For the last five years, ‘BrokenBanker’ or BB for short as he goes by online, has been managing his own financial affairs as a self-employed investor after working for more than 30 years in capital markets.

With a background in fixed income and economics, it is not surprising his investment style is mainly top-down and macro-driven, but he has also developed bottom-up, fundamental stock-picking skills which complement his portfolio construction.

BB describes himself as risk tolerant which means he is comfortable taking on risk to make a commensurate return.

As well as managing his own capital, he operates a one-man company so he can contribute to ‘alpha-capture’ programmes which reward participants on the basis of their stock-picking in European and US markets and their macro trading ideas.

BB owns a SIPP and an ISA and has an external pot of money which sits outside these tax wrappers. He is able to live off the profits made in the external pot, which come from foreign exchange trading, and each year he transfers cash from the pot into the SIPP and the ISA leaving them to grow.

To measure how well he is doing, he has constructed his own benchmark which is weighted 60% to the FTSE All-Share index and 40% to the Core Gilts index.

A TOP-DOWN APPROACH

Despite being risk-tolerant, BB is aware of the need to manage risk within his limits and constantly monitors the economic backdrop to inform his investment decisions and how much exposure to take.

Using his macroeconomic background, he systematically analyses central bank policies, interest rates, the shape of the yield curve (how interest rates change over time), foreign exchange rates, oil and metals prices, employment trends in the G10 and the outlook for growth.

As a result, although he is generally risk tolerant, there are times when he will play defence and move his entire portfolio into cash – a good example was the summer of 2024, when he became less confident on risk assets.

By keeping close tabs on US, European and UK corporate earnings, and how companies performed relative to analysts’ expectations, he reasoned the second-quarter earnings season was disappointing, and bonds weren’t acting in a way which inspired confidence either, so he moved into cash.

This turned out to be great timing because stock markets had a wobble, losing close to 10% through July and into early August, allowing him to re-enter at lower prices.

PORTFOLIO CONSTRUCTION

BB uses his SIPP to invest in FTSE 350 stocks and gilts and his ISA to invest in small-cap and AIM companies.

Although he does invest in individual companies in the SIPP, it is predominantly invested in ETFs (exchange-traded funds) to gain exposure to indices and thematic products as they are a cheap and liquid way to get exposure to stocks quickly and can mitigate cost drag.

The ISA on the other hand is comprised of between 10 and 15 individual stocks, equally weighted and with a sector-agnostic approach.

What BB is ideally searching for is companies whose shares have been reacting positively to good news, and where he believes there is the potential for the company to consistently deliver good earnings growth.

One example would be in the spring of 2024, when he picked up UK construction stocks such as geotechnical specialist contractor Keller (KLR), Kier Group (KIE) and Galliford Try (GFRD).

Other examples include specialist UK financial services companies such as global broking firm TP ICAP (TCAP), pensions specialist XPS Pensions (XPS) and retirement income specialist Just Group (JUST) which he believed were trading on low valuations and delivering sustainable positive earnings momentum.

Inevitably, stock picks don’t always work out as intended – at the start of 2022, BB bought a position in biotech firm Synairgen (SNG:AIM) after the respiratory drug development company reported favourable early clinical trial results for its leading drug candidate.

In a matter of weeks, however, the firm revealed the drug had failed a late-stage clinical trial, blowing a hole its plans and sending the shares 60% lower.

BB cut the position immediately in line with his disciplined risk management approach and has since vowed never to invest in biotech companies because he lacks the scientific knowledge to properly assess the risks.

The episode also provided some valuable lessons on the risks of single-product companies and the need to size positions according to risk.

BB takes an active approach to managing the portfolio, reflecting his investment style: ‘I’ve found that an active style of trading with positions held from days to a few months max, which suits how I think about catalysts coming and going,’ he explains.

TAKING ADVANTAGE OF OPPORTUNITIES

A good example of his opportunistic approach, which allows him to finesse shorter-term market moves, is his investment in over-50s cruise and insurance company Saga (SAGA).

When the company announced in early October 2024 it was in exclusive talks with Benelux insurer Ageas (AGS:EBR), the shares responded positively gaining around 7% on the day.

BB believed this was an underreaction to the potential financial benefits for shareholders and, given the shares were bombed out, he bought a position, which proved prescient and nine days later allowed him to exit the shares for a 25% gain.

In closing, shortly before our interview with BB, Donald Trump was elected US president for the second time.

Reflecting on some of the challenges facing investors under a Trump administration, BB said he believed financial markets would turn out to be the ultimate arbiter on some of Trump’s more extreme policies and provide the final checks and balances which are missing at the executive level.

DISCLAIMER: Please note, we do not provide financial advice in My Portfolio articles, and we are unable to comment on the suitability of the subject’s investments. Individuals who are unsure about the suitability of investments should consult a suitably qualified financial adviser. Past performance is not a guide to future performance and some investments need to be held for the long term. Tax treatment depends on your individual circumstances and rules may change. ISA and pension rules apply.

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