# Long Term Investing



## craft

A generic named thread for wide ranging discussion.

I hope people who are on a personal investing journey, find this thread and find it a good place to share their thoughts and experience.


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## craft

Basically my big picture of investing is swapping surplus capital for an ongoing income stream.

If you like, a chicken for its eggs, a cow for its milk, a sheep for its wool, sort of approach. What the approach does is get away from reliance on what the animal could be sold for down the track.  The return stems from what the animal produces in relation to what I initially paid. The potential to sell becomes purely opportunity not a necessity

What’s the big picture behind your approach?


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## Klogg

craft said:


> Basically my big picture of investing is swapping surplus capital for an ongoing income stream.
> ...
> What’s the big picture behind your approach?




This is essentially my approach also.

Basically, I've been very fortunate in my job and as a result would like to use this disposable income to purchase assets that form another income stream - which will feed into itself and grow both the capital deployed and the annual income from this capital.

This started as a result of seeing debt-fueled approaches in the property sector by various relatives, some racking up as much as 1.5mil in debt with an income barely enough to service that amount with current interest rates. Having witnessed what it does to your life, I have no interest in leveraging to make money, so everything I invest is my own.

So in a nutshell, I'm using my disposable income to purchase assets that will generate income and give a capital gain - using a value investing approach.

Having started about 13 months ago (injecting capital between now and then) off the back of only reading books and very little paper-trading, I'm sitting on a 33% capital gain + gross dividends of about 4% - so I'm pleased with my progress to date... but it's still early days.
Of course with the way the All-Ords is traveling, I might be behind the index soon! Lol


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## brty

Thanks Craft for this thread.



> What’s the big picture behind your approach?




Ahhh, philosophy!

The big picture is to be financially comfortable, we are already there in semi-retirement. We have both business and property investments along with stockmarket investments, a large cash buffer and a defined benefit scheme super pension (wife from govt). I have greatly increased the stockmarket investments in the last 6 months into high dividend companies, usually small that have little debt. The intention is to keep these while they show positive results. I have also been using excess funds from trading profits for this purpose.

I like your analogy of swapping capital for chickens etc, it really is an underlying principle of what we are doing.

Looking at the big picture of where "things" in general are heading, on the investment side I see a continued decline in long term interest rates with a search for yield amongst those heading into retirement, essentially the babyboomers over the next few years. This will lead to a rush into anything that looks safe and has a reasonable yield. The trick will be to hold onto the chickens even though there is temptation to sell them when prices rise and just buy eggs.


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## odds-on

Big picture approach?

Achieve independence before I am too ill or too old to enjoy it!

My investment strategy is bet big when the odds are in my favour, the rest of the time is spent sitting on my hands. 

My investment approach can be best described as:

50% Benjamin Graham
40% Humphrey Neill
10% Dartboard

Cheers

Oddson


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## galumay

I am still to determine the most suitable strategy for myself, as readers of my thread on the subject will know I have been on a journey of learning prior to investing my capital in the market.

Broadly I share the views of the posters to date, looking to put capital and ongoing disposable income into shares, keen on long term investing with a view to ongoing income, love the animal husbandry analogies!


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## robusta

After a misspent youth investing to me meets a few needs starting when we established a SMSF about three years ago and continuing with my personal investments with a line of credit.

First of all I am looking to establish a passive income stream plus a nice lump sum of capital to open up options for my family and myself later in life.

Secondly I have found it to be a fascinating hobby, I love reading about businesses, industries and the markets and taking advantage when I think opportunity knocks.

There are many better analyst on this forum at using discount cash flow and ROIC and I am slowly learning and improving my skills. Having said that I think occasionally opportunities come along when it is obvious a business is trading at a substantial discount to intrinsic value, the most important thing then is to press the trigger and buy. This can be difficult amidst all the doom and gloom. It seems the last few years has been all volatility and doom and gloom I could not think of a better time to start investing. It will be interesting to see how I go at some point in the future when we are in a major bull market.

Oddson thank you for your reference to Humphrey Neill  I had never heard of him - now his book is in the post to me.


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## So_Cynical

craft said:


> Basically my big picture of investing is swapping surplus capital for an ongoing income stream.




Yeah i like that.

----------------------

I have found to my delight that the more i swap surplus capital for shares the more surplus capital i have...long term it just keeps building, with 6 month snap shots its all over the place but on calender and financial year terms its better every year.

The great advantage of long term investing is the time frame, you can actually "buy stocks cheap" and wait till someone will buy some of those shares from you for more than you paid for them, swapping shares for more surplus capital so that you can swap that capital for different shares...and so on.

And the dividends just keep rolling in and growing as your share collection (portfolio) grows...its great stuff, in mid 2007 when i started i received no dividends and now 5 and a half years later i get 45 dividend payments a year.

---------

My Big picture approach.

I have developed the LCEAA strategy (Low Cost Entry And Averaging) to build positions in stocks when the price is falling so that a low cost base can be established when the price rises and the more expensive parcels are sold off, thus lowing the average holding price and ensuring a high return on original capital invested via the dividend stream...redeploy freed up capital + surplus cash and repeat.


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## George Washingto

So_Cynical said:


> I have developed the LCEAA strategy (Low Cost Entry And Averaging) to build positions in stocks when the price is falling so that a low cost base can be established when the price rises *and the more expensive parcels are sold off, thus lowing the average holding price* and ensuring a high return on original capital invested via the dividend stream...redeploy freed up capital + surplus cash and repeat.




This is just fudging numbers though? A shares a share regardless of what you paid for it.


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## robusta

George Washingto said:


> This is just fudging numbers though? A shares a share regardless of what you paid for it.




OK, but it is good to pay less than you eventually sell it for right? *and* collect dividends along the way.

The two most important things in a share to me are, the quality of the underlying business and the price I have to pay to own a part of that.


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## So_Cynical

George Washingto said:


> This is just fudging numbers though? A shares a share regardless of what you paid for it.




Well true in a way, but a complete crock in another.

There is a hell of a difference when comparing 100 shares in XYZ @ $1 each ($100) and 100 shares in XYZ @ $2 each ($200) the dividend is the same but the investment is not.


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## ROE

craft said:


> Basically my big picture of investing is swapping surplus capital for an ongoing income stream.




Good one liner of what I do and I imagine most of the long term investors as well...

I started in 2005 with modest amount, along the way a bit of luck, a bit of saving, a bit of work and a couple of massive multi baggers and fast forward 7 years later my dividend now outstripped my annual saving.
now I got dividend plus annual saving and that in turn generate more dividend the year after etc...

the key I found is 2 times your earning, once your capital reach 2 times your earning (what ever your earning is 
be it 50K 80K 100K)  you start generating more money from your capital than you can save..

and let compounding do the rest... most people don't stick around long enough to see the power of compounding....you can only see compounding  effect in later years, first 5 years you probably wont see much of it but 10 years you will see it, 15 years you feel the power and 20 years you see its awesome power...

the stage I'm at, each year the compounding effect is so big I cant spent it all...I spent on holiday and toys and I still have left over...I don't mean wasteful spending but just spend like I would normally live my life..
gadgets, holiday, eat out etc...

Good luck, don't let short terms news and Mr Market control you..you should be calling the shot and when to swing even if 10 guys sit next to you shout swing you fool


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## RandR

craft said:


> A generic named thread for wide ranging discussion.
> 
> I hope people who are on a personal investing journey, find this thread and find it a good place to share their thoughts and experience.




I need to create passive income.

My partner (bless her) although being the busiest and most organised person on the planet... hates her job and hates going to work ... she hates it ... I can see the look in her eyes and I know she will not be able to put up with it in the longterm. I need to create passive income quick smart to allow her the time to either reduce her working hours (which she does alot) or to allow her time to find her career passion. We have a smortgage but thats on track to be completely paid off in 10yrs.

The long term plan is pretty simple/straight forward. Excess savings into mortgage, then also setting aside about 1500 per month into purchasing business to hold for the longterm cashflow.

At the end of the 10 year period. We should hold a fully paid off PPOR and about 250,000-400,000 in stock capital (allowing a bit of a range depedent upon returns. At which point I will also be able to use the equity in the PPOR to finance an investment property (While im still working). 

The vast majority of the time my investing is done by fundamental analysis .. but incorporate a bit of trend eyeing as well ... because sometimes even when I get it right I get it wrong. i unloaded into CSL around 27, stepping out about the 35 thinking id made a great little deal and should probably jump seeing as I believed to be fully priced .. only to watch it now sail all the way to 56 

So hopefully in 10 years time I will be 35 and she will be 33, I think at this point we could quite easily have accumulated 1m+ in assets if the plan goes ok. She will be able to reduce her working hours (its probably we could look at starting a family at this time)

I hope we can get there as ROE alluded to ... so that we can feel the full power of compounding. TBH once we have accumulated those assets theres probably not a whole lot more accumulating we will need to do, I can continue working past that point to finance and pay for the dream home. The assets should be able to just about compound themselves.


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## robz7777

RandR said:


> I need to create passive income.
> 
> My partner (bless her) although being the busiest and most organised person on the planet... hates her job and hates going to work ... she hates it ... I can see the look in her eyes and I know she will not be able to put up with it in the longterm. I need to create passive income quick smart to allow her the time to either reduce her working hours (which she does alot) or to allow her time to find her career passion. We have a smortgage but thats on track to be completely paid off in 10yrs.
> 
> The long term plan is pretty simple/straight forward. Excess savings into mortgage, then also setting aside about 1500 per month into purchasing business to hold for the longterm cashflow.




If you were to pay the additional 1500/month into the mortgage how much quicker could this be paid off?

Unless you can generate returns of 9-10% (say 7% after 30% tax is paid) you might be better off getting the bank off your back asap. 

An alternative (and only if you are comfortable to do so) would be to take out an investment loan to buy your portfolio, at least this way the interest would be deductible... 

Not advice (as im not an accountant!)


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## George Washingto

So_Cynical said:


> Well true in a way, but a complete crock in another.
> 
> There is a hell of a difference when comparing 100 shares in XYZ @ $1 each ($100) and 100 shares in XYZ @ $2 each ($200) the dividend is the same but the investment is not.




This is true, but once you've bought them at either $1 or $2 it doesn't matter anymore.

I agree with the rest of what your saying, but the idea of selling the highest cost packet really only affects the tax man. To make it a key point of your 'strategy' to me, is just a way of getting higher % returns on paper, when the total dollar return is the same. This is the same with your concept of 'free-hold', to me a dollar is a dollar regardless of how it was earned.


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## So_Cynical

George Washingto said:


> This is true, but once you've bought them at either $1 or $2 it doesn't matter anymore.




I would argue that you still have to sell the $2 shares at a profit (break even minimum) so that your strategy is profitable, the $2 purchase price has to be low enough to realise a profit opportunity in the shortest possible time frame so that capital can be recycled.

The LCE in LCEAA stands for 'Low Cost Entry' the averaging only comes into play if the entry wasn't low enough..i like to say this isn't rocket science, buy good stocks cheap and sell em for more than you paid for them, i think its easier and safer to do this, than say buying expensive good stocks and selling them for more than you paid for them.


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## burglar

So_Cynical said:


> ... buy good stocks cheap and sell em for more than you paid for them, i think its easier and safer to do this, than say buying expensive good stocks and selling them for more than you paid for them.




You make it sound far easier than it is.

No one here will tell you if a company is cheap or if a company is expensive.
Ask anyone for an intrinsic value on IRI for example!!


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## So_Cynical

burglar said:


> No one here will tell you if a company is cheap or if a company is expensive.




I will...i do it all the time in the stock threads...and with an open time frame im right close to 90%  (on per stock basis) of the time (especially with this rally )
~


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## galumay

So_Cynical said:


> I will...i do it all the time in the stock threads...and with an open time frame im right close to 90%  (on per stock basis) of the time (especially with this rally )
> ~




To be honest the % of being right is less important that how right you are! If you 'win' 80% of the time but only make an average of 5% profit and on the 20% of losses you lose 80% of your investment - then you are a long way behind!


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## odds-on

So_Cynical said:


> .....i like to say this isn't rocket science, buy good stocks cheap and sell em for more than you paid for them, i think its easier and safer to do this, than say buying expensive good stocks and selling them for more than you paid for them.




Agree 100%. 

I always like to point out that when Charlie Munger talks about the Washington Post purchase (which every investing book seems to talk about) he states it was a 1 in a _40_ year bet. Think about it....

Another good bedtime read from Tweedy Browne

http://thetaoofwealth.files.wordpress.com/2013/01/great-10-year-record-great-future-right.pdf

The number of opportunities where an investor with _certainty_ can predict the future growth is rare. Why focus on these bets? An opportunity where an investor can competently assess the future with certainty _and_ be trading at a fair price may never come along in their investing lifetime!

Follow the market. Buy cheap. Manage the portfolio.

A question for the investors who have had multibaggers - with _hindsight_ was it easy to see features that led to the growth?

http://guythomas.org.uk/blog/?e=22


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## ROE

I don't aim for multi baggers in my purchase of stocks
My theme: buy something that give me a decent yield
And it can be sustained and sell at a price I am willing to lock
In my capital for years....

I don't care if stock price going no where if it
Can give me yield of 6% fully franked a year

Because with consistent return compounding
Will trumped everything else....compounding dont
Works if it is a negative number or with a zero dividend 

Multi baggers is a bonus and usually the result of playing
In small to medium cap business...


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## tech/a

Relative to these posts.

*CRAFT*



> *Basically my big picture of investing is swapping surplus capital for an ongoing income stream.
> *




AND

*RandR*



> *I need to create passive income.*




I posted this on another thread which may be of interest.


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## craft

odds-on said:


> A question for the investors who have had multibaggers - with _hindsight_ was it easy to see features that led to the growth?




Much like ROE, I don’t specifically look for multi-baggers and I certainly don’t take long shots where something needs to be found or invented etc to give rise to windfall gains.

However time and good businesses gives rise to many multi-baggers. 
A company maintaining profitability but growing its equity at 10% should double in 7 years.
A company maintain its equity but growing it’s profitability at 10% should double in 7 years.
If a company can achieve both growth factors above they will quadruple in 7 years. 

The rocket fuel is market re-weighting – if the quadrupling of value from the underlying business is rewarded with a doubling of the multiple then that’s 8 times in 7 years.   I have had lots of these sorts of increases from boring little businesses. 

I look for a competitive advantage, so that the profitability will be there and I look for scope to grow, so that equity can rise and I look for these things before it’s obvious to everybody else. 

I let the market take care of recognising the improvement in the business and increasing the multiple in its own good time, [tomorrow; next year; next decade] if it never recognises the improvement the reward will still be there in the distribution stream overtime anyway as all selling really does is commute the income stream – you have no advantage in selling as opposed to holding unless you are taking the opportunity to sell to somebody who is prepared to overpay for the future income stream.


The asymmetrical risk/return profile from the possibility of multi-baggers to long-term investors is very important.


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## sinner

There was a recent Warren Buffett article out, which I thoroughly enjoyed, because it broke his returns down into a fairly easily replicable ruleset, which is common with the "academic" definition of value investing plus a few twists. Mainly:

* Value (as measured by P/B)
* Low Beta 
* High Quality (as measured by earnings volatility, etc)

http://www.cbsnews.com/8301-505123_162-57524029/how-warren-buffett-beats-the-market/

What I would suggest to synthetically replicat this idea is to run 4 portfolios, each started at a different Q, i.e. P1 starts at Q1, P2 at Q2, P3 at Q3 and P4 at Q4. Then you rebalance each portfolio once a year to the following universe:

* Define the top 25% of value stocks
* Of those value stocks define the top 25% with lowest beta and lowest realised volatility
* Of those value low beta stocks define the top 25% with the highest quality

This is your portfolio for the next year. Apply leverage as desired. You can replicate the Buffett float by shorting corporate bonds if desired.

One important thing to note is there was low/no momentum factor explaining his returns, so stay away from stocks making highs if you want a "Buffett" style portfolio. 

Keep in mind, the article points out that Buffetts major difference from other large funds was his reputation, so even in the face of a 44% drawdown, he did not suffer many redemptions and certainly no margin calls. I think that is *the most* important lesson. Do not invest in passive equities if you can't handle a 40-60% drawdown. You must be a "strong hand" (with a strong stomach) to successfully execute this kind of strategy. This also means your natural leverage limit is probably somewhat less than 2:1 and more like 1.5:1 at absolute max.

Here is another article that addresses the same topic, lots of pretty charts included:
http://gestaltu.blogspot.com.au/2013/01/track-records-are-rubbish-or-why.html


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## matty77

Good topic, and I thought I might review my investment strategy and look at it in a % way...

very interesting, my current investment per week of my income is:

12% Investment: Shares Type
23% Investment: Property Type
6% Investment: Kids Saver Account
18% Investment: Offset Savings / To be used for future investment opportunities
59% of income invested weekly

The remaining 40% would be spent on expenses etc.

The amount for Offset Savings goes up and down obviously depending on what expenses are outgoing, thats just the left over amount really.

I have looked at increasing share % but no point since overall investment $ is for shares v houses is about 2/3 shares anyway. Next investment strategy will most likely be either commercial property or a business purchase, possibly next year. - no rush on this one though. 

The first 3 above are all LONG TERM investments eg 20 years minimum and the first two are done to generate PASSIVE INCOME eventually. The kids savings accounts will be given to them at a later date in some for or another when they are older..


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## prawn_86

matty77 said:


> 59% of income invested weekly




Wow that is a huge amount/percentage! We invest about 20-25% of our after tax income and thought that was good.


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## matty77

comparison to a previous post I did in May 2011



> n round about terms (per week):
> 
> 26% Home loan repayments
> 11% Invest Shares
> 36% Weekly expenses (all bills, food, petrol, phone etc)
> 10% Pay ourselves "fun money"
> 3% Other investments
> 14% Invest Houses / Other investments




so its actually about the same still as the home load repayments now are techincally an investment property.

I thought I had worked out previously !! lol


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## matty77

prawn_86 said:


> Wow that is a huge amount/percentage! We invest about 20-25% of our after tax income and thought that was good.




sorry just wanted to add to your comments; as the kids get older and the family grows I expect this investment amount to reduce, and least for a 20 year period, hence "making hay while the sun shines" at the moment. At least 3  kids maybe more so should be interesting to see how the finances cope! haha   or 

I would like to take the foot off the accelerator before I am retirement age as well.. early effort now for later reward.


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## So_Cynical

galumay said:


> To be honest the % of being right is less important that how right you are! If you 'win' 80% of the time but only make an average of 5% profit and on the 20% of losses you lose 80% of your investment - then you are a long way behind!




Again, is a lot easer to make money being right most of the time than it is to be wrong most of the time.....lets face it any idiot can be wrong most of the time.


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## CanOz

So_Cynical said:


> Again, is a lot easer to make money being right most of the time than it is to be wrong most of the time.....lets face it any idiot can be wrong most of the time.





Depends on your definition of easy...

CanOz


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## So_Cynical

CanOz said:


> Depends on your definition of easy...
> 
> CanOz




Oh com on.

Easy = not hard...not rocket science.

If a person makes 10 investment decisions in a day, and over a 10 day time frame most of those decisions are wrong..it stands to reason that its not going to be easy making money...of course money can be made but not easy money.


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## CanOz

So_Cynical said:


> Oh com on.
> 
> Easy = not hard...not rocket science.
> 
> If a person makes 10 investment decisions in a day, and over a 10 day time frame most of those decisions are wrong..it stands to reason that its not going to be easy making money...of course money can be made but not easy money.




Some people (most truly successful investors i reckon..) have no issue if they make wrong calls. Just because you are a long term investor doesn't mean you cannot cut the losers short when you know you're wrong SC. Not everyone will just hang on until they come good and they can say, "i knew i was right".

To some people, 'easy' means having the ability to take losses, knowing that its not whether you are right or wrong, but how much you make when you're right and how much you lose when you're wrong....

CanOz


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## So_Cynical

CanOz said:


> Some people (most truly successful investors i reckon..) have no issue if they make wrong calls. Just because you are a long term investor doesn't mean you cannot cut the losers short when you know you're wrong SC. Not everyone will just hang on until they come good and they can say, "i knew i was right".
> 
> To some people, 'easy' means having the ability to take losses, knowing that its not whether you are right or wrong, but how much you make when you're right and how much you lose when you're wrong....
> 
> CanOz




Some people get so hung up on this wrong and right stuff, for me the beauty of the stock market is that you have time if you want time, one can use time to there advantage, so many short term traders and trendy's think time is evil, something to be managed and limited.

Wrong and right simply doesn't come into it for me except for the fact that im in it for the money, and when im right i make money and when im wrong i don't, and i like making money.


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## tech/a

So c

Speaking for me that's not so.
Would love nothing more than sitting in a trade for years as 
I did in the early 2000s.
But in the mean time my favorite is the 

*BREAK EVEN STOP.*

You can be wrong as often as the market proves so without
Damage to your account or stress over deminished capital base.


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## tech/a

> Some people get so hung up on this wrong and right stuff, for me the beauty of the stock market is that you have time if you want time, one can use time to there advantage, so many short term traders and trendy's think time is evil, something to be managed and limited.
> 
> Wrong and right simply doesn't come into it for me except for the fact that im in it for the money, and when im right i make money and when I'm wrong i don't, and i like making money.




I think overtime you to will become hung up on being Right or Wrong.

You are absolutely correct in your premise that a very wide Stop will give you a better winning % than a close stop.
I can vouch for that through my own systems testing.
In fact the sweet spot for highest % winners in the data set (7 bourses) I tested my systems-- some 10 yrs ago 
suggested that 20-30% was the best.

*However* Biggest % winners or even better % winners didn't equate to best return for risk and indeed best return---*period*.

What you get is a vast number of stocks that spend vast lengths of time in that no mans land below your purchase price.
The opportunity cost does become an issue during bullish periods as some are stuck returning to their buy price and many never return. Capital is not being employed with maximum efficiency

Im glad your running your exercise and Robusta his.

*Not because* they are fundamental and my own approach is technical--but because these fundamentally and important issues will show themselves.


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## cynic

So_Cynical said:


> Again, is a lot easer to make money being right most of the time than it is to be wrong most of the time.....lets face it any idiot can be wrong most of the time.




When faced with binary outcomes, an idiot would probably only get it wrong ~50% of the time!



So_Cynical said:


> ...Wrong and right simply doesn't come into it for me except for the fact that im in it for the money, and when im right i make money and when im wrong i don't, and i like making money.




You seem to have equated right with profit and wrong with loss!

Had it not occurred to you that it is also possible to make money whilst getting it wrong?



So_Cynical said:


> Oh com on.
> 
> Easy = not hard...not rocket science.
> 
> If a person makes 10 investment decisions in a day, and over a 10 day time frame most of those decisions are wrong..it stands to reason that its not going to be easy making money...




No that doesn't stand to reason at all! 

Easy money can be made even with a low % win rate provided the strategy employed features positive expectancy! 

Futhermore, negative expectancy can easily coincide with high % win rates!! Reliance upon inappropriately wide stops is one of the more popular methods through which high win rate, negative expectancy is achievable!


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## craft

So_Cynical said:


> My Big picture approach.
> 
> I have developed the LCEAA strategy (Low Cost Entry And Averaging) to build positions in stocks when the price is falling so that a low cost base can be established when the price rises and the more expensive parcels are sold off, thus lowing the average holding price and ensuring a high return on original capital invested via the dividend stream...redeploy freed up capital + surplus cash and repeat.




So C

You seem to have stirred the pot with your big picture. If your stock selection was random then I would tend to agree with most of the comments - however your stock selections are not random and I think that needs to be considered. 

Firstly you mention low price – This low price aspect is a major difference over technical entry which takes whatever market price that may prevail following an entry signal. This aspect needs to be considered when thinking about how long you may be underwater. Hopefully your low cost entry calculations would keep you from starting to accumulate Mirabela at $7 or Billabong at $14 etc  

Secondly – although you are not explicit about it in the above paragraph I expect from other things you write that you have a quality aspect to the stocks you pick – This aspect should have a big impact into your results as well, ensuring you don’t average into something terminal like ABC Learning or Babcock and Brown etc.

The freeing up of capital to redeploy just because you come into profit is probably the most different aspect to what I do but I can see the logic for it IF you have identified a better business at a lower price to invest in. 

I think your system will only work with high quality and low price stocks. How do you ensure you get these two points right? Explain adequately how you manage these two points and you might (should) ease the concerns of _constructive_ critics.


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## So_Cynical

cynic said:


> When faced with binary outcomes, an idiot would probably only get it wrong ~50% of the time!




I would argue that a true idiot wouldn't get it right 50% of the time, an average idiot perhaps.




cynic said:


> You seem to have equated right with profit and wrong with loss!
> 
> Had it not occurred to you that it is also possible to make money whilst getting it wrong?




No, please provide examples.





cynic said:


> Easy money can be made even with a low % win rate provided the strategy employed features positive expectancy!
> 
> Futhermore, negative expectancy can easily coincide with high % win rates!! Reliance upon inappropriately wide stops is one of the more popular methods through which high win rate, negative expectancy is achievable!




Again i would love to see examples of how making wrong choices and bad bets the majority of the time can give you positive expectancy.

------

And what has any of this to do with Long Term Investing?


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## Smurf1976

My approach is also very much along the "chickens and eggs, cows and milk" analogy.

I've been there, done that with short term trading both stocks and forex. I made some money but it doesn't fit at all well with my underlying personality which tends to favour the long term approach.

These days, I'm not looking for capital growth as such and yet I find it ends up being relatively easier to achieve than it was when I was actively chasing it. That has a lot to do with the psychological side of trading. Right now, if the market drops then that will trigger some of my buy orders = I'm happy. And if the market goes up then that's a gain right there and now = I'm happy.

I'm simply taking surplus income and investing it into things which are expected to produce an ongoing income stream. Capital gains are just a bonus.


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## odds-on

craft said:


> Much like ROE, I don’t specifically look for multi-baggers and I certainly don’t take long shots where something needs to be found or invented etc to give rise to windfall gains.
> 
> However time and good businesses gives rise to many multi-baggers.
> A company maintaining profitability but growing its equity at 10% should double in 7 years.
> A company maintain its equity but growing it’s profitability at 10% should double in 7 years.
> If a company can achieve both growth factors above they will quadruple in 7 years.
> 
> The rocket fuel is market re-weighting – if the quadrupling of value from the underlying business is rewarded with a doubling of the multiple then that’s 8 times in 7 years.   I have had lots of these sorts of increases from boring little businesses.
> 
> I look for a competitive advantage, so that the profitability will be there and I look for scope to grow, so that equity can rise and I look for these things before it’s obvious to everybody else.
> 
> I let the market take care of recognising the improvement in the business and increasing the multiple in its own good time, [tomorrow; next year; next decade] if it never recognises the improvement the reward will still be there in the distribution stream overtime anyway as all selling really does is commute the income stream – you have no advantage in selling as opposed to holding unless you are taking the opportunity to sell to somebody who is prepared to overpay for the future income stream.
> 
> 
> The asymmetrical risk/return profile from the possibility of multi-baggers to long-term investors is very important.




Hi Craft,

Thank you for the response. Food for thought. 

-How long should the average equity investor persevere attempting to achieve excess returns before admitting defeat and using an index tracker or a simple value portfolio? Not everybody is going to "beat the market" and in the long term the aim is to achieve the highest returns for the least risk. I think this is a worthy discussion point in a thread about long term investing.

Cheers

Oddson


----------



## tech/a

So_Cynical said:


> No, please provide examples.
> 
> Again i would love to see examples of how making wrong choices and bad bets the majority of the time can give you positive expectancy.
> 
> And what has any of this to do with Long Term Investing?




Your not thinking are you So C?

(1) Wrong 7 out of 10 trades losing 20% each time.
      Right 3 out of 10 trades gaining 70 % each time.
So profitable.

(2) Right 7 out of 10 trades winning 20% each time
     Wrong 3 out of 10 trades losing 70 % each time 
So your not profitable.

What's this got to do with long term investing.
I'd have thought it was/is obvious. But perhaps 
I'm in the wrong 50% of idiots.


----------



## So_Cynical

tech/a said:


> Your not thinking are you So C?
> 
> (1) Wrong 7 out of 10 trades losing 20% each time.
> Right 3 out of 10 trades gaining 70 % each time.
> So profitable.
> 
> (2) Right 7 out of 10 trades winning 20% each time
> Wrong 3 out of 10 trades losing 70 % each time
> So your not profitable.
> 
> What's this got to do with long term investing.
> I'd have thought it was/is obvious. But perhaps
> I'm in the wrong 50% of idiots.




tech i know the math, what i want to see is how its done in the context of "easy money" i don't consider the discipline of a strict trend following system to be easy, accepting that 65% + of your trades are losers cannot be easy.


----------



## craft

odds-on said:


> Hi Craft,
> 
> Thank you for the response. Food for thought.
> 
> -How long should the average equity investor persevere attempting to achieve excess returns before admitting defeat and using an index tracker or a simple value portfolio? Not everybody is going to "beat the market" and in the long term the aim is to achieve the highest returns for the least risk. I think this is a worthy discussion point in a thread about long term investing.
> 
> Cheers
> 
> Oddson




Hi Oddson - my answer to your question is along simillar lines to smurfs very good post just before yours.



Smurf1976 said:


> These days, I'm not looking for capital growth as such and yet I find it ends up being relatively easier to achieve than it was when I was actively chasing it.





If the journey is more important to you then the result - then you are much more likely to get the result. 

Personally there was never any question for me, participation was more important then the scorecard - except to the extent that the scorecard could stop me from playing. As it turns out process is what really matters in investing so concentrating there defaulted in the right result and all was sweat with the world. If it hadn't I would have kept trying so long as I could rub a few bucks together to pay the entry fee.




edit - not sure I really answered the question clearly - try this.

If you are doing it for the result – give up straight away you probably don’t have the right motivation to do what it takes to learn how to outperform.

If you are doing it because there is nothing in the world you would rather do regardless of the outcome then perceiver because your motivation will let you find a way.


----------



## tech/a

So_Cynical said:


> tech i know the math, what i want to see is how its done in the context of "easy money" i don't consider the discipline of a strict trend following system to be easy, accepting that 65% + of your trades are losers cannot be easy.




It's easier than you can imagine.
When trading T/T for 5 years the win rate was
Around 32% but with losers often being stopped in groups
Dropping 1% at a time or around $1000
*The OPEN PROFIT *often 10s of 1000s  remained sitting there
In the winners which remained open often for over a year.

So as you can see it's not that hard when you've been involved in it!

If you've got a few hrs to spend you can look back on the posts on
" The Chartist " where its still available for all to learn from.


----------



## So_Cynical

craft said:


> So C
> 
> You seem to have stirred the pot with your big picture. If your stock selection was random then I would tend to agree with most of the comments - *however your stock selections are not random* and I think that needs to be considered.




Yes that's true.



craft said:


> Firstly you mention low price – This low price aspect is a major difference over technical entry which takes whatever market price that may prevail following an entry signal. This aspect needs to be considered when thinking about how long you may be underwater. Hopefully your low cost entry calculations would keep you from starting to accumulate Mirabela at $7 or Billabong at $14 etc




Yep true again...from memory the first time BBG made a stock selection short list was at about $5...never came even close to getting selected though.



craft said:


> Secondly – although you are not explicit about it in the above paragraph I expect from other things you write that you have a quality aspect to the stocks you pick – This aspect should have a big impact into your results as well, ensuring you don’t average into something terminal like ABC Learning or Babcock and Brown etc.




Statistically this has proven to be about 90% correct.



craft said:


> The freeing up of capital to redeploy just because you come into profit is probably the most different aspect to what I do but I can see the logic for it IF you have identified a better business at a lower price to invest in.




I must admit that the "better business" scenario is something i don't consider at all...more like just another good business, i don't rank stocks that interest me...i turn the money over because its a mechanism for portfolio growth and diversification and as a way to de-risk a trade and spread risk over my whole portfolio.



craft said:


> I think your system will only work with high quality and low price stocks. How do you ensure you get these two points right? Explain adequately how you manage these two points and you might (should) ease the concerns of _constructive_ critics.




I cant adequately Explain how i do this, just look at the number of times i will post an entry or interest in a stock and how often other ASF'ers are queuing up to explain why an investment is XYZ is a bad idea...even the no brainers like QBE the other Month trading at below $11, UMike and myself were the only 2 buyers, everyone else (yourself included) wanted to talk about bond yields.

Have a look at the QBE chart that i posted in Nov, while the SP did fall another 1 dollar the general premise was correct with highs last week of above $12.50...it really was just to simple.
~






~


----------



## tech/a

Currently with QBE your right 5 from 5
any trading below the average buy price then your wrong.
And so are your 5 rights!


----------



## craft

So_Cynical said:


> UMike and myself were the only 2 buyers, *[how do you know this?]* everyone else (yourself included) wanted to talk about bond yields.




I would have thought talking about a company rather than personal transactions is probably much more relevant to a stock thread.


----------



## So_Cynical

craft said:


> I would have thought talking about a company rather than personal transactions is probably much more relevant to a stock thread.




From my re-read of the thread UMike and myself were the only buyers stating that we had bought and at what price, i think these sort of declarations add credibility....i mean just look at all the people now declaring that they have been in this rally for months. 

Post it in real time or it didn't happen....burglar on page one of this thread said that no one ever calls a stock cheap, well i buy cheap stocks and i bought QBE for $11 and i posted about it.


----------



## odds-on

craft said:


> Hi Oddson - my answer to your question is along simillar lines to smurfs very good post just before yours.
> 
> 
> 
> 
> If the journey is more important to you then the result - then you are much more likely to get the result.
> 
> Personally there was never any question for me, participation was more important then the scorecard - except to the extent that the scorecard could stop me from playing. As it turns out process is what really matters in investing so concentrating there defaulted in the right result and all was sweat with the world. If it hadn't I would have kept trying so long as I could rub a few bucks together to pay the entry fee.
> 
> 
> 
> 
> edit - not sure I really answered the question clearly - try this.
> 
> If you are doing it for the result – give up straight away you probably don’t have the right motivation to do what it takes to learn how to outperform.
> 
> If you are doing it because there is nothing in the world you would rather do regardless of the outcome then perceiver because your motivation will let you find a way.




Craft,

I get your point but I think you are missing the point I am trying to make. Take sport for example, even if I practiced soccer every night for 10 years I would not get a place on professional soccer team - why? Because I am too old and do not have the necessary soccer skills. Investing is the same, it does not matter how much you practice you may not have the time or the skills to succeed.

"In the long run, we are all dead" - there must come a point where it is actually best not to attempt to achieve excess returns due to the effort required for the reward (Compounding obviously takes it time to really make that difference)

Please understand I am not being difficult, but you must admit there is a cut-off point where if "stock picking" investing is not working (profitable) it is best to try something else. In my case I have thoroughly enjoyed the journey, it has been an amazing learning experience - but if I can beat my returns using an index tracker/simple value portfolio I would be in error not to use these investment tools because in the long-term this will most likely bring me the greatest return. I do believe in value investing I just do not think everybody can apply it successfully in the long run - this is a risk.

What would be of interest to this thread is if investors would post some simple long term investing ideas that require minimum portfolio management (e.g. High Yield Portfolio from the Motley Fool UK website)

Has anybody attempted to run a random selection as a portfolio? Or just use a shotgun approach to buy resource stocks or stocks below NTA?

Cheers

Oddson


----------



## galumay

odds-on said:


> What would be of interest to this thread is if investors would post some simple long term investing ideas that require minimum portfolio management (e.g. High Yield Portfolio from the Motley Fool UK website)
> 
> Has anybody attempted to run a random selection as a portfolio? Or just use a shotgun approach to buy resource stocks or stocks below NTA?
> 
> Cheers
> 
> Oddson




I agree, I am very interested in this too, I am torn about 3 ways at the moment! Try to learn to be a good value investor, use a service like Nick Radges and a momentum trading system, or as you say accept that the best risk/reward matrix for me may be some sort of index tracking, and long term invest and dribble feed with disposable income.


----------



## sydboy007

galumay said:


> I agree, I am very interested in this too, I am torn about 3 ways at the moment! Try to learn to be a good value investor, use a service like Nick Radges and a momentum trading system, or as you say accept that the best risk/reward matrix for me may be some sort of index tracking, and long term invest and dribble feed with disposable income.




I was reading about investing for probably 2 years before I decided to take the plunge.

Over that time I decided to focus on investing in shares that have a decent dividend yield eg for my SMSF I use the avg of the best 3 and 5 yr TD rate and then add 2% on top of that as the higher return I expect for the risk.

What I like with dividend income is that it allows me to redeploy funds without selling current holdings.

I was lucky enough to pick SGN at $1.07 in December and they seem to be hitting a resistance at $1.30.  I was thinking to sell out and take the 20% profit and hopefully buy back in when we get a pull back, but even at the new price I'm looking at a 9% grossed up yield.  This is where I'm having trouble deciding on how actively to manage my portfolio.

I'm in a similar bind with NAB.  The shares are up nearly 20% since I bought them last month, but grossed up yield is still a tad over 9%.

Part of me says the yield is still great so there wont be too much pressure to sell from current investors, but the other part of me thinks the market has sprinted a bit too hard and will need to have a breather shortly, so it's be nice to say sell now and buy in 5% cheaper.

I think it's easier for me to live with following my income target and using that as my primary guide than buying and selling to increase the capital growth return.  I take the Motley Fool concept of intending to invest for the long term but actively monitoring my portfolio and moving allocations when there's better opportunities.


----------



## burglar

sydboy007 said:


> ... I'm in a similar bind with NAB.  The shares are up nearly 20% since I bought them last month, but grossed up yield is still a tad over 9%. ...
> 
> ... the market has sprinted a bit too hard and will need to have a breather shortly, ...




I am reading your post with a great deal of head nodding!
Sold my NAB for a capital gain when they "sprinted a bit too hard".

It was to be my second long term investment since 1980. 
Six weeks is not long, is it?


----------



## craft

odds-on said:


> Craft,
> 
> I get your point but I think you are missing the point I am trying to make. Take sport for example, even if I practiced soccer every night for 10 years I would not get a place on professional soccer team - why? Because I am too old and do not have the necessary soccer skills. Investing is the same, it does not matter how much you practice you may not have the time or the skills to succeed.





Hi Oddson

I don’t think you need special physical abilities to become a good investor I also don’t think you need anything more than average healthy mental faculties, motivation and determination is the key to me.  



odds-on said:


> "In the long run, we are all dead" - there must come a point where it is actually best not to attempt to achieve excess returns due to the effort required for the reward (Compounding obviously takes it time to really make that difference)



The time point is a good one. Much better to be putting in the yards when you’re young and have the time for compounding to work  on any excess return you can achieve.


odds-on said:


> Please understand I am not being difficult, but you must admit there is a cut-off point where if "stock picking" investing is not working (profitable) it is best to try something else. In my case I have thoroughly enjoyed the journey, it has been an amazing learning experience - but if I can beat my returns using an index tracker/simple value portfolio I would be in error not to use these investment tools because in the long-term this will most likely bring me the greatest return. I do believe in value investing I just do not think everybody can apply it successfully in the long run - this is a risk.



 Don’t think you are being difficult – you make very good points.  
I just think a person’s motivation for the process has a lot to do with whether or not they will eventually find a way. If you are not motivated by the process I would recommend assuring average returns straight away through indexing and averaging and get on with other aspects of life. If your motivated I would give much more rope whilst learning – you ask how much rope –  I say it depends on the level of  motivation, but I take your point that a motivated person still may be better off giving up – I wouldn’t dare attempt to say where that appropriate point is though.

Cheers


----------



## craft

galumay said:


> I agree, I am very interested in this too, I am torn about 3 ways at the moment! Try to learn to be a good value investor, use a service like Nick Radges and a momentum trading system, or as you say accept that the best risk/reward matrix for me may be some sort of index tracking, and long term invest and dribble feed with disposable income.




Hi galumay.

I would say you are only looking at two objectives. Trying to outperform average or accepting average with the benefits of low expense low input.

Momentum or stock selection is just two different methods for attempting to achieve outperformance. There are others methods and combinations – all will take time and effort to master.  As per my response to Oddson – pick the one that motivates you the most and you have the greatest chance of succeeding.

Using services like Nick Radge or placing money with any active manager or referral service for that matter is a bet on that person’s ability to outperform.  Some truly can – Some are just in it to rake in management fees before customers realise there is randomness in results but no long-term outperformance, Can you tell the difference and pick the right person to back 'before' the results have been made?


----------



## craft

So_Cynical said:


> From my re-read of the thread UMike and myself were the only buyers stating that we had bought and at what price, i think these sort of declarations add credibility....i mean just look at all the people now declaring that they have been in this rally for months.
> 
> Post it in real time or it didn't happen....burglar on page one of this thread said that no one ever calls a stock cheap, well i buy cheap stocks and i bought QBE for $11 and i posted about it.




Thanks for the lecture in credibility - but if it's all right with you I will just stick with thinking diligent research and thoughtful analysis gives rise to credibility.  Feather weight opinions and small sample ‘look at my actions’ don’t do it for me.


----------



## odds-on

galumay said:


> I agree, I am very interested in this too, I am torn about 3 ways at the moment! Try to learn to be a good value investor, use a service like Nick Radges and a momentum trading system, or as you say accept that the best risk/reward matrix for me may be some sort of index tracking, and long term invest and dribble feed with disposable income.




Hi Galumay,

Why not have a trial period with each of the ways and see how it goes? In the last couple of years I found out the following:

1. I cannot short term trade for toffee.
2. I am a contrarian.
3. I am not patient.

Cheers

Oddson


----------



## galumay

odds-on said:


> Hi Galumay,
> 
> Why not have a trial period with each of the ways and see how it goes? In the last couple of years I found out the following:
> 
> 1. I cannot short term trade for toffee.
> 2. I am a contrarian.
> 3. I am not patient.
> 
> Cheers
> 
> Oddson




I guess the problem with a trial for long term investing is that i will be dead by the time i prove my strategy and then implement!!

Are your dot points 1 & 3 not at odds with each other and if so how do you reconcile!?


----------



## McLovin

I guess I'm in the same boat as most on here; capital for cashflow. I don't hunt around for multibaggers, I doubt it's really even possible while maintaining some modicum of conservativeness. I've been buying and selling shares for a pretty long time, but I'd say that it's only in the last 2-3 years that things started to "click". It's sort of like I'm wearing Polaroid glasses now and can see much better. 

I still haven't gotten my head around when to sell a great business because the SP has run too hard. I guess that will come with time.

SC: I don't think posting your buys necessarily adds credibility. IMO,the process matters just as much, if not more, than the result.


----------



## odds-on

galumay said:


> I guess the problem with a trial for long term investing is that i will be dead by the time i prove my strategy and then implement!!
> 
> Are your dot points 1 & 3 not at odds with each other and if so how do you reconcile!?




They are at odds! I do not short term trade and I do not hold for years. I would say my holding period is between 3 to 6 months with a portfolio of 1 to 2 stocks and cash. Happy to "to bet the farm" or stay 100% cash.


----------



## So_Cynical

craft said:


> Thanks for the lecture in credibility - but if it's all right with you I will just stick with thinking diligent research and thoughtful analysis gives rise to credibility.  Feather weight opinions and small sample ‘look at my actions’ don’t do it for me.




Lecture in credibility - feather weigh opinions? 

Dude seriously, its not rocket science and it was never a lecture.

You give good analysis craft, its just that i think its mostly of little use...like pretty much all in depth analysis.



McLovin said:


> SC: I don't think posting your buys necessarily adds credibility. IMO,the process matters just as much, if not more, than the result.




I like the certainty, the binaryness of it, im in at what ever price says that im backing my words and simple analysis with money...personally i like it when people post they're buys and sells, its open and honest and i like that.


----------



## robusta

craft said:


> I just think a person’s motivation for the process has a lot to do with whether or not they will eventually find a way. If you are not motivated by the process I would recommend assuring average returns straight away through indexing and averaging and get on with other aspects of life. If your motivated I would give much more rope whilst learning – you ask how much rope –  I say it depends on the level of  motivation, but I take your point that a motivated person still may be better off giving up – I wouldn’t dare attempt to say where that appropriate point is though.



.

Guess it is a bit like anything in life, if you are motivated and enjoy what you are doing the chances of success are that much better. From my personal experience while I have not been investing long enough for any results to be meaningful, I think investing is the best game I have ever played. So much to learn, so many permutations, part science part art and the chance of earning a decent reward for your efforts... What else would I want to do with my spare time?


----------



## robusta

odds-on said:


> In the last couple of years I found out the following:
> 
> 1. I cannot short term trade for toffee.
> 2. I am a contrarian.
> 3. I am not patient.




Hi odds-on, to me it seems more at odds to be contrarian and not patient. I thought patience and the ability to back your judgement for the long term would be a prerequisite.


----------



## galumay

So_Cynical said:


> its just that i think its mostly of little use...like pretty much all in depth analysis.




Now you have really lost me! Firstly you seem oblivious to the irrelevance of % of winners picked without reference to the quantum of wins and losses, now you appear to be suggesting that any sort of in depth analysis of a stock is useless!

I am struggling to get an understanding of just what your personal long term investing strategy is, and whether you have actually had any measurable success with it!


----------



## brty

Before we all get into a bun fight about who's ego is biggest, I thought a bit of a return to the topic may be relevant.

After thinking a little more about the topic, I feel that the best long term investment is education in investing, discovery of what works and what does not. For myself this was a long process with many errors, I had to learn the hard way.
It has been stated in threads before about 10,000  hours to gain expertise in anything, and I tend to agree, especially in investment.

With over 30 years in this game, I am still learning. What works for me longer term, may not work for anyone else for a variety of reasons, whether it be Technical or Fundamental, whether it be a buy and hold of "Buffet" style stocks or penny dreadfuls. Only I will know how to react on what I have learned. 

It is only my education in this game over many years that allows for successful employment of funds and anyone who thinks that just following what others do and expects immediate results is deluding themselves. The strategies that work, usually have their days in the sun and get accepted by many, then night comes where prior successful strategies have a period of failure. Each of these periods can be months or years. 

What has education taught me?? The easy answer is to look for opportunities. A series of short term trades becomes a long term strategy when working. A good purchase that continues to pay handsomely (cap and/or divs) over a long period equally good. I try to do both.

A recent example... though I don't know how to do this without boasting, sorry..

CAB. I only looked up cabcharge because of a post here by SKC, it stated the following...



> Something isn't right with these guys from 3:45pm. It was bouncing nicely today and then lost 8% in the last 15 minutes.




My research, which to some would be way to premature, indicated the following to me on the morning of the 23rd November.....



> Couldn't help myself. I bought a few thousand shares at 3.64. What is not to like about a 9.6% fully franked dividend of a company with good financials. Looking at the technicals, breaking the $4 looks bad, yet I wont be surprised to see a large reversal sometime soon.
> 
> As the company release basically stated nothing materially wrong, it would be a very bad look for directors to announce something bad next week, hence downside should be limited.




Later that night I posted the following...



> In 2007, The company had a cashflow of 28c/share and dividend of 30c/share. The share price was between $9.50 at the low point and $14 for the high. Interest rates were higher than today.
> In 2012 the company had a cashflow of 58c/share and a dividend of 35c/share. If they were to lose 30% of cashflow it would still be nearly 50% above the 2007 level. A share price of 1/3 the 2007 level seems a little ridiculous.






> All share trading and ownership is about risk. There is little reward where there is no risk. However there are few occasions when opportunity stares you in the face and most freeze. I believe today offered one of those rare opportunities.




Those posts were made on the day of the lowest price since 2004 and has so far proven to be a reasonable investment. I bought just under 8000 shares that day, it is a small proportion of my portfolio. 

I only bought those because of my education in investment over the long term, plus my acceptance that I could be wrong. If the share price had continued to go down I would have got out of the position because it would clearly indicate that there was something I didn't know about. How long will I keep them for? No idea, perhaps long term if they continue to meet expectations, ie be a good cow as I like high fully franked dividends, or short term if they were to show an unacceptable decline in either FA or TA, OR have a rise out of proportion to what is warranted.

Sorry about the long post and again apologies about CAB, yet I hope what I can offer as the lesson is that only the long term investment in education is what allows for the following...
1. To spot opportunity that others miss.
2. To understand that I could easily be wrong, and be prepared to accept this.

brty


----------



## galumay

brty said:


> Before we all get into a bun fight about who's ego is biggest,




Yup, re-reading my previous post it comes across as a bit smart ****, I dont seem to be able to edit it, so my apologies.


----------



## Julia

galumay said:


> Yup, re-reading my previous post it comes across as a bit smart ****, I dont seem to be able to edit it, so my apologies.



FWIW, I don't think it needs any editing.  Not smart**** at all.


----------



## So_Cynical

galumay said:


> Now you have really lost me! Firstly you seem oblivious to the irrelevance of % of winners picked without reference to the quantum of wins and losses, now you appear to be suggesting that any sort of in depth analysis of a stock is useless!




oblivious? or in contempt? sorry but im a simple kind of guy, i prefer simple strategies that result in small predictable profits...while im well aware of many different strategies and systems i prefer my high % winners with open time frame strategy that im comfortable with.

---

As for analysis, hang around this forum for 5 years and you will see some really good and bad analysis often from the same people...mostly its irrelevant to the share price or in fact to what's actually happening, occasionally its spot on.



galumay said:


> I am struggling to get an understanding of just what your personal long term investing strategy is, and whether you have actually had any measurable success with it!




measurable success? i post all my buys and sells, have done for 4 years.


----------



## craft

brty

thanks for getting things back on the track and great post.

Cheers


----------



## burglar

craft said:


> A generic named thread for wide ranging discussion.
> 
> I hope people who are on a personal investing journey, find this thread and find it a good place to share their thoughts and experience.




My investment ideology is based on a pyramid. 

The base is the PPOR which was a struggle for decades. Best described as forced savings.

In the middle my various Super accounts, all but one are small and useless. Not worth consolidating.

At the top of this pyramid is my passion, my hobby, my pastime. Trading equities.

I thought to seek multibaggers and swing the profit into bluechips.
No early luck in 1980 with the "Big Australian" BHP
Meanwhile, I became hooked on pennydreads and gambling.

I am determined to build a core portfolio
Recently I bought into NAB but it "sprinted" !
After six weeks I decided to take a capital gain.

So it goes on, a search for a long term investment!


----------



## brty

Burglar,

I also managed to lose money in BHP around the same time! I also lost on pennydreadfuls like ACap development and bluechips like Kemtron limited, I wonder if you can remember those.

Unfortunately I made money trading futures with Dalgety Futures in wool, cattle and $Aus in that period.


----------



## CanOz

craft said:


> brty
> 
> thanks for getting things back on the track and great post.
> 
> Cheers




DUI DUI DUI, I echo that too Brty.

CanOz


----------



## McLovin

brty said:


> After thinking a little more about the topic, I feel that the best long term investment is education in investing, discovery of what works and what does not. For myself this was a long process with many errors, I had to learn the hard way.
> It has been stated in threads before about 10,000  hours to gain expertise in anything, and I tend to agree, especially in investment.
> 
> With over 30 years in this game, I am still learning. What works for me longer term, may not work for anyone else for a variety of reasons, whether it be Technical or Fundamental, whether it be a buy and hold of "Buffet" style stocks or penny dreadfuls. Only I will know how to react on what I have learned.
> 
> It is only my education in this game over many years that allows for successful employment of funds and anyone who thinks that just following what others do and expects immediate results is deluding themselves. The strategies that work, usually have their days in the sun and get accepted by many, then night comes where prior successful strategies have a period of failure. Each of these periods can be months or years.
> 
> What has education taught me?? The easy answer is to look for opportunities. A series of short term trades becomes a long term strategy when working. A good purchase that continues to pay handsomely (cap and/or divs) over a long period equally good. I try to do both.




brty

I'd be interested in hearing how much your strategy/thinking has changed over the past 30 years. Does what you do today bare any resemblance to what you did when you were starting out? Have you slowly built on your knowledge or have you had complete changes of direction through your investing life?


----------



## odds-on

craft said:


> Basically my big picture of investing is swapping surplus capital for an ongoing income stream.
> 
> If you like, a chicken for its eggs, a cow for its milk, a sheep for its wool, sort of approach. What the approach does is get away from reliance on what the animal could be sold for down the track.  The return stems from what the animal produces in relation to what I initially paid. The potential to sell becomes purely opportunity not a necessity
> 
> What’s the big picture behind your approach?




Craft,

How are the pigs? 

http://csinvesting.org/2011/09/17/t...ul-investing-or-a-pig-farmer-makes-a-killing/

Cheers


----------



## Ves

odds-on said:


> Craft,
> 
> How are the pigs?
> 
> http://csinvesting.org/2011/09/17/t...ul-investing-or-a-pig-farmer-makes-a-killing/
> 
> Cheers



The bit about "*there being no secret*" in the article that you linked Oddson, is one of the moments of realisation that took me onto the next rung (of many - and I'm still near the bottom) of investment knowledge.  It's simple and very sobering.


----------



## brty

McLovin,
In 30+ years a lot has changed, especially the availability of information. This of course influences how one perceives stockmarket actions. To get copies of annual reports was not easy nor timely, in fact I mostly went on what was written in newspapers as my source of information, for stocks. There was not even many investment books available and what was out there was very expensive.

As you can imagine what I did often did not work, I lost money on safe bluechip stocks, that went bust, like Kemtron that I mentioned to Burglar. I made the rooky error of buying more on the way down as it was a "good company". I did not fully understand fundamental analysis at the time, nor were all the financial statistics released by the company legitimate, which makes investment harder when such things occur. It still happens, which in my opinion makes theoretical fundamental analysis a more inexact science.
I also bought pennydreadfuls, on the way up, with the intention of selling for short term profits, using basic charting, ie patterns from books. Ican remember one occassion when I had loaded up, always in profit, then when I went to sell at a goodly profit, there were no bidders. I couldn't get out of the stock. Within days there was a report in the newspaper about the company going into administration, it never came out. 
What I have really learnt over many years is that there are many ways to lose your money in investments, even in "safe" places.

These days I study relentlessly to find out what can go wrong, plus never make large bets. The CAB trade that I mentioned before, even with full confidence, is only a very small proportion of my investments. By understanding that you can be wrong keeps the bet size small. 

I cut out the losers, as my biggest mistake in the past was keeping them, not just the monetary loss, but the psychological impact of being wrong. In this game learning that you can easily be wrong is the most important lesson, yet it is extremely hard to do. Just because one spends 3 weeks studying every detail of an investment and comes to the conclusion that all the stars line up, is no excuse to bet the farm. This is where I believe many of the fundamental analysts here go wrong. Just because the evidence you can obtain states one case, ie good value, does not mean that you have the full story, especially if the price action is doing the opposite. Have a good long look at the MCE thread from the beginning, with all the value investors hopping on board. I note that the starter of this thread was a word of caution in that one from early on.

That is a long enough rant for now.

brty


----------



## burglar

brty said:


> McLovin,
> In 30+ years a lot has changed, especially the availability of information. ...



Hi brty,
You have brought back fond memories.

I remember many a Saturday arvo with my mentor. 
We unrolled miles (kilometres+) of butchers paper to add 
weekly data points to home made graphs. 
And organising newspaper articles in a scrap book.
Keeping Journals and General Ledgers.
Checking prices on teletext! 
(they scrolled as you worked, sometimes we went through them twice)
Did that once at lunch time and once again after close.


----------



## tech/a

brty

I don't know that your reply will be 
Expected by the masses.
Not why they'd want to hear.

Nice post.
One of the few that is loaded
With experience not theory.


----------



## explod

> That is a long enough rant for now.
> 
> brty




Look forward to more of your take.

Blue chips falling off the tree is an interesting area.  In my view this is where an investor needs to focus on the fundamentals, the economics and the sentiment *of the sector * in which a company is dealing.


----------



## Bill M

craft said:


> A generic named thread for wide ranging discussion.
> 
> I hope people who are on a personal investing journey, find this thread and find it a good place to share their thoughts and experience.




I am a long term investor and now I am retired, living solely from passive income. I personally believe that clearing the family mortgage should be the first step, reason being it is the one barrier that holds back people investing serious money. The number 1 priority for my wife and I was clearing that, once done it cleared the deck for serious investing.

All of a suddenly all the surplus (ex mortgage money) money became full on investment money. Investing became a serious business for me.

It doesn't really matter where your income comes from, be it a rental property, shares, fixed interest or cash. All that matters is that your investment keeps on paying you dividends. I do not buy any investment without thinking through the consequences. It has to have a clear return and then you have to weigh up the risks that you can handle or competently manage.

I work along similar lines to ROE and brty, I try to look for miss-priced investments that are going to me long term income. For example if I find a convertible preference share that would pay me 9% gross income and the parent company is sound and has never missed a dividend payment I would consider that a good bet with some minor reservations. I would buy that parcel with the intention of getting that income for a long period of time. Same goes for stocks and real estate, I do not gamble on would be or could be's. It has to be a proven winner.

Currently everything I hold pays me some kind of returns, be it rent, dividends or interest. Anything that doesn't won't get into my investment portfolio in the first place. Capital growth is of secondary value to me, it is the income I look for first. Occasionally capital growth kicks in and I become a very happy camper. The growth is the cream on the cake and something I do not expect (but hope to achieve), the income is the bread and butter.

Now I am in a position where the growth and income is out stripping what my wife and I need to live well on in retirement. I am waiting for further growth (the cream on the cake) to liquidate some of my riskier positions in order to buy less riskier ones so when the time comes that we may have another crash I won't lose very much money. The end result I am looking for is having a low risk portfolio producing income beyond what my wife and I need to live comfortably. And as long as that income keeps pace with inflation then we will have nothing to worry about. Until we get to that point it's business as usual, looking for those opportunities.

Good luck with your investments no matter what they are, cheers.


----------



## odds-on

Hi Brty,

Thank you for your posts. It raises some questions and I would greatly appreciate it if you could take the time to respond.

1.	Do you think the increased availability of information has made the stock market more efficient over the years? Are there less opportunities? I appreciate that the market is made up of humans so there will always be fear and greed providing some opportunities.
2.	Do you think the increased availability of information has required a change of strategy from 30 years ago? (e.g. from my limited experience it is as if the stock market “overreacts” to bad news in a short timeframe so there is actually only a small window of days to act)
3.	Do you think the increased availability of information has impaired the decision making ability of investors? If I recall correctly there was a study done on sports punters and the more information they received the worse their bets got! There seems to an optimum information processing level for the human brain. 
4.	If you were to start again where would you go fishing?

Cheers


----------



## craft

tech/a said:


> brty
> 
> I don't know that your reply will be
> Expected by the masses.
> Not why they'd want to hear.
> 
> Nice post..





I am sure everybody reading this thread enjoyed, appreciated and respected brty’s post.  It along with the majority of other posts made so far is exactly what was envisioned and hoped for when starting the thread.



tech/a said:


> One of the few that is loaded
> With experience not theory.




This little underhanded line – probably not so much.

Haven’t you derailed enough threads at ASF?  

Only positive and constructive posts in this thread please.


----------



## explod

craft said:


> This little underhanded line – probably not so much.
> 
> Haven’t you derailed enough threads at ASF?
> 
> Only positive and constructive posts in this thread please.




I made my first trade in 1968, it is a very tough business and not for softly treading angels.  Apologies there Tink, Lol.

Tech/a is one of the most accurate and intelligent technical chartists I have encountered.

Sometimes "positive and constructive" input is not what one is seeking, and often what one is seeking is what we would like.  All very nice but doomed to fail.


----------



## craft

It’s a shame there is no appreciate button in ASF

Some great posts

Kudos this time to Bill M.


----------



## odds-on

Ves said:


> The bit about "*there being no secret*" in the article that you linked Oddson, is one of the moments of realisation that took me onto the next rung (of many - and I'm still near the bottom) of investment knowledge.  It's simple and very sobering.




Hi V,

The fact I found very sobering was that most active money managers underperform the market in the long run, this is probably why I think so much about investment strategy. I read with great interest about the Permanent Portfolio (thank you for that tip), Bogleheads, High Yield Portfolios and extreme saving.

An investor who is comfortable with equity exposure has only three choices:

1.	Disciplined saving and averaging into an Index Tracker type portfolio over the course of their lifetime. Many great investment minds recommend this and it requires a couple of hours a year.
2.	Disciplined saving and averaging into a simple value or momentum type portfolio (e.g. high yield large caps). A couple of hours a year to manage.
3.	“Stock pick”. 10000 hours to find their profitable way

What interests me is has anybody applied approach 2 successfully? There are endless academic studies but what interests me it is how somebody applied it on the ASX over the long term.

Also has anybody just created a random portfolio of a dozen stocks and rebalanced at appropriate periods (taking into account taxation and expenses). To date I have read about a cat, five year old kids, and a pig farmer that beat the professionals – what next a monkey with darts? Or perhaps a chicken that pecks the stocks from the newspaper listing? 

Does everybody believe in the “illusion of control” and not accept there is some randomness to it all?

I suppose my main point is do I actually need to spend 10,000 hours. Cannot I get a 2% excess return over the market just by applying a simple system? 2% over 20 years makes a difference between the choice of Merc or a Lexus as my vehicle to get me to golf during my early retirement (fingers crossed).

Cheers


----------



## tech/a

craft said:


> This little underhanded line – probably not so much.
> 
> Haven’t you derailed enough threads at ASF?
> 
> Only positive and constructive posts in this thread please.




*Lets get this clear.*

A quick wander through the Stock threads and 
in most "Investment type" threads and youll find many posts by individuals who clearly 
dont trade. Jam packed full of theory heaps of rehetoric and no regard to how to
manage risk let alone manage a trade or portfolio.

There are a few here who have been through Bull and Bear markets.
Who understand that you dont need to emulate Warren Buffett or
be a George Soros.

These few have information which is often glossed over as its not "colorful".
Or what they want to hear.
Experience---real time honored experience which has a lesson rather than 
a possible theorised outcome is rare on these pages.

Often the cut and pasted ramblings of would be's are seen as "Must read" 
information.Flawed and un proven trading ideas met with encouragement.
The overwhelming Desire for profit with no or very little regard to Loss.
"I buy for yeild with no care about capital gain" And Ill add no regard to
capital loss!!---a catch cry---applauded!

Only positive constructive posts in this thread.

*You cant see the obvious in this comment?*



> One of the few that is loaded
> With experience not theory.




Derailing threads?????---Id say derailing duck comments---more the issue.
Just point me to the derailing and I will desist?

The *NO SECRETS *---secret has been well known by many of us.

https://www.aussiestockforums.com/forums/showthread.php?t=25121&highlight=secrets

Constructive enough?


----------



## craft

odds-on said:


> Hi V,
> 
> The fact I found very sobering was that most active money managers underperform the market in the long run, this is probably why I think so much about investment strategy. I read with great interest about the Permanent Portfolio (thank you for that tip), Bogleheads, High Yield Portfolios and extreme saving.
> 
> An investor who is comfortable with equity exposure has only three choices:
> 
> 1.	Disciplined saving and averaging into an Index Tracker type portfolio over the course of their lifetime. Many great investment minds recommend this and it requires a couple of hours a year.
> 2.	Disciplined saving and averaging into a simple value or momentum type portfolio (e.g. high yield large caps). A couple of hours a year to manage.
> 3.	“Stock pick”. 10000 hours to find their profitable way
> 
> What interests me is has anybody applied approach 2 successfully? There are endless academic studies but what interests me it is how somebody applied it on the ASX over the long term.
> 
> Also has anybody just created a random portfolio of a dozen stocks and rebalanced at appropriate periods (taking into account taxation and expenses). To date I have read about a cat, five year old kids, and a pig farmer that beat the professionals – what next a monkey with darts? Or perhaps a chicken that pecks the stocks from the newspaper listing?
> 
> Does everybody believe in the “illusion of control” and not accept there is some randomness to it all?
> 
> I suppose my main point is do I actually need to spend 10,000 hours. Cannot I get a 2% excess return over the market just by applying a simple system? 2% over 20 years makes a difference between the choice of Merc or a Lexus as my vehicle to get me to golf during my early retirement (fingers crossed).
> 
> Cheers




Oddson, sorry Not V but sticking my  in anyway.

For 2) to work there either has to be a ‘secret’ that only you can find and exploit or as the article indicates a deficiency that whilst know, still persists so that you can be contrarian enough to exploit it. I’m firmly with V on there being no secret (at least no enduring ones) – that just leaves enduring deficiencies in how humans act.

You may be able to implement a type 2 system with just a few hours work but can you identify the opportunities and stick to your guns in drawdown without a solid foundation. 

The hours you mention in 3) are again the foundation – implementation takes very little time.

What is random in a small sample or in the short run can be predictable in a large sample or over the long run.


Cheers


----------



## burglar

tech/a said:


> ... Constructive enough?



I once had a light bulb moment. :
The frequency of light emitted was rare and hard detect.
It was definitely at the trading (TA) end of the spectrum.
I did not turn to the dark side but must acknowledge its existence or perish.

tech/a has seen the light, taken 10,000 hours says he.


I leave this post with a quote:

“The stock market by its very nature is designed for you to lose money. The rallies and reactions within any trend ensure this process is at work constantly. It is created automatically. The market behaves this way because it has to! The weak have to perish so that the strong can survive. Professional traders are fully aware of the weaknesses in traders under stress and will capitalise on this at every opportunity.”

Read more:
free download from “Master the Markets”, Tom Williams

http://www.tradeguider.com/mtm_251058.pdf


----------



## Ves

odds-on said:


> Does everybody believe in the “illusion of control” and not accept there is some randomness to it all?



I believe that investing is no different to anything else that you will ever do in life - your actions are part of a dynamic system, full of reactions, obstacles, triumphs and defeats.  I don't think you can be profitable long-term without accepting the reality that you are not fully in control.  Without fully understanding this realisation I think it would be hard to put in place risk assessment / parameters / portfolio rules and everything else that helps you to do everything possible to avoid permanent loss (and therefore continue to _be_).

I always think of investing as something similar to the Green Mile, taking out scrapings of a massive wall that stands in your way, one grain at a time, until you start seeing light and the end of the tunnel a long way down the track.  In the long-run conservatism and probability will help you from collapsing from exhaustion.

Perhaps you consider this to be a leap of faith - and I would agree; it is. Risk is every where, learn how to minimise it, and control what you can, and you can use it to your advantage. Discipline always beats exhuberance in the long-run. It's not as exciting, but it is more effective.



> I suppose my main point is do I actually need to spend 10,000 hours. Cannot I get a 2% excess return over the market just by applying a simple system? 2% over 20 years makes a difference between the choice of Merc or a Lexus as my vehicle to get me to golf during my early retirement (fingers crossed).
> 
> Cheers



I don't like arbitrary cliches like the "10,000 hour rule" - quantity as opposed to recognisable quality - there can be a large difference!   Theory is not the same as practice either - do you count actual market experience as opposed to textbook research in the 10,000 hours? Do you play football games only after you have trained for 10,000 hours? Are you better at something after doing 10,000 hours theory and no actual practice? An arbitrary goal with no qualification of _what, how, where, when, why_ is useless to me. For most there is no gaurantee that 10,000 hours would achieve much at all - because they go about it the wrong way, haphazard and without motivation.

A gifted, and equally motivated person may not need 10,000 hours.  Successful people don't need to draw lines in the sand like that.

I've never tried  methods 1 or 2 in your post -  I'm more of a stock-picker and focus on 3. Mainly because I enjoy it.


----------



## Ves

craft said:


> It’s a shame there is no appreciate button in ASF
> 
> Some great posts
> 
> Kudos this time to Bill M.



Yes - there is a good collection of interesting experiences and musings building in here now.


----------



## craft

Ves said:


> Yes - there is a good collection of interesting experiences and musings building in here now.




And your previous just added one more


----------



## prawn_86

Great thread here, so much useful info.

I have been investing for about 8 years now, so no-where near as long as a lot of members, and feel as though i am only just starting to 'get it' as i have found a style that suits me, which is investing for passive income in solid companies ala ROE, McLovin etc although i wouldnt class myself in their league.

Solid companies at low prices. CAB, FLT, AMP etc when the price is attractive.

While i agree with other members here that many people wont be able to outperform, i think the main thing is that by being involved you meet many people and come across other potential opportunities. If i had just put all my investing money into an index fund 8 yrs ago i would probably be slightly lower than where i am now for a lot less work, but without the friends, knowledge and experience i have gained.


----------



## brty

Before we get sidetracked, I just want to point out the obvious to a couple of posters who seem to be at odds with each other. Please remember that different people have different ways of expressing themselves and because this is only a written forum, often the intent of a post can be lost. What can seem like a barb to one person may not have meant to be one by the other, it is just the way they express themself.

Oddson,



> Also has anybody just created a random portfolio of a dozen stocks and rebalanced at appropriate periods (taking into account taxation and expenses). To date I have read about a cat, five year old kids, and a pig farmer that beat the professionals – what next a monkey with darts? Or perhaps a chicken that pecks the stocks from the newspaper listing?




I'm sure many people have done this, I have in the past, but stopped years ago as the results had no meaning to me at the time. If I thought it was worth investigating, that is exactly what I would do. For instance, it is easy to go to a library, look up a 20 year old newspaper, write down the name of the 5th company of each letter of the alphabet, then go home and do the study you suggest. The reason for a 20 year old newspaper is survivorship bias. If you just used existing stocks and went back only using those that were listed 20 years ago, then the results will be different. 

Part of the 10,000 hours, mentioned is about knowing how and what to do, then doing it. Just reading the results of others does not allow one to understand the nuances of what you are trying to do.


----------



## brty

Prawn,



> While i agree with other members here that many people wont be able to outperform, I think the main thing is that by being involved you meet many people and come across other potential opportunities.




A lot of people get hung up about the "outperform" or be better than some index. My opinion is that this is not necessary, as you have already alluded to. Everyone who comes close to the performance of the indicies over the medium to long term is doing very well. Looking at the XJO and comparing it to STW, a fund that mimicks it, quickly shows that over the years actual performance is behind theoretical performance. The indicies are theoretical.

 Studies have shown that the managed funds industry has high withdrawals near market bottoms and maximum contributions near market tops, so those who say they will just use a fund for the long term and are not prepared to do the study of investment, are most likely to not enjoy the long term market movements.


----------



## ROE

People under perform because they have to buy something because
They have cash and FOMO force them to buy into equity...

Buy when you are truely think the business has reasonable prospect
Of delivering higher earnings and sustain dividend after you bought it

No point buying mining business when commodity price at all time high
No point buying Apple in the past year as they already capture
The market and the risk of growing earning is stupidly low.

There are some simple things and common sense you can apply
To equity that require little work or details knowledge and you
Can do well out of it -

Buy stuff cheap with good long term earning prospects then
Long term holding you will do well... I must admit easier said than done
But always aim for that goal and you get better with time..

I can now sort of look at a certain business and can have reasonable
Confident of its earning prospect and the only time I act is price
It must trades at a price I am willing to pay for long term holding and if it never get there

Then I never buy and I buy some other business that fit
In that frame work else cash at call is my prefer option when
I got nothing I like


----------



## McLovin

brty said:


> McLovin,
> In 30+ years a lot has changed, ...




Great reply brty, thanks!

There's plenty to learn from old hands like yourself. 

What did Kemtron do? It sounds like they made Commodore 64 type things.


----------



## Julia

robusta said:


> .
> 
> Guess it is a bit like anything in life, if you are motivated and enjoy what you are doing the chances of success are that much better. From my personal experience while I have not been investing long enough for any results to be meaningful, I think investing is the best game I have ever played. So much to learn, so many permutations, part science part art and the chance of earning a decent reward for your efforts... What else would I want to do with my spare time?



That's the ideal, robusta.  So much easier when you really love what you do.  There are clearly many here who have a similar fascination, especially those who favour a FA approach.

Then there are people like myself who have just gritted our teeth and kept going.  I've never really enjoyed participating in the market and have persisted simply out of a determination to eventually reach a position of financial independence and passive income.




McLovin said:


> I'd be interested in hearing how much your strategy/thinking has changed over the past 30 years. Does what you do today bare any resemblance to what you did when you were starting out? Have you slowly built on your knowledge or have you had complete changes of direction through your investing life?



I hope you won't mind my also responding to this, as well as brty.   
No one has thus far mentioned how circumstances can influence and challenge one's plans.  It might sound odd, but the worst mistake I ever made was in woeful choice of partner.  If you can stay in a stable relationship where you share ideals and goals, imo that's the absolute basis for the future.
Further, if there are two of you working, then obviously that's going to allow you to get ahead more quickly.
Starting again from scratch after many years of saving and investing is quite a challenge that is faced by many.

Most of the discussion here has been related to shares.  Bill has talked about his investment property which is working well for him alongside his share investments.   

I'd like to see more attention focused on moving between asset classes as market conditions change.  Perhaps people do this but it's not getting any mention at present because investment property in most cases offers such a poor yield and questionable capital gain.

Investing in IPs at a time when capital gains were as they are unlikely to be again was what allowed me to have a decent capital base for moving into shares to take advantage of the bull market there.





> I am waiting for further growth (the cream on the cake) to liquidate some of my riskier positions in order to buy less riskier ones so when the time comes that we may have another crash I won't lose very much money.



Yes, my attitude also.  
When you are building up capital on the way to retirement, presumably earning a salary at the same time, it makes sense to focus on higher returns/higher risk, but having 'got there', capital preservation is my priority.

So, yes, the plan will probably be changed multiple times on the way to retirement, adapting to changing circumstances, both personal and external.



Ves said:


> I believe that investing is no different to anything else that you will ever do in life - your actions are part of a dynamic system, full of reactions, obstacles, triumphs and defeats.  I don't think you can be profitable long-term without accepting the reality that you are not fully in control.  Without fully understanding this realisation I think it would be hard to put in place risk assessment / parameters / portfolio rules and everything else that helps you to do everything possible to avoid permanent loss (and therefore continue to _be_).
> 
> I don't like arbitrary cliches like the "10,000 hour rule" - quantity as opposed to recognisable quality - there can be a large difference!   Theory is not the same as practice either - do you count actual market experience as opposed to textbook research in the 10,000 hours? Do you play football games only after you have trained for 10,000 hours? Are you better at something after doing 10,000 hours theory and no actual practice? An arbitrary goal with no qualification of _what, how, where, when, why_ is useless to me. For most there is no gaurantee that 10,000 hours would achieve much at all - because they go about it the wrong way, haphazard and without motivation.
> 
> A gifted, and equally motivated person may not need 10,000 hours.  Successful people don't need to draw lines in the sand like that.



Two great points, Ves.  Well described.


----------



## sydboy007

Julia said:


> I'd like to see more attention focused on moving between asset classes as market conditions change.  Perhaps people do this but it's not getting any mention at present because investment property in most cases offers such a poor yield and questionable capital gain.




After seeing my super account loose around 30% of it's value during the early-mid stages of the GFC I had a light bulb go off in my head.  Interest rates are going to crash, and bonds are going to provide a nice capital growth.

So I moved 80% of my then industry super fund into the local / int fixed interest option.  Was nice to be worry free for the next 3 years and seeing my fund earnings in double digits over that time.

No sure what asset class is undervalued now.  Suppose there are still a decent number of shares out there still offering 7% yields, though the recent run up of the ASX has made things riskier than a couple of months ago.

I do wish the corporate debt market was far more accessible to retail investors.

I recommend signing up to "the wire" newsletter from FIIG.  It's quite educational around what fixed interest can offer you as an investment.


----------



## sinner

Julia said:


> Most of the discussion here has been related to shares.  Bill has talked about his investment property which is working well for him alongside his share investments.
> 
> I'd like to see more attention focused on moving between asset classes as market conditions change.  Perhaps people do this but it's not getting any mention at present because investment property in most cases offers such a poor yield and questionable capital gain.




Hi Julia,

I have mentioned this paper before. I think it is a good inspiration starting point:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461


----------



## odds-on

craft said:


> Oddson, sorry Not V but sticking my  in anyway.
> 
> For 2) to work there either has to be a ‘secret’ that only you can find and exploit or as the article indicates a deficiency that whilst know, still persists so that you can be contrarian enough to exploit it. I’m firmly with V on there being no secret (at least no enduring ones) – that just leaves enduring deficiencies in how humans act.
> 
> You may be able to implement a type 2 system with just a few hours work but can you identify the opportunities and stick to your guns in drawdown without a solid foundation.
> 
> The hours you mention in 3) are again the foundation – implementation takes very little time.
> 
> What is random in a small sample or in the short run can be predictable in a large sample or over the long run.
> 
> 
> Cheers




Hi Craft,

Yes there is no enduring ‘secret’ but the enduring deficiencies in how humans act will always provide opportunities for that ‘secret’ to work again. Long term investing is long term, over a 40 year period at least a few ‘secrets’ that worked in the past will work in the future. Investors as part of their education should spend time reading financial history and the classic investment books. Personally I find it very useful to sit and read old investment magazines from a few years back as it is fascinating to read survey results and expert opinions about the future that is now the past! Then go and read the current media, investment magazines, company analysis, forum posts etc. The process generates ideas – recently for me it was “the mining boom is over” and the panic selling of the mining services sector.

The investment timeframe and its impact on returns and decisions is often not discussed enough in many threads. The recent US property crash has provided some fascinating insights into the mind of how  successful investors work over a period of many years. One articulate and mature poster (who owned both US property and small businesses) on an investment forum, explained in a post his growing concerns with the US property market over a period of years leading up to the crash– the flip the house TV shows, the discussion with friends, the newspapers and so on. If my memory serves me correct he sold all his property interests 2 years before the crash, much to his relief, though there were a few psychological issues in that 2 years! Paulson and the gang who made their money on the crash have fascinating accounts of the time leading up to the crash, there accounts are similar in nature to the small time investor – the growing sense that all is not right! There is a lot to learn from these type of accounts and they should be incorporated into a long term investing framework.

I apologise about the pig farmer link and admit it was a bit cheeky but I hope it highlights that spending hours reading annual reports may not actually be necessary to make excess returns over the long term. All that maybe required is a contrarian thought process to evaluate the current opinion and use basic value portfolio construction (this is key to minimise risk). In the grand scheme of things, at any point in history of the ASX, an equity investor purchasing a diverse portfolio of 20 dividend paying stocks from the ASX50 will probably not get in too much trouble as long they purchase the portfolio when they are cheap. Working out what is a cheap stock does not take 10,000 hours of study.

As for the random portfolio - I was thinking  just pick 20 stocks, hold for a year then sell the lot and pick another 20 stocks. Repeat. The results would be interesting to me.

Sometimes I find these threads get a bit “Tony Robbins” rather than actually giving a investors a reality check about the odds over the long term and thus helping them develop an appropriate circle of competence. As stated previously I do not intend to come across as difficult on this thread, just would like to generate some alternative options for long term investing. Each investor has a different set of personal circumstances, skills and motivations. Each investor will also be exposed to different opportunities - some many only get a one or two decent opportunities.

Julia +1. Very good point about swapping asset classes.

Best of the luck with the thread. I will sit on the naughty step for a while.

Cheers


----------



## Bill M

Lets have a look at interest securities, bonds, hybrids, floating rate notes and convertible shares. I find these don't really get talked about all that much. They form a major part of my portfolio and are mostly long term investments.

Right now a lot of people are talking about the nice run the Aussie stock market has had and interest securities don't get much of a mention. Some Super funds have even placed a warning on their website saying something like

_"We believe the potential for ongoing strong returns in this sector is unlikely over the next three to five years because the current level of bond yields is very low."_

The way I look at it is that right now I can buy something like the Westpac Capital Notes and get a 6.1% gross dividend return. There are other issues like AGL's AGKHA and that is paying around 7% gross or SVWPA which is Seven Groups preference security and is paying around 9% gross.

Now interest rates are at all time lows, what do you think will happen when rates start moving up? All those Securities pay a spread of interest on top of the 90 or 180 BBSW rate. When the RBA starts raising interest rates the BBSW rates will move upwards also. If the BBSW rates move up to say 5% which is pretty normal then that 6% becomes 8% and that 7% becomes 9% and that 9% becomes 11%. This is why I am getting into these securities now because as sure as night follows day interest rates will start going up in the future.

I posted the above to highlight a general warning that a Super fund put out. But I show that regardless of what they say some fixed interest securities you can buy now can do quite well. Is it really that bad to get 6.1% gross from an interest bearing security that has a chance of some capital gain and higher incomes in the future? Long term Investing comes in many forms.

Note: I hold AGKHA and SVWPA and I am just using them as an example. I have also put in for the Westpac Capital Notes IPO which have not yet been allocated.


----------



## craft

odds-on said:


> Hi Craft,
> 
> Best of the luck with the thread. I will sit on the naughty step for a while.





You can’t use the the naughty step – I’m already on it.

Which brings me to – Sorry Tech-A, I assumed that your post of 7:00am yesterday in this thread was talking about this thread and the contributions so far too it.

As for the pigs – That shot went straight over my head.  I just thought it was a good article you linked too. 

[Obviously I have difficulties seeing subtleties in a forum environment]

It’s not my thread  – It belongs to whoever has a long term bent in any form or fashion and wants to discuss their thoughts or experience with others also thinking about the long term.  Looking at the posters that have appeared, if it goes on as it has started it could become a very useful and fairly unique resource. Hopefully you with your persective will be an active part of it.


----------



## Julia

craft said:


> [Obviously I have difficulties seeing subtleties in a forum environment]



I do also and take the typed word far too literally at times.  It makes me realise how much facial expression, tone of voice of etc contribute to clear communication.


----------



## George Washingto

Bill M said:


> Lets have a look at interest securities, bonds, hybrids, floating rate notes and convertible shares. I find these don't really get talked about all that much. They form a major part of my portfolio and are mostly long term investments.
> 
> ...
> 
> Note: I hold AGKHA and SVWPA and I am just using them as an example. I have also put in for the Westpac Capital Notes IPO which have not yet been allocated.





I think there is an argument to be made here from someone smarter then myself, about whether or not you are being appropriately compensated for the risk you are taking on with hybrids etc. I.e a couple of percentage points at best above TD's and even online savers.


----------



## Bill M

George Washingto said:


> I think there is an argument to be made here from someone smarter then myself, about whether or not you are being appropriately compensated for the risk you are taking on with hybrids etc. I.e a couple of percentage points at best above TD's and even online savers.




Nothing is without risk except for government guaranteed deposits in bank. There are hundreds of hybrids, notes etc. out there. Some have significant risks and some are low risk, each of them are different. The one question I always ask myself before buying one of these is, is there any risk of the parent company collapsing and you not getting back any of your capital? This risk with certain companies is low compared to a spec mining company or other fully paid ordinary shares. It's all in the prospectus, if you don't feel comfortable then don't buy it, it's as simple as that. As I said before, until I have enough capital to just stick in the bank and live off the interest + keep up with inflation then it has to be risk on, be it shares, property or interest securities, cheers.


----------



## So_Cynical

Bill M said:


> Now interest rates are at all time lows, what do you think will happen when rates start moving up? All those Securities pay a spread of interest on top of the 90 or 180 BBSW rate. When the RBA starts raising interest rates the BBSW rates will move upwards also. If the BBSW rates move up to say 5% which is pretty normal then that 6% becomes 8% and that 7% becomes 9% and that 9% becomes 11%. This is why I am getting into these securities now because as sure as night follows day interest rates will start going up in the future.




Very good point Bill, thanks for highlighting this...A true Contrarian play, Interest rate linked security's in a low and falling interest rate environment.


----------



## sydboy007

So_Cynical said:


> Very good point Bill, thanks for highlighting this...A true Contrarian play, Interest rate linked security's in a low and falling interest rate environment.




To be honest I think hybrids are the best deal when rates are low as the margin as a % of the total return is higher as BBSW goes lower.  The after inflation return will be higher too.

At least most of the new issues are still coming out with a 3% to 4% margin.  Some of the hybrids released pre GFC were around 1% so those who had bought them were sitting on some hefty paper losses.

I wish their was an ETF that would invest in a range of Hybrids.  Would get good to spread the risk over multiple companies and issues.


----------



## whacky

Hi,
I would like to be a long term investor.

I am quite novice in share trading and would like to know what should the strategy, for my current situation.  I have bought a few stocks. Some have risen (+30%) in value and some have fallen (-5/10%),  I am still +10% (overall) ahead. I am going to be offloading the one of the -10% performing stock as it has been stagnant for over a year and I want to realise losses and get my capital out.  There are couple of stocks that are +45% and +50% green!  I am not sure, when should one exit the position? or sell in such circumstances (running +45% green)?

As I am looking at longer term, should I pile up on the outperforming stocks? or should I sell some of the outperforming stock?


----------



## robusta

whacky said:


> Hi,
> I would like to be a long term investor.
> 
> I am quite novice in share trading and would like to know what should the strategy, for my current situation.  I have bought a few stocks. Some have risen (+30%) in value and some have fallen (-5/10%),  I am still +10% (overall) ahead. I am going to be offloading the one of the -10% performing stock as it has been stagnant for over a year and I want to realise losses and get my capital out.  There are couple of stocks that are +45% and +50% green!  I am not sure, when should one exit the position? or sell in such circumstances (running +45% green)?
> 
> As I am looking at longer term, should I pile up on the outperforming stocks? or should I sell some of the outperforming stock?




If you are looking to become a value investor by definition you need to look at some sort of system to work out the value of a business. It does not and probably can not be too scientific but once you can work out a rough valuation then compare to the price the selling buying or hold decisions are a lot easier.

Take a look at the "Present value of future cash flows" thread a lot of good info there.


----------



## Julia

Alternatively, you could investigate the simple strategy of trend following:  
Let your winners run and cut your losses quickly.
Good luck.


----------



## Ves

Julia said:


> Alternatively, you could investigate the simple strategy of trend following:
> *Let your winners run and cut your losses quickly.*
> Good luck.



Sounds like value-investing to me! However, our view of winners and losers must be different.


----------



## odds-on

I thought I would post a link to website which I feel is a great resource for people thinking about long term investing. Save some dollars straight away by not buying a book! 

http://www.retailinvestor.org/


----------



## robusta

Thought the second post might be relevant to this thread.



sinner said:


> There was a recent Warren Buffett article out, which I thoroughly enjoyed, because it broke his returns down into a fairly easily replicable ruleset, which is common with the "academic" definition of value investing plus a few twists. Mainly:
> 
> * Value (as measured by P/B)
> * Low Beta
> * High Quality (as measured by earnings volatility, etc)
> 
> http://www.cbsnews.com/8301-505123_162-57524029/how-warren-buffett-beats-the-market/
> 
> What I would suggest to synthetically replicat this idea is to run 4 portfolios, each started at a different Q, i.e. P1 starts at Q1, P2 at Q2, P3 at Q3 and P4 at Q4. Then you rebalance each portfolio once a year to the following universe:
> 
> * Define the top 25% of value stocks
> * Of those value stocks define the top 25% with lowest beta and lowest realised volatility
> * Of those value low beta stocks define the top 25% with the highest quality
> 
> This is your portfolio for the next year. Apply leverage as desired. You can replicate the Buffett float by shorting corporate bonds if desired.
> 
> One important thing to note is there was low/no momentum factor explaining his returns, so stay away from stocks making highs if you want a "Buffett" style portfolio.
> 
> Keep in mind, the article points out that Buffetts major difference from other large funds was his reputation, so even in the face of a 44% drawdown, he did not suffer many redemptions and certainly no margin calls. I think that is *the most* important lesson. Do not invest in passive equities if you can't handle a 40-60% drawdown. You must be a "strong hand" (with a strong stomach) to successfully execute this kind of strategy. This also means your natural leverage limit is probably somewhat less than 2:1 and more like 1.5:1 at absolute max.
> 
> Here is another article that addresses the same topic, lots of pretty charts included:
> http://gestaltu.blogspot.com.au/2013/01/track-records-are-rubbish-or-why.html






sinner said:


> Recently a friend and myself were playing around with plotting operations in R.
> 
> I was having a great time plotting the monthly return histogram for various stocks, funds, ETFs, etc.
> 
> We decided to plot the monthly return profile for Berkshire Hathaway back to 1990.
> 
> I was very very surprised to see the distribution of returns, because to me it looked exactly like a traders histogram, that is "cut your losers and let your winners run" skew.
> 
> Except, obviously Buffett isn't running stoploss. I am not saying it's easy to replicate this return profile, but at the same time it goes to show you don't necessarily need to hold "winners" (in the momentum sense of the word) to end up with a return profile like this. The proof is that there is 0 explanatory power of momentum in Buffetts portfolio going over many years. It seems that buying quality, low beta assets will (over the long term) provide a natural cut your losers hold your winners type strategy.
> 
> View attachment 51286


----------



## robusta

Interesting article entitled, A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business by some young upstart called Charlie Munger. 

http://ycombinator.com/munger.html


----------



## VSntchr

Just read through the entire thread and want to thank everyone for the posts, one of the better threads I've read for a long time - a wealth of experience on show.


As for me, I'm still in the middle of finding my exact niche but I definitely fall into the category of value investor. I try and look for companies trading at big discounts to what I calculate as fair value (am still working hard on honing my skills in valuation). 
I have a few sections within my portfolio - 50% for my core/solid/sit and forget businesses that can usually only be bought in times of fear. 40% for companies with strong growth prospects - but they must still have good fundamentals and be trading at least 20% under my fair value. 10% for speculative companies - I've found that I can use this section of my portfolio to gain some additional diversification too - for example AHZ is a company that I think has great potential - but it is very speculative, so it sits in this section...and the added bonus is that it provides me with exposure to the bio-tech sector.

Long-term I expect (and hope!) that my core holdings % will grow as the stocks grow in value. The ultimate vision is that this section provides an ever increasing income stream, while the other sections of my portfolio allow me to exercise my investing skills and try achieve capital growth for further compounding/expenses.


I've probably not added much value upon what has already been posted but thought I'd share my method..


----------



## Ves

There's a guy on Wall Street (and he has been there for 80+ years) called Irving Kahn.   From what I've read about him and from those quoting him he sounds like he has a wonderfully positive and reflective attitude towards both (and importantly) life in general and value investing.  For a guy who has seen dozens of market crashes, wars, and all sorts of depressing events, his resilience and cheerful outlook has won out, to make him the most enduring value investor of all time.  Amazingly he is one of four centenarian siblings.  

I think all of us interested in the long-term investing style can learn a lot from his temperament alone.


----------



## odds-on

Thought I would post this in the long term investing thread.

http://nastrading.com/combining-an-...th-trend-following-stock-market-timing-model/

I doubt you could have a simpler long term investing strategy than switching between cash and an index tracker over the course of your investing lifetime - you just need the correct signals! From my own research into interest rate term spread signals you do get a fair warning to exit the market. Does anybody have any suggestions on a suitable Moving Average to use? 6 months sounds right…


----------



## MARKETWINNER

I consider long term investment as best investment in this planet if we can find correct businesses. Long term investment maintains sustainable investment. We can sleep peacefully and need not worry about short term events, interest rate and other short term economic and political crises etc.


----------



## robusta

Found this interesting video on Motley Fool Co-founder David Gardner and how he finds multibaggers.

http://www.youtube.com/watch?v=2nyU4L1llqE

This has challenged a few of my views, I'm often looking at the 52 week lows for opportunities, not the 52 week highs.


----------



## Ves

Just wanted to share the Giverny Capital annual letter to investors, which in fact marks their 20th anniversary of running their portfolio.

It raises some pertinent points about long-term investing and why some are successful and why many others are not as successful as they like.

Giverny Capital is a Canadian firm that (judging by their record) seems to be very successful over the last 20 years using a long-term approach.   

The letter can be found here.


----------



## KnowThePast

Ves said:


> Just wanted to share the Giverny Capital annual letter to investors, which in fact marks their 20th anniversary of running their portfolio.
> 
> It raises some pertinent points about long-term investing and why some are successful and why many others are not as successful as they like.
> 
> Giverny Capital is a Canadian firm that (judging by their record) seems to be very successful over the last 20 years using a long-term approach.
> 
> The letter can be found here.




Thanks for sharing Ves,

I only had time to read the first couple of pages, but made a not to myself to read all 20 years' worth when time allows.


----------



## McLovin

Ves said:


> Just wanted to share the Giverny Capital annual letter to investors, which in fact marks their 20th anniversary of running their portfolio.
> 
> It raises some pertinent points about long-term investing and why some are successful and why many others are not as successful as they like.
> 
> Giverny Capital is a Canadian firm that (judging by their record) seems to be very successful over the last 20 years using a long-term approach.
> 
> The letter can be found here.




Interesting. I just read it. Thanks, V.

Might not be a bad idea to start a thread a pile all these memos into them. 

Howard Marks most recent letter is a cracker as always.

http://www.oaktreecapital.com/MemoTree/Dare to Be Great II.pdf


----------



## Ves

McLovin said:


> Might not be a bad idea to start a thread a pile all these memos into them.



I was thinking the same actually.    I still haven't built a big watch list for investor letters,  but I am finally starting to get around to it.

A list of the Funds / investors and the frequency of their letters,  and maybe a quick summary of each is all that it would take for a good header post.

Any discussion on any letter could happen in that thread.


----------



## MARKETWINNER

http://www.thisismoney.co.uk/money/diyinvesting/article-3506527/MINOR-INVESTOR-art-o.html


----------



## kid hustlr

Wanted to re-hash this thread and open up discussion. Over the past 18 months I've taken a focus on longer term investing. In effect I'm still working on a short term trading strategy but as my savings grow I'm finding I have some spare cash to invest for the long term.

My strategy:

I currently have 2 strategies, 
- Firstly I've subscribed to Radgey and follow 2 of his trend following systems. I'm ok to outsource decision making at what I deem to be a cheap price in the hope of outperforming the market long term (with regards to both return and draw downs). 1 portfolio is Australian based, the other is USA based
- Secondly I have a long term ETF portfolio. This is in effect several Vangaurd index ETF's VGS, VTS, VHY etc. I don't have the time nor inclination at this point to explore long term stock picking at an investment level.

Two factors play on my mind:
1. I'm wondering how I can bring my 'retirement frontier' forward through increased returns. Perhaps the radgey stuff does well, perhaps it doesn't and if I take ETF performance at long term face value the return is acceptable without being stellar. After doing some compound interest calc's its amazing what a few % can do. *How can I get from the 5 to 10% long run performance to the 11-15% level? 
*
2. A draw down is coming. Now one could argue the Radgey stuff might only go through 20-30% max but history says the ETF's will get whacked 50% at some stage, *are there any options I can explore to reduce the level of draw down?
*
Points which cross my mind in order to answer the above questions which may generate discussion:
- Currency exposure and it's impact on the two factors above
- The impact of using some form of leverage (be it during times of heavy draw down or consistently across the portfolio)
- My current views on the investment landscape (largely irrelevant given my current strategy)
- Alternative/Other investments options to smooth the overall portfolio returns


----------



## Kryzz

kid hustlr said:


> - Alternative/Other investments options to smooth the overall portfolio returns



I've been adding some alt coins to my long term portfolio. Only a small percentage, but some result in some quite extreme/volatile movements. A good alternative asset class in a flight to safety environment


----------



## Faramir

Hi all

Can anyone discuss this document and if it is relevant to this thread? I keep seeing the name James Montier but I have no time to research him. I must read at least one of his books one day. Which would anyone recommend?

https://www.advisorperspectives.com...ck-at-james-montier-s-perfect-value-investors

The six traits mentioned:

Highly concentrated portfolios.
No need to know everything and the ability to avoid getting caught up in the noise.
A willingness to hold cash.
Long time horizons.
An acceptance of bad years.
Preparedness to close funds. 
Is 10 stocks concentrated or too diversed?
I actually know little and I very little time to keep up with 'noise'.
I do hold some cash but I need much more.
Long time horizons? I am not young any more although I feel very young. I have just passed my mid-40s. I have the feeling that it might be too late for me?
My ego cannot accept bad years!
I haven't thought about closing anything.

This article relates to management funds that I have not heard of (excluding Oakmark).

I like this sentence:
_But, unfortunately, investors cannot buy yesterday’s returns; they can only buy tomorrow’s._

This is the last sentence - any comments?
_Just like with the crap tables and the roulette wheel, the most likely way to win the game of active management is not to play._ 

I cannot contribute anymore because some numbers in the tables just go over my head. I have a feeling that this post should be in the "A Long Bet" thread. I can always copy this post over?


----------



## Triathlete

Faramir said:


> Hi all
> 
> Can anyone discuss this document and if it is relevant to this thread? I keep seeing the name James Montier but I have no time to research him. I must read at least one of his books one day. Which would anyone recommend?
> 
> https://www.advisorperspectives.com...ck-at-james-montier-s-perfect-value-investors
> 
> The six traits mentioned:
> 
> Highly concentrated portfolios.
> No need to know everything and the ability to avoid getting caught up in the noise.
> A willingness to hold cash.
> Long time horizons.
> An acceptance of bad years.
> Preparedness to close funds.
> Is 10 stocks concentrated or too diversed?
> I actually know little and I very little time to keep up with 'noise'.
> I do hold some cash but I need much more.
> Long time horizons? I am not young any more although I feel very young. I have just passed my mid-40s. I have the feeling that it might be too late for me?
> My ego cannot accept bad years!
> I haven't thought about closing anything.
> 
> This article relates to management funds that I have not heard of (excluding Oakmark).
> 
> I like this sentence:
> _But, unfortunately, investors cannot buy yesterday’s returns; they can only buy tomorrow’s._
> 
> This is the last sentence - any comments?
> _Just like with the crap tables and the roulette wheel, the most likely way to win the game of active management is not to play._
> 
> I cannot contribute anymore because some numbers in the tables just go over my head. I have a feeling that this post should be in the "A Long Bet" thread. I can always copy this post over?




It all depends but usually it is between 5 and 12 stocks.

It is closer to 5 stocks in a trading portfolio and between 8 and 12 for a longer term portfolio.

While it is true that diversification reduces risk, a portfolio of shares that is over-diversified is exposed almost exclusively to market risk, which cannot be eliminated by diversification

As a trader, if you are looking to achieve higher returns, you invariably need to take on a higher level of volatility to outperform the market.

Therefore, you need to hold a smaller number of shares around 5-8 to actively manage the specific risk.

If you do not have time to manage the specific risk then holding a portfolio of 8 to 12 shares enables you to reduce volatility without dramatically reducing returns.

You do not get twice the benefit from holding 20 stocks than you do from holding 10,and you certainly do not get 10 times the benefit from holding 100 rather than 10.

It makes sense to simply get rid of the stocks that are going sideways or down. We only want to hold stocks that are rising in price. ( if going long)

Assets that move sideways or fall in price have a negative effect on your overall ability to create wealth.

If stocks are falling in price, it increases your risk and reduces your overall returns.

Triathlete


----------



## Cam019

Triathlete said:


> It all depends but usually it is between 5 and 12 stocks.
> 
> It is closer to 5 stocks in a trading portfolio and between 8 and 12 for a longer term portfolio.



I love differing views.  I can't speak on behalf of traders, but for investors with long term horizons, theory suggests a portfolio to be diversified into anywhere between 10-25 shares in order for adequate reduction of unsystematic risk. Although, the benefits of diversification become almost redundant after the 20 share mark. Ideally, I plan to hold between 10-20 shares at anyone time.



Triathlete said:


> While it is true that diversification reduces risk, a portfolio of shares that is over-diversified is exposed almost exclusively to market risk, which cannot be eliminated by diversification



This does not make sense to me. I'm reading it as though over-diversification is a bad thing (please correct me if I am wrong). Why would it matter if a portfolio is exclusively exposed to systematic risk? All portfolios are effected by total risk (systematic + unsystematic), and apart from potentially reducing your returns by spreading your investments too thinly, the only thing 'over-diversification' would do is reduce your portfolios total risk.



Triathlete said:


> It makes sense to simply get rid of the stocks that are going sideways or down. We only want to hold stocks that are rising in price. ( if going long)



I have to disagree. In my opinion, this would be dependent on your investment style and time horizon. I would be happy to hold sideways moving or slightly down trending stocks if they were bought at the right price and trading at significant discount to IV.



Triathlete said:


> If stocks are falling in price, it increases your risk



I don't think there is a correlation between share price volatility and total risk for a long term value investor. If anything, I'm of the belief that it is actually the creator of some great opportunities in the market. Sure, for a trader, share price volatility can be dangerous as short term traders are forced to materialize losses when prices bounce around and trigger stop losses, but again, all dependent on your investment style and time horizon.

Just my .


----------



## pixel

Faramir said:


> Hi all
> 
> Can anyone discuss this document and if it is relevant to this thread? I keep seeing the name James Montier but I have no time to research him. I must read at least one of his books one day. Which would anyone recommend?
> 
> https://www.advisorperspectives.com...ck-at-james-montier-s-perfect-value-investors
> 
> The six traits mentioned:
> 
> Highly concentrated portfolios.
> No need to know everything and the ability to avoid getting caught up in the noise.
> A willingness to hold cash.
> Long time horizons.
> An acceptance of bad years.
> Preparedness to close funds.
> Is 10 stocks concentrated or too diversed?
> I actually know little and I very little time to keep up with 'noise'.
> I do hold some cash but I need much more.
> Long time horizons? I am not young any more although I feel very young. I have just passed my mid-40s. I have the feeling that it might be too late for me?
> My ego cannot accept bad years!
> I haven't thought about closing anything.
> 
> This article relates to management funds that I have not heard of (excluding Oakmark).
> 
> I like this sentence:
> _But, unfortunately, investors cannot buy yesterday’s returns; they can only buy tomorrow’s._
> 
> This is the last sentence - any comments?
> _Just like with the crap tables and the roulette wheel, the most likely way to win the game of active management is not to play._
> 
> I cannot contribute anymore because some numbers in the tables just go over my head. I have a feeling that this post should be in the "A Long Bet" thread. I can always copy this post over?



if you can, grab hold of a copy of today's Weekend West or locate Marcus Padley's column elsewhere. He pretty much covers the full breadth of your questions in "Commandments not set in stone".


----------



## Triathlete

Cam019 said:


> I have to disagree. In my opinion, this would be dependent on your investment style and time horizon. I would be happy to hold sideways moving or slightly down trending stocks if they were bought at the right price and trading at significant discount to IV.



So you have found a group of shares that you like that are trading at a significant discount to IV based on your criteria and you decide to make an investment.

Over the next 3 years nothing happens and the share goes sideways or slightly down, you would still hold just to pick up a dividend.????

While the shares may eventually come good and begin to rise in price you have lost the ability to use your money elsewhere to increase your wealth.


----------



## Triathlete

Cam019 said:


> This does not make sense to me. I'm reading it as though over-diversification is a bad thing (please correct me if I am wrong). Why would it matter if a portfolio is exclusively exposed to systematic risk? All portfolios are effected by total risk (systematic + unsystematic), *and apart from potentially reducing your returns by spreading your investments too thinly, the only thing 'over-diversification' would do is reduce your portfolios total risk.*



Each person has there own way of investing that they feel comfortable with....Now you may wish to do your own research, but let us take a person who has 21 stocks in their portfolio or use one of the listed funds.
If you look through the portfolio ( medium to long term) you will find on average that  7 will be going up, 7 will be going sideways and 7 will be going down. In a fund 33% up,33% sideways and 33% down.

So by being over diversified you have 14 stocks at present doing nothing for you except maybe a dividend.

Most have this many shares because they do not have the confidence in there ability or think they have  less chance of losing there money overall (a little bit in each basket).

Another investor may have his money in the 7 that are already moving in the right direction and he has the other 14 on his watch list ready for investment when the stocks eventually show signs of moving in the right direction and not just going sideways. I would think trying to stay on top of this many share would take a lot of work.......

It does not matter if you miss out on the first 10% of a move as long as you pick up the next 80%

I try to keep to the rules below as best as possible.
*Rule 1:*
Irrespective of the amount of money you have invest, you should take the same amount of time researching your options to ensure you are protecting your capital on each and every occasion.

*Rule 2:*
You should always aim to have between 5 and 12 stocks in your portfolio, although for traders it should be closer to 5.The trick is not to have lots of stocks with small amounts invested in each. Instead, you only require a small number of the right stocks with larger amounts invested in each. This actually lessens your risk and increases your returns because:

*** Smaller portfolios are easier to manage and represent lower risk. The more stocks you have in your portfolio the more work you have to do to manage your risk level.

*** It is far easier to select a smaller number of stocks that are rising in price. Therefore, the result is increased returns.

** *You will have less transaction costs in buying  and selling stocks simply because a smaller portfolio will have fewer transactions.

*Rule 3:*
When you purchase stocks never invest more than 20% of your capital in any one stock. If you invest in the share market you need to accept that some stocks will fall in value, However this rule will help reduce your exposure to risk, while allowing you to achieve good returns simply because you are minimising the amount of capital you could lose at any one time.

http://www.investopedia.com/ask/answers/09/systemic-systematic-risk.asp?lgl=rira-baseline-vertical


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## craft

Faramir said:


> Hi all
> 
> Can anyone discuss this document and if it is relevant to this thread? I keep seeing the name James Montier but I have no time to research him. I must read at least one of his books one day. Which would anyone recommend?
> 
> https://www.advisorperspectives.com...ck-at-james-montier-s-perfect-value-investors
> 
> The six traits mentioned:
> 
> Highly concentrated portfolios.
> No need to know everything and the ability to avoid getting caught up in the noise.
> A willingness to hold cash.
> Long time horizons.
> An acceptance of bad years.
> Preparedness to close funds.
> Is 10 stocks concentrated or too diversed?
> I actually know little and I very little time to keep up with 'noise'.
> I do hold some cash but I need much more.
> Long time horizons? I am not young any more although I feel very young. I have just passed my mid-40s. I have the feeling that it might be too late for me?
> My ego cannot accept bad years!
> I haven't thought about closing anything.
> 
> This article relates to management funds that I have not heard of (excluding Oakmark).
> 
> I like this sentence:
> _But, unfortunately, investors cannot buy yesterday’s returns; they can only buy tomorrow’s._
> 
> This is the last sentence - any comments?
> _Just like with the crap tables and the roulette wheel, the most likely way to win the game of active management is not to play._
> 
> I cannot contribute anymore because some numbers in the tables just go over my head. I have a feeling that this post should be in the "A Long Bet" thread. I can always copy this post over?



Hi Faramir


Your article is written by Larry Swedroe – a clear advocate for passive investing. It's interesting to read back to the original sources he quotes to qualify his interpretations. I found them at:


The James Montier piece he refers to.
http://www.mauldineconomics.com/outsidethebox/the-perfect-value-investor-427#

The original Loius Lowenstein article referred to.
https://poseidon01.ssrn.com/deliver...1010096096122027015018124003119116123&EXT=pdf

I’m not sure James Montier falls comfortably into a role cast in Swoedroe’s article. I’ve found Montier thoughts much more sophisticated and nuanced than that.  I like Montier’s writing, thought provoking – A lot of his stuff focuses on a behavioural investing aspect. I have read his book “value investing” and thought it was a good summary.


His latest stuff can be read GMO
https://www.gmo.com/


Thanks for sharing the article, it turned up a couple of interesting source papers.

Posting here or “A Long Bet” doesn’t matter, there’s obviously lots of overlap, with passive and active value investing both requiring long-term approaches by their very nature.


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## Faramir

Hi Craft
Thank you for Louis Lowestein article. When I get a chance, I will read the latest article by James Montier. I am a very slow reader plus my poor time management makes time go against me.

On page 9, when investors were telling Eveillard from Mutual Beacon that value investing was dead, he responded: 
“I would rather lose half my shareholders than lose half my shareholders’ money."

Would any fund manager say this nowadays?

This article which was written in 2004, reminded me of many things about myself back from the late 1990's and early 2000's. How I struggled with unemployment and casual work whilst blowing my money on an IT course just before the DOT com crash. Being unable to find an entry IT job. Being manipulated by my franchiser to start a business that I was unsuited for but somehow I made it sort of work into a viable part-time job. (This is a very long story that I don't want to talk about.)

Investing was the furthest thing from my mind. Just being able to pay rent, buy food. Then moving back with my parents so that I could help them. That's why I work part-time instead of full time for all these years.

There's another thread called Wealth Plan but that would be unsuited for me as I am approaching my late 40's and have the slowest saving rate and the slowest reading rate as well. There are some things in my life that are both good and sometimes just an inconvenience. I can only tell younger people what not to do (or think).

At least I am healthy. I guess that goal is my biggest priority. Sounds strange but I would rather go to Swimfit or training before I would pick up a book to read. Off to Wealth Plan thread.


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## Value Collector

Hi Guys,

I was just rereading warren buffets 2013 annual letter, and came across this essay he wrote towards the end, I think it is a great take on long term investing.



> Some Thoughts About Investing
> 
> Investment is most intelligent when it is most businesslike. — The Intelligent Investor by Benjamin Graham
> 
> It is fitting to have a Ben Graham quote open this discussion because I owe so much of what I know about investing to him. I will talk more about Ben a bit later, and I will even sooner talk about common stocks. But let me first tell you about two small non-stock investments that I made long ago. Though neither changed my net worth by much, they are instructive.
> 
> This tale begins in Nebraska. From 1973 to 1981, the Midwest experienced an explosion in farm prices, caused by a widespread belief that runaway inflation was coming and fueled by the lending policies of small rural banks. Then the bubble burst, bringing price declines of 50% or more that devastated both leveraged farmers and their lenders. Five times as many Iowa and Nebraska banks failed in that bubble’s aftermath than in our recent Great Recession.
> 
> In 1986, I purchased a 400-acre farm, located 50 miles north of Omaha, from the FDIC. It cost me $280,000, considerably less than what a failed bank had lent against the farm a few years earlier. I knew nothing about operating a farm. But I have a son who loves farming and I learned from him both how many bushels of corn and soybeans the farm would produce and what the operating expenses would be. From these estimates, I calculated the normalized return from the farm to then be about 10%. I also thought it was likely that productivity would improve over time and that crop prices would move higher as well. Both expectations proved out.
> 
> I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside. There would, of course, be the occasional bad crop and prices would sometimes disappoint. But so what? There would be some unusually good years as well, and I would never be under any pressure to sell the property. Now, 28 years later, the farm has tripled its earnings and is worth five times or more what I paid. I still know nothing about farming and recently made just my second visit to the farm.
> 
> 17
> 
> In 1993, I made another small investment. Larry Silverstein, Salomon’s landlord when I was the company’s CEO, told me about a New York retail property adjacent to NYU that the Resolution Trust Corp. was selling. Again, a bubble had popped – this one involving commercial real estate – and the RTC had been created to dispose of the assets of failed savings institutions whose optimistic lending practices had fueled the folly.
> 
> Here, too, the analysis was simple. As had been the case with the farm, the unleveraged current yield from the property was about 10%. But the property had been undermanaged by the RTC, and its income would increase when several vacant stores were leased. Even more important, the largest tenant – who occupied around 20% of the project’s space – was paying rent of about $5 per foot, whereas other tenants averaged $70. The expiration of this bargain lease in nine years was certain to provide a major boost to earnings. The property’s location was also superb: NYU wasn’t going anywhere.
> 
> I joined a small group, including Larry and my friend Fred Rose, that purchased the parcel. Fred was an experienced, high-grade real estate investor who, with his family, would manage the property. And manage it they did. As old leases expired, earnings tripled. Annual distributions now exceed 35% of our original equity investment. Moreover, our original mortgage was refinanced in 1996 and again in 1999, moves that allowed several special distributions totaling more than 150% of what we had invested. I’ve yet to view the property.
> 
> Income from both the farm and the NYU real estate will probably increase in the decades to come. Though the gains won’t be dramatic, the two investments will be solid and satisfactory holdings for my lifetime and, subsequently, for my children and grandchildren.
> 
> I tell these tales to illustrate certain fundamentals of investing:
> 
> 
> Š  You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”
> 
> 
> Š  Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
> 
> 
> Š  If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.
> 
> 
> Š  With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.
> 
> 
> Š  Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)
> 
> 18
> 
> Š My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following – 1987 and 1994 – was of no importance to me in making those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.
> 
> There is one major difference between my two small investments and an investment in stocks. Stocks provide you minute-to-minute valuations for your holdings whereas I have yet to see a quotation for either my farm or the New York real estate.
> 
> It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings – and for some investors, it is. After all, if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his – and those prices varied widely over short periods of time depending on his mental state – how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming.
> 
> Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet, important to consider acting upon their comments.
> 
> Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of “Don’t just sit there, do something.” For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.
> 
> A “flash crash” or some other extreme market fluctuation can’t hurt an investor any more than an erratic and mouthy neighbor can hurt my farm investment. Indeed, tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values. A climate of fear is your friend when investing; a euphoric world is your enemy.
> 
> During the extraordinary financial panic that occurred late in 2008, I never gave a thought to selling my farm or New York real estate, even though a severe recession was clearly brewing. And, if I had owned 100% of a solid business with good long-term prospects, it would have been foolish for me to even consider dumping it. So why would I have sold my stocks that were small participations in wonderful businesses? True, any one of them might eventually disappoint, but as a group they were certain to do well. Could anyone really believe the earth was going to swallow up the incredible productive assets and unlimited human ingenuity existing in America?


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## luutzu

Value Collector said:


> Hi Guys,
> 
> I was just rereading warren buffets 2013 annual letter, and came across this essay he wrote towards the end, I think it is a great take on long term investing.




Good logic. Thanks Warren. 

I used the same approach and reasoning, didn't bid for a dump of a house in Western Sydney at (a bargain) $600K 4 years ago. Would have gained at least 300% on the deposit and expenses man. 

Yea yea, it's paper profit, but I would feel pretty smart and do a lot of stupid stuff until the music stop.

So you suck big time Buffett


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## basilio

Perhaps another option for investors?
*The world's rarest single malt whisky just sold for $1.5 million dollars *
Less than 24 hours after a 60-year-old Macallan sold for 848,800 pounds (AUD$1.57 million) early October at Bonhams in Edinburgh, auction-house rival Christie's unveiled a single malt from the same vintage which could crack the $2 million mark in November.

Meanwhile, Sotheby's is putting its own bottle from that cask, filled in 1926, on the block in New York on Oct. 12 with a high estimate of $1.7 million.
http://www.executivestyle.com.au/th...hisky-just-sold-for-15-million-dollars-h16c6c


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