Peter Temple: A lost appetite for small fry

One of the lessons I have learned afresh in recent months has been that taking your eye off the ball can have disastrous effects on your investment performance. That’s particularly true in the market conditions that have been present over the summer. It’s doubly the case if the investments are in small companies.

While the overall performance of my portfolio has been insulated by the high proportion of assets outside the stock market – in gold, collectables and property – the performance of my stockpicking has been woeful.

I have come to the conclusion that holding any small company shares is, right now, not a particularly good idea.

For one thing, I am not convinced that the bear phase of the market is over. And even if it is, it seems likely that the upside potential will be in large index constituents rather than the small fry.

I have a sizeable exposure to equity markets in the UK and overseas through fund holdings, so I am not too worried about being “left behind” if I am wrong about the market’s immediate future direction and shares take a turn for the better. I also hold gold shares and income-producing investments via funds so, if the market does fall back from here, my gold exposure and high-yield investments should provide some of sort of hedge.

Given my current disenchantment with smaller company shares, I have therefore liquidated the remainder of my small portfolio, all but one of which was sold at a loss.

Out has gone Carpathian (formerly Dawnay Day Carpathian), Claimar Care, Optare (formerly Darwen Holdings) and HML Holdings, the one share
that was still giving a significant profit. I now have cash to add to my fund holdings, to buy new shares, or to put towards bumper holidays.

One investment strategy I am considering is to focus on getting my exposure to the market through exchange-traded funds. These are index trackers that trade like shares (the most common of which are grouped under the iShares banner) and which also have the advantage of exemption from stamp duty.

While the most popular of these track well-known indices such as the FTSE 100 and the S&P 500, they can also be used to gain exposure to market sectors, to commodities, to bonds and to overseas markets.

If I pursue this, it will allow me to switch my investment emphasis at the margin from stockpicking to asset allocation. I have pursued the asset allocation method in large measure in recent years, but not 100 per cent. A move of this sort would completely eliminate any of the stock-specific risk to which my portfolio has been subject of late and replace it with a comprehensive judgment on the best broad areas to which I should be exposed.

This may sound like something of a cop-out, and in a sense it is. Like many investors, I am feeling a little bruised by the events of the past year and this is one way of dealing with it.

In the meantime, I am planning further investment in rare coins, which continue to increase in value. I have my eye on some pieces in a local coin auction in the Lake District, and the end of September sees the annual Coinex numismatic fair in London.

In fact, the recent weakness in the pound against the dollar has meant that the value of my stash of bullion coins has held up well, in spite of the recent fall in the gold price. So, even if my stockpicking has proved flawed of late, my investments in other areas have done rather better.

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.