I am not normally one to let tax considerations drive investment decisions. Perhaps the best proof of this occurred in 1987. I had the foresight, or perhaps it was simply good luck, to sell a large portfolio of shares at something close to the top of that particular bull market. Suffice to say, the following year I was stung for a sizeable CGT bill. The consolation was that, had I let the tax considerations stop me selling in July 1987, I would have lost rather more in the ensuing October crash.
These days I am a little more alive to the tax consequences of what I do. Last year’s stock market gains ate up my own and my wife’s annual CGT exemption and all our accumulated previous tax losses combined.
This wouldn’t have stopped me selling out of an investment if the need had been urgent. But as it was, I was able to wait until the start of the new tax year before selling a holding in Erinaceous, the property services group, for reasons I alluded to at the end of last month’s comment.
I was concerned that the recent news relating to an alleged potential fraud at one of the group’s subsidiaries, while seemingly not too significant for the company as
a whole, could be symptomatic of
a control issue at a company that has grown very rapidly by acquisition.
On the whole, unless it affects profits, issues such as this can often be ignored. In this case, though, I had some substantial profits, and baling out now having tripled my money, seemed the least risky course of action. To quote the old traders’ maxim – “if in doubt, get out”.
I still take the view that inflation and geopolitical uncertainty are likely to be key themes for the remainder of the year. It’s one reason why I am continuing to focus my investments on tangible assets rather than shares. It is a matter of degree and a matter of emphasis, but my policy for the last year or two has generally been, when I sell a share, to reinvest part of the proceeds in something tangible.
The past month has been no exception. I have added to the small portfolio of collectable Manx coins I acquired in March by buying some scarcer pieces from the London numismatists AH Baldwin, now part of Noble Investments, also one of my shareholdings.
More significantly, at least in money terms, I have continued adding to my stash of bullion coins. I originally began buying gold bullion coins as a way of accumulating a modest nest egg for my grandson. In recent months, I have been buying Krugerrands for myself in rather greater numbers. This exercise is currently showing a modest profit.
I mean to continue adding to this little hoard as and when the gold price eases back a little, as I expect it to do in due course. I am still some way away from the maximum £10,000 an individual can buy in any one year without attracting the interest of HM Revenue & Customs, and I expect to continue buying up to this point.
My longer-term expectations for gold are for the bullion price to
go well into four figures in dollar terms and I don’t think I am alone in that.
I haven’t been neglecting my share portfolio entirely. Part of the proceeds from the Erinaceous disposal went into a new stock, Parkwood Holdings.
Based near Preston, not too far from where I live, this company is involved in managing parks, trees, open spaces and leisure centres for local authorities. It also provides an agency service to supply medical personnel to hospitals and nursing homes, and provides non-emergency transport facilities for patients.
Recent results were appreciably better than forecast, and the company is optimistic about prospects for 2006, having recently closed on a large new leisure contract and acquired a waste recycling and horticulture business.
I like businesses such as this one that do mundane and nderstandable things quietly and efficiently and generate solid cash flow in the process. In Parkwood’s case, what is particularly interesting is a very low valuation in terms of price to sales and, if the company can maintain the margins it recorded last year, price to earnings.
It has some tough acts to follow in my portfolio. Most of my recent sales have been of stocks that have tripled in value while I owned them. I’m looking for Parkwood to do the same.
