Scores on the doors…drumroll please…the portfolio this year has return to form with a very pleasing 25.6% return and a 3.9% dividend yield. This has been the best year on record although as a friend pointed out, it was definitely a year to be overweight UK equities with the FTSE strongly outperforming the S&P 500. This brings my CAGR to around 8.4% since 2015, or a little over half of my long-term target of 15%. In hindsight, I’m beginning to think this target was perhaps a little overambitious and I can’t say I’m unhappy with compounding my capital at 8.4% considering that the average savings account in the UK yields around 3% over the long-term. Having said that, there is always room for improvement and in this year’s annual review, I will be exploring some of the lessons I’ve identified since starting my investment journey.
Performance in Context, Not in Isolation
Most investors don’t fail because they lack intelligence but rather because their strategy drifts over time. I’ve thought a lot about this in 2025 trying to refocus an increasingly bloated portfolio that had many positions lacking clear purpose, mistakes I had learned to tolerate, and a few “story stocks” that were clearly going against my better judgement. Over time, these mistakes had been eating into my returns and last year I was determined to do something about it. With that in mind, I’ve taken the opportunity with this year’s annual review to review my trade log and conduct a detailed review of the trades I’ve made. It’s been eye-opening and helped to focus my mind on the best way to deploy and most importantly, protect, my capital. My objective isn’t to seek brilliance but to better embed durability in my portfolio and my capital allocation process.
When I examined my closed positions, I quickly realised the majority of my trades have been profitable; roughly 70% including dividends, with that number dropping to a little over 60% on a capital-only basis. As a percentage of my realised profits, dividends also account for close to 40% percent of my returns. A small number of investments have produced the majority of gains and the worst losses have repeatedly clustered in assets with a certain commonality.
Reassuringly, I think that this was a reasonably positive starting point to the question of how “good” an investor I am, but still, I was interested in knowing where my judgement was adding value (and more importantly, where my experience and temperament was destroying it!).
Again, the answer was remarkably consistent, with my most profitable investments coming from business with strong balance sheets, specialist business models, and asset-light operations. Almost without exception, my best investments have steered clear from the businesses in spotlights on the front of the FT, but all generated real cash, allocated capital conservatively, and rewarded my patience.
By extension, my very worst investments shared a different set to traits. They were often structurally complex and capital intensive. Dividends were often promised before they were earned. Valuations relied on accounting magic rather than cash reality, and in many cases my investment case depended less on the demonstrable strength of the business and more on faith that things would eventually “get better”.
Reality Check: they often did not.
One of the more subtle lessons concerned income. Dividends have genuinely improved outcomes in many of my investments. They’ve smoothed volatility, rescued margin capital losses, and without a doubt reduced the psychological stress of holding through difficult periods. Having said this, they have never redeemed a structurally flawed investment. Where business quality was lack, dividends merely delayed my willingness to recognise a loss. Over time, I’ve come to realise that the income I seek is a fantastic stabiliser for me, but it’s no growth engine. It deserves a place in my portfolio but never as a substitute for business quality.
Moving forward in 2026, I shall be seeking to reinforce a more systematic approach to portfolio management where every pound of capital will have a defined role. In 2025, one of the biggest challenges I faced was rationalising what had become a “collection of interesting ideas”. Over the last few years, I had gradually added positions to the portfolio without a particularly rigorous policy of capping the number of positions I hold, resulting in a bloated portfolio with a long tail of positions which would never have meaningfully contributed to returns.
What My Trade Log Revealed
As such, this year, a record 21 companies left the portfolio, including three takeovers, for an average return of 0% including dividends. Without dividends, this would have been an average 16% capital loss – a poor performance on aggregate but a closer examination reveals four distinct categories of investment:
1. Thesis Failures -A number of disposals during the year reflected a simple conclusion: the original investment case had deteriorated beyond repair.
Holdings such as Digital 9 Infrastructure (-62%) Aberdeen Standard Logistics (-28%), Life Sciences REIT (-52%), S4 Capital (-63%), and NCC Group (-36%) all squarely into this category. These were not sold because share prices were weak. They were sold because the underlying assumptions that once justified patience had eroded.
In different ways, these positions exhibited a combination of excessive financial leverage, governance risk, strategy drift, or unreliable funding conditions. In each case, income received over the holding period helped soften the economic outcome, but income alone is not a sufficient defence against balance-sheet fragility. Where the margin of safety disappears, time ceases to be an ally and so crystallising losses in these positions was not an act of pessimism; it was an acknowledgement that continuing to hold would have represented capital entrenchment rather than conviction.
2. Income Vehicles – Holdings such as Vodafone (-25%), Henderson Far East Income Trust (7%), UK Commercial Property REIT (3%), Urban Logistics REIT (-37%), and Care REIT (23%) were never owned primarily for capital compounding. They were selected to deliver dependable income through varied market conditions.
Measured on that basis, several did what was asked of them. Over long holding periods, income distributions were material and, in some cases, exceeded the capital drawdowns experienced. Judged purely on share price, these would appear disappointing. Judged on total economic contribution, they were functional.
However, portfolios are dynamic systems. Opportunity cost matters. As the relative attractiveness of alternative income sources improved and as capital requirements elsewhere increased, these positions were exited not because they had failed, but because their role could be fulfilled more efficiently elsewhere.
This distinction is important. Selling an income asset does not require disappointment. It requires a superior alternative.
3. Profitable Outcomes – Positions such as Anglo Asian Mining (129%), Atalaya Mining (97%), Warehouse REIT (38%), London Stock Exchange Group (17%), National Grid (23%), CentralNic (8%)and City of London Investment Group (35%) were exited after periods of satisfactory, or, in some cases, exceptional, performance.
These disposals were driven by maturity of thesis rather than deterioration. Valuations had normalised, risks had become better recognised and forward returns no longer justified the same level of capital commitment.
There is a persistent temptation to allow successful investments to drift into permanent holdings. That temptation was resisted. Capital was recycled not because these businesses ceased to be respectable, but because portfolios benefit from risk being harvested as deliberately as it is assumed.
Selling strength is rarely celebrated, but it is one of the few repeatable disciplines available to long-term investors.
4. Consolidation Candidates – Finally, a handful of smaller or more opportunistic positions, Dewhurst Group (-23%), Kenmare Resources (-24%), and Gore Street Energy Storage Fund (-3%), were exited after an evolution in my strategy rather than a pure judgement on the businesses themselves. Over the time I have owned these businesses, I was building an increasing volume of evidence that these holdings did not truly warrant long-term capital, whether due to complexity, limited upside, or misjudged assumption.
Position Sizing, Not Just Stock Selection
From this historical deep-dive, I’ve drawn some lessons for 2026, whereby I am seeking to reinforce a systematic approach to portfolio management where every pound of capital has a defined role. Some capital should be left to compound, some will be allocated to more temporary asset mis-pricings, and some, as ever, will be allocated provide stability and income. This approach is about more than simply tidying my portfolio management approach, it is an attempt to force more honesty on my own part by forcing every investment to justify it’s place in my wider portfolio. A compounder that no longer compounds, or an income stock stretching it’s dividend is no longer an investment – it is an error waiting to be rationalised.
Equally important is what this framework is going to exclude. The last few years have taught me some brutal lessons in bad judgement; Digital 9 Infrastructure Trust, S4 Capital, Photo-Me Group (who I think have since rebranded to Me Group). These investments have been yield-focussed, overly complex, difficult to understand businesses with poor management teams that have consistently transferred value away from shareholders. The complexity and lack of accountability has been eye-watering, but more importantly, a reliable enemy of a profit-seeking investor. If an investment requires faith, elaborate explanations, or optimistic adjustments to justify my investment, it doesn’t deserve it. In future, these types of companies will be actively excluded.
Thankfully, my position sizing and approach to diversification has provided significant protection but the largest losses haven’t been caused by just being wrong but by being wrong and oversized in an investment. Although diversification has protected my portfolio my significant capital losses in the aggregate, some positions have come closer to inflicting damage than I should have allowed. As such, I have reinforced my internal mantra that “top ups should be earned through evidence, not anticipation, and only increased AFTER an investment has proven itself as part of the portfolio”.
Finally, my review caused me to look at my sales discipline, because knowing when to exit is just as important as knowing what to buy. Before any decision to sell (or to continue holding), I now run a series of test where I explore whether the underlying business has structurally deteriorated, the balance sheet weakened, or capital allocation discipline slipped. If a holding fails multiple of these tests, the decision is simple – sell! The sale is therefore no longer executed because of price movement, emotion, or narrative fatigue, but because the original thesis I had for investing no longer applies.
Entering 2026 With Fewer Positions and Fewer Illusions
Viewed through this lens, my current portfolio entering 2026 is markedly healthier than earlier iterations, with just 34 positions against the 46 I held at the beginning of 2025. Keeping this discipline moving forward will now be the name of the game, and although I have greatly reduced the absolute number of holdings in my portfolio, I still have a number of smaller positions that need to earn my conviction, grow into relevance, or be removed before the end of the year.
My plan for 2026 is therefore a little unexciting. The first half of the year will be for some further consolidation of my “mid-belt sprawl” with some selective deployment of capital during periods of weakness, with the second half of the year forcing me to cull irrelevance in smaller tail holdings.
New ideas, when considered, must meet or exceed the same exacting standards which I applied to my existing holdings. Businesses such as RELX are not attractive because they are clever, but because they are dull in precisely the right way: capital-light, high-returning, and disciplined. Others, like Experian, may qualify only at the right price and at the right point in the cycle. These are not recommendations so much as benchmarks – examples of what quality actually looks like.
The central lesson running through all of this is straightforward, if uncomfortable. The quality of an investor is not revealed by their best ideas. It is revealed by the mistakes they refuse to repeat. An investing “framework” is only really as useful as the protection it affords our portfolio and without that it is little more than vanity and wasted effort. Capital is hard to acquire and must be protected.
Before closing, it would be remiss not to acknowledge my good friend Peter Higgins, whose work throughout the year has extended well beyond the portfolio. Peter continues to lead the Twin Petes Investing Podcast with rigour, balance, and intellectual honesty, and has played a central role in organising several high-quality investing events, most notably The Investor Summit 2025. These efforts have helped foster a more thoughtful investing community, one focused on process, judgement, and long-term decision-making rather than noise or novelty. I am grateful for his leadership, energy, and professionalism, and for the standard he consistently sets. His friendship towards me has been a blessing – as has the great support shown by so many of my readers this year. I’m so grateful to all of you for your kindness and feedback throughout 2025 and look forward to seeing many of you in person throughout the coming year. I wish you and your families well, and hope that the coming year brings personal, professional and investing success for all of you!