2018 was my 26th year of running a family portfolio.  Identifying, understanding and controlling risk has been my saviour, initially as a soldier for 20 years and then for the next 20 dealing with Credit Risk.  In 1992 I decided to take investment seriously, understand portfolio management and measure my performance.   In 2012 I retired from the City and became a part time investor, recording my investment thoughts on a family blog that may allow  the next generation to find new Pooh traps, rather than fall into the ones I have already discovered.   I entered 2018 with a 25 year record of 15% annual gains and a standard deviation of annual return of 15% and below I provide my review of 2018 as presented to my family which may help others who have endured an uncomfortable year to 'soldier on'.

Before I lay out my performance for the year you need to know what risk management ground rules I apply to my portfolio. 

Firstly in terms of number of holdings I hold between 40 and 50 at any one time, of which the top 10 are around 60% of the total value.  With one exception, which I will come to later, no share can be more than 7% of my portfolio.  Indeed I discipline myself to stop buying any share, no matter how elevated my level of conviction, when the share reaches 5% of the portfolio value.    I exit the year with 6 of my top ten shares the same as I entered the year.  And three that joined the top 10 were 11th, 12th and 13th in the start of year list. 

Secondly, once I have understood a business and trust the management which typically takes two to three years, I generally hold my shares for a long period.  The share with the shortest holding period in my top 10( Sopheon (LON:SPE) ) which was ‘fast tracked’ in 2017 and 2018 while the others may have been holdings for longer, sometimes in excess of a decade. I am very conscious of liquidity and price manipulation so try to stay above £100m market cap, although there are exceptions.

Thirdly, I do recognise a circle of competence, or more accurately, my universe of incompetence.  I do not understand utilities and telecoms so avoid them completely.  With consumer stocks, both defensives and cyclicals…

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