John Cotter, Vice President of Barclays Stockbrokers, talks to Trading Diary about his new book ?Cotter On Investing?.
1. Who are you?
Just a 59 year old man who has worked in the finance Industry for 39 years, the last 35 years in investment and the last 15 years on the execution only side of the business.
I have done a lot of public speaking on the subject of investment over the last 15 years and write a regular column, ?Cotter?s Corner?, on the Barclays Stockbrokers web site which has been one of the most popular sections for a number of years.
I have been an investor on a personal basis in the stock market for 30 years.
2. What is your new book ?Cotter on Investing? about?
It?s about why and how an individual can invest, survive and hopefully thrive in the stock markets and provides ideas and strategies that I believe will help improve their performance as a stock selector and a manager of their own portfolio.
3. Why did you write this book?
I have been in the investment business all my working life and yet I still struggle to understand some of the investment reports and papers that are put in front of me written by experts. I am not questioning their knowledge, just their ability to communicate it in terms the average person can understand.
I wanted to write a book written in plain English on investing in shares that cut through the jargon with a basic ?keep it simple? approach which not only a novice could understand but a more experienced investor would still feel added value.
I genuinely believe that investment is a relatively straightforward subject that is best kept simple. Warren Buffet himself once pointed out, investment is not a subject in which the person with the highest IQ will do best.
4. What are some of the pieces of advice that you offer in this book?
Hopefully readers will find there is quite bit which will help in all sorts of areas .Specialising in areas that you know about or interest you is a good start ( ?the investors circle of competence?) . The importance of the dividend. Understanding and being able to tell the difference between a share that is just cheap and one that is undervalued. The difference between diversification and over dilution and which Directors Deals you should really take note of would be some ideas and concepts that spring to mind.
5. Tell me a bit about the ?3 box test?.
It?s a test I use on an idea or strategy before I use or adopt it. It has to be simple , it has to make sense (pass a reality test) and it has to work most of the time.
6. You have nearly 40 years of stock market experience. Have the skill and techniques needed to be successful changed much over the years?
Yes I think they have. When I first started most self directed investors were of the buy and hold variety who tended to focus on the large cap companies and invested as much for the dividend as for capital growth. Although these investors still exist and in the main still make money there is a strong argument that a more active style of investing will bring bigger rewards. This is because the market is more volatile now than ever before. Investors should now not just think in terms of buy, hold or sell. They should also think in terms of build and reduce or even consider trading a share short term.
If you think of the stock market experience as a journey I think the ultimate destination is the same but now the route taken is very different. This additional volatility enables the investor to sell or reduce at a premium or buy or build at a discount. It also presents opportunity to short term trade some of the shares they may also hold as a long term investment. The Internet has acted as a catalyst to this development empowering investors and traders alike to be more informed, use advanced deal mechanisms such as stops, limits and trailing stops to their advantage and to actually place the deal at cheaper online rates.
7. Have you always been good with money?
I am not sure what being people mean when they use this phrase. Good in what way? I like my money to make some more and I have over the years made money in the stock market. However like most people I know I have also made mistakes. When I have lost money I tend to analyse the reasons for any mistakes and make sure that I gain from the deal if not in monetary terms in terms of experience.
I don?t think it?s clever to die rich. I have 5 children so I am unlikely to do so anyway. Money to me is a means to an end not an end in itself. More holidays, a better social life and ultimately a more comfortable retirement are all things that money can help provide.
8. What do you invest in?
Let me deal with the vehicles before I consider the passengers.
I have been a higher rate tax payer now for 30 years so I am naturally very keen on tax efficient investment vehicles such as self select investment ISAs and SIPPs.
I work for Barclays stockbrokers and we have 16 clients who are all ISA millionaires! Over a million pounds that you don?t have to declare on your tax returns for the rest of your lives! This is important at any time but especially at present when you have multiple higher rates of taxes for the first time since 1988 and the 40% rate comes into force when you have gross income of £44k!
For those who are working I also think SIPPs (self invested personal pensions) are important as you not only have a tax free share dealing account but you can also get the tax back that you have paid on the contribution made. This means that for a 40% tax payer a £10k contribution would only cost £6k. That?s a 66% return even before you even place a deal.
With regard to the investments I normally believe in a 5 box asset allocation model in other words a mix of Cash, Bonds,Shares, Property and Commodities. However the property element is provided by my own home and I prefer in the main to achieve my commodity exposure, especially at current valuations, via upstream Oil and mining companies. This leaves me with 3 asset classes to consider. On a valuation basis I would presently ignore Gilts and be very selective in any Corporate Bond selections so right now I would be overweight in equities and cash. The former to take advantage of the very cheap share valuations at present and the latter to provide me with the power to wait for the growth of the former and also to keep some of my powder dry so I can feed some more money in to the markets if they get even cheaper.
9. In this time of economic uncertainty what should people be doing to improve their finances?
I think they should plan better. They tend to plan their holidays, their golf games, their social lives but almost leave their finances to chance. They should do what a company does, prepare an annual balance sheet of their assets and liabilities and split their assets into the 5 asset classes mentioned to the answer to question 8. Nothing complicated just a simple 1 pager. This way they can check their wealth and asset allocations at the same time.
They should use where possible the tax efficient vehicles mentioned above (this is a must if they are higher rate tax payers) and they should feed money into equities at a pace dictated by the rule of 20 explained in my book. The pace of feed being increased if, as at present, the reading is below 15, slowing if the reading is over 17 and reversed if the reading exceeds 20.
10. What other authors do you admire?
I like the old classics like Peter Lynch (Beating the Street) and ?The Intelligent Investor? by Benjamin Graham. Also I love reading any quotations from Buffet himself. They are usually not only pearls of wisdom in their own right but a great help when I am doing client presentations.