Icheerfully admit to preferring my stock market investments in passively-managed form these days, and to spending more time on getting the right asset allocation.
This is simply because I find it a more efficient way of managing my portfolio, while leaving me time to devote to more entertaining activities.
My asset allocation method has delivered a solid increase in performance in the last three months (more details in the My Portfolio performance round-up on October 31), as it coincided with a switch in my main pension fund out of cash and into equity and corporate bond investments. My only regret is that I left a little too much in cash. I now feel I have to wait for a market correction to put this matter right.
When I do venture further into equity markets, it is likely to be with a “safety first” policy in mind. I will therefore use a selection of high-yielding blue-chip shares or an exchange traded fund (ETF). I may also take a more adventurous side bet in emerging markets.
Looking at recent equity market activity, I’m reminded of how rises in share prices tend to produce floods of rights issues to soak up the available liquidity.
And, in the past few weeks, I have seen a clear analogy between this stock market phenomenon and what has been happening in the market for rare coins.
A newly-discovered haul of Anglo Saxon artefacts from a field in Lichfield, Staffordshire, has resulted in a sudden large increase in supply – and the ensuing enthusiasm for metal detecting may result in more Anglo Saxon coins being unearthed.
For collectors of Anglo Saxon silver pennies, like me, this has shown how a market can be disrupted if a large hoard is unearthed. But in the numismatic market, the effects are often longer lasting.
As with equity market oversupply, the answer is to look for scarce niches in the market. In numismatic terms, that means the coins of Anglo Saxon kings that are generally harder to find. Even among issues that are readily available, there are ways of isolating valuable rarities. In Anglo Saxon times, mints were operating all around the country – more than 100 are known to have existed – but many produced coins on a very small scale, which will remain scarce no matter what metal detector enthusiasts might turn up.
Coins from these smaller mints, some of which produced only a few hundred coins, command a significant premium.
I recently lodged bids at an auction for coins from smaller mints of this era: a cut halfpenny from the reign of Harold I (1035-1040), and a coin from the Ancient British era. Commission bids, fixed in advance, are a good way of not overpaying.
I secured the two coins that I wanted, just missing out on a third, proving that I had set my bids at an appropriate level and avoided paying too much.
This provides another instructive analogy with equity investing. If you’re going to pick individual stocks, avoid run-of-the-mill companies. Try to find the scarcer, unusual companies whose supply of available shares is restricted and, above all, buy the best quality at the cheapest price possible. It works just as well in the stock market as it does in other spheres.
Peter Temple is an active private investor, writing about his own investments. He may have a financial interest in any of the companies, securities and trading strategies mentioned.
