Saltydog Investor was the brainchild of former merchant seaman and entrepreneur Douglas Chadwick. Its aim is simple – to encourage private investors to take control of their ISAs, SIPPs and other investments, and provide the data to help them improve their returns.
Douglas left school at 14 and went to sea. He started as an unpaid ‘decky learner’ on the Kingston Garnet, a deep sea fishing boat sailing out of Hull, and ended up five years later as a navigation officer in Australia. When he returned to the UK he enrolled with Sussex University as a mature student, where he read theoretical physics, before setting up a flat-pack furniture manufacturing business – New Horizon Furniture. The business was successful and he sold it in 1985.
With some of the proceeds Douglas invested in two Skandia investment bonds, each worth £75,000. Unfortunately he only began to take an active interest in their performance 15 years into the 20 year maturity term. Although he had been withdrawing 5 per cent a year as income, he was disturbed to find that neither of the bonds had made any capital growth. Much to his surprise he found that the money had been stuck in ‘property’ and ‘balanced managed’ funds and left there, even though the investment landscape had changed dramatically over that time. He decided it was time to take control and started to write down in long-hand the performance of the 40-odd funds available, and the IMA sectors that they were in.
He instantly came out of property and went into emerging markets, some income funds, BlackRock Gold & General, and Baring Eastern Europe. He started actively managing his investments and reviewed his holdings every month. The change in performance was massive – three years later the value of his fund had gone up 92 per cent, roughly double the performance he would have seen if the investments had been left where they were.
He became increasingly frustrated that the personal finance industry had been allowed to grow up over time into some God rewarded enterprise that believed its own press. In the artificial world they created, the rewards were huge and expressed in fancy City offices and salaries which no longer connected with performance. Every year the industry took your ISA and pension money. Every year it took an initial commission, and then every year it came back for more in the form of a trailing commission. The pain for you never stopped just as the gain for them seemed endless.
However, the real iniquity was that the industry by and large advocated ‘passive’ investing. In other words you invested in a fund and then suffered the ups and downs of the markets, while your trusted advisor counted his commissions, and the fund managers enjoyed their lavish lifestyles. It’s hardly surprising that billions of pounds are languishing in the financial equivalent of the Mariana Trench. That’s your money. Have these people never played Snakes and Ladders? Don’t they know you move forward by spending more time on the ladder and less time on the snake?
That’s why in 2010 Douglas teamed up with his old colleagues Richard Webb and David McCrea to develop the system that had transformed the performance of his savings into something that could be of use to anyone with ISAs, SIPPs or other savings.
The Saltydog method is simple.
1. Invest through a low cost trading platform – some will allow you to switch between thousands of funds for no cost.
2. Use absolutely up-to-date and totally unbiased information – which funds have performed best over three or five years is of no use to you at all.
3. Ignore poor performance – who wants to know who came last in a race. Only look at the leading funds in each sector.
4. Find the best performing sectors – but also take into account their historic volatility.
5. Choose the funds that are currently performing well – once you’ve identified the hot sectors this is the easy bit.
Following funds on an up-to-the-minute basis and doing it on bits of paper is a laborious business, so we created an algorithm to automate the selection process. We now keep up-to-date on a universe of 24,000 funds and then narrow the range down to about 2,300 by keeping to the IMA sectors, but restricting them to UK-domiciled retail funds denominated only in sterling accumulation units.
Reflecting once again Douglas’ marine heritage, they are then divided into the Saltydog groups:
· Safe Haven – money market funds and cash;
· Slow Ahead – bond and gilt funds;
· Steady As She Goes – managed and income funds;
· Full Steam Ahead – equity funds that are then split into developed markets and emerging markets.
This unique grouping can be used to control the overall volatility of any portfolio, and is also used to adjust the portfolio to the prevailing market conditions. Again the concept is simple – only invest in the higher volatility groups when the recent performance suggests that the returns justify the increased risk. In future weeks we will elaborate on how our data can be used to build and monitor a portfolio, and highlight which sectors are currently performing well
This is all very well, but does it work?
To demonstrate how our data can be used the founding members invested £40,000 into a portfolio of funds in November 2010. This ‘tugboat’ portfolio is designed to be ‘low risk’, and preserving our capital during downturns is as important as making gains when markets are rising. In the first 2 years we proved that we could avoid serious market falls; last year we were able to show how our philosophy of active management also allows us to take advantage when conditions improve. This continued at the beginning of this year and in the last few months we have consolidated our profits during turbulent market conditions,
On 1st October 2014, less than 4 years later, the portfolio is up over 40% in a period when the FTSE100 is up less than 18%.
To find out more about the service we provide, and the 2 month free trial that we offer to all new members, go to our website www.saltydoginvestor.com