How DIY investing helped me go from council flat to coastal cottage

Times

3 days ago

When a cabinet minister (in this case Liz Kendall) predicts that 'tomorrow's pensioners will be poorer than today's', it is time to paddle away from what she called the 'tsunami of pensioner poverty' and become a do-it-yourself investor. Relying on the kindness of strangers is a recipe for disappointment, whether they are paternalistic employers or kindly politicians recycling other people's money.
So this DIY investor is jolly glad that I began buying shares more than 30 years ago, when, in the 1980s, millions of ordinary people enjoyed making money out of the stock market. Privatisations were priced to go — do you remember, Sid? — and the flotation of financial institutions such as Abbey National and TSB delivered windfall profits that helped to turn small savers into serious shareholders.
Since then, shrinking returns from many British businesses and burdensome taxes on investors have crushed dreams of a share-owning democracy. But the SOS message from the work and pensions secretary last week may serve as a wake-up call for millions who are sleepwalking toward a miserable old age.
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Let me explain how and why I began investing. Better still, for anyone lucky enough to be in their twenties, as I was when I started on Fleet Street in 1986, I can flag up some pitfalls of the stock market that I learnt the hard way.
The first thing this cub financial reporter from Kilburn in northwest London noticed was that the Square Mile is full of ordinary folk receiving extraordinary remuneration. There's nothing necessarily wrong with that: give me overpaid over underpaid any day.
But every penny of those City slickers' pay and bonuses has to come out of the pockets of the punters or, more formally, policyholders with life assurance-linked contracts and other old-fashioned investment funds. That's why I decided to start buying shares for myself, gaining a stake in businesses that I liked and shunning rackets that I loathe, such as tobacco.
Professionals love to make their work seem complex because it helps to reduce competition and protect high pay. But anyone can see and hear where consumers are spending their money and which companies or countries might be on the way up.
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That's how I stumbled on what turned into my very first ten-bagger — a share whose price went up ten times after I invested. A couple of business trips to the Far East prompted the idea of gaining a stake in Asia's ruthless work ethic, memorably summed up by the line: 'He who does not work shall not eat.'
Knowing nothing about the individual businesses, I bought shares in London-listed investment trusts that were focused on China and India. Like other forms of pooled funds — such as unit trusts and exchange traded funds (ETFs) — these enable everyone to diminish the risk inherent in stock markets by diversification, which spreads our money over different companies.
Long story short, shares in what was then called Fleming Indian and is now JP Morgan Indian, in which I invested a low four-figure sum at 63p in June 1996 cost £10.70 at close of trade on Friday. Newish fund managers say they intend to begin paying dividend income equal to at least 4 per cent of net asset value (NAV) later this year, which is good news after it has performed relatively poorly in recent years.
Less happily, I was an enthusiastic participant in the demutualisation mania of the 1990s, when several building societies floated on the stock market. Not one of those newly formed banks remains an independent institution now and none of the shares issued by Alliance & Leicester, Bradford & Bingley, Halifax or Northern Rock is worth anything today. No wonder they say windfalls don't keep.
More positively, that painful experience taught me that there is nothing theoretical about the warning that share prices can fall to zero. It also demonstrated the danger that if you follow the herd, you might end up at the abattoir. As a general rule, if everyone is investing in something, public confidence and share prices are likely to be near their peak, so there probably isn't much money left to be made.
That's one reason I intend to continue avoiding cryptocurrencies, the investment craze of today. Another reason is that I prefer to own shares in businesses providing those goods and services where I can see customers paying real money, funding rising capital values and dividend income for investors.
For example, watching my wife and her girlfriends enjoying the early days of the gin and tonic trend led me to the life-changing investment that is Fever-Tree Drinks. I paid £2.11 in March 2015 for shares I sold for £36.52 in October 2018, as reported here at those times, to help to buy the coastal cottage on the Isle of Wight where I am sitting now.
But the rump of Fever-Tree shares I still own have gone somewhat flat since then. This reminds investors that paper profits are all very well but we haven't really made a penny until we sell.
Of course, this DIY investor could have stuck it all in a tracker fund after Richard Branson — as he was then — paid me to write about investing in funds that follow stock market indices 30 years ago. But I don't think aiming to be average would have taken this poor boy from a council flat when Kilburn was still a slum, to where I am today.
Times change but the truth about pension planning and stock market investment remains much the same. Buying when confidence and prices are low is more likely to lead to wealth creation than waiting for perfection, and the sooner we start the better.
But before you invest anything, consider carefully how you will feel when markets fall. That should reduce the risk of doing something silly, like selling after prices plunge.
Investing little and often is safer than a lump sum because regular savings diminish the danger of bad timing or buying heavily before a fall. AJ Bell, Hargreaves Lansdown and Interactive Investor — Britain's biggest online platforms — all accept as little as £25 per month, without any commitment to continue.
• Full disclosure: Ian Cowie's shareholdings
Tax wrappers, such as Isas and pensions, allow us to place some of our savings beyond the grasp of HM Revenue & Customs. Make the most of both while you can because any imminent tax raids are unlikely to be retrospective.
Pension perks or fiscal advantages have certainly become much less generous during the decades I have been benefiting from them. Which reminds me that, long ago at another newspaper, a senior colleague used to smirk about how boring he thought pensions were. To which I replied that they were not nearly as boring as poverty in old age was likely to be.
Young investors have one big advantage over wrinkly rivals — time. None of us can opt out of growing older, short of doing something drastic, and the state safety net seems to be sagging lower as more folk fall into it. Sad to say, it might be even worse tomorrow.