Thursday, June 30, 2005

Google Gone

On Tuesday I sold my Google shares.

On Monday night I noticed that they had closed above $300. I had been concerned about their valuation for a while and had already decided to lock in the profit if they fell below $270. However selling at $300 gave me a 50% gain in four months. I am quite happy to take that!

If the share price falls below $270 I may buy in again - that would be low enough to mean I can end up with 11 shares rather than 10.

A mistake I am trying to avoid is plunging the money straight back into the market. This is what I normally do and end up not getting a very good entry price in whatever I buy. Instead I am going to wait for an excellent buying opportunity to arise.

So now I am short (positioned so I hope the price goes down rather than actually having borrowed shares and sold them) on Google, the biggest success story this year in my portfolio. Let's hope I know what I'm doing!

Wednesday, June 22, 2005

Endowments Suck

I am in the unfortunate position of being the owner of an endowment. For the lucky people who have never come across an endowment it is an investment product that includes life insurance and is normally used to pay off mortgages.

When we bought our house our mortgage advisor told us that endowments were the way to go. They often beat their target, leaving you a nice little surplus at the end of your mortgage term, and should break even after five years.

Ha! So having had my endowment almost 6 years it should be worth something close to what I have paid in? Dream on. I have paid in over £9000. The surrender value is currently about £6700. £6700!!

I am trying not to think about this too hard to avoid getting angry. Exactly what value an endowment adds over an index tracker fund with a separate life insurance scheme is hard to fathom. What is the point of bundling life insurance with an investment product? Isn't it just a way of making the product more obscure, allowing higher charges?

Apparently one of the reasons the surrender value is so low is because for the first couple of years most of the payments are swallowed by charges. But what are the charges for? The money just goes into a couple of funds and then there is the insurance part which does not require any management. The whole thing seems like a complete rip-off.

Aghhh! Any financial product this opaque should be taken outside and shot. The good news is that UK homeowners are now much wiser to the disadvantages of endowments and they are rarely sold.

Today I am going to surrender my endowment. Yippee! As a unit-linked endowment none of the "sell-us-your-endowment" companies are mad enough to buy it so I will simply be asking the insurance company to cough up.

The good bit? I will then be investing the money in a select few British blue chips. The joy of capital allocation! Selecting the companies to invest in will be the subject of my next article.


Saturday, June 11, 2005

Into the black

The turnaround in my portfolio performace in the last two months has been outstanding. It has moved from being down over 15% to showing a small profit in what felt like a few weeks. This was largely thanks to a strong recovery by eBay and an incredible rise by Google.

My Google shares have risen in value by over 40% in the four months I have owned them. The question now is whether to lock in the profit or hold on?

I still think the share price has further to go this year, although it may drift until the Q2 earnings come out. My reasoning is that the market still does not fully comprehend how much the earnings can grow over the next few years. Obviously the Q1 results were fantastic and the shares have been re-rated accordingly. But even after the rise Google's PEG is inline with the market based on a 30% growth rate for the next 5 years. But I think 30% is too low for the next couple of years. 40 or 50% is probably closer to the mark. So I think Google has still got a couple of positive re-ratings left in it before it is fully valued.

The eBay share price is extremely volatile at the moment and after clawing its way back to $39 it has now sunk down to £36.5. However I am holding for the long term and expect I will be showing a profit on my $43 entry price by the end of the year.

The market is cheap. This is a great time to be fully invested in stocks.