My wife is expecting great things from me: I will create award-winning paintings, poetry, complete a book and a screenplay – and my share portfolio will perform exceptionally well.
There are reasons for her newfound optimism. January 29 saw the start of the Chinese New Year. My wife is Chinese and has pointed out that it is not just the Year of the Dog, but of a very special type of dog: a fire dog. According to the Chinese zodiac I am a fire dog so I ought to prosper.
However, I do not feel the year is starting well. I feel rather poorly with stomach pains, headache, cold legs, nausea. I was also shocked by recent newspaper reports speculating that certain changes on April 6 to the Self-Invested Personal Pension (Sipp) rules may not now happen. I had expected that Sipps would be allowed to invest in unquoted companies. Now it seems there are fears that some Sipp holders might use Sipp funds to invest in their own, perhaps poorly performing companies.
My personal view is that, rather than cutting off all investment in unquoted firms, the simple solution would be just to prevent Sipp holders investing in their own businesses, thus allowing direct investment in a whole range of other unquoted firms.
I am concerned that some civil servants and advisers think that most private investors are stupid and are unable to properly assess risk and so should be forced to invest in “collective” schemes such as venture capital trusts and other funds run by managers. But many fund managers perform worse than quite a number of private investors.
Generally, Sipp holders have a good grasp of risk-reward factors and are more prepared to invest for the longer-term for a very good profit rather than acting like the average fund manager who invests for the shorter term.
For many people, their pension fund is their largest “investable pot.” Apart from City folk, finding an immediate £10,000-£50,000 out of earnings to back a good investment is quite difficult. Yet private investors may well know people starting businesses who need interest-free cash – and free advice – for several years and are prepared to give a reasonable stake in their firm in return.
Sipps are the ideal source of such funding as a pension fund, looking 10, 20 or more years ahead need not concentrate on short-term returns but rather outperformance over the long term. Sipps should be allowed to use at least 20 per cent of their funds for unquoted business investments.
There are lots of potential entrepreneurs. Look at the success of the Prince’s Trust, which has helped thousands of young people by giving them advice and low interest loans of up to £5,000 to create sustainable, profitable businesses.
Gordon Brown’s Chinese zodiac sign is a metal rabbit and such people are said to be successful because of logic, intelligence and patience. I sincerely hope he will ensure that on April 6 not only will Sipps be allowed to invest directly in unquoted companies but encouraged to do so.
As to my current Sipp portfolio, it could well benefit from start-up investments although I will also continue to back large quoted firms such as Associated British Ports, Lonmin and Novartis as well as smaller companies – especially those with growth potential such as Oxford Biomedica and Protherics, both in the pharmaceuticals sector.
Looking at the market, I remain cautious but feel takeover activity will continue – it helps City folk get fat bonuses and countries and companies with large US dollar holdings may increasingly worry about US debt and an over-valued dollar and so use part of their dollar holdings to buy businesses in the US, UK and elsewhere.
In this Chinese New Year I shall also hope to emulate some of the factors that have made investment trust Caledonia Investments so successful: it has a wide mixture of investments, both quoted and unquoted, and invests for the longer term. Last year Caledonia’s shares rose from £13.46 to £18.95 and have since risen further.
I will be regularly looking at the company’s website which includes a monthly fact sheet and mentions some of its sales and purchases. Maybe I can buy shares in companies soon after Caledonia acquires a significant stake in the hope of matching its return of over six times its original investment in oil and gas company Paladin.
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