Pension Diary - Using CFDs in a SIPP

 Self Invested Personal Pensions

Pension Diary

To recap: I set myself the challenge of turning my self-invested personal pension from £122,000 to £1m in three years, starting on July 1, 2005. I am using CFDs - stock substitutes which allow me to trade without stamp duty and also to "gear up", or leverage, the capital by a large factor.

Needless to say, this type of trading can produce large gains very quickly. For example, at the time of writing, six weeks ago the portfolio had exceeded £170,000 and nearly hit £180,000 in early October after only three months of trading. "Not bad," I thought to myself, "the old magic is still there".

You see, I had a fair amount of success in my five years as a full-time trader, having turned my PEP from £20,000 to £1.3m in five years and made some very large "charitable" donations to HM Inspector of Taxes as a consequence of my stock trading profits. It is very exciting to see one's efforts so handsomely rewarded - but not when this apparent reflected glory blinds one to ensuing disaster.

There is a saying in my business: "you are only as good as your last trade". In other words, do not get too complacent as the market, or the mistress, as she is known, will have the last laugh. In my case, having over £900,000 of exposure into a falling market was not necessarily a good thing, particularly when I pick my stocks from the pot-pourri of small caps and AIM shares.

For example, last month's "brilliant" tip, Empire Online at 253p looked like Polly Peck with bird flu. Not only did the bid not materialise, but its biggest customer announced that it was going to do in-house what Empire Online had been doing for it out-house, with the net result that I wished I lived in the basement, not the second floor, of a West End flat. The shares are currently 100p, although I sold them at 180p, but this cost the portfolio dearly. My other tip was a general view that Japan was a good place to be and I made a little money on Baillie Gifford Japan and an Exchange Traded Fund called Ishares MSCI Japan.

But the "best" was Easynet, a telecom fixed-line operator that has been around for a long time. At the height of the internet boom, it nearly hit £30. Anyway, I had a nice holding - 20,000 at 95p - which had dropped to 88p and then bounced back nicely on Friday October 14, at which point I decided to sell. Normally I would have bought more but with all the disasters that were taking place I was glad to get my money back. Big mistake.

The next Monday morning, Easynet announced a bid approach from BSkyB at 175p a share. After Empire Online and 10 days of consecutive losses this, I really believe (takes out onion), was one of the lowest points in my trading career. Anyway, I definitely lost my nerve and missed the next two weeks of gains sitting on the sidelines. The net result, including losses in the portfolio, is that my Sipp pension has fallen back to £130,000. It's starting to look like I'll have to put the Barney investment weekend seminars at £1500 a ticket on hold.

Now for this week's recommendation. I noticed that the shares of Celtic FC had dropped from 50p to 40p and a little detective work revealed that they are moving from the full market to AIM, which means that they will cease to be PEP/ISA-qualifying by mid-January and generally less liquid.

However, they are also looking to raise £15m by way of an open offer and an offer for subscription of which Dermot Desmond has agreed to underwrite up to £10m of the share offer. It is worth subscribing for shares at 30p because eventually Celtic (and for that matter Rangers) will play on a much bigger stage.

Now it is very difficult to predict how and when it will happen, but eventually there will be a move towards a new type of league structure - you can see it with Plus Markets' challenge to set up a rival exchange to the London Stock Exchange. At 30p I am a buyer.