I think the legendary US investor Warren Buffett once said, ‘an investor must understand a company’s products and its business model before making an investment’ which loosely translates to ‘buy what you know’.

I tried to adopt this strategy when filling my SIPP (self-invested investment plan) in 2019 after combining several smaller pension pots from former employers.

WHAT IS IN MY SIPP?

I chose a mixture of shares, funds, and investment trusts. I included some mainstream selections like Lloyds Banking (LLOY), one of the most widely traded stocks on the FTSE 100, energy giant Shell (SHELL) and Lindsell Train UK Equity (B18B9X7).

Over the past three years their performance has been mixed. Lindsell Train UK Equity has returned 17.5% on a cumulative performance basis, versus its IA UK All Companies benchmark’s 23.9%, so underperforming its benchmark slightly.

Shell’s shares have delivered a 100% total return, whereas Lloyds has delivered 56.1% over the same period. C’est la vie; no investor is perfect.

However, when I decided to expand my SIPP portfolio with some more ‘blue sky’ investment choices, I faced hefty losses.

WHY I BOUGHT THESE INVESTMENTS

Knowing what I know now about the companies I invested in, I probably wouldn’t have invested in Ocado (OCDO), Hipgnosis Songs Fund (SONG), Seraphim Space Investment Trust (SSIT) and Audioboom (BOOM:AIM).

I invested in online grocer Ocado because at the time I regularly shopped at Ocado and thought their service was great, but when Marks & Spencer (MKS) became joint owners of Ocado Retail in August 2019, I had my doubts as M&S products were less affordable than basic range products at Waitrose – Ocado’s previous supplier. Then the Covid-19 pandemic happened.

Consumers switched to online shopping in their thousands due to successive lockdowns and Ocado shares hit a peak of £28 on 5 February 2021 – I didn’t sell as I thought it was a great growth stock for my SIPP.

Yet disappointment over Ocado’s failure to execute on its opportunity of selling an out-of-the-box online groceries solution to global supermarkets and a post-pandemic reversal in the trend towards a web-based weekly shop saw the shares hit a low of 358p on 2 June this year.

LIVING ON A PRAYER?

Both the Hipgnosis Songs Fund and Seraphim Investment Trust were ‘lockdown’ purchases. Most people opt to buy a cat or a dog, I opted to buy some ill-performing investments.

Anyone who knows me, knows I’m a big music fan so I was intrigued by Hipgnosis – a music royalties and song management business founded by Merck Mercuriadis and legendary music producer Nile Rodgers. Slightly late to the party by two years (it was founded in 2018) I made my small investment in August 2020 just after an upbeat trading update (for the financial year ending 31 March 2020).

The company said: ‘Revenues from its catalogue were £64.7 million, ahead of expectations. Cash receipts from royalty statements [were] on average 2% higher-than-expected at the time of catalogue acquisitions.’

Besides this upbeat trading update, the company had recently bought Bon Jovi’s Richie Sambora music catalogue which included hit songs like You Give Love a Bad Name, Livin’ on a Prayer, Wanted Dead or Alive.

Despite the fund buying numerous music catalogues from well-known artists like Justin Bieber (a recent $200 million deal) Neil Young, Red Hot Chili Peppers, Chrissie Hynde, the FTSE 250 company and former media darling has failed to ignite investor interest – its shares are down 8% year-to-date and 42% since I first bought them. Part of the problem has been the dilution to existing shareholders from regular share issues to buy new catalogues.

THE INVESTMENT TRUST THAT FELL TO EARTH

Space investment trust Seraphim combined two of my interests: space and new issues on the stock market. So, when its shiny new online prospectus dropped into my inbox on 24 June 2021, I decided to ‘fill my boots’. It was coming to the market at a  price of 100p with a £250 million price tag and it was hoping to raise another £150 million from its float. Seraphim was hoping to cash in (like myself) on the booming space industry.

All the billionaires were at it, including Tesla (TESLA:NASDAQ) founder Elon Musk, Amazon’s (AMZN:NASDAQ) Jeff Bezos and Richard Branson. What a difference two years make. Branson’s satellite spin-off Virgin Orbit (VORB:NASDAQ) has shut down after a failed space mission and Seraphim’s shares are down nearly 80%. Investors have fallen out of love with these ‘blue sky’ investments, promising jam tomorrow, against a tough macroeconomic backdrop with rising inflation, interest rates and a mini-banking crisis at the end of 2022 and the start of 2023.

Mark Boggett CEO and co-founder of the trust, however, was upbeat when I interviewed him straight after reporting a disappointing set of results in March 2023.

He said: ‘Existing and potential investors should take strength from the fact that the company remains well-capitalised with cash reserves of £40.9 million.’

My cash reserves have been sadly depleted. Lessons have been learned with these more experimental investments for my SIPP but
they are only a few of my selections which are part of a wider portfolio of more ‘balanced’ investment choices.

If I had my time again, I would have stuck to a ‘buy what you know’ as opposed to a ‘buy what you like’ strategy as a lot of my investing at the time was based on emotional choices. I would also take more time to consider the wider market context.

Disclaimer: Sabuhi Gard owns shares in Audioboom, Hipgnosis Songs Fund, Lloyds, Ocado, Seraphim Space Investment Trust, Shell and units in Lindsell Train UK Equity.

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