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Talking stocks

Some of our clients love to hold a small portion of their portfolios in direct holdings of UK equities. I often wonder why direct share ownership is so compelling.

When I meet with someone who has a self-managed portfolio of shares, I ask them a number of questions and the conversation usually goes something like this:

Q: ‘Why do you hold direct shares?’

A: ‘I enjoy managing them.’

Q: ‘How have you performed over the last one, two and three years?’

A: ‘I have had some winners and some losers.’

Q: ‘Are you disciplined in monitoring the performance against a benchmark like the FTSE 100?’

A: ‘Not really but I think I do okay.’

Q: ‘Do you think you can manage  shares better than a professional?’

A: ‘No, I don’t really manage them, it’s more a buy and hold strategy.’


A few things usually become clear as a result. There is no real strategy for managing this portion of their assets. They have no accurate data on how it is performing. They are not too bothered about performance because the shares are worth more than they paid for them years ago. They can cope with price swings because they enjoy the dividends.

There is also a strange paradox with their decision making. If a share does well they are reluctant to sell it. If a share does really badly they are also reluctant to sell it.

So, we often witness a ‘buy, hold, watch and die’ strategy in which clients will hold the shares well beyond a sensible period for maximising return. To do nothing with shares, except plan to sell them on a random future date, does not seem like a sensible strategy.

Increasing returns, reducing risk

This has led me to wonder why these shares seem to be stuck to clients with superglue. Often no amount of logic can persuade a client to part from them.

I think it is all down to the feeling that owning shares gives us.

We all like to feel part of something and so to feel like we own a share in a company that we know well, and whose products or services we use on a regular basis, makes us feel good. Equilibrium’s own AIM Portfolio invests in individual shares rather than funds, one of which is Fever-Tree Drinks. I often feel better when enjoying a gin and pouring in my Fever-Tree tonic, knowing that in some small way I am contributing to a company that I have a stake in (no matter how small that stake might be).

However, my role as an investment adviser is to increase client returns, ideally while reducing the risk. When it comes to individual share portfolios this is usually straightforward to do, as they often have poor returns and are highly concentrated.

But we first need to convince clients to let go of the old stocks and we have introduced two new initiatives that will help do this. Firstly, we have some very interesting stocks within the funds that we invest in – they are just not so easily visible at present. So we will be highlighting in our communications some of the shares that client portfolios hold.

Secondly, our Investment Analyst and former UK Equity Fund Manager Neal Foundly, will be running a review and management service. This will involve reviewing clients’ own direct share portfolios, analysing the future prospects for the specific companies compared to a similar index and then suggesting trigger prices to sell. With a client’s permission, we can then take over the management of these holdings, selling at the right time for each share over the years ahead.

Our job is always to take the emotion out of investing. It is the only way to help you improve your prospective returns and lower your risk.