Thursday 8 September 2016

The Volatility of Shares

As most reader will know, I am gradually winding down my individual shares portfolio following a review of strategy in early 2015.

However, I thought it may be interesting to compare how my portfolio from Aug 2014 would have fared had I maintained the full holding of 23 individual shares. Here’s a link to my update in 2014.

(click to enlarge)

In September 2014, the FTSE 100 was 6775 - by April 2015 it had risen to an all time high point of 7,100 which was swiftly followed by a dramatic 17% decline to a 3 year low by the Autumn at just below 5,900. At the time of posting we are back on the upward trend with the FTSE 100 at 6,846. That’s an increase of just over 1% over the 2 years.

I was surprised to see just how wide the variation in the fortunes of the portfolio. As can be seen from the comparison, over just two years, the results are a very mixed bag - some shares have done very well - 4 shares up by over 50%, others have tanked with 7 shares down over 20%. However, it seems that overall, the portfolio would have provided an increase in capital value of 8.4% over the two year period.

Over the past two years the returns from some of my investment trusts suggest it has probably been a wise decision to give up on shares. For example - City of London 9.4%, Edinburgh 18.6% and Finsbury Growth & Income 29.4%. The return from my Vanguard LS 60 has been 20.9%.


As noted above, whilst the FTSE has recorded a gain of just 1% over the past 2 years, there have been periods of quite volatile swings in both directions. Furthermore, at the level of individual shares, there have been margins as wide as +86% with Sage Group and at the other end of the scale, -49% for BHP Billiton.

Unfortunately, the markets do not go up or down in a straight line but tend to zig and zag - sometimes there are positive rallies and a cause for optimism, just a quickly hope can turn to despair as the markets lurch south testing patience, resolve and strategy.

One of the main reasons for my change of strategy was to get away from the rollercoaster ride which is an inescapable part of holding shares. Some people are naturally more suited to following such a plan - maybe they view the portfolio as a single entity and disregard the ups and downs of the individual constituents.

At my stage of investing, I decided to simplify my holdings and reduce some volatility via more collective investments such as trusts and the likes of Vanguard Lifestrategy 60. Lower volatility created by a disciplined allocation to equities and bonds helps me to ‘stay in the game’ by reducing the impetus to trade and it is therefore easier to remain invested during all market conditions.


There is no getting away from the fact that the equity markets can be unpredictable and, at times, extremely volatile. We are all different in some respects and I am sure there will be many who are temperamentally suited to running a shares portfolio.

However, from my own perspective, its about matching my emotions and temperament with a corresponding strategy which meshes together. I came to the conclusion last year that the shares no longer fit this equation and I am feeling just as rewarded and more comfortable with my collectives - investment trusts and index funds.

Obviously a bit of me regrets the decision to sell some of the shares which have done well - Sage,  Imperial, IG Group for example but then again it is impossible to know at the time which shares would do well and which would struggle.

I think in the final analysis, it comes down to self awareness and having a robust strategy. How you choose to invest should always come down to the type of person you are and what you can and cannot handle in the markets in terms of risk.

Do you have individual shares in your portfolio? How do you manage volatility? Feel free to leave a comment below.


  1. As always an interesting article. The gains from your Vanguard LS 60 are certainly impressive and wouldn't we all love to have those on a regular basis. I would hazard a guess the majority of the upside has come from the bond portion of the portfolio, but without a detailed analysis I couldn't possibly comment.

    If my supposition is correct it will be interesting to see how the rebalancing of the fund works out as the bond sector works through its return to median, although it has delivered fantastic returns for a significant period, so who knows when that will happen, given the bizarre situation that the Central Banks are currently/have been creating.

    To comment on your questions on how one treats investing in individual shares, which I do, the only way to that in my opinion is as a portfolio, which in essence is what the Fund management groups do; you really don't see how the individual investments do in the fund & I'm sure they have failures and successes at the individual investment level.

    However, good luck to you, your portfolio currently seems to be doing very well and you are comfortable at the emotional level which is probably the most important factor for all investors; we can all chase returns and end up a cropper

    1. Gareth,

      Thanks and yes, happy so far with my transition to VLS 60 fund.

      Just looking at some of the underlying holdings for past 2 yrs - FTSE Developed World (ex UK) +32%, UK Govt Bond +25% and Global Bond +10% which would suggest more of the gains have been provided by equities but with the constant rebalancing, it's difficult to be precise.

      On the subject of fund managers, yes they certainly do have a fair proportion of failures which probably go unnoticed by the average investor unless they read the annual results.

      As you say, it's important to find a comfortable balance between risk/return and, for me, a large slice of the VLS is doing the job so far.

  2. Hi DIY,
    I hold a fair number of shares, and then some ITs and Trackers as well in my ISA - all of my Pension and other non personally managed are in trusts or funds for ease.
    I dont mind the volatility (and boy have I had some swings), but I do try and keep an eye on them and see if I believe they are worth it - so its also worth tracking the income you generate each year not just the total value. I only have 13 distinct individual shares, but I do need to rebalance!
    London Rob

    1. Rob,

      Sounds like a well-diversified portfolio you have.

      I agree that the focus on income/dividends is much smoother that tracking the share prices but in practice....

      Good luck with your returns.

  3. Hi DIY,
    Volatility create opportunity ,, if we have a diversify portfolio and invest for longer time frame ,, we may take advantage on such market volatility from time to time ,, just my two cents ,,

    1. Thanks looks like Mr. Market may be about to present a few more opportunities in the near future!