having a paper gain of almost £300k led to some pretty hubristic predictions in the RI household along the lines of "our main problem in retirement is figuring out how we're going to spend it all" etc...

However, I didn't acquire that pot to start with by blowing it on Lambos over the years so we top-sliced some of my overweight PE and bought new sofas and a car for my daughter (at a much-begrudged 30%+ premium from a dismal set of candidates way back in March). In line with my longer term strategy of not wanting to turn investing into a day-job, my intention was to step away from the more volatile small cap stock picks I house in Mrs RI's ISA and dispose of them, mostly this year at a loss of some kind. Again my ego made me think I could beat an IT at least in that arena - after all, that is the PI's advantage to be nimble in smaller, less-researched stocks. But here's the thing. Something I found interesting, diverting and initially satisfying during all those lockdowns has subsequently proved to be a distraction from what I really want to do, which is enjoy the fruits of all that deferred enjoyment in working life. I absolutely get why someone who has to sit at a desk most of the day would easily build a routine around RNSs, setting and reacting to alerts and of course the general art of execution. And if you have a gambler's predisposition it must be doubly alluring to enter the chat group rabbit holes that seem to exist for the ramped shares I occasionally see on Twitter and #finTwit. I've been suckered in by several and generally now will avoid out of principle any I see mentioned too often. Peter Higgins @conkers3 regularly warns on this in his Twin Petes podcast with @wheelieDealer and I genuinely think some people on #finTwit probably need mental health support as much as investment advice, something Peter champions to his credit.

Lesson #1: I'm not cut out to be a trader

The Good

Firstly, my cautious nature means I try to avoid any position bigger than 5% of our wealth in anything. There have been exceptions in the past (once had 200k in Royal London Sterling Extra Yield Bond fund in the run up to drawdown and £80k in Pantheon International Private Equity #PIN) but now cash is the only thing we have 7%+ in. My one exception is my all-time favourite preservation fund Capital Gearing #CGT which hasn't beaten cash this year, but is the one fund I'd pick if I had to put everything in only one.

Benchmarks

Despite the season of goodwill, I'm going hard on myself as I've failed to beat my capital preservation benchmark of #CGT and probably always will. If I could sensibly put the lot in there I would.

Income

I never care when and how often a dividend occurs as always have cash to fund our £1800 monthly regular SIPP withdrawals. YOLO money is a Year End ISAs withdrawal of yield. Total yield this year is ~64k (up 4k), but we don't take all the SIPPs' yield so they effectively compound to a certain extent. Now that cash can at least yield something, we may withdraw it more often than annually or drip into a money-market fund for year-end.

Diversification

Which leads me to diversification. I mainly invest in Investment Trusts, many of which are fairly illiquid and thus swing to large discounts at times like this. They are ideal wrappers for what are themselves illiquid assets like PE, Property, Bridges etc..This suits my buy and hold nature and for the most part our investments are there to provide retirement income and some growth and I ideally wouldn't sell any. I tinker around the IT trading edges when discounts narrow or widen but that's through choice rather than necessity. If you want to see someone doing this full-time, I suggest following @RidyardMike. So our SIPPs are skewed towards lower volatility (haha) income producers in debt, RE, infrastructure with a sprinkling of equities. I also have an acknowledged issue putting more than £20k in something. This forces me to have around 70 holdings currently and I've tried to reduce this, but lack enough conviction in enough vehicles to really surmount this. And it protects me from making big mistakes. It's not too bad as each PF has < 30.

Lesson #2: Sitting on hands is easier with diversification

The general sitting on of hands is reflected in these annual buys/sells which I took out of Sharepad. This reflects the building up of post-drawdown portfolio reallocating, lockdown trading and now more YOLO.

#GACB

If I made one good buy in 2022 it was to lump £50k into General Accident Irredeemable Cumulative Preference Shares 7 7/8. I re-entered these as they were trading around par which was my perceived MoS. The basic yield over 7% (to me) on these compares very favourably with a level annuity which would evaporate on my demise. In our SIPPs they are at least inheritable. If they climb back towards 130 I may reallocate in another bull market, but they could be sitting there for years.

Commodity Trades

I won't catalogue the losses I've incurred dabbling in commodities explorers and miners in the past. But I have found it easier to at least not lose all my money and twice I made actual profits. I have the excellent analysis from @feynzz to thank in some of this along with some general points which aren't exactly rocket science.

Avoid debt like the plague, unless you know how it's going to be funded (see Sirius potash as prime example) and I exited #PXC for a small loss due to their impending need for funding
Avoid geopolitical uncertainty (see #AAZ which I still hold)
Avoid explorers and jam-tomorrow RNSs (see #HUR)
Understand the All In Sustaining Cost (AISC) of whatever it is they mine
Understand the Life of Mine (LOM)

The Baaaaad

Worst single decision I think was to add to hard assets like property as an inflation hedge, never expecting the BoE to raise as much as they have so despite monitoring debt and when it rolls over, been burnt on #EBOX, #ASLI etc.. as highlighted here:

#IPO

Obviously with my 20:20 hindsight specs on, not selling everything and sitting the year out in cash was a bad decision, but I doubt I'd ever make that call nor when to start going back in. Because #NBPE is leveraged and I wanted to reduce PE exposure, I did exit it, and then rotate it into #IPO, which I still hold, but the discount arbitrage opportunity I thought I saw hasn't materialised so far. IPO still trading at almost half its last NAV even if you write down its retained holding in floated biotech #ONT to zero.

Lesson #3: You can't average down too slowly.

#EBOX

This was supposed to be one of several boring-ish industrial warehousing holdings along with #SHED and #ASLI . I reviewed debt levels and refinancing dates and rates and was happy to average down, again too quickly. What caught me out is that I considered that since their NAV is lower than the replacement cost of the assets, they have a moat of sorts. Long-term low rate debt too.

#POLN (was #HONY)

I've held what was called #HONY since launch in 2016 and it traded at a lofty premium at one point. Since then it's done exactly what they said on the tin. Sailed through Brexit and CV with an unperturbed NAV, performing risk-adjusted lending and dropping a quarterly 8% divi. Then it merged with Pollen Street, the managers and adopted a blended strategy of using some capital for private-equity-type investments and signalled a reduced but progressive dividend of 6% (of NAV). I've loaded up the truck on this across our portfolios, with most risk in ISAs as usual - the forecast yield is 13% on current SP. The investment portfolio is well hedged from an interest rate perspective with £237m of floating rate liabilities and £269m of floating rate credit assets. I like to think that in 12-24 months I'll either be wondering what I was thinking or celebrating top-slicing. Again, impatient with the averaging down, although I never imagined it would trade much below 700p tbh.

Not so #SMRT

Coming from an IT background, I really thought I could see the benefits of this during lockdown. Regardless of how the return (or not) to the office panned out anything that helped any company hot-desk various resources on a low rating to peers seemed as good an opportunity as any I looked at. I followed their various Investor Meet presentations where despite somehow not quite meeting previous forecasts/guidance, that was not far round the next corner, over the next hill. Yes it was ramped, but I did as much as I could to understand the business too and have more SP notes on this than anything else. Truth is, I don't have enough conviction to add until the newsflow improves, but still think this is a good business, but doubt I'll ever make anything on the holding (down 73%). Yes, I know all about stop-loss etc.. but that's probably a subject for another post. I've just allowed it to drift and shouldn't cut my losses, as I did more successfully with #MBH last year

Lesson 4: Just avoid non-profitable companies that are slow-burning cash.

Technical Analysis

I've tried to pick up some of the rudiments of this, but am never going to develop an edge as I have too many small-cap illiquid ITs and doubt I'd ever come up with a one-size-fits-all approach. However, although it wouldn't have prevented all my averaging down timing errors, waiting until the closing price crosses one or more of the 13/21/50 EMAs may have helped. As a simple rule, it might help avoid going in too early at least so will try to be patient on that one.

Commodities

I knowwww these are high risk and volatility as an asset class, and high risk as individual holdings, but actually think because of their volatility are also easier to trade with a MoS on fundamentals when they're making cash. I recommend following Dom Naskretski (@Melendhar) and @feynzz for more sources of inspiration if you're interested in trading strategies.

2023

Asset Allocation

As said, I'm underweight debt as much as I'm overweight property. Added to #SMIF on 8%+ yield this week

Here's holdings as at 7/1/23:

I don't believe any predictions entirely, including my own, for obvious reasons, but...

I'm expecting to lose less this year than last
I'm hoping someone takes Pootin out somehow, somewhen for the sake of all those bereaved families in UKR and if I'm honest, Russia too
I entered #POLN, #EBOX, #OCI, #IPO and #THS into the Twin Petes challenge
I'm planning to exit all individual stocks save for my commodity plays in Mrs RI's ISA and stick to that niche and my usual bread and butter Investment Trust fare, leaving our income ISA to be a mix of larger cap dividend paying companies and ITs.

All the best to anyone who's got this far!

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The Reluctant Investor

2022 Review