Interactive Investor

Shares for the future: building a forever portfolio

2nd July 2021 15:51

Richard Beddard from interactive investor

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After decades of active investment, our companies analyst ponders his future and discusses changes to his stock ranking system.

Many years ago, before my life was delineated by crises - the pandemic, and the great financial crisis - I met Dr John Martin at his home somewhere in the home counties.

I cannot remember which home county, it might have been Oxfordshire or Berkshire because I drove south west from Cambridge, but fortunately I wrote down what Dr Martin told me.

It was February 2005 and, believing there is much to be learned from readers of my articles, many of whom are more experienced investors than me, I had gone to interview him for a profile that was subsequently published here on interactive investor.

Learning from our elders and betters

By the time I met him, Dr Martin had been retired for 16 years.

He was not a medical doctor. His doctorate was about the corrosion of aluminium alloys, and he had worked most of his life as a metallurgist at the Atomic Weapons Research Establishment at Aldermaston.

As a side hustle, he had traded aluminium and zinc. At first, he drew moving averages by hand but, as computers became available, he adopted them. First a Commodore Pet, then an Amstrad.

Trading commodities did not always go his way, and he came to regard it as gambling, but he had spun £1,500 into about £30,000 by the time he retired, which, combined with a payout from a life insurance policy of £189,000, would fund his retirement (along with a modest annuity he was compelled to take under the terms of the policy).

If the numbers are modest compared to the amounts we are told we will need to retire, remember Dr Martin retired over 30 years ago in 1989 and, anyway, he was not going to fund his retirement conventionally.

He had declined to contribute to what is often regarded as a gold-plated pension, a public sector defined benefit scheme that would pay him an income for life, when he was offered it in 1952. Instead, he chose the life insurance route and the freedom to spend or invest a large lump sum when it matured.

Unconventional choices

He chose to invest the lump sum in shares that he believed would pay rising dividends, which would provide his income. True to form, he had developed a system, incorporating moving averages to time his trades and borrowing from the fundamental strategies of investors like Jim Slater, to decide the 50 or so growing businesses he would track and trade.

Although he had graduated to a PC, he was still using SuperCalc, a close relative of the first spreadsheet program VisiCalc, to manually input share prices every day. The day I spent with him the system printed out four trades, all buys: Close Brothers, Man, Liontrust Asset Management and Whittard of Chelsea.

Now 16 years into his retirement, he was living comfortably off dividend income, and his retirement pot had grown from just over £200,000 to just under £500,000.

If Dr Martin is still with us, he is over 90 years old. I like to think he is, and still feeding prices into his computer (or perhaps just using a feed). Perhaps his retirement pot is worth £1 million now, but the reason I am retelling this story is only partly because I think it deserves to be retold.

Reaching 55

I have been thinking a lot about my conversation with Dr Martin because I have been thinking a lot about retirement, not, I hasten to add, because I expect to retire soon, but because I turned 55 in April.

I did not give much thought to this milestone as it approached, but then people started sending me letters. The Pensions Advisory Service invited me to have a chat, and my pension providers bamboozled me with guides explaining my options now that I am free to take a tax-free lump sum from my Self Invested Personal Pensions (SIPP), or indeed start drawing money from them.

Coincidentally, I buy shares with the intention of holding them for at least 10 years, which means I am currently thinking about investments I will still want to hold when I am 65. Maybe I will be thinking about retiring then...

Back when I was 39 and quizzing the venerable Dr Martin, I was slightly incredulous of his decision to be fully invested in shares. The conventional wisdom was, and probably still is, to reduce one's allocation of shares in favour of bonds as you get older. 

His reply was also incredulous, “Don't you think that is because they are talking about people who really do not wish to do anything? They just want a safe haven for their money, so they go into bonds. It is perfectly reasonable to do. But I have devoted 30 years to trying to find a system that works. I am not going to abandon that just because I should be in bonds.”

As a fellow system designer, now perhaps 20 or 25 years into my journey, I find myself thinking more and more about Dr Martin’s words and how I might change things when I retire.

My vision, perhaps fanciful, is that I will have spent so long searching for good long-term investments that I will be able to freeze my portfolio on retirement day and the shares will be of such quality that they will keep growing (over the long term) and provide for me.

Decades of active investment will have put me in a position that I can, in a sense, go passive.

Decision Engine

Since the last update, just over a month ago, I have added one new company to the Decision Engine and re-scored three existing constituents. The new company is Advanced Medical Solutions (LSE:AMS), and the old favourites are Anpario (LSE:ANP) and the potters: Churchill China (LSE:CHH) and Portmeirion (LSE:PMP).

As usual, the highest scoring shares are at the top of the table. All of the shares in the table are probably good long-term investments, but those ranked 7, 8 and (rarely) 9 are most attractive judging by my criteria of profitability, risk, strategy, fairness and price.

The stock market is also continuously rerating shares, which impacts the price, a component of each share’s score.

I need to have another look at Bloomsbury (LSE:BMY) which flounders at the bottom of the table. I usually deem shares scoring 4 or less unattractive, but I must have been in a bad mood when I scored the publisher. It has published its annual report and it would surprise me if I did not give it a higher score when I re-evaluate it shortly.

To see how I scored any particular share in the Decision Engine table, click on the company name.

Company

Description

Score

Goodwin

Casts and machines steel. Processes minerals for casting jewellery, tyres

8

Dewhurst

Manufactures pushbuttons and other components for lifts and ATMs

8

Howden Joinery

Supplies kitchens to small builders

7

Victrex

Manufactures PEEK, a tough, light and easy to manipulate polymer

7

XP Power

Manufactures power adapters for industrial and healthcare equipment

7

Cohort

Manufactures military tech. Does research and consultancy

7

Portmeirion

Designs and manufactures tableware, candles and reed diffusers

7

Judges Scientific

Acquires and operates small scientific instrument manufacturers

7

Porvair

Manufactures filters and filtration systems for fluids and molten metals

7

Next

Retails clothes and homewares

7

PZ Cussons

Manufactures personal care and beauty brands

7

Bunzl

Distributes essential everyday items consumed by organisations

6

Quartix

Supplies vehicle tracking systems to small fleets and insurers

6

Games Workshop

Manufactures/retails Warhammer models, licenses stories/characters

6

James Latham

Imports and distributes timber and timber products

6

D4t4

Develops and integrates Customer Data Platforms

6

Anpario

Manufactures natural animal feed additives

6

RM

Supplies schools with equipment and IT, and exam boards with e-marking

6

Churchill China

Manufactures tableware for restaurants and eateries

6

Trifast

Manufactures and distributes nuts and bolts, screws, and rivets

6

James Halstead

Manufactures vinyl flooring for commercial and public spaces

6

FW Thorpe

Makes light fittings for commercial and public buildings, roads, and tunnels

6

Jet2

Flies holidaymakers to Europe, sells package holidays

6

Solid State

Manufactures rugged computers, battery packs, radios. Distributes electronics

6

Renishaw

Whiz bang manufacturer of automated machine tools and robots

6

RWS

Translates documents and localises software and content for businesses

6

4Imprint

Sells promotional materials like branded mugs and tee shirts direct

6

Tracsis

Supplies software and services to the transport industry

5

Softcat

Sells hardware and software to businesses and the public sector

5

Treatt

Sources, processes and develops flavours esp. for soft drinks

5

Tristel

Manufactures disinfectants for simple medical instruments and surfaces

5

Focusrite

Designs recording equipment, loudspeakers, and instruments for musicians

5

DotDigital

Develops marketing automation software

5

Volex

Manufactures connectivity components and power cord

5

Advanced Medical Solutions

Manufactures surgical adhesives, sutures, fixation devices and dressings

5

Castings

Casts and machines parts for vans and trucks, primarily

5

James Cropper

Manufactures specialist paper, packaging and high-tech materials

5

Avon Rubber

Manufactures respiratory protection equipment and body armour

5

Hollywood Bowl

Operates tenpin bowling centres

5

Bloomsbury Publishing

Publishes books and online resources for academics and professionals

4

Richard Beddard is a freelance contributor and not a direct employee of interactive investor

Richard owns shares in many of the shares in the Decision Engine.

For more information about my scoring and ranking system (the Decision Engine) and the Share Sleuth portfolio powered by this research, please read the FAQ.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.

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