This week, I sold up one of my investments to crystalise a loss. Why did I do it and why does it make sense sometimes to cut your losses?
A Tale of Two Funds
I invested in a new issue investment trust called Octopus Renewables Investment Trust. [Octopus Renewables Infrastructure Trust] wrote about it here and it sat within my ISA. I thought it was a simple buy and hold and I liked what it was investing in. It also provided a proposed steady dividend of 4p/share per annum ad infinitum – something to fall back on if times get tough.
New issue shares don’t attract stamp duty (saving you 0.5%) and I had some money to invest, so in it went. The IPO was oversubscribed and allotments were scaled back – I got a bit less than I had wanted but was happy with what I got. In total £350m was invested in ORIT. That’s a lot of money and much of it was in the form of pension funds investing your money in for the long haul. The prospectus said to expect non-stellar long term capital appreciation with the sprinkle of a decent annual dividends putting in in the low risk/low drama region of investing.
Upon trading in December 2019, the share price immediately rose to 108p/share – an immediate profit! The shares are now priced at 113p and have paid out just over 3p a share giving a total return of about 16%. Given all that’s happened in the world since, it’s been a very decent return.
In December I read about a new investment trust called Downing Renewables (DORE) which was raising money to do exactly the same thing as Octopus. I’ve written about the demand from investors for infrastructure and renewable investments and the need for developers to have a route to market and thought that instead of investing in DORE I would buy and sell – flipping my investment and selling for a modest 8% profit.
I had some free cash from my animal rental business (Christmas deposits came in early), so I decided to invest £6,000 into DORE in a taxable investment account.
What a simple idea I had. Unfortunately, unlike ORIT, DORE didn’t oversubscribe and they raised less than they had hoped for (still, £122.5m ). On the first day or trading, the price was 99/101p per share, meaning if I sold up, I’d be left with a £60 loss (plus trading fees). Disappointed as I hadn’t considered the downside, I decided to hold on to my shares instead of selling as I said I would. Maybe the price would shoot up at some point, maybe as the money invested in the trust gets more interest and they start generating returns.
Alas, the share price never went anywhere and if anything started to drift downwards a bit even with good news coming through. I thought that waiting would help the share price rise but it didn’t.
I started looking ahead to the new tax year and our ISA/LISA subscriptions, tax position, future income/outgoings and also my limited company tax bill & director’s loan (due end of June) and realised that money might get tight. So on Friday, I decided to sell out for 97p per share less fees. So my £6,000 investment got turned into £5,814.05. A 3.1% loss in about 3 ½ months or annually about 10%. The loss may help a bit with capital gains tax as well by the way but that’s another story.
Lessons Learnt & Fingers Burnt
The main lesson is that you shouldn’t confuse luck with skill and the only get rich quick scheme is the one where your money makes someone else rich. On the other hand, I’ve not lost that much (I’ve not checked the markets/indices but I’ve more money than I started).
Compared to some investors, I’ve nothing worth complaining about.
It was psychologically hard to sell-up – it meant that I had to admit that I wasn’t Warren Buffett and my investment wasn’t working out and I had to own up to that as it was my speculation and if I didn’t sell, I’d not be able to move head with our new tax year plans.
But, should I have invested in December when I needed the money again in a few weeks/months? I’m not sure to be honest. The professionals say that you should invest with a 5 year time horizon – probably for good reason. However, I’ve got a FreeTrade account (no referral link guys but check out Weenie’s blog for a good review) and can buy/sell ETFs quite easily for no cost or stamp duty, meaning that I could invest in something like VWRP or VWRL and add money when I’m flush or sell a bit when I’m broke.
New Tax Year Plans
Looking at our cash flow position, it looks like we’ll be able to load up one of our ISA/LISA allowance (£20,000) come the 6th of April. I might take that opportunity to sell the ORIT holding which trades at a 15% premium to NAV (113p vs. 98p) and buy back into DORE – there’s no good reason in my mind for one there to be such a difference in premium.
I have recently bought a book called “Investing to Save the Planet” by Alice Ross (who is an FT journalist) and it’s made me think a bit about where my money is invested and what it’s doing. The book is very good if you already have decided that climate change is a problem and we need to do something but beyond recycling your paper and plastics, don’t know what to do. I’m only part of way through just now, so I’ll have a think about where to invest (be it vanilla VWXZ or more exotic into something like Abundance or GreenCoat Wind, or TRIG (who are raising money right now) between finishing the book and the new tax year.
So, in the end no major harm done. A £200/3% loss is tolerable given that it’s a small part of our portfolio and unlike most bets, we got to keep our stake. It has made me think twice about going for a quick buck – because I believe you only need to get rich once and inviting excessive risk into your financial life is not good.